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 But Harrington is one of a savvy breed of engineering firms that saw
the writing on the wall long before General Motors <GM.N> announced
last week it would follow Ford Motor Co <F.N>, Mitsubishi Motors
<7211.T> and Nissan Motor <7201.T> in halting manufacturing in
Australia.
Harrington recently completed work on a new plant in Thailand, where
there is a strong car manufacturing sector, and from there plans to
produce parts for GM, Ford, Futuris SA <FUTP.WA> and others. "We
have tried to work around the fact we knew the Australian auto
industry was very vulnerable," Managing Director John Harrington
said. "We've sought to pick up extra opportunities."
Similar diversification by Harrington's peers and solid growth in
the aftermarket sector — supplying anything from fluffy dice to
racing stripes — suggest fears that the collapse of the auto
industry will trigger economic Armageddon are overplayed.
Australians have been bombarded with doom and gloom scenarios since
GM's affiliate Holden said last week it would stop making cars in
Australia by 2017 due to high costs and a strong currency.
Ford announced in May it would shut its two Australian auto plants
for similar reasons in October 2016, while Mitsubishi shuttered its
assembly plant in 2008 and Nissan quit in 1992, leaving Toyota Motor
Corp <7203.T> as the last man standing.
But the dark mood belies a quiet transformational shift in
Australian manufacturing over the past decade or two.
While the number of vehicles manufactured has halved from 2003-04 to
a projected 200,000 this year, automotive aftermarket manufacturing
is growing at 3 percent year-on-year, according to independent
advisory firm Grant Thornton.
"The industry has been transitioning for a while," said Mark
Phillips, a partner at Grant Thornton in Sydney. "It's just that the
pace of the transition has got a little bit faster than people
anticipated."
SOUPED-UP CAR BOOM
The aftermarket sector is a significant growth area as more
Australians, flush with cash from the country's boom years,
customize their vehicles — from performance enhancing parts for
sport utility vehicles and four-wheel drives to retrofit components
such as suspension for towing caravans.
Reflecting a passion for souped-up cars, Australians elected an
independent from the Australian Motoring Enthusiast Party to the
Senate this year. He has vowed to push for rights to customize cars
and to drive in national parks.
The aftermarket sector represents 36 percent of all automotive
manufacturing in Australia, providing direct jobs to 16,000 of the
45,000 people employed by the auto industry, according to the
Australian Bureau of Statistics.
With $4 billion Australian dollars (U.S. $3.6 billion) in annual sales, it is less exposed
to factors driving the decline of the vehicle manufacturing supply
chain, including the strong Australian dollar and phased tariff
reductions.
"We have almost got a two-speed economy when it comes to auto
manufacturing," said Phillips, who produced a report on the
aftermarket for a government review into the industry this year.
"You have got the long-run suppliers that will suffer when Holden
goes. And then you have got the very nimble, short-run innovative
manufactured products where Australia still has a massive
competitive advantage."
Despite its small size, Australia ranks alongside Japan, the United
States, China and South Korea in production and innovation in the
subsector.
Its complex auto market — some 62 brands of vehicle are sold in
Australia, double the number on offer in the much larger U.S. market — makes it adept at delivering products that work across a large
range of vehicles.
It is also a forward-looking industry, spending 1.4 percent of sales
on research and development, leading many companies to branch out
into non-automotive sectors, such as rail, defense, mining and
marine.
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Harrington now makes products including hot water heater components
and lawnmower base plates. It also won the design and manufacture
tender for the Sydney 2000 Olympic torch.
Around half the company's sales are to the automotive sector, of
which 25 percent go to Holden. But John Harrington is confident that
both diversification at home and the company's new facility in the
Thai province of Rayong — an area dubbed the "Detroit of the East" —
will pick up much of the slack.
EXIT ROUTE
Car parts maker MTM Pty Ltd is also looking overseas, deciding
during Australia's last recession in 1992 to reduce its reliance on
local automakers and the boom/bust cycle they were enduring even
then. MTM took five or six years to win its first export order, but
now makes an all-terrain vehicle called the Tomcar, sold to military
forces, and Steelsafe, a device that protects trucks from being
stolen when parked.
"If we hadn't done anything for over the past 20 years, we'd be in
the same situation as everyone else," said MTM Managing Director
Mark Albert. "Thankfully, we've taken a lot of steps to move outside
the automotive industry in Australia."
Carbon Revolution, the maker of the world's first one-piece carbon
fiber wheel for cars, has signed a supply contract with a global
carmaker to start in early 2015, and is in talks with airplane
manufacturers. CEO Jake Dingle declined to give details, citing
client confidentiality, but said the company planned to boost its
workforce to more than 300 people in 3-4 years from just 40 today.
That's good news for GM and Ford workers.
"Their discipline, their understanding of automotive manufacturing
quality standards and manufacturing processes mean it's very easy to
train people to do the sort of work we need," Dingle said.
GOVERNMENT SUPPORT
Still, the experts say government support is needed to ensure
diversification.
"The priority is to direct resources that might be available to the
component supplier companies, to prevent as much as possible the
collapse of the supply chain on the back of Holden collapsing," said
John Spoehr, executive director of the Australian Workplace
Innovation and Social Research Centre at the University of Adelaide.
"A good number of the component suppliers, with support, hopefully,
will be able to withstand the shock."
Grant Thornton's Phillips said some simple policy changes, such as
harmonizing federal and state laws covering aftermarket products,
could boost the sector's value by around 27 percent to A$6.6
billion.
As in most advanced economies, manufacturing accounts for a
declining proportion of Australia's GDP, reflecting the growing
influence of services and information-based industries.
Australia's manufacturing sector has fallen to around 7 percent of
GDP, according to World Bank figures, well below the 25 percent
levels seen in the 1960s, and contrasting with 11-12 percent in the
United States and Britain, and around 30 percent in China.
But it remains a major employer, with 88,000 manufacturing
businesses employing some 940,000 workers — far more than the mining
industry, and similar to levels five decades ago.
($1 = 1.1195 Australian dollars)
(Additional reporting by Sonali Paul in
Melbourne; editing by Jeremy Laurence)
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