Mitsubishi’s decision to close its Australian car manufacturing plant was not really a surprise but has sent shock waves through the auto industry ‘down under’. just-auto deputy editor Graeme Roberts, himself an Antipodean, but from the other side of the Tasman, examines the company’s rise and fall.
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In the global scheme of automaking, it’s no biggie. A plant which last year built just under 11,000 cars, primarily for in its home market (plus a few export sales), and has lost $A1.5bn in a decade, gets the axe, its products to be replaced by imports from low(er) cost Asia.
A thousand workers face unemployment. Government immediately offers retraining grants.
Routine really, happens a lot, isn’t Ford US alone closing 16-odd plants, axing thousands more workers? Didn’t much worse happen in the UK in 2005 when MG Rover shut?
All true, except this is Australia, where the loss of a decades-old automaker has sent a seismic shock through both the industry and its suppliers and again called into question the long-term viability of a comparatively small business in the face of increasing global pressures.
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By GlobalDataThis is not the first time. In 1974, Leyland Australia, a full manufacturing operation with body panel stamping and engine casting facilities in Zetland, Sydney, closed, a victim of its British parent’s financial troubles and the first oil crisis, which turned Australian buyers, for the first time, away from big six and eight cylinder cars.
Just after Leyland had spent millions developing the P76 to rival similar large cars from the then Aussie ‘Big Three’: General Motors’ Holden, Ford and Chrysler.
Today the once-humming site is largely open space bordered by new apartment blocks in streets incorporating famous names like ‘Morris’ and ‘Wolseley’ while a main road corner is earmarked for a huge new Audi Australia head office complex and dealership.
In 1992, Nissan pulled the plug on its own manufacturing operations in Melbourne, saying it would be more profitable as an importer. Today, it is.
Australia, the Big Sky Country, was long also Big Car Country. Pre World War Two, local companies added locally-designed and built bodies to imported chassis, some from the UK (Australia is a British Commonwealth country so long extended preferential tariffs to the mother ship and its empire) and some from the US, mostly sourced via fellow commonwealth member Canada.
Post war, though English automakers like BMC and Rootes pitched plans, General Motors won the government’s contest to design and build ‘Australia’s own car’ and the Holden (said to have been designed as a stillborn small Chevrolet) made its debut in 1948.
Up went the tariff barriers to protect the fledgling brand, and rivals were forced to either set up full local manufacturing (Ford and Chrysler, much later followed by Nissan and Toyota) or at least CKD kit assembly with as much tariff-ducking local content as possible.
A sparsely-populated country the size of the US, with poor roads and little infrastructure outside the big coastal cities, Australia’s motoring needs were initially simple – space for plenty of people and stuff, lots of power for long distances and hauling trailers, caravans and boats, plus durability and simplicity for easy repair by a bush mechanic armed only with spanners, screwdrivers and a bit of fence wire.
Hence the 1960s archetypal Aussie family car: a Holden Special, Ford Falcon or Chrysler Valiant with a three- or four-litre straight six, three-speed column manual shift, and bench front and rear seats to hold six burly people. And a large boot (trunk).
V8s, automatic, individual front seats, posher trim, a/c, power windows, et al were all becoming available as options by the end of the decade, but the basic, simple formula of the el cheapo versions suited most Australian buyers, and quite a few in Asia-Pacific export markets such as neighbouring New Zealand, always the key overseas territory, and even places as far afield as Hawaii where Holdens went for a while.
Initially, the key goal for auto makers – and, of course, smaller four-cylinder models were also made and sold ‘down under’, mostly from CKD kits – was cars that didn’t disintegrate in the harsh conditions. Ford had to make extensive modifications to its early designed-for-the-US Falcon suspension and Holden, adapting a European Opel design to the late-70s Commodore had to substantially re-engineer the body after early prototypes were said to have ‘broken’ on test. Chrysler soon ditched the fancy electric push-button automatic gearbox selector for a simple, mechanical column lever.
The second huge challenge – prompted by the two 1970s oil crises – was fuel economy. The first led to the axing of the P76 and Leyland Australia itself; and prompted Holden to downsize its largest car line to the five-seat Opel-derived Commodore, losing the custom of a generation of taxi drivers to Ford, which kept the six-cylinder, full size Falcon going, though it did axe the optional V8 for some years.
Australians’ need to buy cars that drank less increasingly pricey petrol led to a surge of new four-cylinder models, and sparked the rise of brands such as Volkswagen (for a while a local assembler), Toyota and Datsun/Nissan. The Japanese both began as importers of CKD kits assembled under contract and became full manufacturers. Nissan gave up in the end as it couldn’t make a buck but Toyota is now the largest producer and the country’s top car exporter.
Mitsubishi entered Australia via the Japanese automaker’s early links with Chrysler, primarily as a supplier of small, fuel-efficient cars to a North America also hit by the 1970s oil crises.
Chrysler in the 1960s had bought the UK’s Rootes Group and their CKD Hillman Hunter had initially provided a four-cylinder complementary model to the Valiant but, early in the 1970s, Chrysler Australia decided Mitsubishi products better suited its market and started building a four-door Galant sedan, initially under the Chrysler, rather than Mitsubishi, brand.
Success followed when the oil crises hit – sales of a line of fuel-efficient fours offset slumping Valiant I6 and V8 sales and a locally-developed 2.6-litre ‘Astron’ I4 was a big success in a mid-sized line called the Mitsubishi Sigma. Later, the company adapted the first front-drive Sigma (aka Galant) to Australian tastes by putting in the big I4, widening it about 10cm and developing a station wagon version (also an essential requirement in this market).
After Chrysler left Australia in 1981 during financial crises of its own, Mitsubishi Australia took over the Adelaide plant and continued development, getting a major boost when the parent company decided to export a locally-developed wagon version of the then-new I4/V6 Magna Verada line worldwide in the early 90s, along with a luxury Diamante sedan version sent to the US.
What’s brought Mitsubishi Australia down since then is largely a swing away from big cars – due most recently to the 2000s ‘oil crisis’ of rapid price rises – a loss of export opportunities, mostly currency-related, and a decline in government import tariff ‘protection’ for local industry.
A few stark numbers have emerged in the Australian media. Sales of locally-produced cars have fallen from 33% of the market in 1997 to 14% in 2007, data made worse by a steady rise in annual sales over the decade to a record 1m last year.
Revenue from the sale of a US export vehicle has halved in that time due to a steadily stronger Australian dollar. The export wagon business was never repeated and Mitsubishi US developed its own model to replace the Diamante once shipped from Adelaide; New Zealand is now the prime export market and it takes only a few thousand units a year.
The Tonsley Park plant last year built just 10,948 cars compared with 41,000 in 1997. In contrast, Holden built 107,000 and exported 46,000 (the Middle East is a key market and 30,000 Pontiac-badged Commodores a year for the US are now in the order book), while Toyota made 150k and exported half, primarily to the Middle East.
Mitsubishi’s local manufacturing operations have lost $A1.5bn in a decade and mopped up $300m in taxpayer funds since 2001 (a recent $35m grant will be repaid), primarily trying to make a go of a local ‘380’-badged version of Mitsubishi US’s Galant launched only with a V6 engine (the US also has an I4) – just as petrol prices began to rise.
Mitsubishi, whose imported-car sales have risen noticeably in recent years, isn’t abandoning Australia as Chrysler did, it will stay on as an importer, retailing and servicing its vehicles as before.
But Australians once again are eyeing the future of their industry which seems questionable unless strong export business can be maintained in the face of falling local sales.
For now, Holden and Toyota have decent export contracts but a senior Japan executive was notably reticent recently when asked if Toyota Australia would add the hybrid Camry to its line, all but saying it could now be made more cheaply elsewhere in Asia.
Ford, which is closing its I6 engine plant in Melbourne, and will instead import V6s from the US, is pinning short-term hopes on local manufacture of Ford Europe’s Focus – it built small English and Japanese Mazda/Ford models from CKD kits years ago – and is eyeing export possibilities as it cannot survive on the low-volume large Falcon and its Territory SUV spin-off as buyers increasingly shun large, less fuel-efficient cars.
It doesn’t make those with left-hand drive so US or Middle East exports are out, and there have been recent suggestions that, while its rear-drive expertise could be used to engineer the 2012 replacement, Ford could build that with US-market models in North America for economy of scale, and just ship ‘em down under using the Australia-US free trade agreement.
Meanwhile, the recriminations continue. According to the Sydney Morning Herald, South Australia’s premier [governor] Mike Rann has warned Mitsubishi’s global president Osamu Masuko the Adelaide plant closure would be a breach of earlier agreements if Mitsubishi did not maintain production in Australia until 2010.
Mitsubishi Australia chief Robert McEniry reportedly cautioned that the factory closure would not automatically lead to a collapse of the local car-making industry.
“Mitsubishi Australia accounted for just 2% of all locally made cars last year, so there will be minimal impact on the rest of the supplier industry.”
Across the Tasman in New Zealand, though, an industry observer said the closure was “one more nail in the coffin” of the Australian industry.
Clive Matthew-Wilson, editor of the car buyers’ Dog & Lemon Guide, believes that Ford and Holden will eventually also stop manufacturing in Australia.
“Both Ford & General Motors are in serious trouble globally. Therefore, it seems inevitable that their Australian car assembly operations will be phased out,” he said.
“The sad fact is, car manufacturing in Australia is only marginally profitable even in good times, and for many manufacturers the good times are over.
“Car manufacturing these days is stampeding towards low-wage countries. China and India will swamp the world with cheap cars over the next few years, and any western car plant that isn’t consistently profitable will simply go out of business.
“It might take 10 years or it might happen in one year, but the chances are, it will happen.”
A closure by Ford, Holden and Mitsubishi would see Toyota as the sole volume manufacturer in Australia. Toyota is the most successful car manufacturer in the world and is under no pressure to cut back on its operations, Matthew-Wilson said.
“Car companies exist to make money. If they can make more money assembling cars in Thailand than Australia, then that’s what they’ll do. Their only loyalty is to their profits.
“I’m well aware of how many Australians rely on the car assembly industry for their jobs and I sincerely hope that we are wrong when we question the viability of Australian car manufacturing.
“What we are saying… is a common topic of discussion within the car industry. It’s just that few people are talking about it publicly because it’s too scary to contemplate.”
Mitsubishi axes Australian plant
