Australian Automotive Industry Right For Chinese OEM’s

The Australian Auto Market was steady for 2006 and continued its strong run of 10 years by achieving its second best year on record. A stable Government, strong economy and a general feeling of wealth all contributed to the strong sales result.Looking at the numbers closely and we start to see some changes that occurred in several market segments as the impact from the fuel crisis took its toll on the more fuel inefficient large passenger vehicles and raised the sales volume of smaller cars.Domestic sales volume now makes up about 20% of all sales and will possibly diminish more as the consumers buy more imported fuel efficient cars and turn away from the Australian Designed ‘family cars’.Much development effort over the past several years has gone into producing high performance vehicles that handle to ‘European standards’ to attract the fast money. Cars that today are less relevant than a few years ago as fuel prices bite the boy racers wallet. This has possibly been at the expense of developing a locally built diesel engine. It is hard to believe that Ford or GMH have not seen fit to offer a diesel alternative to their line up of petrol engines. Once again they are caught flat footed as the market changes are moving away from their offer.Future risks are the actual break even point for annual production. Common knowledge suggests that an OEM needs to produce 60,000 vehicles of one model per annum to make money. Certainly Mitsubishi are a long way from that target. Without an export strategy how can the South Australian Government sensibly call for assistance from the Federal Government by getting them to delay the lowering of the import duty?The lowering of import duties combined with the strong dollar will increase the availability of leading edge imported products. Add to this the desire for fuel efficient and high performance diesel engines from the higher quality diesel fuel and the local OEM’s are likely to suffer more. We see that the automotive retail landscape will continue to evolve with the consumers being the winners.Perhaps the argument for a lowering of the National fuel consumption will take on more weight due to environmental concerns than protecting a few thousand jobs. Sounds like a problem for environmental evangelists like Peter Garrett.The opportunity for Chinese OEM’s to enter the market is clear. Their investment needed to meet or exceed the emission standards is the same as their European export push. The only road block is their ability to produce a right hand drive vehicle and several have already built these vehicles.Passenger Market – 598,394 units sold or 62.2 % of the total market.
Overall down – 10,410 or – 1.7%.
Off from a previous record year.
Up – Light Passenger + 21.1%
Down – Large Passenger – 18.4%
SUV Market – 170,847 units sold or 17.7% of the total market.
Overall down – 9,445 or – 5.2%.
Move into more expensive SUV’s
Down – Medium & Large SUV’s – 14,246.
Light Commercial Market – 161,791 units sold or 16.8% of the total market.
Overall down – 6,087 or – 3.6%.
Heavy Commercial Market – 31,489 units sold or 3.3% of the total market.
Overall down – 174 or – 0.1%.
SWOT ANALYSISStrengths:
Domestic sales volume steady at + / – 1 million units sold per annum.
Mature market makes subtle changes due to environmental differences such as fuel reaching # $1.50 per gallon.
Weaknesses:
Domestic sales volume is 20% of the 1 million units sold per annum.
Domestic vehicles have no diesel offer.
Domestically produced vehicles require higher volumes to break even.
Opportunity:
For importers the timing is good for inexpensive and fuel efficient diesel vehicles.
Export sales are upside growth for Mitsubishi, GM & Ford.
EG: Toyota planning 90,000 units per annum for export.The strength of the Australian dollar because of our exports makes imports cheaper.Threat:
80% of cars sold are imported currency sensitive.
Cheaper imports could break smaller manufacturer’s ability to compete.

What is the ‘break even’ volume for local manufacturers?
EG: Mitsubishi sold less than 20,000 of the 380 model in 2006.
Chinese imported vehicles where a low COGS and margin requirement will re-rate the industry as the Koreans did in the late 1980’s.Cost of fuel staying at or rising above #$1.50 per liter. Domestic OEM’s will have to compete with a lower import duty from 10% to 5%.