Automotive: Where to now?

Automotive: Where to now?

With this October marking the final ending of car assembly operations in Australia, how has the automotive industry responded, what are the implications for manufacturers in supply chains that have been affected, and what does the future hold? By William Poole.

At 10.45 on the morning of Friday 20 October, a VFII Commodore Redline rolled off the production line at GM Holden’s Elizabeth plant in north Adelaide. A private ceremony was held to commemorate Holden’s manufacturing history and pay tribute to the employees past and present who had helped build the company. And then the factory closed its doors for good.

“Today is about paying tribute to the generations of men and women across Holden and our supply network who have given so much to our company,” said Holden Chairman and Managing Director, Mark Bernhard. “Holden is the icon it is today only because of these passionate people. On behalf of everyone at Holden, I thank you for your service from the bottom of my heart.”

The shuttering of the Elizabeth site followed close on the heels of Toyota Australia closing its Altona plant on 3 October, with a ceremony attended by approximately 3,000 people. Ford Australia had already ceased operations in Geelong and Broadmeadows a year earlier, so when that Commodore rolled out of Elizabeth, it rolled straight into the history books, as the very last vehicle produced in three-quarters of a century of Australian mass-market car assembly.

All three companies have talked up plans to maintain a continued presence in Australia (beyond their sales dealerships). Holden plans to retain its world-renowned Design Studios and the Lang Lang vehicle Proving Ground near Melbourne, while Toyota intends to develop a Centre of Excellence at Altona, housing expanded design and engineering capabilities. Ford has also retained a product development centre here.

Nonetheless, there’s no avoiding the fact that the closures have marked the end of an era, not just for the big car-makers’ direct employees, but for the numerous small and medium-sized Australian manufaturers who were engaged in their supply chains. So what happens now?

VACC – Facing the consequences of the closures
As Executive Director of the Victorian Automobile Chamber of Commerce (VACC), Geoff Gwilym has a pretty comprehensive perspective on the automotive industry in Australia, and he’s candid in his view that the Government should have done more to prevent the recent closures.

“I think they saw an industry with its hand out, looking for incentives,” he says. “What they didn’t see was 25,000 people employed inside car plants (that’s just inside car plants), a huge contribution to GDP, and a voice that said to the world ‘We can make a car’. When you can make a car, you can make lots of things. When you don’t make cars, that perspective changes entirely. I think there are unintended consequences, which I don’t think Government has any sight of whatsoever.”

With 5,200 members, VACC provides a range of advisory and support services while also engaging in advocacy on automotive policy at a state and federal level. Its membership extends beyond manufacturing to encompass the entire automotive industry; from vehicle dealerships through to mechanics’ workshops, as well as commercial vehicles. It also represents a sizeable constituency of parts manufacturers. Two years ago it took over the Federation of Automotive Products Manufacturers (FAPM) when that body went into liquidation.

According to Gwilym, having an automotive production sector provides a foundation for boosting capabilities across a country’s manufacturing industry. Originally hailing from the UK, he saw first-hand the consequences of neglecting that foundation, and how hard it can be to rebuild.

“The capability in auto can be pushed across a whole range of industries and processes,” he explains. “We need to capture that and capitalise on that now, because in five years most of that would have washed out. When the UK decided it didn’t want to make cars any more, they lost a lot of capability and it took them a long time to regain it. Now, they’re making well over 1.5m cars again, but rebuilding that capability has taken a long time.”

Another concern lies in the erosion of the framework that provides skills that are needed throughout manufacturing.

“If we want a community full of baristas with double-degrees, keep doing what you’re doing because that’s where we’re going,” says Gwilym. “I worry about the universities that teach automotive engineering or design. It will be a challenge for them to encourage students into those degrees when the industry we’ve got left is much smaller. If you want to work in vehicle manufacturing, unless it’s with parts or special vehicles like Tomcar, its less likely you will be working locally. You’ll be somewhere else. I’d be interested to see how universities retain the student flowthrough for automotive enginnering students, that they need to maintain course viability. Even with that great ‘windfall’ for Australia of attracting international students into higher education – I’m wondering how we’ll sell courses around automotive design and manufacturing without a car manufacturer in town. So those are just some unintended consequences of Government not supporting the industry.”

Despite these issues, Gwilym believes Australian manufacturers have the skills and ingenuity to overcome the challenges in a landscape that the large auto-makers have left.

“I think we do have a positive future,” he says. “We have a highly skilled workforce, a high level of general education, a labour pool you can draw upon to make and do things. The after-market is going to continue to grow. Here’s a big challenge for Australia: when you make cars, you make parts. When you don’t make cars, your focus on local parts manufacturer also changes, dramatically. I am concerned about the availablity and wait times for parts in the future, because they’ll predominently be manufactured offshore, unless parts manufacturers in Australia get into that supply chain. If you have to wait six weeks for a brake cable it’s because the parts are not being held locally. There’s a role there for a local manufacturer under a licence to global manufacturers. Ironically the wait for parts may actually help facilitate local manufacturing. I hope so. While Australia enjoys one of the broadest and most diverse vehicle fleets in the world, its Achilles heel is where small vehicle volume exposure acts as a disincentive for manufacturers to hold parts locally.”

Gwilym believes the recent closures may not ultimately mark the end of Australian car-making: “I’ve said publicly that in 10 years, we can build cars again. Electric cars. If you think about electric cars, you can build a car in a different way. You may be building high-quality, low-volume vehicles. I think our capability here allows us to move into a different type of car manufacture – highly mechanised, high-quality, low-volume.”

Overall Gwilym anticipates some contraction in the sector, but he believes that those companies that had taken prompt action to prepare should survive and thrive.

“There’s still 2,500 automotive parts manufacturers in Australia, manufacturing parts for cars, buses, trucks, trailers – anything with wheels. My feeling is you’ll get about a 20% immediate drop in business and employment, but I think we’ll find an equilibrium where manufacturers can survive, particularly around specialist, high-quality products. If they started to diversify five years ago, they’ve probably got a positive future.”

Indeed that move towards diversification is already being reflected in VACC’s plans for the FAPM.

“We’re changing the word ‘Automotive’ to ‘Advanced’ – the Federation of Advanced Product Manufacturing,” Gwilym explains. “That’s being rebuilt right now – new website, new strategic direction –and early next year we’ll go to the market and do a membership drive. It will be automotive-plus. This recognises that lots of manufacturers who make automotive parts now will continue to make them, but they’ll be engaged in advanced manufacturing across a range of products. I don’t think in the future we’ll be talking about automotive parts manufacturers, instead we’ll be talking about parts manufacturers that also make automotive stuff.”

Parish Engineering – Diversification through acquisition
One company that didn’t delay in diversifying has been Parish Engineering. Established in 1932, the company manufactures precision components for industries including defence, aerospace and mining from its factory in Moorabbin, SE of Melbourne. However, the automotive sector had long provided the bulk of its business, leaving it significantly exposed. Around five years ago, Parish began seeking to diversify, culminating in late 2016 with the takeover of Longworth Engineering.

“We were very heavily into automotive, probably around 70%-80%,” says Paul Rafferty, Parish’s Business Development Manager. “But we started working vigorously in the last five years on getting out of the industry because the writing was on the wall. When we took over the Longworth operation we were pretty much non-automotive locally. The Longworth business now has taken over about 40% of the Parish operation, so we’ve just balanced up what we’ve lost in automotive.”

Founded in the 1950s, Longworth specialised in repetition engineering, but also produced its own range of air fittings. Parish has now moved the entire operation down from Longworth’s old site in Nunawading, east Melbourne, to Moorabbin retaining some of its CNC machinery and centralising production.

“We’re sort of bedding it down now,” says Rafferty. “It’s taken a good 12 months to get a handle on it. Now we’re at the point of setting a website up, getting brochures done, and once we’ve got all that bedded down we’ll take it further and market the product a bit more.”

For Parish, Longworth was a good match because the two companies were engaged in more or less the same types of work. The key benefit of the acquisition, however, was the opportunity for Parish to have its own product line, in the form of Longworth Air Fittings, which will be retained as a brand under Parish’s ownership.

“Now we’ve got our own product that we sell, we’re not relying on a customer giving us an order,” explains Rafferty. “We’re sending the product out to a diverse range of industries; there’s the trucking industry, however air fittings are used throughout all different types of industries. So we’re a bit more in charge of our own destiny now, whereas before we were relying on what our customer does.Therefore you don’t take such a hit when somebody slows down. You’ve got a wider base. So that’s the big thing.”

According to Rafferty, the team at Parish knew they were on the right track with Longworth, when the company exhibited within the Manufacturers’ Pavilion section of the Austech 2017 trade show in May.

“As first-time exhibitors we didn’t quite know what to expect,” he says. “But the exhibition confirmed to us that the potential for further expansion of the Longworth Air Fitting range, both locally and overseas, is very positive. A lot of these fittings are brought in from overseas, and we’re finding our product is actually competitive price-wise. It was surprising to hear how many people were of the belief that products such as these were no longer manufactured in this country.”

Rafferty believes the fact Parish saw that the Australian automotive industry did not offer long-term security, and began planning for that fact promptly, has been crucial in ensuring its future.

“There was a lot of moving offshore, with the components that were being supplied,” he says. “They started off with pressed components originally, going back 10-15 years ago, then they started moving onto turned components, which is what we do. The amount of work coming from offshore was going to really hit us hard.

“We’d be in a very different position now, had we not started working back then, because to get into new product and get it into the market, you really need a good 5-10 years. It’s not something you do overnight. Any companies looking at trying to get out of automotive just now – it’s just too late. You had to really be working on it at least five years ago.”
While Parish’s measures to diversify have clearly been a success, the company does still have some automotive clients. However its current arrangement is very different to the days when it was heavily dependent on the local car-makers.

“We do still supply a lot of products to the US, for the Ford Ranger,” says Rafferty. “That’s still very healthy. It’ll probably last until 2020; it’s uncertain after that what will happen to that, but that still gives us plenty of time to look at that avenue further, or for further development of the Longworth range. The automotive side now would probably be under 20% of the business.”

Meanwhile, the Longworth venture will be dominating Parish’s plans for the time being, though Rafferty suggests further expansions along similar lines may be an option in the future.

“What we can see in this type of industry, is that you’re not going to pick up any major work by going out knocking on doors and picking up a job here and there. The only way to expand in a big way is either merging with somebody, or a buyout. So we’ve got our eyes open. If anyone’s looking at closing their business, selling their business, merging their business, we’re looking at that all the time. It’s not outside the realms of possibility.”

SEA Electric – A new niche
Of course, the technology underpinning road transport is undergoing a period of rapid and drastic change – and, indeed, cars are not the only type of vehicle on the road. One Australian company with big plans in that regard is SEA Electric, based in Dandenong, Victoria. The company has been in business since the early 2000s, primarily as an importer of buses, coaches and trucks, but in recent years it has created its own product range in the field of electric-powered commercial vehicles.

“Four or five years ago we identified that electric drivelines in commercial vehicles were to become economically viable,” says Tony Fairweather, SEA Electric’s Executive Chairman. “And they had a very strong application synergy, even more so than in passenger cars – and in particular in the light-to-medium-duty truck segment.”

SEA began developing its own technology with the aim of being ready to come to market at the point when electric vehicles (EVs) for commercial applications became viable. While EV technology has been around for years, it had been imposssible to get similar ranges to internal combustion engines at acceptable costs. However, according to Fairweather, a tipping point has been reached, and much sooner than anticipated.

“Around 2010, automotive analysts from various countries around the world agreed that a quantum shift to EVs was pending,” he explains. “The cost of lithium-ion battery technology then was around US$1,500 per kilowatt hour, and their forecast was that, when it got to around US$280-US$300/kWh, the quantum shift would occur. However, at the time, they all agreed it would take around 15 years. But the breakthrough actually came at the end of last year, and there are now forecasts for the cost of lithium-ion to be below US$100/kWh by 2020. So the cost-base transition is significantly faster than forecast, hence all the activity in commercial and passenger EVs at the moment.”

With that tipping point reached, the team at SEA Electric is being very specific in terms of the types of vehicle where its technology would fit, and accordingly the niche market that it is targeting.

“The ideal application for EV at the moment is in the PUD-type (pick-up and delivery) application,” says Fairweather. “Metropolitan work, where those companies – be it express freight guys, linen service companies, food service companies – need vehicles to go out in the morning, typically drop off stuff, often pick it up in the afternoon, and back to base. They’re typically doing less than 200km per day, which is what our technology is designed to achieve on a single charge. They typically have dwell time overnight where they sit in the depot – we require around 3-5 hours to charge to full – and go out again the following day.”

SEA Electric’s core product is an integrated driveline system, the SEA Drive, in a range of sizes. This can be fitted into a “glider” platform – cab chassis or van platforms that SEA Electric imports with no engine or transmission – as part of three complete vehicle offerings: the E4V van; the EV10t light-duty truck; and the EV14 medium-duty truck.

Alternatively, the company can work with OEMs in Australia or internationally, offering the technology on an under-licence basis.

Given the nature of the technology it employs, SEA Electric’s plant in Dandenong is essentially confined to assembling pre-existing components, often from overseas. The batteries are purchased from one of the world’s largest battery manufacturers; the motors and controllers come from Canada. However, Fairweather stresses the company’s emphasis on utilising Australian manufacturers.

“We’re using local manufacturers for as much local content as possible,” adds Fairweather. “Unfortunately there’s not a motor manufacturer in Australia we can source from, nor a battery manufacturer. But all the fabricated components, the wiring, harnesses, the software – it’s all developed by Australian suppliers.”

Fairweather likens the company’s strategy to computing giant Dell: “The model and concept of just-in-time assembly and integration of readily available components is very similar to what Dell did in the early 1990s. Their primary competitors were trying to manufacture full computers and producing all their own hardware. Dell said: ‘Well there’s a supplier who produces circuit boards cheaper and better than we could.’ Our business, as with Dell, is about integrating and optimising components in the most cost-effective form to come to market with a competitive advantage over others.”

While it remains early days for SEA Electric, Fairweather stresses the potential for diversification is significant. Plans are in progress for a heavy-duty truck product, and the company has had talks with a customer about electrifying prime movers for metropolitan work. Another area is buses, though these would require longer ranges and faster charging times – challenges that are not insurmountable, Fairweather maintains.

“As the cost of batteries comes down, the only limitation on range with electric technology is how big a fuel cell you can fit,” he says. “How many batteries can you physically fit? And the batteries are not only getting cheaper, but they’re getting smaller and lighter, which means over time we can simply add more batteries. The cost isn’t going to go up, the weight will in fact decrease, and we’ll be able to get ranges of 200… 300… 400km over time.”

One segment SEA Electric will not be targeting for the time being is ordinary passenger cars.

“It’s probably an area that I think the passenger car OEMs are already very well progressed in,” says Fairweather. “Volvo is talking about effectively being 100% EV by 2020; Volkswagen is doing a lot in that space; all the OEMs are doing a lot in that space. At this stage our core focus is light-to-medium duty trucks, with a progression into heavy-duty trucks.”

Nonetheless, Fairweather believes the EV sector represents an area with huge potential for innovative Australian manufacturers. They have, however, got some catching up to do.

“I think there’s enormous opportunity; it’s about the Australian industry and economy understanding where that opportunity might be. It’s disappointing to see how slow Australia has been in providing subsidies and incentives for EV use alone. I’d go as far as to say Australia is one of the least progressive developed markets in the world in relation to EV incentives.

“There’s so many components we’re importing from overseas purely because they’re not available here, and they could easily be developed and available here. Not just for us, but for the burgeoning global EV space. And battery technology is really something we could grab hold of. EVs are a segment that’s going crazy, and if Australia doesn’t grab hold of that soon, it will miss the boat.”
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www.parishengineering.com.au
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