Why Australia needs to restart car manufacturing

When the last Holden Commodore, a manual SS-V Redline sedan, rolled off the production line in Elizabeth, South Australia on October 20, 2017, it marked the end of nearly a century of local car manufacturing. At its peak in 2004, Holden built 165,000 cars. Record production levels from the other big two were not far behind at 155,000 for Ford (1984) and 148,000 for Toyota (2007). In 2002, the Holden Commodore was Australia’s most popular car with sales of almost 90,000.

For context, the total sales for Holden’s entire range in 2018 (now fully imported) were just 61,000. To emphasise, total sales of Holden cars were 30% lower in 2018 than that of a single Holden model back in 2002.

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Above: The VFII Holden Commodore - the last car to be mass produced in Australia

Various reasons have been cited from industry sources, both sides of politics and a whole host of other experts for the demise of local automotive manufacturing. To surmise, these have included:

  • A small domestic market. Although Australians tend to have high rates of car ownership, our small population made the industry heavily export dependent, as domestic sales were insufficient to profitably sustain the industry.

  • Geographic isolation. With Australia far away from major automotive markets such as the EU, America and China, exporting vehicles to these regions was expensive, with high shipping and freight costs.

  • High wages & government-union relations. Compared to areas such as Thailand and India, the Australian car manufacturing workforce had much higher wages. Combined with the two reasons above, this made Australian made vehicles expensive to sell elsewhere.

  • Protectionist tariffs. These tariffs were important in making domestic car production viable by enticing fleets and government to buy Australian-made vehicles. Nevertheless, a counter-argument can be made that by reducing competition and becoming dependent on fleet sales, they made domestic manufacturers sluggish, and less willing or able to innovate and adapt to changing market conditions, especially in light of FTAs (free-trade agreements) signed with other countries.

  • Trade deals and ‘more suitable’ cars from overseas. Free trade agreements signed with countries such as Thailand made certain imported vehicles just as inexpensive to buy as locally made vehicles. Often, these cars were more fuel-efficient and cheaper to run than their domestic counterparts, or available in popular body-styles such as SUVs (Ford Territory excepted) that weren’t available through local production. On the other hand, whilst FTAs ostensibly made it cheaper to export Australian made vehicles overseas, these were substituted by ‘hidden’ tariffs that made it difficult to sell Australian vehicles. For example, whilst the Australia-Thailand FTA removed import tariffs from the Thai perspective, Thailand retained tariffs on vehicles with large engines. As Australian made vehicles fell foul of this ‘large engine capacity’ barrier, they practically remained expensive to sell in Thailand.

  • Exchange rates and oil prices. This issue became especially prevalent in the early 2010s as the Australian dollar was close to (and sometimes above) parity with the US dollar, thus further increasing the cost of exporting vehicles. Coupled with high oil prices, this made domestically produced cars, with their typically large engines and high fuel consumption, expensive to run.

Above all, perhaps what can be said is that the decisions by Ford, Holden and Toyota to cease local manufacturing were justifiable decisions. They weren’t absurd or irrational, they could be explained by logically examining the reasons summarised above.

The skills perspective - the car as the ultimate mobile device

Much of the rationale described above is still applicable today. However it’s important to note that fundamentally, the car of 5 or 10 years into the future will be vastly different from the Holden Commodore that rolled off the line back in 2017.

Cars of the past could be categorised as discrete mechanical engineering projects, with the focus squarely on designing, building and testing parts such as the chassis, engine and body. The car of tomorrow will use this as a basis, but - as summarised by Daimler - will also be connected, autonomous, shared and electric.

What does this mean? The automotive industry will increasingly require not just mechanical engineers, but also skill-sets in software and robotics, as vehicles become increasingly digital and autonomous, and developing software becomes integral to a model’s success rather than an afterthought. Just as important will the skills of designers in making this technology accessible, and marketers in working out how people will use their cars through services such as ride-sharing in the future.

Australia is known over all over the world for punching well above its weight in terms of education. Despite our small population, we have eight universities ranked in the world’s top 150. We clearly have the talent to bring significant innovation to each of these fields mentioned above. As described by an executive from a prominent technology company, restarting production of the ‘ultimate mobile device’ will significantly increase opportunities for STEM careers in Australia, and much like a reverse chicken-and-egg situation, greatly improve this skill-set amongst young Australians.

Although the prevailing short term economic conditions (as discussed above) mean that car manufacturing in Australia will likely remain unprofitable, I think we need to shift our perspective to a long-term, skills based mindset. Our society is on an unstoppable march to becoming digital, and that means the importance of STEM skill-sets, together with business acumen, will only increase in proportion. The car is the ultimate mobile device - a marriage of cutting edge digital software and robotics technology together with traditional mechanical engineering nous. More than anything, it is a true demonstrator of a country’s technological prowess. Germany is known as an engineering giant due to the quality of their vehicles. Similarly, work by Tesla, GM and Google on computer vision and robotics has led America to be known as the leader in autonomous driving technology. With the talent and skills that we have, Australia too can make its mark if we realise that a domestic car manufacturing program can be a lens through which our STEM skill-set can be developed.

China's BAIC seeking to purchase stake in Daimler (Mercedes-Benz)

Yilei Sun, Edward Taylor and Julie Zhu, writing for Reuters:

“BAIC informed Daimler of its intention to buy a 4-5 percent stake in the German maker of Mercedes-Benz cars earlier this year, two of the three sources said. 

BAIC has asked local authorities in Beijing to support a 4-5 percent stake purchase, two of these sources said. 

BAIC has started acquiring Daimler shares on the open market, one source said. 

“Daimler’s share price is currently being underpinned by a buyer who appears to be building a stake,” a person familiar with the matter said.”

Perhaps more than anything, this goes to show how serious Chinese manufacturers are about gaining the technology and expertise to make cars that can be exported around the world.

Mitsubishi sets new annual sales record in Australia

From the press release on AutoNews:

“Mitsubishi Motors Australia established a new annual sales record of 84,944 vehicles in 2018, according to official VFACTS figures released today.

The record annual result capped a solid year for Mitsubishi with sales up 5.3% year-on-year against an overall decline of 3.0% in the new car market.

Triton was Mitsubishi’s best-selling model last year with over 24,000 units sold. 

ASX and Outlander contributed over 19,000 and 15,000 sales respectively, with the ASX maintaining its position as the best-selling small SUV in 2018.

Mitsubishi Motors Australia, CEO, John Signoriello said the market last year was much more challenging than anticipated but the investment in our SUV and LCV model range had delivered a good outcome for the brand.”

The ASX isn’t something I would buy given that it is nearing obsolescence, however this goes to show that in a cutthroat segment of the market, heavy discounting that undercuts better competitors works. It would be fascinating to see how much of a profit dealers are making on the ASX. The model itself was first introduced in 2010 and is based on a platform first introduced in 2005 - and given the dated technologies being used, would be cheap to manufacture; however, this would be offset by the discounted prices.

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Above: Mitsubishi ASX

Another thing this result demonstrates is the strong growth of SUVs and Utes in the Australian market over passenger cars (i.e. sedans/hatchbacks/station wagons). The age of the family sedan which had the Commodore, Falcon and Camry as its flagbearers is at an end. Over the last 10-15 years, Mitsubishi has shifted to an SUV/Ute dominant strategy, with the positively ancient Lancer and Mirage the only passenger cars in the lineup. Based on these results, it seems the company has put its eggs in the right basket.

Ghosn family believes arrest was to prevent Nissan-Renault merger

Amy Chozick, writing for the New York Times:

She [Caroline Ghosn] and her sister Maya Ghosn, 26, do not have direct knowledge of their father’s business discussions, but both said watching Mr. Saikawa address the national news media had cemented their belief that internal company dynamics were at play.

“Wow,” Caroline Ghosn said. “He didn’t even waste a breath. He didn’t even try to cover up the fact that the merger had something to do with this.”

Maya Ghosn, who works in philanthropy, agreed. As Mr. Saikawa was “talking about the alliance, it was clear to me that there was way more associated with it,” she said. “My gut reaction was that this was bigger than the accusations against my dad.”

Nicholas Maxfield, a company spokesman, said: “These claims are baseless. The family would never have had any reason to be privy to discussions related to the future of Nissan and the alliance.”

“The cause of this chain of events is the misconduct led by Ghosn and Kelly,” Mr. Maxfield said. “During the company’s internal investigation into this misconduct, the prosecutor’s office began its own investigation and took action.” (Asked specifically whether a merger had been discussed, Mr. Maxfield said a previously announced six-year plan had called for “additional synergies and further convergence among the member companies.”)

Mr. Ghosn has remained in a small jail cell without the opportunity for bail since his arrest.

It will be a long while before the truth is finally revealed, but what a soap opera this is becoming for Nissan, Renault and the wider automotive industry. I don’t know much about the Japanese legal system, but locking Ghosn up without bail appears to be a heavy handed tactic for someone who hasn’t committed any physical crimes.

Hyundai Nexo

Michael Fisher (MrMobile) has an excellent road-trip review of Hyundai’s hydrogen fuel-cell powered Nexo:

I really dig the exterior styling of the Nexo. Hyundai’s ‘Cascading Grille’ family face combines harmoniously with the pseudo-front light-bar design of the headlamps to create a futuristic, sci-fi look whilst also visually widening the stance of the vehicle. Another detail I like is the metallic copper paintwork - copper is a rare colour to be offered on a new car these days, and on the Nexo it works particularly well around the rear three-quarters view, creating a distinctive contrast with the black band that creates a floating C-pillar and flows into the tailgate. With electrical wiring typically made from copper, this colour, unintentionally or not, also provides a subtle hint to the powertrain underneath.

To clarify, hydrogen vehicles are electric vehicles in the sense that they incorporate an onboard fuel-cell that takes hydrogen and converts it to electricity, which is subsequently stored in a small battery that directly powers the vehicle. For the sake of clarity, this article uses the term ‘battery electric vehicle’ (BEV) to refer exclusively to electric vehicles that are directly charged from mains electricity rather than using an onboard fuel cell. For further information please see my articles on how hydrogen fuel-cell vehicles and battery electric vehicles work.

The interior must be the most luxurious offered in a Hyundai branded vehicle in recent memory. It fuses a Mercedes-Benz inspired horizontal dual screen setup with a Lexus-style centre console, and is all the better for it. 

Above left to right: The interior of the new Hyundai Nexo compared to the new Mercedes-Benz GLE and 2011 Lexus CT 200h. Notice the similarities in the horizontally oriented dual-screen setup with the Mercedes, and the design and arrangement of controls in the centre console with the Lexus CT.

Nevertheless, I am sceptical that hydrogen fuel-cell vehicles will ever have widespread private adoption. Despite substantial structural reinforcements and extensive testing, there is no getting around the fact that hydrogen is an extremely flammable fuel, and liable to explode in the event of an extremely severe collision. Although petrol and diesel vehicles today share the same flaw, I can see media coverage and public opinion around hydrogen vehicles becoming extremely cynical following a fatal accident, especially in light of the fact it is a new technology, and irrational cynicism from certain quarters and influential people about electric vehicle technology.

As highlighted in the above video, whilst hydrogen vehicles themselves don’t produce any greenhouse emissions, there are very limited ways to produce hydrogen itself in an environmentally friendly manner. Unlike electricity which can sustainably be produced through solar or hydro-electric power plants, the production of hydrogen involves the release of carbon-dioxide emissions. In this sense, hydrogen vehicles are merely shifting emissions up the hydrogen supply chain, rather than being a holistic, environmentally friendly transport solution.

Right now, a key advantage of hydrogen vehicles over their electric counterparts is the minimal time required to refuel - approximately 5 minutes versus at least 45 min-1 hour for a battery electric vehicle (BEV). However, this is a narrow-minded comparison that fails to take into account the convenience and versatility that battery electric vehicles offer. Fundamentally, hydrogen vehicles follow the same mindset as the typical petrol/diesel car. In order to fill up, you have to go to a dedicated refuelling station, which can be an errand in itself or another stop on a longer journey. In contrast, BEVs offer a huge convenience advantage in that you can charge your car at home. This virtually guarantees that your car is fully charged as soon as you’ve left your driveway, and on shorter day-to-day trips especially, saves the time and worry of having to stop specifically to refuel your car. This is compounded by the versatility of electric vehicle charging infrastructure. Whilst dedicated charging stations/networks such as Ionity and others are available, unlike hydrogen refuelling stations and petrol/diesel pumps, these networks are by no means the only way to recharge your car. The extremely widespread availability of electricity today means that it’s easy to build charging points within multi-level carparks, shopping centres, hotels and other frequently visited locations. In these scenarios, it doesn’t matter that charging an electric vehicle takes longer than a hydrogen or petrol/diesel car, as the driver is off doing another activity whilst the car can charge unattended. As no time is spent solely on refuelling the car, the driver effectively saves time which can be used for other things. Thus, strict comparisons between the refuelling/charging time of hydrogen and BEVs are irrelevant as they don’t take into account the charge-at-home convenience and versatility offered by BEVs.

So, what does this all mean for the Nexo? As a vehicle itself, the Nexo is excellent; however, it’s a victim of Hyundai’s bet on the wrong propulsion technology. What I’d love to see is a battery electric version.

Porsche 959 video

Doug Demuro has an excellent review of the legendary Porsche 959. With electronically controlled adaptive suspension, all-wheel-drive, torque vectoring, ABS, sequential turbochargers and a part Kevlar body, the 959, released in 1986, truly was 15 years ahead of its time. With a 0-100km/h acceleration of 3.7 seconds and a top speed of 317 km/h, the 959 remains fast even by today’s standards.

VW recalls previously sold, non-road legal prototype vehicles

Stefan Menzel, Martin Murphy, Dietmar Neuerer and Volker Votsmeier, writing for Handelsblatt:

“From 2006 to 2018, Volkswagen sold around 6,700 test cars in Europe and the US, a VW spokesman said, confirming German media reports. Around 4,000 were sold in Germany and the remainder in the rest of Europe or North America.

The cars, made to test and showcase new models before the launch of large-scale series production, should officially have been scrapped, but instead VW sold them as new or second-hand cars. The problem: motor transport authorities never approved these test models, only the ones produced in series.

Some models only needed a software update or a new navigation system to make them compliant, but others were so different from production cars, their only destination would be the scrap yard. VW explained that potential safety issues were the reason for the recall.

The matter has been deemed a serious offense by local authorities and the German Transport Ministry is deciding whether to fine VW a couple of thousand euros per test vehicle sold. Legal experts said VW may also face lawsuits, because consumers bought cars which may not have met the criteria the carmaker promised. 

VW's own dealers are also angry. "Yet again we have to compensate the customer for damages that actually originated in Wolfsburg," said one car seller in southern Germany.”

This is, frankly, appalling. It’s unbelievable that one of the world’s largest car companies had, for 12 years (!!), no way of clearly distinguishing prototype and pre-production vehicles from production cars.

From a company as established as Volkswagen, it’s obvious for the customer to expect a certain standard of quality and a guarantee that the car will perform as marketed. Thus, having a potential range of issues as broad as simply needing a software update, to poor quality or non-compliant parts, likely worsens the situation for the customer by creating an additional air of uncertainty about the potential safety risk of the vehicle they’re driving. It appears that the customer has no further knowledge about whether their car might require a software update or substantial structural repairs/replacing.

As Volkswagen franchisees, this news will also have an adverse impact from a dealership point of view. Dealerships are typically the first port of call for the customer. Not only will they be responsible for providing compensation (hopefully VW corporate compensates them back) and going through the expense of organising, handling and repairing/replacing affected cars, but they will also share some of the ‘bad blood’ generated from this scandal through no direct fault of their own.

For Volkswagen itself, this episode further drags VW’s brand reputation through the mud, compounding problems for a company still reeling from the ‘Dieselgate’ saga. Whilst 7,000 or so cars over a 12 year period may seem minuscule compared to the millions of cars that the VW group sells annually, this news is sure to have an outsize impact on the brand’s previously heralded reputation for quality and safety.

American car market undergoing substantial changes

Excellent article by Hilton Holloway from Autocar on the changes happening to the US vehicle market:

“Many new cars are sold to buyers at barely above their cost to the dealer, he said. Unless the dealership also has an active used car operation, new car sales are often not enough to pay the bills.

One big fear is the extent to which US car buyers have moved into leasing cars (much like the UK) since the Credit Crunch. Around 31% of new cars are sold as monthly leases and the cheap deals of recent times are running out. 

The extent to which drivers who have borrowed themselves into significant debt, finding they owe $20,000 on a car they want to dispose of but which has a $10,000 trade-in value, is also a big concern for the industry, because people with negative equity can’t and won’t go out and buy a new car.

And it’s not just disappearing consumers who could undermine the carmakers – massive market shifts are catching them out as well. GM’s recent decision to close three plants and kill 14,000 jobs was mostly a consequence of the collapse in US road car sales as the market swings decisively to crossovers and pick-up trucks. “

It sounds like a combination of factors, from alternative ways to own cars (such as leasing and subscription services), to a shift in demand to SUVs and utes, have combined to create a hurricane that is disrupting the traditional process of outright purchasing a new car through a dealership. Watch this space.

Ssangyong to return to the Australian market in 2019

Scott Collie, writing for CarAdvice

“The headline inclusion will be an all-new Korando, set for reveal at the Geneva motor show in March. Production is set to start in July, with the first cars touching down in Australia early in the third quarter. August is likely at this point.

Ellis wouldn't be drawn on how many Ssangyong wants to sell, or indeed what the sales split will be going forward, but we know the company is chasing between 3000 and 3500 annual sales across its entire range.

Ssangyong is in the midst of its re-launch in Australia. It was backed by an importer last time it ventured into Australia, this time around it's a fully factory-backed operation – the first outside of Korea.”

This appears to be a more serious attempt by the Mahindra backed Korean company to gain a foothold in the Australian market, perhaps highlighted by the fact that Ssangyong will follow its compatriots Kia and Hyundai in selling its cars here with a unique Australian suspension tune. What’s interesting about this is that vehicles with the Australian tune will apparently be sold 3 months after the brand’s initial launch. Personally, if I was the head of Ssangyong in Australia, I’d refrain from selling vehicles until all Australian delivered cars had a localised suspension tune. What happens to the resale value of those initial vehicles delivered in the first few months? If I was a buyer looking for a used Ssangyong, I would hate having to tediously check build and compliance dates to ensure I was purchasing a vehicle with the Australian suspension tune. 

More fundamentally, I think the only way Ssangyong will succeed here is on the basis of low prices compared to Hyundai, Kia and other ‘mainstream’ brands. Whilst the design of the current range is a lot more attractive than vomit-inducing horrors such as the Stavic (Rodius) and Actyon, they are no more appealing than other cars in the same class. Compared apples-to-apples, every Kia and Hyundai sold here has greater brand recognition and is simply a better car than its Ssangyong competitor. Consequently, the company should focus in the short term on offering a value packed offering that can compete directly with Haval and other budget brands sold here.

Above left to right: The Rexton, Musso and Tivoli, which along with the yet to be revealed new Korando, will make up the Ssangyong range in Australia.

India: Yatri Deluxe electric auto-rickshaw

I’m currently on a trip to India, and was lucky enough to sit in an electric auto-rickshaw for the first time. Suffice to say, the experience was a step up over the typical CNG (natural gas) powered rickshaws, with the most significant benefits being the quietness of the electric motor and the lack of smoke. A range of 70km is sufficient for the urban travel that auto-rickshaws typically undertake, and I’m hoping that these vehicles become more popular in India over the coming year.

Below are some photos I took of the Yatri Deluxe:

Nissan and Mitsubishi to fire chairman Carlos Ghosn

Hans Greimel, writing for Automotive News:

‘Ghosn, 64, allegedly under-reported his income in official stock market filings. He diverted corporate investment funds for personal use. And he misused company expenses, Saikawa said. Ghosn was taken into custody earlier in the day after arriving at a Tokyo airport and charged with similar violations of Japan’s financial laws, local media reported.

It was bombshell development for one of the industry’s most storied executives and a man who created its biggest automotive partnership, the Renault-Nissan-Mitsubishi Alliance. Ghosn oversees them all as chairman of the alliance, while individually chairing all three carmakers and concurrently serving as CEO of French partner Renault.’

This is shocking. Alongside the late Sergio Marchionne, Ghosn is one of the most influential and famous executives in the automotive industry, and widely credited with turning around the fortunes of Nissan and for forming the Renault-Nissan-Mitsubishi Alliance. It will be fascinating to see the consequences of these revelations unfold and their impact on the Alliance, given the substantial amount of power Ghosn held over the three companies.

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Above: Brands of the Alliance. From left to right, they are Renault, Nissan, Mitsubishi, Dacia, Renault-Samsung, Lada, Alpine, Infiniti, Venucia and Datsun.