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rivate car buyers throughout Australia were in no mood to go shopping for new vehicles in the aftermath of the shocking September 11 terrorist attacks on the US, writes Mike Duffy.
Against a backdrop of loss of human life, suffering and grief of such magnitude, it seems wrong to even consider the impact on business around the world. Yet reality dictates analysis must take place. Like so many other facets of life following that most mind-numbing day in most of our lives, to ignore life post September 11 is to accept terrorist wrongdoings. And so the Australian car industry – while extending its sympathies to all whose lives will never be the same again – must pick up the pieces and fix damage caused by economic aftershocks.
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A downturn in private car sales of the order of 11 per cent in September would be easy to handle. An industry used to regular sales blips need only turn on eye-catching sales programmes and “lost” short-term sales can be quickly recovered.
The situation in Australia resulting in part by the terrorist attacks and by other factors have combined and require more complex solutions to deeper problems which will not disappear overnight.
Aussie dollar under pressure
With natural resources out of favour, the Aussie dollar has gone into a dive – falling through the psychological US50c barrier, below the 60 yen threshold and has nudged the 33 pence rate. With so many CBU (completely built-up) cars and componentry imported from the US, Europe and Japan, GM subsidiary Holden, Ford Australia, Toyota and Mitsubishi Motors face great difficulties to avoid heavy losses.
Cash rich Holden and Toyota – both major exporters to the Middle East – are better placed than Ford and Mitsubishi to handle losses, sustained by a weak local currency. But as Toyota’s chief executive vice president John Conomos admits, Toyota has to be able to justify to its Japanese parents on an on-going basis its existence in Australia as a local producer.
Cost-down programmes
All four car makers have been involved in aggressive cost-down programmes in the past year. Recent happenings threaten to undo all the benefits of lower fixed costs. There has been a round of enterprise bargaining agreements which has seen workers win three year accumulative pay rises as high as 17.7 per cent. That figure was signed off by Holden, the only company to post a profit in 2000 and the only car company likely to turn a profit this year.
Ford has paid workers 15.25 per cent and Mitsubishi Motors is still negotiating with unions but expects to pay close to 15 per cent over a three year period. Toyota goes to the negotiating table shortly, hoping to reach an agreement without facing a strike.
General election adds to uncertainty
Australia is about to be called to the polls to elect a new Federal Government any day now – an event which traditionally generates uncertainty. Consumer confidence has been rocked by the collapse of Ansett airlines – one of Australia two main carriers – and the failure of insurance giant HIH. The knock-on effect throughout industry has been profound. Confidence is low.
As usual, a prime casuality is the car industry. And one need look no further than the September car figures, released today by the Federal Chamber of Automotive Industries for the tell-tale signs of major disruption – with possibly worst to follow.
September passenger car sales off 11%
The industry appears to have held up well with raw figures pointing to the September market down 2963 vehicles or 4.8 per cent down on the same month last year. With one less selling day, this adjusts to 22.8 vehicles per day or 1.0 per cent. The passenger market – the money-making department for any car company – is more telling. This segment was down 4918 units or 10.9 per cent month on month.
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nd as the world waits to see how the United States and its global allies (including Australia) react to the attacks, so too must the industry wait to see whether it can pull sales out of what could be the start of a freefall no-one can afford. Holden might feel nice and cosy right now – even though its production costs have taken a battering with recent pay increases biting into profits. The GM affiliate maintained market leadership in September for the ninth consecutive month for 21.8 per cent of the market. This was 3.3 percentage points higher than the same month last year.
On a year-to-date basis, Holden has sold 121,630 cars and commercials and leads Toyota by 19,701 units and Ford by a massive 42,923 vehicles. Holden recorded its best September sales of passenger vehicles, accounting for one in four sales nationally.
Toyota’s Conomos readily admits that he cannot make a profit this year with the Aussie dollar sliding to dangerous levels – despite good exports to the Middle East, business written in US dollars. Conomos predicts a good result will be marginal losses slightly worse than last year’s $6.3 million deficit.
Ford Australia has no exports on which to rely and depressed Falcon sales point to resounding losses.
MMA was on track for turnaround
Mitsubishi Motors Australia was well on track to turn record losses of 186 million last year into a nominal $10 million profit this year. This was predicated with higher sales than the company is achieving right now and a far higher exchange rate than the Aussie currently commands. Mitsubishi Motors Corporation chief operating officer Rolf Eckrodt was to have visited Australia by the end of September for a meeting with Prime Minister John Howard to discuss the future of the Australian affiliate.
That meeting was arranged before September 11 when Howard visited Eckrodt in Japan – and before Eckrodt put out a no-go order on all Mitsubishi employees from taking international flights.
With so much at stake for so many companies, the coming three months will be critical. But all within the auto industry share the view that to surrender ground is to surrender to terrorism. And that will not happen.
And an industry well versed in fighting the odds will support the free world – and live to fight another fight.
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