‘We’re going to see more change in the next five to ten years than we’ve
seen in the last fifty.’
Mary Barra, CEO General Motors
IT IS NO longer the stuff of science fiction. Self-driving cars will be on sale in just four years, and there is broad consensus they will save energy and lives, liberate time for leisure and work, and transform the economy. Car-makers are now aggressively headhunting computer geeks, while big data and big computer are signing up automotive industry veterans so they can muscle in on what is widely perceived as the next massive leap in bankable technology. Apple management is clearly enthused about the idea of charging an iPhone premium for an autonomous iCar, Uber of saving the cost of drivers, and Google of monopolising even more of your time by pumping out ads, videos and restaurant recommendations as you are driven along via its maps. Traditional car-makers, long geared to sell more and more every year, are doing the unthinkable: running the numbers over shared ownership models. Governments are on board too. Barack Obama allocated US$4 billion in his 2017 budget for pilot programs in the hope of an economic windfall and a spectacular reduction in fatalities. As Professor Eric Schwitzgebel wrote in the LA Times in 2015, ‘Future generations might be amazed that we allowed music-blasting sixteen year olds to pilot vehicles unsupervised at sixty-five miles per hour, with a flick of the steering wheel the difference between life and death.’
What is Australia doing at this moment of transformation and unprecedented technological acceleration? It is walking away. In early 2016, the winding up of local car production by the three remaining volume manufacturers is a done deal. Ford will quit in a few months, Holden and Toyota next year. Once these companies become importers into Australia, there is only the tiniest chance full manufacture of vehicles will occur here again. Australia will have given up its position as one of about a dozen countries that can undertake every aspect of the design, engineering and manufacturing of cars. It will have said goodbye to what has been for decades its largest advanced manufacturing industry, one that accounted for up to $6 billion a year in exports before the global financial crisis and the increase in the exchange rate of the Australian dollar that followed.
Cars provide an analogy for most local manufacturing. ‘The contribution of the manufacturing industry to the overall size of the Australian economy has been falling over many years,’ states a 2014 Parliament of Australia research paper. ‘In 2013–14 its share of gross domestic product (GDP) was 6.5 per cent, which is less than half what it was four decades earlier. Moreover, the decline in the manufacturing industry shows no sign of abating, with the industry’s share of GDP falling at a more or less constant rate over the entire period.’ With all evidence suggesting vast changes in the way cars are built, powered and owned, allowing the Australian automotive industry to close could be one of the greatest financial and strategic mistakes ever made in this country. In the words of former Victorian premier and automotive industry envoy Steve Bracks, Australia is ‘effectively reducing our skill base as a country’. In the process there is a risk of being shut out of a new industrial revolution.
SELF-DRIVING CARS are hardly new. Leonardo da Vinci (1452–1519) sketched a clockwork-powered cart capable of following a predetermined path. The first aeroplane autopilot was tested before the First World War. Science magazines propagated the idea of the self-driving car soon afterwards, as did the 1935 short story ‘The Living Machine’ by David H Keller:
Old people began to cross the continent in their own cars. Young people found the driverless car admirable for petting. The blind for the first time were safe. Parents found they could more safely send their children to school in the new car than in the old cars with a chauffeur.
In 1939, the Futurama exhibition staged by General Motors included a display of ‘cars of 1960’. These supposedly picked up electricity and steering instructions from the roadways. Many show cars of the 1950s and 1960s claimed some level of autonomous operation. Flying cars were the other obsession, along with something in-between: machines that glided above the road via magnetic levitation. The 1969 Holden Hurricane, perhaps the first ‘concept car’ produced in Australia, garnered much publicity with its bright orange metallic paint, lift-up roof, digital instruments and rear-view camera. It also had a navigation system, although one that would require thousands of magnetic markers to be built into the roads.
In 1977 a camera-and-computer equipped car produced by the Tsukuba Mechanical Engineering Laboratory in Japan followed white lines on a closed circuit at thirty kilometres per hour. In the 1980s German engineer Ernst Dickmanns filled a Mercedes-Benz van with cameras and computers and successfully mixed with Munich traffic hands-free. Dickmanns’ triumph was using an onboard autonomous guidance system to steer his vehicle, rather than it been guided by wires, magnetic lines or poles.
By the 1990s Dickmanns demonstrated a self-driving Mercedes sedan that could successfully negotiate Paris traffic, before having it traverse Munich and Denmark at up to 180 kilometres per hour without incident. In 1995 a prototype car from Carnegie Mellon University crossed the US, almost entirely autonomously. By the twenty-first century, self-driving pilot programs were happening in Europe, Asia, the US and Australia. The self-driving Google car racked up one million miles with only minor incidents.
In late 2013 I hitched a ride in an automated Honda Accord. The Accord braked and swerved for pedestrians, albeit well-trained ones who walked across the Japanese test track at the same point each lap. The Accord pulled to the left at one stage to avoid hitting a motorcycle that was supposedly being ridden erratically. The car used its own sensors, plus vehicle-to-vehicle and vehicle-to-infrastructure control systems. Speeds were low, and the closed track was heavily lined with equipment and technicians. Still, progress was being made and Japanese Prime Minister Shinzo Abe also took a trip in the autonomous Honda to signal his government was behind the technology.
The Renault–Nissan Alliance is the most bullish on future plans, claiming it will market ten different self-driving cars by 2020. However many major elements of self-driving cars – radar cruise control, automated braking, active steering (when drifting out of a lane) and auto-parking – were already standard equipment on many upmarket production cars by late 2015 when South Australian Premier Jay Weatherill welcomed the International Driverless Cars Conference to Adelaide. Participants at the two-day conference heard that the sector would be worth $30 billion globally by 2030; Weatherill wants some of that for his state in the wake of Holden abandoning its factory at Elizabeth. Adelaide is also host to the Australian Driverless Vehicle Initiative, run by the Australian Road Research Board (ARRB), a consortium that brings together federal, state and local government bodies involved with roads and transport, plus the New Zealand Transport Agency.
Gerard Waldron, managing director of ARRB, said one of the most striking statistics to come out of the conference was that 90 per cent of eighty year olds in Australia have driving licences, but only 70 per cent of twenty-four year olds. ‘That’s really interesting,’ he commented, ‘because there is a fair bit of reticence about driverless vehicles suggesting people want to drive, that they like to drive, and we have a younger generation coming through at the moment who don’t see that as essential even in the current circumstances. These sorts of people will take to driverless cars like ducks to water. Part of the democracy of driverless vehicles is that it doesn’t matter if you have a handicap, you are too old or fragile, or too young, or not responsible enough, you’ll still have the same mobility options.’
The massive report Autonomous Car: Self-Driving the New Auto Industry Paradigm by Morgan Stanley Research in November 2013 predicted such cars could lead to ‘one of the most significant transformations of the automobile in its history,’ as well as bringing global savings of US$5.6 trillion. The authors (all seventeen of them) attributed these projected savings to fewer accidents, improved energy efficiency and productivity gains arising from people working while commuting.
Professor Thomas Weber, the research director at Mercedes-Benz, is at the leading edge and is convinced the shift will alter the nature of driving and of being a car maker. ‘Today I buy a car,’ he told me, ‘tomorrow I buy mobility.’ Similarly, Ford Australia’s president and CEO Graeme Whickman agreed there were big opportunities ‘if we operate less as a car maker of the past than a mobility provider of the future.’ This is the automotive equivalent of the sharing economy, which, powered by the internet, has transformed so many other industries: films are now streamed on demand, spare rooms rented to strangers, household goods sold via online auction sites, while software is leased, or co-operatively developed and made available to all.
AUSTRALIANS LIKE TO portray themselves as innovators filled with pioneer spirit, and masters of bush-bred solutions. Certainly in the early days of manufacturing it was true. In the wake of the world’s first mechanised grain stripper (1843) and the stump-jump plough (1876), the first home-grown motorised vehicles were manufactured before the end of the nineteenth century. They were inspired by designs seen in magazines, or largely improvised, or copied from the few cars that had been imported. By the beginning of the twentieth century, the new Federation had a car industry, of sorts. The Thompson – a steam-powered, carriage-bodied vehicle built in Armadale, Victoria – made the first motorised interstate journey (from Sydney to Melbourne via Bathurst) and was then offered for sale in series production. About one hundred and fifty orders were received, though only twelve Thompsons were built, possibly because series production was more difficult and expensive than imagined. It was a lesson soon to be learnt at great cost by many others. Small makers regularly offered cars for sale, sometimes fabricating almost every component in-house. Most disappeared before many, if any, finished products were delivered to customers. But the sheer energy and resourcefulness of these car makers, working so far from the centre of the action, is worthy of note. Some of the earliest front-drive and four-wheel drive vehicles were built in Australia. The Tarrant, another Victorian effort, was a superb piece of design and engineering by international standards, yet only sixteen were built between 1905 and 1915.
The Great War brought legislation that restricted the importing of complete cars into Australia, opening the way for a massive body--building industry. The Six and the Lincoln, two ambitious Australian brands unveiled in 1919, used imported mechanicals and local bodies. However, US economies of scale, particularly that of the Model T Ford – which went down in price each year while the Australian cars went up – spelled the end of both projects. By the mid-1920s, Ford had set up an Australian division to produce Model Ts, using a combination of locally fabricated parts and Canadian mechanicals, which came in at a lower duty and allowed the claim of ‘fully made in the British Empire’. The carriage-repair then coach-building company formed by James Alexander Holden was also booming. By 1924, as Holden’s Motor Body Works, it would dominate the market and win the right to make all GM bodies in Australia. The Great Depression spelled the end of independence, however, and it was folded into GM to form General Motors-Holden.
By the end of the 1930s, GMH was seriously investigating an all--Australian car, but war intervened. The company instead built guns, armoured cars and boats, bombs, airframes and, eventually, Gipsy Major aero-engines. These were Australia’s first mass-produced internal combustion engines. Along the way GMH acquired a full-scale foundry, more advanced production equipment and far greater manufacturing expertise. Come VJ day, a local car was almost inevitable and the Australian government was determined to help make it happen.
The first Holden, the conservative looking 48-215 sedan of 1948, was a Chevrolet design deemed too small for the US. Light, strong, roomy and powerful by the standards of the British cars then topping the charts, it proved perfect for Australian needs. Later Australian-designed Holdens continued to build on the template, and within ten years GMH had just over half of the entire market.
Understandably, such success drew others in. Cars that were wholly or mostly manufactured in Australia would follow from Ford, Chrysler, and the British conglomeration known as BMC (later British Leyland, then Leyland Australia), while home-grown brands tried fibreglass sports coupes and micro economy cars.
The major local car makers boomed through the 1960s. They were protected by tariff and non-tariff barriers, certainly, but buoyed by a talented workforce and ever-more prosperous consumers. The 1963 Holden EH, largely designed in Australia, was a match for any popularly priced family sedan in the world, and a quarter of a million of them were sold in eighteen months.
Toyota’s passenger cars arrived in Australia in the early 1960s and by the 1980s the Japanese company was fully manufacturing certain models in Australia.
ONCE THE EXPLOSIVE growth of the 1960s and early 1970s slowed, the brakes were also put on innovation. In a largely closed market (tariffs would peak at 57.5 per cent), local outposts of foreign companies had a common interest in not rushing in expensive new technology, while governments made demands in exchange for market protection. Market leader Holden built multiple factories instead of consolidating. Other inefficiencies crept in and, by the early 1970s, the situation was exacerbated by Japan aggressively exporting complete cars with low prices (even allowing for the tariffs), unrivalled model diversity and rapidly improving quality.
The Brits were mostly out by the mid-1970s, while Chrysler Australia was taken over by Mitsubishi by the end of that decade. Holden was effectively bankrupt by 1986 (requiring a restructure and a fresh injection of GM and Australian government money), while Nissan gave up on its short stint as a local manufacturer in 1992 (keeping only its casting plant here). Holden, Ford and Toyota were stumbling on with technology that was further and further behind the rest of the world when, in the late 1980s, tariffs began to fall aggressively and perhaps suicidally. By 2010 they had dropped to 5 per cent, or zero from countries with which Australia had a free trade agreement.
Mitsubishi pulled out in 2008, but Holden and Toyota, particularly, enjoyed a resurgence on a low dollar and a huge lift in the quality of their products. The country exported over a hundred thousand cars in a year for the first time in 2000. Car exports peaked in 2008, with 161,946 units. Most went to the United Arab Emirates, but Holdens were sold in the US as Pontiacs and Chevrolets, where their good looks, strong performance and increasingly rare rear-drive layout were major sales points. Toyota built a little changed version of the Japanese Camry, but with a quality few had believed was possible in the small Australian market even a decade earlier.
BUT WHILE EXPORTS were improving, the situation at home was deteriorating. Holden, Toyota and Ford (which did not have a substantial export program and was seeing sales of its local Falcon and Territory models falling fast) were taking hits from every direction. Not only did so-called mid-sized cars from Europe become progressively bigger and cheaper, and low-cost Asian cars become better, the market exploded with imported niche models such as SUVs. Falling tariffs brought in many new brands, often arriving with low prices and big marketing budgets. Buyers in this relatively small market were given the biggest choice of passenger cars in the world, with as many as thirteen hundred variants from over sixty manufacturers.
As if to illustrate the difficulty of this playing field, Holden sold ninety-five thousand Commodores in Australia in 1998. In 2015, the company shifted fewer than thirty-thousand. Worse still, it sold only 103,000 vehicles in total for the year, across eleven different (mainly imported) model lines from the Barina city car through to the Colorado SUV.
In 2013 financial journalist and commentator Alan Kohler memorably wrote: ‘The only country with a car manufacturing industry to which you can export cars successfully, and compete on price, is Australia.’ The view that Australia has done a lot more to honour its free trade agreements than its trading partners has been widely voiced in recent years. Alternatively, some commentators laid the blame on our car makers for not making the sort of small fuel-efficient cars buyers are demanding.
Although it is true that Australians are buying a greater number of fuel-efficient cars, they are also buying more high-performance cars and hulking SUVs – and more of everything in-between. The proliferation of makes and models means there is no longer any single model sold in Australia at a volume that would make local manufacture viable without a big export program. As it is, the Australian-built cars are still among the most popular cars on the market, from any source, and they achieve this with minimal tariff protection.
THERE IS ANOTHER problem. Australia doesn’t own its industry and has always been subject to the whims of head-offices on other continents. Unless this country built a unique and independent brand that the wider world was prepared to pay a premium for, survival was always going to be tough. But how many small countries have? People used to point to Sweden, with fewer than ten million people and two respected homegrown marques. The twenty-first century reality is that Saab is effectively gone, and Volvo is owned by the Chinese. Not even the UK has maintained ownership of its few remaining car brands, while the once-dominant US has just two volume makers, GM and Ford. The bigger of the two had to be dramatically rescued by the government during the GFC. Chrysler is part of Fiat Chrysler Automobiles, effectively ruled from Turin via London, while Tesla makes a tiny number of cars (50,580 in 2015) and loses a large sum of money on every single one of them.
If local manufacture had continued, the companies that stayed would have all been building front-drive cars suitable for world markets from 2016–17. There is little room in the modern world for popularly priced rear-drive cars, or even regional models. Holden would likely have used mostly imported parts, as it does with the Holden Cruze (which runs down the same South Australian assembly line as the Commodore with just 25 per cent local content), so redundancies would have continued. Toyota was the last to announce it was quitting manufacturing, arguing that with the others gone, there would no longer be a sufficient supplier base to make local manufacturing viable.
That brings us to a part of the motor industry that is often overlooked. Car makers don’t generally manufacture everything (though autocrats like Henry Ford and Louis Renault have certainly tried). Today they rely on hundreds of external suppliers to provide tyres, wiring, glass, seating materials, carpet, exhaust components, nuts, bolts and more. Increasingly, the economies of modern manufacture are leading to engines and other mechanical components being widely shared (as has long been the case with computer internals). There are currently perhaps one hundred and fifty Tier One companies, which is to say those that directly supply Australian car makers, with some also shipping to a few overseas makers. The Tier One companies are in turn supplied by between one- and two-thousand Tier Two companies. The suppliers hold much of the expertise and institutional knowledge from Australia’s long years of manufacturing. It is with them – those that can survive – that any hope of Australia staying in the game may rest. That’s because increasingly cars are not about the skin and bone but the brain and soul. The secret is value-capture, and if self-driving cars are to be a US$5.6 trillion game-changer, even a tiny slice of that would be a big prize.
WHILE THE CONCEPT of a car silently, effortlessly and driverlessly wending through the traffic might sound sexy, the ‘back office’ behind that achievement is not. It is filled with acronyms, complex algorithms and countless software upgrades to address reliability, bugs and data security concerns. Many companies are contributing tiny incremental changes, each designed to bring the shining goal a little closer. One is Cohda Wireless based in North Adelaide. It has teamed with German tech giant Siemens to work on ‘smart infrastructure’. Before this tie-up, finalised in October 2015, Cohda was already claiming the position of the world’s leader in V2X hardware and software (V2X covers communication from car-to-car, between vehicles and infrastructure, and even between vehicles and pedestrians). Cohda sells to car makers, road authorities and automotive chip makers, and says nearly two-thirds of field trials of automated cars with V2X are using its equipment.
The tie-up with Siemens will see Cohda develop and produce V2I (vehicle to infrastructure) roadside units that will help vehicles share information with traffic lights, signs and other infrastructure, and vice versa. These roadside units use a Wi-Fi variant created specifically for the purpose and can, in Cohda’s wording, ‘reliably and securely transmit information such as speed limits, warnings of icy roads and other dangerous situations, traffic jams and construction warnings within a fraction of a second to passing vehicles and traffic control centres’. Cohda has also developed V2X-Radar, a 360-degree sensor designed for driverless cars that is claimed to be cost effective, unaffected by fog, rain and snow, and able to ‘see’ around corners. Importantly for the future, it can detect older vehicles not equipped with autonomous technology.
‘We are not a traditional participant in the motor industry in Australia, we don’t manufacture hardware which is put into cars,’ company CEO Dr Paul Gray explained. ‘We are a software company…which is a different kind of engagement. It is interesting because there is so much more software in a vehicle every year.’
Cohda has forty staff, including a small number in the US and Germany, and is mainly venture capital backed, with Cisco Systems and NXP Semiconductors (the number one automotive chip supplier) as stakeholders. Dr Gray believes cars classified as ‘Level 4’ by America’s National Highway Traffic Safety Administration will be driving around by 2025. ‘A Level 4 is a vehicle that a driver need never take control of, and that’s the endgame because you could put a child or a blind person into that car and it will take them wherever they want to go,’ says Gray. ‘Level 3 vehicles…will be quite common by 2020. In a Level 3 vehicle you can watch a movie but you’ll need to stop watching and take control of the vehicle if things get too hard for the automated systems.’
Dr Gray doesn’t believe self-driving cars will be quite as disruptive as some are predicting. ‘People will still own their own cars and will just be happy not to hold the steering wheel. There’s a benefit to society in that for the elderly and disabled. It will create mobility they can’t achieve now.’
THOMAS WEBER OF Mercedes-Benz predicts a greater embrace of the sharing economy. He speaks of a ‘digital transformation’ with his company involved in car-sharing schemes, electric infrastructure as well as closely co-ordinating with public transport systems. BMW’s technology heads are also focused on a sharing future with close co-ordination between private and public transport. GM’s CEO Mary Barra also sees the traditional ownership model being disrupted ‘by the sheer fact that 94 per cent of the day the car sits idle’. Her company recently invested US$500,000 in ride-sharing company Lyft. Ford is trialling car-sharing systems in the US, UK, Germany and India.
Weber won’t commit to a schedule for truly autonomous cars, saying most of it is possible now, but there is still work to do to solve the final problems. Nonetheless, he says the massive concentration on the technological development necessary for driverless cars will speed the process of their arrival.
One such area is mapping. Precise 3D maps are being produced by Google, Apple and the German car makers’ consortium Here, and these can be constantly updated using real-time data from millions of connected cars. Many believe such accuracy will help vehicles run nose-to-tail and side-to-side so closely that the road capacity could be increased three or fourfold. Another aim of automation is to reduce road fatalities. The National Highway Traffic Safety Administration says the technology ‘can eliminate 94 per cent of fatal crashes involving human error’.
Can Cohda Wireless and Australia be a major player in the motor industry without building cars or physical components? Perhaps. GM has announced it will be the first car maker in the world to put V2X into a production vehicle. It has chosen Cohda to supply all the V2X software for the Cadillac CTS, launched late this year, and Cohda has more contracts in train with GM and others.
‘These features are the real selling features of vehicles,’ says Gray. ‘It is hard to make a new brake pad and distinguish yourself. With innovative intellectual property like V2X-Radar you…can enhance a car’s value in the perception of the customer and therefore make car-makers willing to pay more for it.’
DESPITE GRAY’S COMMENTS about supposedly low-tech areas, there are Australian operations distinguishing themselves in fields such as seating and aluminium casting, and perhaps even brake pads. Carbon Revolution is sited near Geelong’s Deakin University, and has worked closely with the university in developing the world’s first mass-produced carbon-fibre wheels. Carbon Revolution has sold early examples to Ford for use on the flagship Mustang GT350R, and hopes to produce fifty-thousand wheels per year by 2017.
Seeing Machines, based in Canberra, was spun off from the Australian National University fifteen years ago, and first concentrated on developing a camera-based drowsiness and distraction detection system. The idea was ahead of its time and Volvo took a stake in the company. Seeing Machines is now publicly listed and backed mainly by international institutional investors. Volvo has divested but Seeing Machines is currently supplying research or software to thirteen different car makers, mostly via Tier One suppliers. ‘We are supporting the introduction of the semi-autonomous car and working towards full autonomy and letting the car better understand the driver,’ says CEO Ken Kroeger. ‘Right now [the focus] is semi-autonomy and to let the car know how available the driver is to take control if the semi-autonomous system fails.’
Breaking into high-tech fields with major car makers is exceedingly hard admits Kroeger. He says that automotive work accounts for 80 per cent of the company’s expenses and 1 per cent of income. ‘Our investors have invested in us to grow this business as quickly as possible… The fact that people are now much more comfortable having a camera aimed at them has changed things.’
The camera can track a driver’s eyeballs and adjust things to suit – for example, bending one headlight if they are trying to find a house at night. Kroeger said maps could be projected on the windscreen as part of a dynamic ‘heads up’ display, or if a driver prefers they could be shown a virtual car to follow through complex corners and intersections. Because the car would know where the driver is looking, the display could move across the glass so it was always in line with the driver’s eyes. Most importantly, if there is the risk of an accident because of what Kroeger calls ‘an inappropriate glance’, the car can be one step ahead.
Seeing Machines is in the process of moving from a supplier of algorithms on a royalty basis to supplying microprocessors with their software already installed. ‘We want to become a piece of hardware,’ says Kroeger, ‘because the industry at this point just doesn’t know how to buy software.’ The model for this approach is Israel’s Mobileye, which sells camera-based Advanced Driver Assistance Systems (ADAS ) that can keep the car in its lane, warn if there is the risk of a collision, and more. The company has major car makers and suppliers as clients and was valued at US$5.3 billion in a 2014 Initial Public Offering on the New York Stock Exchange. That figure proves there is huge money to be gained in intellectual property, without the risk of building large-scale plants and manufacturing infrastructure.
UNTIL THE ELECTION of Tony Abbott as prime minister in 2013, Australia’s major parties had been strong supporters of the motor industry, standing behind a succession of reports that found automobile manufacturing brought a net benefit to the economy. No party was in a position to keep five manufacturers viable, so it was as much economic circumstances as politics that saw Nissan Australia cease manufacturing under Paul Keating’s Labor government, Mitsubishi under Kevin Rudd, then Ford’s announcement during Julia Gillard’s term.
If one moment signalled a dramatic change in attitude, it was a parliamentary session in 2013, two weeks before Christmas and just three months after Abbott had been made prime minister. Deputy opposition leader Tanya Plibersek posed the following loaded question: ‘From 2001 to 2012, Holden generated $32.7 billion of economic activity in Australia and paid $21 billion to other businesses in Australia. During that period Holden received $1.8 billion in Commonwealth government assistance. Does the Treasurer consider eighteen to one a good return on investment?’
Newly appointed treasurer Joe Hockey shot back: ‘The best return on investment that you can have is for a business to invest its own money, make its own profits and remain sustainable.’ Hockey was supposedly still waiting for the Productivity Commission audit of local car-making support that his government had commissioned, yet he unleashed a long barrage in which he shouted and occasionally smirked as he accused Holden of not being ‘fair dinkum’. He taunted the company to leave. ‘Either you are here or you are not.’
If Holden needed any proof that this new government did not extend its almost unequivocal support of mining and agriculture to car manufacturing, here it was. Although preliminary work had begun on the 2018 Commodore, then slated for Australian production, Holden responded to Hockey’s taunts by announcing it was closing its manufacturing operations.
Toyota wanted to stay. Aside from losing face (one of its slogans was ‘Here for the Long Run’), it had a big investment and viable export program. It also had substantial local heritage, including fifty-five years of local assembly and manufacturing. Australia was the first Western country where Toyotas were made, and was the first where it gained market leadership (it first overtook Holden in 1991, and has never ceded the number-one spot since 2003). It was producing cars with a higher Australian content than its local competitors (as high as 70 per cent) in the twenty-first century, yet it was snookered.
In January 2014, the Productivity Commission delivered a position paper, estimating that $30 billion worth of subsidies were paid to the local car industry between 1997 and 2012, and recommending that all financial support be phased out. In March it recommended that the Automotive Transformation Scheme (ATS) – the catch-all title for the car industry assistance allocated between 2011 and 2020 – should stop when Ford, Holden and Toyota cease manufacturing, rather than continue to assist post-manufacturing ventures of those companies or suppliers. The Abbott government announced that this would save taxpayers $400 million.
Was the shut down inevitable? Yes, claimed Denis Napthine, the then-Liberal premier of Victoria, the state where more than half of the nation’s automotive workers resided. He blamed the Holden announcement on ‘decision makers in Detroit’ who were responding to US problems. When I spoke to him at the end of 2015, Mark Bernhard, chairman and managing director of GM Holden Ltd, said: ‘If you look at all the different factors that come into a decision like that, the economies of scale were difficult, the market segmented significantly, exchange rates came into that as well, high cost of production, the supply base has increasingly moved offshore, increasing our costs…in my mind there is no doubt that it was inevitable that we were going to end manufacturing in this country.’
Melbourne-born Bernhard grew up with the brand and said the retreat from manufacturing was ‘very very sad’. Steve Bracks, Victorian Labor Premier between 1999 and 2007, went one step further and called it a ‘tragedy’. With much regret in his voice, Bracks said the industry could have been, and should have been, saved.
In 2007–08, under the Rudd government, Bracks conducted a review of Australia’s automotive support and assistance schemes. Bracks was subsequently appointed envoy for the Australian car industry, promoting it around the world until 2012. ‘I had a view, and our report showed, that we had a viable industry long-term but we needed some assistance for a period, as every other country in the world does. There is no country that manufactures, designs and sells passenger motor vehicles that does not get assistance and support from government. And ours was at the lower end of that assistance if you look at international benchmarks.’
In 2013, former manufacturing minister Kim Carr garnered a lot of attention when he estimated that Australian automotive subsidies cost $17.80 per taxpayer per annum, compared with $90 for Germany and $264 for the US. These dramatic figures, however, covered the global financial crisis years when the German and US government were supplying much greater support than normal. They also failed to take into account how many cars were being produced per taxpayer. Still, most figures suggest Australia’s recent level of support has been at the low-to-medium end of the scale, and certainly below the US and many European countries.
Bracks said the car industry’s problems of recent years related to currency more than anything else. ‘The dollar was very high, around parity or a bit higher, and that was a bigger issue than subsidies or any other issues. The companies invested on a base case of an exchange rate for the US dollar of around $0.85. You know over a period of time that eventually it will come into equilibrium and something around that or a bit less.
‘Imagine what we would be producing now [with the Australian dollar around 70 US cents]. Our passenger vehicles would be something like 30 per cent cheaper in the Middle East…exports would be through the roof. If they [the Abbott government] really wanted to get rid of the industry they were successful. There is a supposition that they philosophically felt they didn’t want to subsidise any industry, though they do of course, whole sectors.’
University of Adelaide economists Lance Worrall and John Spoehr reported to the Senate Standing Committee on Economics in October 2014 that the end of Australian automotive engineering and manufacturing ‘poses the threat of the permanent loss of key and essential manufacturing capabilities that are critical to Australia’s opportunities to compete in the global knowledge economy. Manufacturing is essential to economic complexity, which drives per capita incomes, and is predictive of a nation’s future growth and the complexity of its exports.’
‘Once you give it away,’ lamented Bracks, ‘it is very hard to get it back.’
THERE ARE OTHER opportunities, perhaps. Switzerland, with just eight million people, has never manufactured motor vehicles in volume, but has a vibrant, if little known, industry. Its three hundred-plus automotive component companies employ 34,000 people, about two-thirds as many as the country’s famed watch industry. Switzerland, though, has advantages that Australia does not, including its central European location.
Alternatively, the Australian Driverless Vehicle Initiative might help this country gain a first mover advantage. ‘In terms of safety, the cost of not having road safety at the moment is $27 billion a year,’ according to ARRB’s Gerard Waldron, ‘and I can tell you that up to 90 per cent of crashes, deaths and injuries are the result of human error. So if you are offering a technology that is going to cut out or reduce a chunk of that human error, you are going to have an impact on that $27 billion.’ Waldron says that figure includes health and disability costs, plus damage to cars and infrastructure.
The mining sector already uses automated trucks and is working on trains. Waldron believes driverless trucks on Australian roads could bring about running-cost savings of at least 40 per cent, while far less capital would be tied up because such trucks could run around the clock. ‘These are the sort of economic benefits that will accrue to a country that is embracing this technology and using it intelligently… We want to get the conversation moving so that all the things that need to be lined up to make this happen are ready when the technology is available to us. We need regulation, we need vehicle standards, we need pricing mechanisms. All of these things can be done now in this pre-deployment period.’
A convergence between driverless cars, electric vehicles and a shared ownership model will completely change things for car manufacturers, Waldron says. Far fewer cars might be needed with widespread sharing, while the value could shift from hardware that is sold once, to software that will need constant updating. ‘There is no reason that Australia can’t be a major contributor in that sort of space. You don’t need foundries and machinery centres and lots of assembly workers.’
Being at the forefront of driverless cars might bring efficiencies, but is unlikely to bring a net increase in jobs. A Smart Move, a report published in April 2015 by PricewaterhouseCoopers, calculated an 80.5 per cent likelihood that the jobs of 94,946 Australian car, bus and rail drivers will disappear as a result of automation by 2035.
IN SEPTEMBER 2015 the world learnt that the VW Group, which had recently overtaken Toyota to become the world’s biggest car maker, had loaded software into eleven million diesel-powered cars to cheat US emission tests. Despite coming up squeaky clean in the lab, these cars generated up to forty times as many harmful nitrogen oxide (NOx) emissions in real-world conditions. Frighteningly, these same engines would have come close to passing Australia’s legislation without cheating software. Why? Because local manufacturers have long lobbied to keep Australian emissions legislation below best international standards, saving them large amounts of money.
This highlights one of several disadvantages of building cars in Australia; legislation and taxation is constantly shaped around protecting the interests of those concerned (and the government’s investment therein). It’s not just Australia, of course. Cynics might suggest the US has incredibly tight emission limits on diesel vehicles because they tend to be European. Multi-tonne, gas-guzzling V8 pick-ups and crude SUVs with a separate chassis, which tend to be American, are classified as light-duty trucks, not cars. They are therefore subjected to much less stringent emission and fuel economy targets, and exempted from the ‘gas guzzler’ tax. This has been a major contributing factor in these profligate vehicles being widely adopted as family transport and thereby becoming the outright bestsellers on the US market. The flipside, expressed by Daniel Fisher in Forbes magazine in October 2015, is that European laws concentrate on CO2 rather than NOx emissions to favour diesels, a VW and Peugeot specialty. Fisher quotes research arguing this keeps cheaper petrol cars out of Europe and so functions as a de facto 20 per cent import tariff.
All of which shows national self-interest can corrupt effective, even-handed legislation. The Euro 5 standard was introduced on the continent in 2008 but won’t be introduced to Australia until November 2016. Eight years is a vast gulf in emissions legislation, which is rapidly tightening in most markets (Europe is already on the much tougher Euro 6). Likewise, Australia has avoided the sort of imposts on capacity that have ensured European family cars have traditionally been powered by two-litre engines, but often close to twice that here.
Local car makers have built big cars with big engines because such vehicles have a higher perceived value but involve very little extra production cost. Tax payers have subsidised them in myriad ways. The luxury car tax and the Australian Tax Office’s depreciation limit have traditionally been set just above the cost of the dearest locally built car. Novated leases mean petrol can be paid for out of pre-tax income. Road tolling in NSW, to give another example, makes no distinction between a tiny motor scooter and a two-tonne Ford Territory. Skewing things to the advantage of those making large, heavy and inefficient vehicles has in turn created a voracious appetite for such vehicles, and that preference will likely continue after local manufacturing ceases. A dramatic increase in fuel taxes, or levies that relate directly to vehicle size, weight, engine capacity or the output of harmful emissions, would allow Australia to more easily meet its obligations from the December 2015 UN Climate Change Conference in Paris. But does any political party have the nerve to implement such changes?
Similarly, there has been much debate over the past couple of decades about reducing restrictions on second-hand cars. This is controversial but could conceivably bring benefits to consumers (as well as pain). It was never likely to happen while we had local car makers but, post-2017, serious consideration to this option might finally be possible. It’s not just consumers and the environment that could potentially benefit, post manufacturing. Holden, Ford and Toyota will no longer need to protect Commodore, Falcon and Camry economies of scale above all else. They can offer a wider range of vehicles covering the family car market and more readily shift their order banks and marketing dollars to whatever sector is doing best. They won’t have to heavily discount to fleets and government, or export at a loss when the dollar is high, just to keep factory volumes viable. That means sales will almost certainly fall, but profitability improve.
AFTER 2017, THE current car makers will be active locally, though in a much more modest way. Ford Australia was expected to close its 930-hectare proving ground at You Yangs near Geelong, but in December 2015 announced it would hold onto it and invest heavily to increase its role in the Asia-Pacific and global Ford testing. With this and Ford’s Geelong Research and Development Centre, and its Asia-Pacific Engineering Centre in Campbellfield, Ford Australia claims it will be the largest automotive employer in the country, post-2017. It has designed and engineered the current and next generation Ford Ranger and Everest models for world markets and has several other projects in train.
‘In rough numbers we’ll have eleven to twelve hundred engineers and designers. We’ll probably have fifteen hundred staff in all, plus another five hundred contract staff, plus our dealer network of course,’ explains Ford Australia’s president and CEO Graeme Whickman.
Whickman insists this is at least partly because of the overseas vote of confidence in Australian ingenuity. ‘It is a remote country…it has found a way of getting things done…without the scale of other markets, and they consistently prove that out in a global context. And that is one of the reasons Australia is a crown jewel from a product development point of view, because they are smart people and find interesting solutions.’
Holden will employ about a thousand head-office staff after manufacturing ceases. Its International Design Centre with a staff of one hundred and fifty will concentrate on concept cars and advanced vehicle designs – those designs one step beyond the next production models – for various GM divisions, as well as designing and updating production cars. Mark Bernhard says we will see future GM cars in international markets that have been designed in Australia. However, neither Holden nor Toyota is likely to be doing the sort of ‘ground up’ design and engineering of vehicles that Ford has committed to. From 2018 Toyota will employ about thirteen hundred people in head office, including about sixty working on product design and product development. A separate team will continue to carry out design work for the Asia-Pacific region and the accessories division.
The end of car manufacturing will cost a lot of jobs. The lay-offs started when the announcements were made. The final retrenchments will get rid of about six thousand positions, although the actual total is likely double that since 2013 and twice that again since the boom years of the early 2000s. The Federation of Automotive Products Manufacturers has calculated that every direct car job carries between six and 6.5 jobs in the associated supply chain. Senator Nick Xenophon believes between 150,000 and 200,000 jobs will have disappeared. The car makers’ exit will also wipe $29 billion off Australia’s GDP, according to Lance Worrall and John Spoehr’s submission to the Senate Standing Committee on Economics. Worrall and Spoehr have proposed a remaking of the ATS ‘to take on the additional goal of assisting automotive companies to make the transition to new product opportunities and value chains’. They recommend maintaining the ATS to help companies transition and diversify into alternative products or niche products that can be exported into the global automotive economy.
It is certainly true that Holden, Ford and Toyota’s local design and engineering efforts, post-manufacturing, may require some support to survive. They will be competing for work with other divisions of their respective parent companies – and some of those divisions will be in countries where government assistance is plentiful. Steve Bracks says Australia needs to maintain world-class automotive design and engineering capacity ‘because of the potential to on-sell to other sectors of the economy, the spill-over effect as it is called in economic terms…is significant. For example, it is unlikely we would have now an aeronautics industry if we didn’t have a
THE TURNBULL GOVERNMENT’S Innovation Package of December 2015 – worth $1 billion over four years – includes new tax arrangements for investors and start-ups, funding for collaboration between universities and industries, plus eight other initiatives. None are specifically aimed at the motor industry, though people within the car companies have said the ‘language has changed’ and there are reasons for optimism. (It must be said, however, that nobody is asking those car companies to reconsider exiting.) Even with new language and renewed optimism, the entire allocation of the Innovation Package, and the continuation of the ATS, wouldn’t buy the country a major seat at the future car table, nor prevent the quashing of the careers of many talented engineers, designers and manufacturing staff, and the dashing of the hopes of many students who had hoped to shape the next generation of Australian cars.
Why? Because the stakes are extraordinarily high, and becoming ever more so. The ATS would have made available a maximum of $6.6 billion to Australian companies over ten years, or $660 million a year. Professor Weber at Mercedes-Benz controls an annual research-and-development budget of €7.7 billion. That’s nearly $12 billion in Australian dollars, for just one company for one year, and covers only cars (not Mercedes-Benz’s buses or trucks). The VW Group spent €13.1 billion, or just under $20 billion, on research and development in 2014. Engineers from Ford alone filed six thousand patent applications in 2015.
With such numbers in mind, making serious inroads into the automotive future would take not just substantial funds but a massive commitment involving a very clear strategy about the niches in which Australia could attempt to establish a clear and profitable lead. It would take everything we can draw from existing car makers, those component makers that can survive, our tech start-ups, universities and research hubs and, most likely, would require the setting up of a new body charged with co-ordinating it all. This would be ideally staffed with industry-hardened experts – and we’ll soon have plenty available.
Automotive is the junction at which so much is converging: data, processing power, artificial intelligence, automation, clean energy, communications, entertainment and workplace productivity, to name just a few. To compete against Apple, GM, Google and others, it may also be necessary for Australia to seed a standalone CSIRO-type body to develop new technology. Unlike the Australian divisions of international car manufacturers, it would not be bound to an overseas head office, so could work on in-house innovations while also bidding for design, engineering and research contracts with any brand in any country. Such a body – perhaps tied to a university – could soak up at least some of the best and brightest upcoming talent, and give many experienced designers, engineers, manufacturing specialists and electronics experts a reason to stay in the country. If it could garner even a tiny share of the riches that may yet come with an autonomous vehicle revolution, the body could be spun off into the market at an opportune moment.
To adapt a Hockeyism, it isn’t a case of simply being in or out. All post-2017 Holdens, Fords and Toyotas will be produced offshore but, with support programs like those mentioned above, it’s entirely feasible that they and many other brands could contain physical components, design elements and software developed by Australian companies. It is plausible that, with Australia’s unusual combination of highly urbanised centres and vast open spaces, we could lead the way in automating freight between cities, while pioneering the wide-scale use of self-driven shared cars within them. It would take a vast change in attitude though for a country that struggles to provide even four-lane roads between capital cities, and has consistently run down its meagre rail network.
Without the need to protect a local maker, clever policy settings could help deliver world-leading fuel efficiency and clean emissions. It is unlikely that, in the short or even medium term, any of these initiatives will bring the depth and breadth of skills that are involved in developing and manufacturing whole cars, nor the ‘economic complexity’ spoken of by Worrall and Spoehr, nor anything like the same total value. But in the long-term they just might, and making a positive move is certainly preferable to simply adding auto-motive to the list of industries Australia has turned its back on.
There is undoubtedly an opportunity – a unique and perhaps fleeting one – to create a role for ourselves in a fascinating time of upheaval. Australia has the talent and the resources. It will come down to whether its leaders have the resolve.