When did Australia first have its own automotive industry?
Australia witnessed the rise of the automobile industry for the first time in the late 2oth century when international manufacturers started opening plants in this country. Ford Australia was popular as the first major carmaker and Holden became the first Australian-designed mass production car in 1948.
Today, the Australian automotive industry not only comprises vehicle manufacturers but also retailers, auto part sellers/buyers, wholesalers and even mechanics who can perform various car services. The country is best known for producing and designing large passenger vehicles. However, the production rate suffered a blow in 2009 when 175,000 was the total production rate from 400,000 back in 2004.
But what are the reasons?
We’ll come to that in this blog but first, let us understand a few vital details.
A Glimpse at the Automotive Industry of Australia
A study published by IBISWorld on the Automotive Industry in Australia shows that the industry is expecting annual growth of 2.2% from 2021 to 2026. As a consequence, the annual growth of employment is also set to increase by 0.6% in the same year range.
The Australian automotive industry follows a specific products and services categorization in which, 61.2% comprises imported motor vehicles, 15.3% auto repair and maintenance services, 13.8% parts and accessories and 9.7% locally manufactured vehicles, accessories and their parts. (Source: IBISWorld)
Are there any key players in the Australian automotive industry?
Yes! The Australian automotive giants include Toyota Motor Corporation (6.1%), Eagers Automotive (4.4%), Mazda Australia (2%), Mitsubishi Motors Australia (1.8%) and others (85.7%).
Several Small Industries Constitute the Automotive Industry
The automotive industry of Australia is a wide-ranging term that includes the diverse facets of the vehicle supply chain covering manufacturing, retailing, wholesaling, repair and maintenance. Over time, the performance of these industries has undergone several changes. Before the pandemic, the increasing demand for fuel-efficient, and smaller vehicles and SUVs formed a great source of support for vehicle dealers and wholesalers while the increasing number of registered vehicles on the roads placed the service agents in an advantageous position.
Two reasons were responsible that ceased the production of passenger vehicles over the last five years.
- Changing consumer preferences
- Reduced import tariffs caused the manufacturers to walk out from the industry between 2017 to 18.
After Ford, GM Holden and Toyota also ceased their manufacturing firms in Australia. And now, the Motor Vehicle Manufacturing industry is well-known for its large production of trucks, buses and engines.
The Australian automotive industry is slated to recover from the impacts of COVID-19, rendering support to retailers and wholesalers. Manufacturing in the automotive industry is expected to experience a change over the next couple of years. Truck manufacturers, like PACCAR Australia and Volvo Group Australia, the producers of Kenworth and Mack trucks, respectively, are prepared to become the largest vehicle manufacturers in Australia. In fact, the revenue of the industry is likely to increase at a rate of 2.2% annually over the next few years and become an industry worth $155 billion.
1. Skill Requirement
The automotive industry is experiencing an evolution in terms of technology and there’s no denying that. Hence, mechanics and auto professionals need to keep themselves abreast with the latest technical skills. As per the research report of Automotive IRC’s 2019 Skills Forecast, the following are the most in-demand skillsets:
- Electrical and mechanical repair
- Fault identification
- Semi-automatic driving technologies like autonomous emergency braking, park assistance and lane departure warning among others
2. Growth of Import
Local manufacturers provide vehicles to dealers straightaway and before reselling to other dealers, the imported vehicles are passed around among local wholesalers. These local wholesalers are usually Australian associations belonging to international brands, like Hyundai and Mazda.
The revenue for wholesaling is expected to grow in the next five years since the demand for imported vehicles is projected to neutralize the loss of locally manufactured alternatives. However, the industry exports are projected to decline due to the end of the manufacturing process of domestic passenger vehicles. That’s not all! Due to this reason, the industry revenue growth is anticipated to be constrained over the upcoming five years.
Even the retailing sector of the automotive industry is expected to grow. The two main reasons that will boost sales is determined to be an approximate increase in discretionary income over the next five years and an expected recovery in consumer sentiment.
As major local manufacturing companies have taken an exit, this will likely incite support for abolishing tariffs for importing motor vehicles in the next five years. As a result, imported vehicles will become more affordable, increasing revenue for not only wholesalers but dealers too since cost savings is an essential feature of the supply chain.
3. Participation and Profit
It’s already known the Volvo, Iveco and PACCAR, the notable truck manufacturers, are the key players in the automotive industry. Since the demand for trucks depends on businesses, the industry performance is set to acquire maximum support when there’s an increase in domestic freight transactions.
Also, the overall industry employment is expected to increase steadily over the next five years. The reason is simple; if wholesalers and motor vehicle dealers want to employ more staff to compensate for the rising sales volume and improved customer service, won’t there be an urgency of employment?
On one side, the employment rate in the automotive manufacturing industries is projected to decline to some extent. But that’s not the end of the tunnel; the highly skilled engineering and design employees have a greater chance of being retained in work on international vehicle platforms.
In the next five years, the total wages are expected to increase and businesses offering vehicle servicing from dealers directly, are likely to reward employees having commission-based sales roles with a higher pay package.
The number of enterprises is also slated to slightly increase because of the growth of automotive retail, wholesale and service industries. This is simply because of the increasing demand for new cars. As for the industry profit margin, it is expected to remain consistent over the course of time. Irrespective of the severe price competition among dealers and wholesalers, an expected appreciation in the Australian economy will bring down purchase costs, thereby supporting industry profit.
4. Repair and Maintenance
Did you know? As per the reports of the IBISWorld on the Australian Automotive Industry over the next five years, the demand for auto repair and maintenance services is expected to slightly increase. If the economic conditions are favourable and vehicle sales are high, demand for repair and maintenance services is also bound to increase since newer vehicles require servicing more frequently.
But you’ll be surprised to know that even when the economic condition is adverse, there can be an increase in demand as consumers may not plan to purchase new vehicles but choose to spend more on repairing and maintaining their existing vehicles.
Auto part sellers, wholesalers and retailers are embracing a new relationship with car sales. Nevertheless, auto repair and maintenance businesses are predicted to be incorporated in the international market and will probably be affected by growth in online retailing as several types of car parts can be purchased online instead of visiting brick-and-motor auto shops. One such instance is Swezo, Australia’s top-ranking online automotive platform that connects auto part sellers, buyers and you can even search for car mechanics near you!
The Various Types of Products and Services Provided by the Automotive Industry
1. Imported motor vehicles
It is that segment of the automotive industry that comprises imported motor vehicles from both dealers and wholesalers. Auto companies such as Ford, Mazda, Toyota and Nissan are regarded as pure wholesalers as they import all of their motor vehicles.
As only a very limited number of vehicles are manufactured locally, local manufacturers prefer to import a majority of their vehicles. There is reported to be an increase in the sales of imported motor vehicles because domestic manufacturing facilities have been shut down by local passenger vehicle manufacturers.
But the COVID-19 pandemic has played a spoilsport! The health crisis has hampered business confidence and subjected consumer sentiment to volatility. Thus, purchasing a new vehicle is likely to be postponed while consumers are more interested in paying for second-hand vehicles. After assessing this situation, the demand for imported vehicles is also expected to decrease.
2. Locally manufactured vehicles, auto parts and other things
Firms manufacturing motor vehicles and auto parts like automotive wiring, electrical parts and heaters, constitute this segment of the industry. It also includes trailers; there are firms that sell their products to wholesalers and after that, they’re redistributed to retailers. However, as a result of the decline of the Motor Vehicle Manufacturing industry, this division of the automotive industry has fallen to a great extent.
3. The higher the vehicle sales purchase, the higher is the annual revenue
Whether vehicle sales will be high or low, it depends on a wide array of factors that includes:
- Rate of interest
- Discretionary income
The vehicle prices have decreased due to a growth in lower cost imports that has influenced the decline in the sales of new vehicles as automobiles have become more affordable. But the sales of commercial vehicles, like trucks, are adversely impacted by economic activity, the extent of Australia’s domestic freight operations and the merchandise trade. The demand for auto parts and maintenance is directly dependent on the new car sales, consumer income and the number of registered motor vehicles.
A change in the demand can also be owed to the transforming consumer preferences and a high operating cost for vehicles. Consumers are preferring fuel-efficient, smaller cars over the last few years because of the rapidly growing awareness of the environment. Well, it’s an obvious fact that smaller cars are more affordable than the larger ones, the automotive industry generates a lower revenue initially but can potentially lead to higher revenue as lower prices promote vehicle sales.
The increasing sales of utility and light commercial vehicles have balanced the impact of the change towards smaller vehicles on the overall revenue since the last five years. Consumers are now looking for utility vehicles because the latest models are more versatile and come with increased comfort. Consequently, the demand for such vehicles, for example, Ford Ranger and Toyota Hilux have surged over the past five years.
What are the crucial success factors in this industry?
While IBISWorld stipulates 250 crucial factors for an automotive business, the most significant ones are:
- Capability to adopt the latest technology: In order to meet the ever-changing consumer preferences, the operators in the automotive industries should be able to adapt to the latest technology.
- Economies of scale: A crucial element for success in the automotive industry is large-scale production. This is particularly truer for auto part manufacturers as it reduces prices for industry operators as well as per-unit costs.
- Extensive debt and financial management: If you seek to maintain consistent profitability, having effective financial management procedures is necessary.
- Globalization and its extent in the businesses: Automotive industrial specialists mostly benefit from advertising and producing automotive products that are competitive internationally, especially since the Australian market is smaller in size compared to the markets in other countries.
- Connecting with suppliers: To become a key industry player, you should be having a highly functional supply chain. Minimizing distribution disruptions and retaining dealer contracts are possible when there are strong upstream and downstream relationships.
The Australian automotive market finally started embracing growth from July 2021 after remaining flat in the previous month and claims to have sold 84,161 units (+16.1%), resulting in Year to Date sales at 651,629 units, which is a 47.3% growth in sales in comparison to 2020. (Source: Focus2move). The global COVID-19 pandemic may have impacted the Australian automotive industry revenue. However, the industry revenue is expected to recover in 2021-22 and support wholesalers and dealers. From this discussion, we can clearly conclude that with the growth in new car sales, there’s an increasing demand for automotive retail, wholesale and services simultaneously. Moreover, the exit of local automobile manufacturers has ultimately benefitted motor vehicle wholesaling. What we can do is, sit, wait and watch as the Australian automotive industry grows up to be an industry not worth a few thousand dollars but $155.0 billion in the next five years!