Toyota fires the starter gun on race for survival for car parts suppliers

Caitlin Fitzsimmons Online editor

Toyota fires the starter gun on race for survival for car parts suppliers

Published 11 February 2014 12:49, Updated 12 February 2014 08:53

‘I think Australia needs to focus on what we’re good at, which is niche, high-quality manufacturing,’ says Tomcar founder David Brim. Photo: Luis Ascui

With Toyota joining the car manufacturing exodus, about 150 companies in the automotive supply chain face the ultimate test: diversify their business by 2017 or die trying.

Deloitte manufacturing partner Damon Cantwell says there are 30,000 to 35,000 jobs in the automotive supply chain, across 150 companies. Some are local divisions of multinational companies such as Bosch and Heller, but 70 to 80 per cent are Australian-owned small to medium businesses up to $100 million in turnover.

“In terms of Australia’s industrial history, it is a key juncture,” Cantwell says. “If you compare the wind-back of the textile, clothing and footwear sector that happened in a bit more of a slow-burn fashion, this has come with a bit of momentum.”

The closure of the Australian car manufacturing industry has been mooted for decades and Cantwell says that smart suppliers have been preparing for the possibility, diversifying into supplying other industries such as aerospace or defence or building a reliable export business.

“Companies spend years trying to retool their business, market themselves differently, and find new customers in different aspects of manufacturing; it is a very long-term process,” Cantwell says. “Our estimate would be 15 to 20 per cent have been undertaking that year on year for the last 10 to 20 years and they will certainly be in better shape to face what’s coming in the next couple of years than many of the others.”

He says there is a middle group that will find a viable future by forming an alliance with another supplier or group of suppliers, but “unfortunately there’s also going to be a third group for whom the next 12 to 18 months spells the end of the road”.

Opportunities for diversification

Tomcar is a start-up that makes off-road vehicles in Australia and sells them exclusively through its website. The business was founded in 2005 and started manufacturing in late 2011 and is set to double production from April and introduce a diesel model.

Tomcar founder David Brim was based in the UK but relocated to Australia to set up the business because of the excellent manufacturing capacity here.

The vehicles are designed by Tomcar and production is outsourced to Melbourne-based manufacturer MtM, which was also a supplier to Toyota, General Motors and others. MtM makes some of the components for Tomcar itself but outsources about 80 per cent to about 50 different suppliers and 35 of them are local.

“We’re very lucky to have set up when we did because the suppliers existed and a lot of these suppliers wouldn’t have existed if Australia didn’t have a big manufacturing industry,” Brim says.

“We really want to plug into that local network because I can’t stress enough how good the local manufacturers are in terms of quality. That’s because they’ve been supplying to the big OEMs and now they need to diversify so I’d love other small manufacturers to come to Australia and utilise that unique supply chain.”

Brim says he feels terrible for the employees at Toyota, Holden and Ford and he knows it’s “going to be a difficult time”. “I’d love them to give us a call – maybe we’ve got a job for them,” he adds.

However, he is hopeful that many suppliers have already diversified sufficiently and says the outcome could ultimately be good if we manage the transition well.

“We must not forget that Australia has a booming, after-market supply network – the Australian Automotive Aftermarket Association represents almost 2000 companies that produce after-market accessories for the vehicle market and that is a thriving industry here in Australia because to drive off road and enjoy Australia’s environmental conditions, you need to modify your car,” Brim says. “We need to create an ecosystem like in the UK – they lost a lot of their big manufacturers but they have a very successful motor sport ecosystem.

“I think Australia needs to focus on what we’re good at, which is niche, high-quality manufacturing and the departure of Toyota now will force the industry to refocus and become what we’re good at, which is high-quality manufacturing.”

Deloitte’s Cantwell says it is clear the old-style automotive manufacturing with large facilities with a production capacity of 250,000 units is not viable in Australia. However, he says we need to consider whether some of the newer manufacturing models could work here.

“Globally, what we’re seeing is that there are new forms of manufacturing emerging, companies that undertake contract manufacturing where you have a third party manufacturing cars for a global vehicle supplier or companies like a Mahindra Reva in India whose philosophy is that plants are only 30,000 unit capacity,” Cantwell says. “One final question while we have an automotive industry here and the capabilities and competencies in the supply chain is whether any of those new manufacturing models have any application in the Australian environment and we’d be very keen to see that as part of the debate over the next 18 months.”