FAPM wants to lure a contract manufacturer to Australia

THE Australian automotive components industry believes electric vehicle manufacturers Tesla and Mahindra Reva could use Australia as a manufacturing base for Asian markets, helping to offset the decline in output by the three current car-makers.

This week’s second Productivity Commission hearing into assistance for the car industry was told that Mahindra Reva had already held some preliminary discussions about the potential of Australia as a production base.

The surprise development surfaced during a presentation by the Federation of Automotive Products Manufacturers (FAPM), which was arguing for continued government support of the car industry.

The commission was told the components industry wanted to attract a new car-maker or contract manufacturer such as Magna Steyr or Valmet to boost vehicle output in Australia.

PC commissioner Philip Weickhardt asked whether the FAPM had spoken to any of the named manufacturers.

“There have been conversations, yes,” said FAPM president Jim Griffin.

Mr Griffin declined to give any details after his presentation, but Mahindra Reva was also mentioned in the FAPM submission to the PC outlining the possibility of attracting a niche manufacturer to Australia.

“Australia offers a strong business case within the Asia-Pacific region to attract additional niche market MVPs, especially as Asian countries advance their economic status,” the FAPM submission says.

“In addition to the suite of existing capabilities and structures to support automotive production, the Australian market is attractive in its own right with sales of more than one million vehicles annually.”

The possibility that Tesla might consider Australia as a production base was raised by the chief executive of seats and interiors maker Futuris Automotive, Mark de Wit.

“I can speak with experience with Tesla. They produce cars just outside of San Francisco,” he said. Futuris has a seat plant located inside Tesla’s factory.

“They have a very high cost base, not too dissimilar to Australia, and they are making that niche platform in that high-cost country very viably.”“They have said they are looking for other manufacturing sites because their volume is starting to go through the roof.

“They only produce left-hand drive at their existing plant. They are looking for opportunities to produce elsewhere,” Mr de Wit said.

FAPM chief executive Richard Reilly said gaining an extra 30,000 or 40,000 units for the local industry would be a significant gain for the local parts industry.

Production by Toyota, GM Holden and Ford was expected to total just 200,000 units this year, “the lowest in memory”, he said.

In its submission, the FAPM outlined a plan designed to boost output back to at least 300,000 units a year, a level that would dramatically improve the economies of scale of its member companies.

Mr Reilly said this could be done by building export criteria into any future assistance extended to the car-makers, and by stimulating local demand, especially by requiring government departments and agencies to buy Australian-made vehicles.

PC deputy chairman Mike Woods asked the FAPM delegation whether diversification away from the automotive industry was a developing trend among parts makers.

Mr de Wit said diversification was not going to save Futuris.

“From the Futuris Automotive experience, we have branched into some non-automotive streams off the trunk of the tree, but if you cut down the trunk, the branches will die. It is that clear.

“We do interiors for Melbourne trams, trains, seats for Queensland Rail and many other non-automotive products, but it can only exist off the scale of what we do for automotive.”

He told the hearing that Futuris was no longer looking for diversification options.

“Are we continuing to look for more non-automotive activities? The answer right now is no.

“In the current environment we don’t want to take on any non-automotive products when we don’t know what the future holds beyond 2016.

“It won’t be viable without automotive, so we don’t want to sign up for something we cannot deliver.”

However, one company that has diversified, Palm Products, also appeared at the hearing and said its diversification was so successful that automotive products now represented only 40 per cent of its turnover.

Owner Robert Wilson said that Palm Products, which makes the clear polycarbonate window in front of instrument clusters, had been diversifying for 20 years.

But he stressed that the automotive sector should be considered part of Australia’s basic infrastructure.

“We must get serious about supporting the industry, and not just doing the easy things,” he said.

“As a country, we have been privileged to have GM, Toyota and Ford locate research and development and assembly operations in Australia.”

Mr Wilson said the car industry attracts and trains highly skilled designers and engineers and other professionals.

“These skills are transferred to other industries as these individuals change their jobs throughout their lives.”“Any individual who has succeeded in this industry has a toughness and a skill level that stands them in good stead for the rest of their lives, just like a high-standard education.”

He said Palm Products was able to export its polycarbonate drinkware around the world because the company had learned how to compete, thanks in part to influence from the automotive industry.

“You have to have high productivity in your workforce, that’s the key.

“It means have to have a lot of capital investment and automation.

“It means how you motivate your staff. There is a difference of 20 per cent between motivated staff and non-motivated staff. You need to get that 20 per cent.”

He also said that a company needed to invest in efficient equipment and then work it hard.

“You can’t run a capital-intensive business on one shift, and a lot of companies do.

“Asian companies run 24 hours a day. You have to run 24 hours a day if you are going to be competitive.”

Deputy commissioner Mike Woods asked whether Palm Products runs two shifts.

“We switch the lights out at night and it runs itself,” Mr Wilson said.

“You have to have the good equipment, good dies, good people and all of that, then you can do that.”