It seemed inevitable last year that Australia would lose a quarter of its automotive manufacturing industry with the departure of Mitsubishi Motors. The Japanese-owned company had struggled to get anywhere close to profitability in recent years and a factory closure and job losses seemed to suggest that the end was near, writes David Robertson.
Go deeper with GlobalData
But Mitsubishi Motors Australia (MMA) has been given a reprieve – one last chance to remain a viable manufacturer downunder.
How the company takes this opportunity will not only determine its own future but could also have implications for the entire automotive industry’s prospects in Australia.
MMA’s future is being built on the PS41, or the Mitsubishi 380 as it will be badged. This is a 3.8 litre, V6 that will replace the company’s existing Magna model.
The 380 will compete in the toughest section of Australia’s car market: large sedans. It will be up against the Holden Commodore, Ford Falcon (both built in Australia) and Toyota Corolla – the three top sellers of 2004.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe old model Magna didn’t even make the top 10 list last year, which gives an indication as to the work Mitsubishi will have to do to make the 380 successful.
But even to be thinking about launching a new car is an achievement for MMA. It had very rough years in 2003 and 2004 with the company axing 1,100 jobs at its Tonsley plant in South Australia and closing the Lonsdale engine factory.
At the end of last year the remaining 2,300 workers at Tonsley were given about five weeks off over Christmas and then put on a four-day week to clear a backlog of unsold Magnas.
The Tokyo head office also had to provide MMA with A$200m in debt relief at the end of the financial year to keep the company afloat.
The situation at Mitsubishi had become so bad that internal surveys revealed that 80 per cent of Australians expected Mitsubishi to pull out of their country. However, MMA fought back. It introduced extended warranty packages at the start of this year with five-year bumper-to-bumper and 10-year drive train coverage – the normal warranty lasts just three years in Australia.
MMA has also launched an A$8m corporate confidence campaign designed to reassure consumers that Mitsubishi will be sticking around.
MMA managing director Tom Phillips has bravely lent himself to a number of these commercials and they have been credited with not only increasing confidence in the company’s ability to survive but also helping jump-start sales again.
“This corporate confidence campaign has enabled us to set the scene for the arrival of the 380,” said Kevin Taylor, MMA manager of product communications. “And at the same time it has restored confidence in our brand. That this has led to an improvement in sales is an unexpected and big boost.”
In May, Mitsubishi jumped ahead of Mazda (an importer only) to take fourth position in Australian sales behind Toyota, Holden (owned by General Motors) and Ford. Sales are up about 17 per cent so far this year.
“We’re coming out of intensive care,” a relieved Tom Phillips admitted in a recent interview.
Public expectation that Mitsubishi will pull out of Australia has dropped below 45 per cent, and the company expects this to fall further when the 380 is officially launched at the Sydney Motor Show on October 13.
Mitsubishi’s future in Australia will now depend on the success of the 380. Its Japanese HQ has shown great confidence in the Australian subsidiary, putting up A$600m to develop the model (although plans to produce a left-hand drive, export model were rejected).
MMA is forecasting sales of 32,000 vehicles a year with 3,000 being exported to other right-hand drive countries, primarily New Zealand. This is almost twice Magna’s 17,000 a year sales, but the company insists it is confident it can hit this mark.
But it isn’t just MMA and its backers in Tokyo that will be eager to see how the 380 performs. The entire Australian automotive industry, which employs an estimated 55,000 people and accounts for 6 per cent of all manufacturing in the country, will be watching.
Phillips recently alluded to this saying: “I don’t want to be melodramatic but this could turn out to be one of the most anticipated car launches in more than 20 years, not just for Mitsubishi.”
The reasons are varied but all have to do with the viability of continuing production in a country as small (in population) and isolated as Australia. One of the reasons the new 380 is so important is that it will provide a lifeline to a number of component manufacturers. The component sector in Australia has been dwindling in recent years as many companies have pulled out, or reduced their presence, and moved to cheaper sites in Thailand, Malaysia and, of course, China.
If more component companies disappear, some analysts fear that the industry will lose a critical mass of engineers, designers and skilled workers. If this were to happen the other domestic manufacturers (Holden, Ford and Toyota) would have to import talent or export tasks, which would call into question the need for a stand-alone Australian base.
Another reason the wider automotive industry is so interested in the 380 is that a successful launch would prove to reluctant head offices that funding new investment is worthwhile.
With, particularly, GM and Ford experiencing difficulties in the US, attracting investment to an outpost like Australia has become a tough sell. Ford Australia reportedly had an epic battle to get A$500m for the launch of its new Territory and GM has postponed (most analysts believe “axed” would be a better description) a plan to build a rear-wheel drive version of the Holden Commodore.
“Any opportunity to give a new lease of life to this industry, and Mitsubishi in particular, is helpful,” said Dave Oliver, assistant national secretary of the Australian Manufacturing Workers’ Union. “A successful launch of the 380 would send a clear message to companies like General Motors that they can do well here. The launch of the 380 is also important for the component companies. Mitsubishi is sourcing the bulk of its needs from South Australia and Victoria and if it is successful that will demonstrate to the other manufacturers that they don’t have to go overseas. Local supply is the way to go.”
Mitsubishi’s Kevin Taylor agrees that his company’s new launch will be vital to the Australian auto industry: “If the 380 is a success that will be a big help to local vendors and I think it is fair to say the rest of the industry is painfully aware of the importance of this launch and are wishing us well.”
Despite all its recent difficulties, Mitsubishi has put itself in a position to survive. It will now be up to consumers to decide whether the company’s newest product is worthy of this second chance.
David Robertson
