Automotive Industry in Australia Industry Report IBIS

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

7 Industry Outlook

10 Industry Life Cycle

12 Products & Markets12 Supply Chains

12 Products & Services

13 Demand Determinants

14 Major Markets

15 International Trade

17 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

21 Barriers to Entry

22 Industry Globalisation

23 Major Companies23 Toyota Motor Corporation Australia

Limited

24 GM Holden Ltd

25 Ford Motor Company of Australia Limited

27 Operating Conditions27 Capital Intensity

28 Technology & Systems

28 Revenue Volatility

29 Regulation & Policy

29 Industry Assistance

30 Key Statistics30 Industry Data

30 Annual Change

30 KeyRatios

31 Jargon & Glossary

IBISWorld Industry Report X0014Automotive Industry in AustraliaApril 2015 David Whytcross

Idling: Wholesaler activity to offset manufacturer exits, keeping industry revenue stable

www.ibisworld.com.au | (03) 9655 3881 | [email protected]

WWW.IBISWORLD.COM.AU Automotive Industry in Australia April 2015 2

The industry includes car manufacturers, parts suppliers, car dealers and mechanics. These companies are generally engaged in the design, research, development, manufacture, sale and maintenance of motor vehicles and parts.

Motor vehicles refer to cars, utes, station wagons, SUVs and people movers sold to the public, businesses or the government. The report does not cover vans, motorcycles, buses or heavy commercial vehicles such as trucks.

The primary activities of this industry are

Designing motor vehicles

Motor vehicle research and development

Manufacturing motor vehicles

Selling motor vehicles

Maintaining and repairing motor vehicles

Industry Definition

Main Activities

Similar Industries

Additional Resources

The major products and services in this industry are

Imported motor vehicles

Locally manufactured motor vehicles

Parts and accessories

Repair and maintenance

About this Industry

C2311 Motor Vehicle Manufacturing in AustraliaBusinesses in this industry design, develop and produce motor vehicles.

C2319 Motor Vehicle Parts and Accessories Manufacturing in AustraliaCompanies in this industry manufacture automotive parts such as mufflers.

F3504 Motor Vehicle New Parts Wholesaling in AustraliaFirms in this industry sell parts to downstream industries such as auto mechanics.

G3911 Motor Vehicle Dealers in AustraliaBusinesses in this industry sell new and used cars.

S9419 Motor Vehicle Engine and Parts Repair and Maintenance in AustraliaCompanies in this industry repair and maintain cars.

For additional information on this industry

www.amif.com.au Australian Motor Industry Federation

www.industry.gov.au Department of Industry and Science

www.fcai.com.au Federal Chamber of Automotive Industries

www.fapm.com.au Federation of Automotive Products Manufacturers


Market ShareToyota Motor Corporation Australia Limited 5.4%

GM Holden Ltd 2.4%

Ford Motor Company of Australia Limited 1.7%

Key External DriversConsumer sentiment indexTrade-weighted indexReal household disposable incomeWorld price of crude oilMotor vehicle tariffMotor vehicle price index

Key Statistics Snapshot

Industry at a GlanceAutomotive Industry in 2014-15

Revenue

$162.0bnProfit

$6.0bnExports

$3.1bnBusinesses

50,181

Annual Growth 15-20

-0.2%Annual Growth 10-15

0.3%

Industry Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance High

Concentration Level Low

Regulation Level Heavy

Technology Change High

Barriers to Entry Medium

Industry Globalisation High

Competition Level High

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 30

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Revenue vs. employment growth

Enterprises

29.7%NSW

1.9%TAS

26.2%VIC

1.0%NT

0.9%ACT

22.2%QLD

10.8%WA

7.3%SA


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Key External Drivers Consumer sentiment indexHigher consumer sentiment leads to greater confidence in the purchase of high-value items such as cars. As consumer sentiment increases, consumers spend on more expensive vehicles, driving industry sales growth and boosting profit margins. Consumer sentiment is expected to fall in 2014-15.

Trade-weighted indexFluctuations in the exchange rate create volatility in the Automotive industry. While an appreciation of the Australian dollar is positive for importers and consumers as it decreases the price of

imported motor vehicles, it also makes Australian-made vehicles and parts less price-competitive on the global market. With the industry becoming import-focused, an expected trade-weighted index decline in 2014-15 is likely to weaken demand over the next five years, as consumers will have to pay higher prices for imported vehicles.

Real household disposable incomeConsumers’ disposable income determines the available funds they have to spend on new motor vehicles, and the repair and maintenance of vehicles. Consumers with lower disposable incomes are less likely to

Executive Summary

The Automotive industry encompasses a range of smaller industries that have performed variably over the five years through 2014-15. New car sales spiked in 2009-10, as the pent-up demand stemming from delayed purchases during the global financial crisis was released. Although falling since then, the continued strength of new car sales has led to growth for motor vehicle wholesalers and service agents, as they have been servicing an increasing number of vehicles on the road. However, local motor vehicle manufacturers have struggled, as consumers have looked to more affordable, fuel-efficient imported vehicles rather than petrol-guzzling locally manufactured cars. Due to these contrasting effects, industry revenue is expected to rise by an annualised 0.3% over the five years through 2014-15, to reach $162.0 billion.

Driven by soaring fuel prices over much of the period, consumers have increasingly purchased smaller imported cars and compact SUVs. This shift, together with a high Australian dollar and a reduction in import tariffs, has boosted import penetration. Car wholesalers, and to a lesser extent dealerships, have thus achieved some growth over the past five years, to the ultimate detriment of local manufacturers. Falling sales of locally

manufactured vehicles have led to lower production volumes, reducing economies of scale. These factors have culminated in Toyota, GM Holden and Ford each announcing their intention to exit Australian manufacturing over the next five years. These announcements and a slowdown in new car sales as the Australian dollar depreciates are projected to result in a 1.3% industry revenue decline in 2014-15.

The end of local motor vehicle manufacturing will transform the industry over the next five years. As consumers will no longer be able to purchase locally manufactured vehicles, motor vehicle wholesalers that import vehicles will benefit and are expected to grow strongly. Parts manufacturers are projected to decline in number as they will be unable to replace revenue from transactions with local motor vehicle manufacturers. This trend will also extend to parts wholesalers that distributed products to local motor vehicle manufacturers. The exit of motor vehicle manufacturers is likely to be partly offset by improved vehicle affordability leading to moderate growth in new car sales. Overall, industry revenue is forecast to decline at an annualised 0.2% over the five years through 2019-20, to total $160.6 billion.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage


Industry Performance

Current Performance

The Automotive industry encompasses each level of the passenger vehicle supply chain, from manufacturing through to wholesaling and retailing. The industry also takes into account repair and maintenance operators. Local manufacturers have struggled over the past five years due to the high Australian dollar for much of the period, lowered import protections and consumers’

shifting demand towards smaller imported cars. This has not been detrimental to all segments of the industry though, as sales growth for imported vehicles has enabled wholesalers and some dealers to offset much of the manufacturing decline. Over the five years through 2014-15, overall industry revenue is forecast to reach $162.0 billion, following annualised

Key External Driverscontinued

purchase new vehicles, particularly more expensive vehicles, and are likely to postpone servicing vehicles they already own. Disposable income is expected to rise in 2014-15.

World price of crude oilPetrol prices affect every part of the supply chain, as fuel accounts for a large proportion of a vehicle’s running costs. Petrol prices have skyrocketed over the past five years, decreasing vehicle use. Dramatic changes in the price of fuel affect the driving habits of households and the type of vehicle driven. In 2014-15, the world price of crude oil is expected to fall significantly as global production exceeds demand.

Motor vehicle tariffTaxes on imports increase the price of imported motor vehicles, which makes

domestic products more competitive on the market. The Federal Government reduced tariffs on vehicles and parts to 5.0% in January 2010. Tariffs are scheduled to remain stable in 2014-15, although the announced exits of major motor vehicle manufacturers could result in further tariff reductions. This would present an opportunity for the industry, as lower prices for imported vehicles can prompt an uptick in demand.

Motor vehicle price indexThe price of motor vehicles directly affects demand. Lower prices increase vehicle affordability, which makes consumers more likely to purchase new vehicles. The price of vehicles has been falling over the past five years, but is expected to increase in 2014-15, which poses a threat to industry revenue as demand for vehicles typically weakens in response to reduced affordability.

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Current Performancecontinued

growth of 0.3%. The industry’s steady growth comes after a significant decline at the onset of the global financial crisis.

Sluggish car sales in 2014-15 as the Australian dollar falls are expected to result in a 1.3% revenue drop for the year.

Participation and profit

All entities within each automotive-related industry contribute towards overall industry revenue. While this can result in double-counting due to the high value of purchases by dealers from other motor vehicle manufacturing and wholesaling entities, it reflects the sum of every single establishment’s revenue. The number of establishments has fallen slightly over the past five years as many parts manufacturers have been forced to close, while wholesalers have often consolidated their operations into a single location. However, growth in demand for repair and maintenance services, along with sustained high demand for new cars, has resulted in a slight uptick in industry employment.

Over the past five years,

manufacturers have had to cut highly paid engineering workers and have been unable to provide more working hours to production line employees. However, this has been offset by dealership sales staff earning higher commissions, which has helped to stabilise the average industry wage. Profit margins have expanded over the past five years, although they have varied significantly within different industries. Reduced economies of scale have hurt motor vehicle manufacturers and parts manufacturers. However, strong growth in demand for new vehicles from wholesalers and dealers and a high Australian dollar that reduced the price of imported vehicles and parts has driven overall industry profit margin growth.

Breaking down New car sales have fallen slightly over the past five years, but this has largely been due to a significant spike in the 2009-10 base year, when the industry benefited from pent-up demand for vehicles following the global financial crisis. Overall, largely positive consumer sentiment and business confidence have resulted in new car sales remaining relatively strong. However, the strength of new car sales has not extended to locally manufactured vehicles. Local motor vehicle manufacturers Toyota, GM Holden and Ford have all struggled over the period. Consumers have increasingly opted to purchase imported fuel-efficient vehicles, which have additional cost benefits with the high Australian dollar for much of the period and the reduction in the motor vehicle tariff in 2010. Despite heavy government subsidisation, these conditions have caused large drops in revenue and profitability for the manufacturing operations of the major players. Consequently, Toyota, GM

Holden and Ford have all announced their intention to exit manufacturing operations over the next five years, becoming strictly importers.

The struggles of motor vehicle manufacturers have been transferred upstream in the supply chain. While retailers have turned to vehicles sold by wholesalers, upstream parts manufacturers have traditionally relied on local motor vehicle manufacturers for supply contracts. Weakened demand for locally manufactured vehicles has resulted in dampened demand for motor vehicle parts and accessories manufactured in Australia. The lack of demand flowing upstream has resulted in low production volumes for parts manufacturers, and the reduced economies of scale has increased per-unit costs. With a severe disadvantage in economies of scale compared with parts and accessories importers, many local manufacturers of these goods have gone into administration over the past five years.



Industry Outlook

The Automotive industry largely depends on new car sales to generate revenue. The exit of Toyota, GM Holden and Ford from local manufacturing operations will have a strong effect on automotive manufacturing industries. Passenger motor vehicle manufacturing in Australia will cease to exist as these companies become pure importers. Local parts

manufacturers will subsequently find it difficult to achieve viable economies of scale as they lose their main source of demand. Downstream in the supply chain, wholesaling and retailing are projected to improve as the level of imports increases, partly making up for the production lost from the industry’s major players. With wholesaling revenue

Import growth The severe decline in manufacturing over the past five years has largely been due to increasing import penetration. Consumers have been shifting their demand toward fuel-efficient small cars due to high petrol prices for much of the period. These vehicles come into the market at lower price points than the large cars traditionally produced by Australian manufacturers, reducing the price paid per vehicle sold. Revenue increases due to strong demand growth have outstripped the revenue losses caused by selling cheaper vehicles, particularly for importing wholesalers. Strong import growth is evident in the strong sales performance of imported small cars such as the Mazda3, which in 2011 ended the 15-year reign of the Holden Commodore as the top-selling new car in Australia. The Mazda3 and other small cars, like the Toyota Corolla, have continued to perform strongly in terms of sales.

Growth in demand for imported vehicles has been strengthened by a high Australian dollar for most of the past five

years and a reduction in motor vehicle import tariffs. The high Australian dollar made imported vehicles comparatively cheaper in the domestic market, as did the tariff reduction on imported vehicles from 10.0% to 5.0% in January 2010. In addition, overseas manufacturers tend to have significantly lower wage costs in countries such as Thailand, and greater economies of scale in countries such as Japan and Germany. While the low price of imports has been to the ultimate detriment of local automotive manufacturing industries, it has made imports highly attractive to consumers. Wholesalers and dealers have been the primary beneficiaries of this growth in demand.


Demand for repair and maintenance industries has grown steadily over the past five years. While strong new car sales have meant that demand for expensive repair work performed by mechanics and auto electricians has softened, these service agents have typically increased their business activity as consumers have been buying their new vehicles with included service and paying

for vehicle add-ons. This has also meant that consumers have been more likely to purchase vehicle accessories, benefiting parts wholesalers and parts retailers. Furthermore, despite the increased safety features and reliability afforded by new vehicles, demand for smash repairers has remained fairly stable as a higher number of vehicles on the road typically leads to a greater volume of vehicle accidents.

Import penetration has increased as local motor vehicle manufacturing has declined



Industry Outlookcontinued

derived from imported products offsetting much of the manufacturing decline, industry revenue is projected to

fall by a compound annual 0.2% over the five years through 2019-20, to be worth $160.6 billion.

Industry participation The Automotive industry will be heavily disrupted in the period around the manufacturing exits of Toyota, GM Holden and Ford over the next five years. Ford has announced that it will conclude manufacturing in October 2016, while Toyota and GM Holden will cease production during 2017. With their exits expected to render many parts manufacturers unviable, industry employment losses will be heavy during 2016-17 and 2017-18.

The average wage is expected to fall marginally. The number of highly paid research and development jobs within manufacturing industries is expected to contract significantly, which will push down the average wage. However, this is expected to be counteracted by major players cutting down the numbers of production line workers already working a low number of hours due to a lack of

downstream demand. Establishment numbers are expected to continue falling, although the decline is expected to be tempered by growth in the automotive wholesale, retail and service industries as demand for new cars continues to rise.

Industry exits Motor vehicle manufacturing in Australia has increasingly become a loss-making business, propped up by heavy government subsidisation. Cheaper imports have flooded the market as a result of the high Australian dollar and lower wage costs and larger economies of scale overseas. Foreign manufacturers have also been more successful in producing vehicles that appeal to the shifting preferences among Australian consumers for smaller, more fuel-efficient vehicles. Local manufacturers’ lack of competitiveness has resulted in falling sales domestically and overseas, with the high Australian dollar making exports more expensive on the global market. The end of local manufacturing by Toyota, GM Holden and Ford in 2016 and 2017 will lead to these companies becoming strictly

importers over the next five years.While the loss of manufacturing

revenue is expected to be replaced by wholesaling revenue as consumers choose to purchase imported new cars, the exit of local manufacturing operations will have a damaging effect on upstream suppliers. Parts manufacturers rely on local motor vehicle manufacturers for demand, with many companies supplying parts specifically either to Toyota, GM Holden or Ford, or to all three companies. Parts manufacturers’ economies of scale will fall as the demand for their parts dissipates, resulting in per-unit part costs rising, and making their products less price competitive globally. All parts manufacturing industries will take a hit to revenue and profit margins, with many businesses expected to close as a result.

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Demand for repair and maintenance services is expected to remain consistent. It is negatively correlated with new car sales, as when consumers delay purchasing a new vehicle they generally have to spend more on maintaining their current one. With demand for new cars expected to remain fairly steady, there is projected to be little change in the repair and maintenance segments. Parts retailers and wholesalers have a similar

relationship with new car sales. These businesses are expected to be further integrated into the global market and could be affected by growth in online retailing. While the technical nature of vehicles will still require many consumers to seek advice from store employees, simple items can be purchased less expensively online and this could erode local sales over the next five years.

Import penetration Motor vehicle wholesaling will benefit greatly from the loss of local manufacturers. While local manufacturers supply their vehicles straight to dealers, imported vehicles go through local wholesalers before moving to dealers. Local wholesalers are generally Australian subsidiaries of international brands, such as Toyota, Mazda and Hyundai. With demand for imported vehicles expected to increase due to the lack of any locally manufactured alternatives, wholesaling revenue will surge.

The retail arm of the Automotive industry will also be boosted. The loss of

local manufacturing is expected to result in the abolition of motor vehicle import tariffs over the next five years. Tariff abolition will make imported vehicles cheaper, widening profit margins for both dealers and wholesalers as cost savings are accrued throughout the supply chain. Each level of the supply chain is expected to pass on some of the cost savings, driving demand for new cars as prices fall. While the Australian dollar is expected to depreciate over the next five years, the benefits of offshore production are expected to outweigh the falling dollar in terms of affordability.



The future exit of motor vehicle manufacturers will restrict industry growth

The industry’s contribution to the economy is shrinking

Demand for new vehicles and repairs and maintenance remains strong

Life Cycle Stage


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Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilise; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalisation of low margin products & brands

Plastic Injection Moulded Product Manufacturing

Glass and Glass Product Manufacturing

Motor Vehicle New Parts Wholesaling

Automotive Industry



Industry Life Cycle The Automotive industry is in the mature phase of its life cycle, although different areas within the industry are performing at different levels. Motor vehicle manufacturers and parts manufacturers are projected to decline over the 10 years through 2019-20. The strong Australian dollar and a lack of economies of scale in the domestic market have pushed Toyota, GM Holden and Ford to announce that they will cease local manufacturing operations over the next five years.

In contrast, demand for aftermarket parts is retaining its strength, while high consumer demand for cheaper imported vehicles has led to growth for motor vehicle wholesalers and dealerships. Further, motor vehicle service industries made up by mechanics, smash repairers and auto electricians are projected to benefit from steadily rising demand as the number of vehicles on Australian

roads continues to increase. When combining these different facets of the Automotive industry, it is neither growing nor declining despite a significant transformation, and is hence considered to be mature.

Industry value added (IVA) measures the industry’s contribution to the overall economy. IVA is forecast to remain unchanged over the 10 years through 2019-20. Therefore, the industry’s contribution to the overall economy is shrinking as real GDP is forecast to grow by a compound annual 2.7% over the same period. A decline in some parts of the industry due to the scheduled removal of demand from motor vehicle manufacturers for parts from local manufacturers and wholesalers is projected to be offset by greater consumer demand for new vehicles and repairs and maintenance.

This industry is Mature


Products & Services The Automotive industry sells three types of products or services down the supply chain: ready-made motor vehicles; parts and accessories; and repair and maintenance services. Motor vehicles include both locally manufactured and imported vehicles.

Locally manufactured motor vehiclesThis segment includes motor vehicles manufactured in Australia by companies like Toyota, GM Holden and Ford. Locally manufactured motor vehicles are supplied to motor vehicle dealers by the manufacturers, and thus generate revenue at multiple levels of the supply chain. Over the next five years, sales of

locally manufactured passenger motor vehicles are expected to decrease substantially as Toyota, GM Holden and Ford wind up their local manufacturing operations, causing this segment to decline as a share of industry revenue.

Imported motor vehiclesThis segment takes into account sales of imported motor vehicles from motor vehicle wholesalers and dealers. Companies like Mazda, Hyundai and Nissan import all of their motor vehicles and are considered wholesalers. Local manufacturers also wholesale some of their vehicle models. Wholesaled vehicles then reach dealers that resell

KEY BUYING INDUSTRIES

Z Consumers The major users of cars in Australia are consumers for private ownership purposes, as well as businesses and the government. Companies and government entities often purchase vehicles as fleets.

KEY SELLING INDUSTRIES

C1912b Plastic Injection Moulded Product Manufacturing in Australia Plastic injection moulded products are used in parts manufacturing and motor vehicle assembly.

C2010 Glass and Glass Product Manufacturing in Australia Glass and glass products are used by car manufacturers.

C2110 Iron Smelting and Steel Manufacturing in Australia Iron and steel are major inputs used in manufacturing motor vehicles.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

Supply Chain

Products and services segmentation (2014-15)

Total $162.0bn

54.7%Imported motor vehicles

16.2%Parts and accessories

14.9%Repair and maintenance

14.2%Locally manufactured motor vehicles



Products & Markets

Demand Determinants

The industry’s major source of revenue is consumers that are purchasing new vehicles. Primary demand determinants therefore involve factors that influence consumers’ ability to purchase new vehicles, such as disposable income, consumer sentiment and the price of vehicles. With low consumer sentiment reflecting negative expectations of the economy and lack of certainty in current and future income, vehicle sales can plummet as they are high-value purchases. With higher income and lower interest rates, which have occurred over the past five years as the Reserve Bank of Australia has slashed the cash rate, vehicle sales have risen. Vehicle prices have fallen due to growth in imports, which has further strengthened demand in the new car market as vehicles become more affordable.

High operating costs for vehicles can

also play a part in shifting demand. High petrol costs over the past five years, despite a fall in 2014-15, have caused consumers to shift demand toward more fuel-efficient small cars and compact SUVs in order to save income previously spent operating their vehicle. With small cars generally cheaper than large cars, the industry generates less revenue per vehicle but potentially more revenue in total as demand grows due to lower prices, particularly in motor vehicle wholesaling. Local motor vehicle manufacturers have traditionally built large cars, so this shift has sapped demand for their vehicles and subsequently for locally manufactured parts upstream in the supply chain. Demand for vehicle service industries largely depends on the number of registered vehicles on the road, new car sales - consumers will services newer vehicles more often - and income levels.

Products & Servicescontinued

them to end users. Imported motor vehicles are expected to significantly increase their share of revenue over the next five years as manufacturers wind up their local operations.

Parts and accessoriesThis segment comprises all parts and accessories manufacturers, wholesalers and retailers. While some parts and accessories are sold to consumers through retailers, the majority of sales are business-to-business, going either to manufacturers or repair and maintenance operators. Parts and accessories manufacturing and wholesaling are expected to struggle significantly over the next five years. Local motor vehicle manufacturers make up the largest market for both domestic and imported parts and as they end their Australian operations over the period,

this segment is expected to decline as a share of industry revenue.

Repair and maintenanceThis segment includes electrical services; body, paint and interior repair services; and engine and parts repair and maintenance. The major drivers of this segment are the total number of registered vehicles on the road and the average age of the vehicle fleet. The revenue share of this segment is expected to increase over the next five years as demand for repair and maintenance services remains consistent, while manufacturing operations for motor vehicles and associated parts struggle. Repair and maintenance service agents are also expected to benefit from the increasing amount of electrical components installed into new motor vehicles, which leads to higher repair costs.


Products & Markets

Major Markets The industry undertakes a lot of business-to-business sales within itself. A high proportion of revenue is generated by motor vehicle manufacturers and wholesalers selling vehicles to dealers, as well as parts manufacturers and wholesalers selling products to retailers and repair and maintenance operators. Therefore, it is most illustrative to break down the end users for products that travel through the automotive supply chain. The end users making up major markets include households, businesses, government entities and exports.

HouseholdsHouseholds are generally the largest buyers of vehicles and vehicle parts, and they are also the major users of repair services. The type of car purchased varies with age and lifestyle. For example, younger people (aged 18 to 24 years) tend to buy used cars, which are less expensive. Four-wheel drives and SUVs are popular with families with dependent children, and large households often purchase people movers. Higher priced vehicles are popular among those close to retirement.

These purchasing trends also affect repair trends. Younger people generally spend more on repairs as they drive older vehicles. However, older drivers and families spend more on car maintenance services for their more recently updated vehicles. While households were

negatively affected by the global financial crisis, they have since then increased their contribution to industry revenue through expanding their purchases of new cars over the past five years - particularly of imported vehicles.

BusinessesBusinesses normally purchase vehicles for company fleet cars or individual company vehicles. Fleet users also need mechanics, but they tend to change vehicles every two years or so, which limits their demand for maintenance and repair services. Prior to government intervention, businesses were postponing replacing existing vehicles, which was favourable to mechanics but not to car sellers. The Federal Government offered tax breaks during the first half of 2009, which was effective in stimulating demand. However, prevailing low business confidence has resulted in the industry revenue attributable to businesses declining.

GovernmentThe government purchases fleet vehicles from car dealers and wholesalers. This segment is perhaps the most stable, as demand is largely inelastic. Over the next five years, this segment will continue to be a steady source of revenue. However, its effect on the industry is minimal, as the market only represents a small portion of revenue.

Major market segmentation (2014-15)

Total $162.0bn

53.6%Households

36.5%Businesses

8.0%Government

1.9%Exports



Products & Markets

International Trade International trade varies significantly between different segments of the Automotive industry. Trade completely occurs at the manufacturing level. Wholesaler, retailers and repair and maintenance operators are not exposed to trade, although they often resell or use imported vehicles and parts. Imports and exports of manufactured motor vehicles make up the majority of trade value within the industry as they are the highest value items. Consequently, strong import markets for parts and accessories, such as Korea and China, are not major import markets for the entire Automotive industry.

ImportsAlthough imports only account for an estimated 16.4% of domestic demand in 2014-15, this does not take into account the multiple supply chain levels that imports are sold at. While imports dominate the Motor Vehicle Manufacturing industry, they flow down to the wholesale and retail levels, with vehicle importers making up the majority of the Motor Vehicle Wholesaling industry and the sale of imported vehicles generating the majority of motor vehicle dealers’ revenue. A high percentage of motor vehicles are imported from Japan, Thailand and Germany, while many parts and accessories are imported from the United States.

Australia’s best-selling vehicles - the Mazda 3 and the Toyota Corolla - are sourced from Japan. Japan has a history of producing quality vehicles at more affordable prices than locally manufactured vehicles, and have been boosted by strong demand for small,

fuel-efficient vehicles. Growth in commercial vehicle sales has grown demand for imports from Thailand, as the majority of pickup four-wheel drives - the Toyota Hilux, Holden Colorado, Ford Ranger, Nissan Navara and others - are manufactured in Thailand. Demand for European branded vehicles, such as those from Audi, BMW and Volkswagen, has driven strong growth in German imports.

ExportsExports are only worth a forecast 1.9% of industry revenue. The major export markets are those that the Motor Vehicle Manufacturing industry exports to. With that industry declining over the past five years, coupled with a high Australian dollar, exports have declined. A number of strong export markets are located in the Middle East. In particular, Saudi Arabia and the United Arab Emirates exhibit strong demand for the Toyota Camry and Holden Commodore, both of which are manufactured in Australia. Kuwait also makes up a similarly strong

Major Marketscontinued

Export marketsAlthough exports generate only a small percentage of the industry revenue, they are significant to domestic motor vehicle manufacturers. Export markets have been affected by the global financial crisis and the slowly recovering global economy.

Export markets have also been affected by the strong Australian dollar, which has made locally manufactured vehicles and parts more expensive in overseas markets and stifled demand growth. Exports have therefore declined as a percentage of revenue over the past five years.

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Industry trade balance


Level & Trend Exports in the industry are Low and Decreasing

Imports in the industry are Medium and Increasing


Products & Markets

International Tradecontinued

export market within the Middle East.Neighbouring countries New Zealand

and Papua New Guinea are high-value export markets. Many motor vehicles are exported to New Zealand, particularly as Australian brands are in the market but no manufacturing takes place within the country. Papua New Guinea makes up a

strong export market for parts and accessories, particularly vehicle bodies. The United States has fallen as an export market due to GM Holden’s loss of its Pontiac deal following the US Government bailout of the parent General Motors Company in the aftermath of the global financial crisis.

Imports From...

Total $31.1bn

11.1%Germany

11.1%United States

15.2%Thailand

26.0%Japan

36.6%Other

Exports To...

Total $3.1bn

34.2%Other

23.6%Saudi Arabia

16.1%New Zealand

15.9%United States

10.2%United Arab Emirates

Year: 2014-15SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: ABS


Products & Markets


TAS1.9

WA10.8

QLD22.2

VIC26.2

NSW29.7

NT1.0

SA7.3

ACT0.9

Enterprises (%)

Cold Zone (<10)

<25 <50 Hot Zone (<100) Not applicable

Business Locations 2014-15


Products & Markets

Business Locations Companies in the Automotive industry are located in population hubs. This is particularly true for car repairers and retailers, because they need to be close to their market. As a result, the majority of establishments are located in Victoria and New South Wales.

A significant over-representation compared with the population occurs in Victoria as many parts manufacturers are located close to their largest markets, as Toyota and Ford’s manufacturing facilities are located in Victoria. A similar situation occurs in South Australia, due to GM Holden’s manufacturing plant being located in the state. Many parts suppliers are located in South Australia in order to be close to GM Holden’s manufacturing facilities. The centralisation of manufacturing in these two states is expected to dissipate upon the exit of the three major players during 2016 and 2017.

Queensland and Western Australia are over-represented in the industry. Motor vehicle registrations have been growing rapidly in Queensland the past five years, quicker than other states. There has also

been strong expansion in the state due to the mining and commodities sectors, which drive demand for vehicles. The same can be said for Western Australia, where there has been a boom in the demand for utility vehicles due to the explosion of mining activity. IBISWorld expects that these trends will continue.

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Cost Structure Benchmarks

Companies within the industry have varying cost structures, which depend on their products and services. Manufacturers tend to have slimmer profit margins because they are subject to import competition. Wholesalers and dealers also work off slim profit margins because as resellers, their purchase costs are extremely high. Meanwhile, the companies focused on services tend to have wider margins due to inherent barriers against international competition.

ProfitOverall, the industry’s profit margins have expanded over the past five years as Australia’s economy has moved away from the global financial crisis. The economic downturn forced companies to sell at lower prices to retain customers, with many operating at a loss during the worst of the crisis. Since then, the exit of inefficient organisations from the industry has boosted profitability, although manufacturers are still affected

Key Success Factors Ability to achieve economies of scaleLarge-scale production is very important for success as it helps to minimise costs and lower prices.

Flexibility when it comes to adopting new technologyCar producers must be able to adapt production lines to new technology (in particular, green technology) in order to meet consumer preferences.

Ability to operate a global platformGlobalisation keeps on rising in this industry. Furthermore, the Australian market is relatively small. Companies need to make and market products that can be sold across the globe in order to remain on the competitive edge.

Ability to obtain financeCar dealers cannot operate without floor plan financing. Obtaining finance, in particular during downturns, is a key success factor.

Developing strong supply chain linksThe Automotive industry is strongly dependent on the smooth running of the supply chain. Strong relationships can minimise distribution disruptions and preserve dealer contracts.

Complying with emission regulationsEmission regulations will become more important in the next five years. Companies in the industry will need to develop engines that are compliant in order to be able to sell them.

Market Share Concentration

The Automotive industry has a low level of concentration as it covers the entire automotive supply chain, which spans from parts manufacturers to car dealerships. As a result, there is a wide range of companies operating at various level of the automotive supply chain. Concentration differs across each level of the supply chain.

Most companies in the industry are small or medium-sized enterprises that only account for a small percentage of revenue. The smallest ones are mechanics, which are often owner-operators. At the other end of the scale, there are three passenger motor vehicle

manufacturers in Australia and they each account for a large part of the Motor Vehicle Manufacturing industry.

Market share concentration decreased over the past five years as the large automotive manufacturers underperformed the high number of smaller service-oriented firms. The large manufacturers faced strong competition from imports. Meanwhile, the smaller service-based firms, such as repairers and retailers, benefited from geographic protection against international competition. Market share concentration will continue to dissipate with import competition expected to remain strong.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

by weak market conditions. High input prices for manufacturers and low production volumes have weakened profit margins, while price competition among wholesalers and dealers has stifled greater profit margin growth.

PurchasesPurchases make up the largest cost item for the industry. Vehicle and parts manufacturers require raw inputs into their final items and ready-made parts for assembly. Moving down the supply chain, wholesalers and dealers purchase complete vehicles to resell to the end user. Purchases are a less significant cost item for repair and maintenance businesses, but parts are still required for these services. Purchases have increased as a percentage of revenue over the past five years, as the wholesaling and retailing arms of the supply chain, which have inherently high purchase costs, have significantly grown in size.

WagesTotal industry wage costs are relatively

low due to the high value of the products made and sold. Wage costs as a percentage of industry revenue have increased marginally over the past five years, as wage costs for large wholesaling and retailing industries have grown. The exit of passenger vehicle manufacturing over the next five years is expected to result in industry wage costs falling as a percentage of revenue, despite growth in vehicle service industries.

Depreciation and other expensesAll companies across the industry incur depreciation, rent and utilities costs. Depreciation differs widely across businesses. Motor vehicle manufacturers have relatively high depreciation due to the use of sophisticated machinery and plant ownership. In contrast, retailers have far lower depreciation costs. Mechanics and retailers pay more rent as a percentage of their revenue, as they are more likely to rent buildings. Car manufacturers typically own their own plant and do not pay rent.

Businesses in the industry also incur

Sector vs. Industry Costs

n Profi tn Rentn Utilitiesn Depreciationn Othern Wagesn Purchases

Average Costs Across the Economy

(2014-15)Industry Costs

(2014-15)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100


9.2 3.7

73.9

11.27.41.2 0.91.7

47.0

13.8

21.6

2.6 1.74.1



Barriers to Entry Barriers to entry vary significantly depending on the type of firm. Manufacturers (of vehicles and parts) have very high barriers to entry. Car producers require a very significant level of investment into large-scale production and machinery to support this. They also need to invest into costly R&D projects. New entrants could struggle to carry out such a level of investment and have

trouble having access to the latest technology. Component manufacturers require strong relationships and contracts with car producers, something that a new entrant will not have.

Retailers have medium barriers to entry. Their main hurdle is being able to enter into franchises with manufacturers to carry brands that consumers want to buy. They also need to obtain floor plan

Basis of Competition Companies in the industry mainly compete on the basis of price, quality, value and branding. Import competition is also very significant and has been rising over the past decade. The appreciation of the Australian dollar and increasing standardisation of components globally contributed to this trend.

Internal competitionThe majority of revenue generated by the industry depends on demand from the final user: consumers. Motor vehicle manufacturers and wholesalers supply their vehicles downstream to dealers, which then on-sell them to consumers. Consumers generally decide to purchase a vehicle within a specific segment, like a small car, large car or SUV. Within these segments, price is an important factor as consumers are likely to seek value for money. The real and perceived quality of vehicles will also sway purchasing decisions. Build quality and added features can attract consumers, while strong vehicle brands that build loyalty and showcase the perception of superior quality make for more enticing vehicles for consumers.

Vehicle service operators also deal with consumers, and compete on the similar

bases of price and location. Other areas of the supply chain compete on varied factors. Parts manufacturers have to build relationships with motor vehicle manufacturers in order to gain supply contracts. In the business-to-business environment, sound relationships, a reputation for quality and competitive tendering will provide a competitive edge to suppliers.

External competitionDifferent parts of the industry face different sources of external competition. Motor vehicle manufacturers are up against strong import competition, which is ultimately forcing the exit of Toyota, GM Holden and Ford from local manufacturing operations. While foreign manufacturing operations present competition, their success will generate greater revenue for vehicle wholesalers in Australia, which the major players are set to become. Parts manufacturers also face competition from imports as the local manufacturers and parts retailers can source parts less expensively from overseas, due to greater economies of scale and lower wage costs for manufacturing workers in foreign countries.

Cost Structure Benchmarkscontinued

other costs, including research and development (R&D), advertising, logistics, and administration and public relations expenses. Within the industry, car manufacturers and parts manufacturers generally carry out R&D.

These expenses are expected to fall over the next five years as motor vehicle manufacturers leave the industry, taking with them many parts manufacturers that cannot achieve economies of scale without their local markets.

Level & Trend Competition in this industry is High and the trend is Increasing

Level & Trend Barriers to Entry in this industry are Medium and Increasing



Industry Globalisation

Manufacturing and selling cars is a highly global event. The three car manufacturers in Australia are domestic subsidiaries of global car companies. GM Holden is a subsidiary of General Motors, which is based in the United States. Ford’s parent is also based in the United States, while Toyota’s parent is a Japanese-owned company. The impending exit of the manufacturers over the next five years is expected to increase globalisation as demand for locally manufactured vehicles transfers to imported vehicles, increasing international trade.

Import brands have become more popular with Australians over the past five years. Imported vehicles go through the Vehicle Wholesaling industry before

reaching dealers and finally consumers. Vehicle wholesalers are generally foreign-owned, with Japan’s Mazda and Korea’s Hyundai significant import players alongside the local manufacturers. The dealers these vehicles are sold to are generally owned domestically, but are licenced to use the manufacturer’s brand.

Imports are prominent in the parts market. Imported parts are becoming more or more popular, particularly cheaper generic brands. However, globalisation is low in the car retail and repair industries due to the nature of the businesses. Most companies in those industries are domestically owned firms, although car retailers have franchises with major global car companies.

Barriers to Entrycontinued

financing, which has been a difficult step since the global financial crisis. At the other end of the spectrum, new mechanics face very few hurdles when trying to enter the industry. The only major requirement is a local government permit to operate the business. Consumers tend to prefer qualified mechanics rather than backyard operators. However, becoming a licensed mechanic is not considered a major hurdle.

Barriers to Entry checklist

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change HighRegulation & Policy HeavyIndustry Assistance High



Trade Globalisation Going Global: Automotive Industry 2003-2015

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic Demand Imports/Domestic Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalisation.Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocalAutomotive Industry 2003

2015

Level & Trend Globalisation in this industry is High and the trend is Increasing


Player Performance Toyota Motor Corporation Australia Limited is a wholly owned subsidiary of Toyota Motor Corporation of Japan. Toyota Australia is involved in the manufacturing, assembling, importing and distribution of motor vehicles and replacement parts for the Australian and overseas markets. The company’s Australian head office is in Port Melbourne, VIC, and its manufacturing facilities are in Altona, VIC. Locally manufactured models include the Aurion, Camry and Camry Hybrid. Popular imported models include the Corolla and Hilux.

Toyota’s Aurion model, launched in October 2006, was geared to compete with Holden and Ford by creating a robust presence in the large-car market. Sales were strong, since the Aurion was pitched as the most fuel-efficient large passenger vehicle made in Australia. Toyota’s superior financial performance compared to GM Holden and Ford is the result of Toyota’s faster response to the shift in consumer preference towards fuel-efficient vehicles.

In February 2014, Toyota announced its intention to exit from Australian manufacturing operations during 2017. The company stated that manufacturing in the Australian market had become an unviable business operation, due to the far lower overseas production costs and more affordable imported vehicles. Toyota’s exit from the industry will not dramatically affect its market share, as vehicles currently manufactured in Australia will be imported at lower cost from countries such as Japan and Thailand, with lower prices flowing down to consumers.

Financial performanceAlthough Toyota has rebounded following the global financial crisis, there have been hiccups in its performance from events such as the March 2011 tsunami in Japan. The tsunami compounded the impact of falling consumer sentiment and business confidence and affected the company’s supply chain, resulting in a large loss in 2011-12. The tsunami

Major CompaniesToyota Motor Corporation Australia Limited | GM Holden Ltd Ford Motor Company of Australia Limited | Other Companies

90.5%Other

Toyota Motor Corporation Australia Limited 5.4%

GM Holden Ltd 2.4%

Ford Motor Company of Australia Limited 1.7% SOURCE: WWW.IBISWORLD.COM.AU

Major players(Market share)

Toyota Motor Corporation Australia Limited - fi nancial performance

Year*Revenue ($ billion) (% change)

EBIT ($ million)

2009-10 8.59 -3.8 178.2

2010-11 8.39 -2.3 112.9

2011-12 7.39 -11.9 -40.8

2012-13 9.01 21.9 223.9

2013-14 8.52 -5.4 -631.0

2014-15** 8.74 2.6 N/A

*Year end March **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

Toyota Motor Corporation Australia Limited Market share: 5.4%


Major Companies

Player Performance GM Holden Ltd is a wholly owned subsidiary of the US-based General Motors Company, which is headquartered in Detroit in the United States. GM Holden manufactures, imports and distributes motor vehicles, engine components and related parts throughout Australia. GM Holden’s Australian head office is located in Port Melbourne, VIC, as are its design, engineering and engine manufacturing facilities. The company’s vehicle assembly, body tool design, stamping, plastic moulding, paint and body hardware facilities are located in Elizabeth, SA. Distribution and marketing facilities for Holden service parts and accessories are located in Dandenong, VIC.

GM Holden manufactures the Commodore, Caprice and Cruze models at its Elizabeth plant. The Commodore is an iconic Australian large car, while the Caprice is its long wheelbase variant. In response to consumers shifting demand toward fuel-efficient small cars, GM

Holden began manufacturing the small Cruze model in Elizabeth in 2011. Other vehicles in GM Holden’s model line-up are manufactured in different parts of Asia. For example, the Barina and Captiva are manufactured in Korea, while the Colorado is manufactured in Thailand.

GM Holden’s persistence with large-car production has gone against market trends over the past decade, as the market share of large cars has been in steady decline. The company attempted to change this and introduced a dual-fuel version of its VE range in 2007 to attract consumers wanting fuel-efficient vehicles. With reduced production volumes and the uncompetitive nature of Australian manufacturing on a global stage, GM Holden announced in December 2013 that it would exit local manufacturing operations during 2017. The company will become a pure wholesaler in the Australian market, while aiming to at least partly retain its engineering and design teams to work on global vehicle platforms.

Player Performancecontinued

caused backorders for imported vehicles and reduced local production capacity, as the supply of parts required to assemble vehicles was limited. Although Toyota has lost market share over the past five years, it has bounced back from 2011-12 through strong sales of the imported Corolla and Hilux. It is

expected to achieve 0.3% annualised revenue growth in nominal terms over the five years through March 2014-15. However, the slowing mining boom has the potential to decrease demand for the Hilux over the next five years as its sales have been driven by strong mining activity over the past five years.

GM Holden Ltd - fi nancial performance


EBIT ($ million)

2010 4.55 9.9 160.3

2011 4.41 -3.1 84.4

2012 4.11 -6.8 -236.2

2013 4.15 1.0 -696.1

2014** 3.99 -3.9 N/A

2015** 3.88 -2.8 N/A

*Year end December **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

GM Holden Ltd Market share: 2.4%


Major Companies

Player Performance Ford Motor Company of Australia Limited is a wholly owned subsidiary of the US-based Ford Motor Company. The company manufactures, imports and distributes Ford-branded motor vehicles and parts. Ford sells vehicles in three general divisions: passenger, recreational and commercial vehicles. Ford commenced operations in Australia in Geelong, VIC, in 1925. The company maintains a manufacturing facility in Geelong, with its head office and another manufacturing facility in Campbellfield, VIC.

The Ford Falcon and Territory are the only models that Ford currently manufactures in Australia. Both models are exported in small quantities. Due to shifting consumer preferences towards fuel-efficient small cars and small SUVs, Ford introduced a more environmentally

friendly turbo diesel engine into the Territory in 2011. The success of the Territory has been offset by rapidly declining sales volumes for the flagship Falcon model. New car sales of the Falcon reached only 10,610 units in 2013, in contrast to 73,220 units sold in 2003.

In May 2013, Ford announced that it will close down its Australian manufacturing operations in October 2016, citing concerns that its local manufacturing operations have become unviable due to the high Australian dollar and the strong shift away from large cars. While it is unlikely that the Falcon will be manufactured overseas, Ford will remain an importer of models such as the Territory, Mondeo, Focus and Fiesta. Ford also intends to retain its research and development operations, acting as a global design and


Financial performanceGM Holden has underperformed the industry over the past five years, losing significant market share. Company revenue is expected to decline by an annualised 3.1% in nominal terms to $3.9 billion over the five years through December 2015. The consumer shift toward smaller cars has diminished GM Holden’s ability to sell its flagship large car, the Commodore. Declining export sales have also contributed to the company’s downfall, particularly as

GM Holden lost a significant export market when its parent company retired the Pontiac brand in the United States. Operating losses have also occurred, offset in some years due to significant government subsidies in an ultimately unsuccessful attempt to retain GM Holden’s manufacturing in Australia. Losses began to worsen despite government subsidies, and GM Holden incurred sizeable losses of $236.2 million in 2012 and $696.1 million in 2013.

Ford Motor Company of Australia Limited - fi nancial performance


EBIT ($ million)

2010 3.45 4.9 71.2

2011 2.85 -17.4 -88.2

2012 3.21 12.6 -119.0

2013 2.92 -9.0 -258.2

2014** 2.83 -3.1 N/A

2015** 2.75 -2.8 N/A

*Year end December **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

Ford Motor Company of Australia Limited Market share: 1.7%


Major Companies

Other Companies While Toyota, GM Holden and Ford have fairly low market shares, their revenue for locally manufactured vehicles is counted at the manufacturing and retail levels. Their imported vehicles are accounted for at the wholesale and retail levels. Consequently, their revenue totals understate their complete effect on the industry.

The Automotive industry is made up of car manufacturers, retailers, parts manufacturers, dealers and mechanics. The sheer size and diversity of the industry means that while most companies only compose a small segment of overall market share, there are many significant players that operate primarily within specific segments of the industry. Mazda Australia is a dominant wholesaler, Automotive Holdings Group is a major dealer network and Robert Bosch is a powerful electrical components manufacturer.

Automotive Holdings Group Estimated market share: 2.4%Automotive Holdings Group (AHG) is the industry’s largest retailer. AHG has over 150 passenger and commercial dealership franchise sites across Australia. AHG’s dealership franchise sites are primarily located in Western Australia, Queensland, Victoria and New South Wales. The company also has franchises in New Zealand. AHG’s automotive retailing revenue amounted to $3.9 billion in 2013-14, up from $2.9 billion in 2009-10. With further revenue growth projected in 2014-15, AHG is expected to significantly increase its market share over the five years through 2014-15.

Mazda Australia Pty Limited Estimated market share: 1.5%Mazda Australia Pty Limited is an importer and distributor of Mazda vehicles and parts. It is headquartered in Melbourne and has offices in most states in Australia. The company employs about 250 people and sells a wide range of vehicles including compact cars, SUVs, people movers and light commercial vehicles. Company revenue reached $2.4 billion in the year through 2013-2014 (year end March). Mazda is expected to have gained market share over the past five years due to the strength of its product offerings. Its vehicle range strongly matched consumer demand over the period. In 2011, the company’s small model Mazda3 ended the Holden Commodore’s 15-year reign as the top-selling new car in Australia.

Robert Bosch (Australia) Proprietary Limited Estimated market share: Less than 1.0%The largest automotive component manufacturer in Australia is Robert Bosch (Australia) Pty Ltd. The company is a manufacturer and importer of automotive electrical and electronic components (automotive technology segment). Its product specialisation includes systems involving diesel applications, braking, ignitions, energy, DC electric motors, wiper systems, filtration, electronic fuel injection and lighting systems. The company posted revenue of $412.8 million in 2013, although this also includes sales of products that fall outside of the Automotive industry.


engineering centre for the parent company’s global vehicle platforms.

Financial performanceFord has been struggling to maintain sales of its Falcon model, resulting in a forecast nominal revenue decline of 4.4% annualised over the five years through December 2015. With strong new car sales of other brands generating overall industry

revenue growth, Ford has lost significant market share. Company profitability has declined over the past five years, as Ford has struggled with the lack of production volumes in manufacturing the Falcon. Losses were incurred in 2011, 2012 and 2013 despite government assistance. These ongoing and worsening losses ultimately led to the company’s decision to close its manufacturing operations in Australia.


Capital Intensity The Automotive industry exhibits low capital intensity, although it varies significantly between different industries. Overall, the industry is estimated to spend $9.33 on wages for every dollar invested in capital. Capital intensity is much higher in manufacturing industries, such as the Motor Vehicle Manufacturing industry and the Automotive Electrical Component Manufacturing industry. These industries use sophisticated equipment to manufacture their products, with motor vehicle manufacturing particularly requiring strong capital investment in automation and large-scale production facilities. Other industries that contribute to low capital intensity are primarily service-based, involved in either selling ready-made vehicles or providing repair and maintenance services for vehicles. Capital intensity is expected to

fall further over the next five years as the manufacturing industries, with higher capital intensity, downsize tremendously due to the exit of major players Toyota, GM Holden and Ford.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

ur In

tens

ive Capital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Motor Vehicle Manufacturing

Plastic Injection Moulded Product Manufacturing

Motor Vehicle Parts and Accessories Manufacturing

Glass and Glass Product Manufacturing

Motor Vehicle New Parts Wholesaling

Automotive Industry

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COM.AUDotted line shows a high level of capital intensity

Capital units per labour unit

Automotive Industry

Economy

Level The level of capital intensity is Low


Operating Conditions

Revenue Volatility Due to the wide range of services provided in the Automotive industry, the industry is subject to low revenue volatility. Any drop in demand for one industry is generally replaced by greater demand for another industry. Motor vehicle manufacturers have struggled over the past five years, largely due to there being far greater demand for vehicles imported by motor

vehicle wholesalers. While big economic shocks can affect multiple levels of the supply chain, events similar in nature to the global financial crisis have not occurred over the past five years. The industry’s low volatility is also supported by service industries, as demand for mechanics and panel beaters does not tend to vary significantly.

Technology & Systems Every single level of the industry’s supply chain relies on technological systems for the smooth running of operations. Computer use has increased throughout the industry over the past five years. Mechanics use computers to store motor vehicle history and time between services. Computers are also used in account preparation and inventory control, while centralised, web-based booking services are provided in support of franchisees. Car retailers use computer systems for management information to process sales and expenditure information. If the dealership is involved in motor vehicle servicing, then the latest electronic diagnostic equipment is used to isolate mechanical or electrical faults. Retailers

tend to maintain a computerised parts and accessories inventory management system.

Component manufacturers are also developing technology that will improve fuel-efficiency and create greener parts. Direct fuel injection technology has made engines more fuel-efficient than they were before. Further development of electronic braking and steering systems is expected to reduce the amount of product testing required. This will also work to increase fuel efficiency, eliminate hydraulic fluid use, improve safety and allow for more standardisation of parts. Regenerative braking, popular in hybrid cars and electric cars, is also a technology aimed at improved power consumption and by extension, fuel economy.

Level The level of Technology Change is High


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualised revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Automotive Industry

Level The level of Volatility is Low


Operating Conditions

Industry Assistance The industry has traditionally benefited from very high levels of assistance, with this assistance reaching many operators within the industry. Assistance has decreased for local motor vehicle manufacturers though, with import competition boosted by a reduction in import tariffs from 10.0% to 5.0% in January 2010. While the remaining tariff remains a form of assistance, it has not prevented imported vehicles from being far less expensive for consumers to purchase, particularly with a strong Australian dollar. The impending exits of Australia’s three motor vehicle manufacturers have the potential to result in the abolition of tariffs. Various free trade agreements with countries such as Thailand have already

diminished assistance to the industry.The Automotive Transformation

Scheme, which was originally scheduled to run from 2011 to 2020, was projected to include $3.4 billion in aid to local manufacturers. The ultimate prerogative of the scheme for the Federal Government has been to make local manufacturers viable against import competition, allowing the major players to keep the manufacturing operations within Australia and to keep the resulting jobs that come with such operations. The announced manufacturing exits of Toyota, GM Holden and Ford over the next five years will result in the effective rate of assistance to the industry declining significantly, with the scheme now set to conclude in December 2017.

Regulation & Policy Regulations vary from sector to sector. Mechanics mostly operate legislation free, while manufacturers tend to bear the brunt of climate change related policies. Mechanics are regulated through the apprentice system that provides qualified personnel to the industry. Motor trade associations such as the VACC in Victoria tend to administer and regulate the apprentice system.

All states impose a motor vehicle trading licence on car retailers and these vary from state to state. In each state and territory, licensing and registration of used motor vehicle dealers is now compulsory, provided the dealers sell more than five vehicles per annum. This registration procedure means that an automatic vehicle warranty period applies based on the age of the vehicle and the number of kilometres on the odometer.

According to the Federal Chamber of Automotive Industries (FCAI), the Automotive industry in Australia is committed to making a strong contribution to reduce the impact of global climate change. The industry has adopted a voluntary target to reduce average carbon dioxide (CO2) emissions from new light vehicles. The result came about mainly thanks to improvements in

engine technology brought about by intense import competition. Automotive activity is global and engine manufacturers typically sell engines all over the world. Europe has a strict and enforceable engine standard, which implies that manufacturers must develop more fuel-efficient engines. As a result, it is easier for any manufacturer to meet the less strict Australian targets as the technology already exists.

In June 2011, the government announced a new set of emission standards that will be mandatory. The standards will follow that of the European Union. Euro standards are generally based in terms of nitrogen oxide (NOx), particulate matter (PM), and hydrocarbons (HC) emitted by a vehicle. Emissions are measured in grams per kilowatt hour (g/kWh) or gram/kilometre (g/km). Standards for light duty vehicles (petrol and diesel) are generally named Euro 1 to 6. Euro 5 standards will be phased in as from November 2013 to November 2016. Euro 6 standards will then be phased it from July 2017 to July 2018. The government expects to reduce PM by 90.0%, HC by 50.0% and NOx by 70.0% once all vehicles comply with Euro 6 standards by 2016.

Level & Trend The level of Regulation is Heavy and the trend is Increasing

Level & Trend The level of Industry Assistance is High and the trend is Decreasing


Key StatisticsRevenue

($m)

Industry Value Added

($m) Establishments Enterprises EmploymentExports

($m)Imports

($m)Wages ($m)

Domestic Demand

($m)2005-06 173,338.6 27,234.5 76,907 54,200 316,504 6,019.6 25,630.0 18,169.6 192,949.02006-07 174,750.4 27,918.6 77,591 54,342 321,324 4,974.4 27,446.3 18,726.0 197,222.32007-08 174,411.2 27,475.1 77,601 53,810 322,950 5,641.2 29,620.9 18,594.5 198,390.92008-09 158,001.3 22,519.6 75,563 51,963 308,443 4,221.8 22,711.6 17,417.9 176,491.12009-10 159,931.0 24,237.8 76,725 52,896 305,385 3,239.6 27,504.1 17,469.5 184,195.52010-11 158,213.8 24,720.6 76,824 52,514 308,704 2,853.5 24,639.2 17,380.7 179,999.52011-12 160,275.2 25,690.3 77,140 51,973 311,417 2,774.0 27,326.7 17,873.6 184,827.92012-13 161,996.0 26,386.7 75,492 50,514 311,049 3,055.5 29,325.0 18,133.3 188,265.52013-14 164,217.7 26,564.1 75,889 50,407 312,583 3,163.7 30,526.1 18,319.4 191,580.12014-15 162,018.3 26,162.8 75,857 50,181 312,691 3,146.4 31,062.0 18,164.6 189,933.92015-16 162,609.5 25,893.6 75,505 49,819 312,096 3,038.4 31,674.6 18,006.3 191,245.72016-17 160,087.0 24,807.5 75,244 49,441 302,351 2,060.3 34,690.5 17,326.9 192,717.22017-18 155,956.9 23,598.3 74,438 48,855 288,548 1,022.5 36,095.8 16,322.6 191,030.22018-19 158,254.4 23,714.5 74,020 48,443 290,404 982.9 38,080.5 16,605.6 195,352.02019-20 160,638.1 24,330.7 74,126 48,418 294,054 967.1 38,576.4 16,824.6 198,247.4

IVA/Revenue (%)

Imports/Demand (%)

Exports/Revenue (%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005-06 15.71 13.28 3.47 547.67 10.48 4.12 57,407.17 2.172006-07 15.98 13.92 2.85 543.84 10.72 4.14 58,277.63 2.152007-08 15.75 14.93 3.23 540.06 10.66 4.16 57,577.02 2.042008-09 14.25 12.87 2.67 512.25 11.02 4.08 56,470.40 1.642009-10 15.16 14.93 2.03 523.70 10.92 3.98 57,204.84 1.732010-11 15.62 13.69 1.80 512.51 10.99 4.02 56,302.15 1.732011-12 16.03 14.78 1.73 514.66 11.15 4.04 57,394.43 1.732012-13 16.29 15.58 1.89 520.81 11.19 4.12 58,297.25 1.732013-14 16.18 15.93 1.93 525.36 11.16 4.12 58,606.51 1.702014-15 16.15 16.35 1.94 518.14 11.21 4.12 58,091.21 1.642015-16 15.92 16.56 1.87 521.02 11.07 4.13 57,694.75 1.582016-17 15.50 18.00 1.29 529.47 10.82 4.02 57,307.24 1.472017-18 15.13 18.90 0.66 540.49 10.47 3.88 56,568.06 1.382018-19 14.99 19.49 0.62 544.95 10.49 3.92 57,181.03 1.352019-20 15.15 19.46 0.60 546.29 10.47 3.97 57,216.02 1.34

Figures are in inflation-adjusted 2015 dollars.

Revenue (%)

Industry Value Added

(%)Establishments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)2006-07 0.8 2.5 0.9 0.3 1.5 -17.4 7.1 3.1 2.22007-08 -0.2 -1.6 0.0 -1.0 0.5 13.4 7.9 -0.7 0.62008-09 -9.4 -18.0 -2.6 -3.4 -4.5 -25.2 -23.3 -6.3 -11.02009-10 1.2 7.6 1.5 1.8 -1.0 -23.3 21.1 0.3 4.42010-11 -1.1 2.0 0.1 -0.7 1.1 -11.9 -10.4 -0.5 -2.32011-12 1.3 3.9 0.4 -1.0 0.9 -2.8 10.9 2.8 2.72012-13 1.1 2.7 -2.1 -2.8 -0.1 10.1 7.3 1.5 1.92013-14 1.4 0.7 0.5 -0.2 0.5 3.5 4.1 1.0 1.82014-15 -1.3 -1.5 0.0 -0.4 0.0 -0.5 1.8 -0.8 -0.92015-16 0.4 -1.0 -0.5 -0.7 -0.2 -3.4 2.0 -0.9 0.72016-17 -1.6 -4.2 -0.3 -0.8 -3.1 -32.2 9.5 -3.8 0.82017-18 -2.6 -4.9 -1.1 -1.2 -4.6 -50.4 4.1 -5.8 -0.92018-19 1.5 0.5 -0.6 -0.8 0.6 -3.9 5.5 1.7 2.32019-20 1.5 2.6 0.1 -0.1 1.3 -1.6 1.3 1.3 1.5

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labour. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labour; medium is $0.125 to $0.333 of capital to $1 of labour; low is less than $0.125 of capital for every $1 of labour.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within Australia, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by Australian companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in Australia.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%; medium is 5% to 20%; and high is more than 20%. Imports/domestic demand: low is less than 5%; medium is 5% to 35%; and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. Benefits and on-costs are included in this figure.

Industry Jargon

IBISWorld Glossary

EFFECTIVE RATE OF ASSISTANCE This takes into account direct assistance (such as tariffs) and indirect assistance provided by the government.

ELECTRIC CAR Also known as a plug-in electric-hybrid vehicle. This hybrid vehicle has an electric battery that can be recharged in a wall socket and does not need petrol to run.

FLOOR PLAN FINANCING A method used to finance inventory of businesses commonly used by car retailers. Floor plan refers to their inventory.

HYBRID CARS Usually refers to electric-hybrids that run on an electric battery and a gasoline engine. They are more fuel-efficient than a standard car.

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Documents

Automotive Industry in Australia Industry Report IBIS