End of the Road: How Australia’s auto industry ignored peak oil

GM Holden did not prepare for peak oil – since 1998

Part 1: The Howard years

• In terms of technological change alone, the automotive industry is on the brink of a major shift as we make the transition from internal combustion engines to fuel cells. (p 10)

• Despite “occasional price spikes”, fuel costs have not affected vehicle sales but a “sustained increase in petrol prices above the ‘mental’ price point of $1/litre may affect the demand for large vehicles with 6 and 8 cylinder engines over the longer term” (p18)

• “The large car segments are shrinking around the world due to various factors ranging from the cost of a parking space to fuel costs (particularly in Europe) and environmental considerations.” (p 20)

• An annual manufacturing volume of at least 180,000 units based on a single platform is required for an Australian plant. (p 20)

• “For viability it is necessary to achieve domestic sales in Australia of well over 100,000 units from a single platform. The only segment, in which this is possible, is the large popularly priced rear wheel drive segment.” (p 21)

• “The large low-priced rear drive segment is a niche market in every country in the world except two: Australia and Saudi Arabia. Export sales of in excess of 50,000 units per year are eminently possible from an Australian production base. Conversely, the location of large, low-priced, rear drive passenger car production in any country except Australia is impeded by the small domestic opportunity in each such market. Hence, this product type is probably the only passenger vehicle for which world production would logically be located in Australia” (p 21)

• “The opportunities for Australian vehicle manufacturers in markets such as Thailand are relatively small, given Australia’s specialisation in large cars and a tax system in Thailand that discriminates against such vehicles. However given the growth potential of ASEAN markets over the next decade or two, participation as a niche supplier could progressively become attractive. Meanwhile Thailand’s own industry primarily produces light trucks – a segment in which Australian production is fairly narrowly specialised.” (p 42)

• “The National Average Fuel Consumption Target of 15% over business as usual by 2010 has been under discussion between the industry and the Government for some years. The industry has proposed two “Co-operative Targets” of 6.8 litres per 100km by 2010, and 6.3 litres per 100km by 2015. These targets represent a significant challenge when compared to the “Achievable Target” of 7.4 litres per 100 kilometres that had previously been identified. Clearly, whether these targets can be achieved will depend on a range of factors including availability, costs and uptake of relevant technologies, availability and quality of fuels, consumer preferences and policy settings. In particular, the industry has identified the need for Government participation, requiring that it work closely with industry to achieve a policy framework in which consumers value fuel efficiency improvements sufficiently to choose to purchase them, without sacrificing their existing preference for large cars which is the basis for the industry’s viability” p 43

• “Holden’s research consistently shows that consumers do not value improved fuel efficiency highly. At least in a relative sense, fuel efficiency ranks relatively low when compared to other vehicle attributes such as performance, towing capacity, features and safety. This can be attributed in the main to the relatively low cost of fuel in Australia, and it appears unlikely that this will change in the short to medium term. What it means in practical terms is that if we are required to incorporate new technologies into our vehicles that the consumer does not value, we will obviously not be in a position to recover the cost of those technologies in the price of the vehicles. Ultimately, this will have the effect of rendering our vehicles less competitive in the marketplace” (p 44)

• “In Holden’s view the preferred method for encouraging an increased consumer emphasis on fuel economy would be a gradual and moderate increase in fuel excise, which would send an appropriate signal to consumers without causing economic or industry disruption. However, we understand that this may not suit political realities in Australia.” (p 44)

..

• Fuel consumption targets must have regard to the level of improvement in the fuel efficiency of local vehicles that can be achieved without compromising the commercial viability of domestic production. (pXXXVIII)

• Collectively, the Middle East, the USA and New Zealand take around 75 per cent of Australia’s automotive exports (table B.15). Again, this narrow export base is regarded by some as a potential threat to the industry’s future viability (p 28)

• The majority of Australia’s vehicle exports currently go to the Middle East.. Further opportunities may arise in that market — particularly for larger engine, rear-wheel-drive models which appear well suited to customer requirements. However, some have suggested that this market is now close to being saturated. The political situation in the region also creates some inherent risks for these exports  (p 34)

• Prospects for vehicle exports to Asia are less certain: (p34)

•  while demand is expected to grow strongly in the region, much of that growth will be for smaller passenger and light commercial vehicles

•  access to many Asian markets is currently restricted by high tariff and non-tariff barriers; and

•  the major vehicle producers are generally seeking to service these markets through investment in local production facilities — partly as a result of trade barriers and the availability of investment incentives.

Threats to the industry’s future viability

• Appreciation of the currency would reduce the cost of imported inputs used by automotive producers. But at the same time, it would increase the competitiveness of imported vehicles and components in the domestic market and reduce the competitiveness of Australian automotive exports. Not surprisingly, the capacity of firms to cope with any significant future appreciation of the Australian dollar — against the $US and Yen in particular — appears to vary considerably. Some companies indicated that future appreciation of the local currency would be a bigger threat to their future viability than reductions in tariffs.

There is a range of other potential threats, including …

• price suppression in world automotive markets as a result of continuing and substantial excess production capacity;
• changes in global sourcing decisions, or economic downturns, political instability or unrest affecting the industry’s major export markets;
• the looming change from petrol and/or diesel to fuel cell propulsion technology over the next two to three decades;
• erosion in the domestic supply base as a result of any further significant increase in the import share of the local vehicle market;
• the exit of a vehicle assembler or major component producers
•  failure to undertake further taxation reform and microeconomic reform to improve efficiency in Australia’s infrastructure industries ;
•  the introduction of overly stringent fuel economy targets; and
• uncertainty about future policy settings for the industry.

http://www.pc.gov.au/__data/assets/pdf_file/0003/25284/auto.pdf

 

Most critical factors were mentioned except petrol prices as a result of limited oil supplies.

 

(3.3) Media presentation on future of ACIS

 

 Howard removes the auto industry’s trainer wheels

December 14 2002

 

Car and component makers have enough confidence, and exports, to handle tariff cuts

Australia’s emergence as a car exporter has been one of the Howard Government’s two success stories in manufacturing. And John Howard and Industry Minister Ian Macfarlane clearly do not want to risk ruining it now.

 

Yesterday the PM and his minister stood flanked by the heads of the four car companies and leaders in the component industry as they announced a plan to phase out support for the industry – at a pace manufacturers believe they can handle.

 

Unlikely as it once seemed, Australia has a growing car industry with a global niche in producing large cars. For that we can thank the devaluation of the dollar, large-scale government support for the industry under the Automotive Competitiveness and Investment Scheme (ACIS), plus the spade work done by former Labor industry minister John Button and the car companies.

 

Essentially the government plans to pull back support in three stages. In 2005, the tariff falls from 15 to 10 per cent, and ACIS spending continues at $560 million a year. In 2010, the tariff falls to 5 per cent, and ACIS reduces to $280 million a year. At the end of 2015 the tariff stays but ACIS goes.

 

http://www.theage.com.au/articles/2002/12/13/1039656219577.html

 

13 December , 2002

JOHN HOWARD: A new feature of the ACIS scheme after 2005 will be a $150 million research and development fund to assist vehicle manufacturers in developing new advanced technologies

 

It is a transformed industry, one that is performing well. I want to thank the management of the motor vehicle companies. Can I also thank the workforce, the Australian Manufacturing Industry in motor cars is very important to the future of the thousands of Australians, especially in Adelaide and Melbourne

 

http://pmtranscripts.dpmc.gov.au/preview.php?did=12489

http://www.abc.net.au/worldtoday/stories/s746822.htm

 

(4) No fuel efficient Holden manufactured in Australia by 2003

That self-congratulation was both premature and peak oil ignorant. Another chance was missed to introduce fuel efficient cars.

 

• current trends in energy consumption are neither secure nor sustainable;
• energy policy needs to be consistent with environmental goals, particularly the need to do more to reduce fossil fuel carbon dioxide emissions. (p 56)

• measures to encourage smaller and hybrid vehicles in government and similar fleets
• measures to encourage diesel cars, which are more expensive than similar petrol cars but much more fuel efficient (they use 30-50 per cent less fuel than petrol cars of similar power)
• measures to encourage smaller cars, for example by adjusting registration fees to favour them
• removing the concessional tariff treatment of imported four wheel drives  and
• increasing the fuel excise as an environmental measure. This could be coupled with lower registration charges to be cost neutral overall. It would reduce the flagfall cost of car ownership but increase the marginal cost of a trip, and so would be expected to encourage more fuel efficient cars and reduce the kilometres driven. (p 146)