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Who’s on track?

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It’s said that in China the economic revolution is most visible on its roads.

In recent years, carmakers from Japan, Europe and the US have rushed into this rapidly changing nation. They are part of a boom that saw car sales rise 56 per cent in 2002, making China the world’s fourth biggest car market behind the US, Japan and Germany.

This trend comes as no surprise to Australian car manufacturers and policy makers. Since the 1980s they’ve watched the local car industry shrink from five car manufacturers to four, then from several models per company to one or two.

As a result, Australian governments pour tens of millions of dollars into the big four manufacturers each year – Holden, Ford, Mitsubishi and Toyota – in a bid to keep them local.

It’s not hard to understand why. The Australian automotive industry, although minute in comparison with its global counterparts, is one of our manufacturing goliaths. The big four produce more than 350,000 vehicles each year. Nearly one third of those are exported to countries including Saudi Arabia, the United Arab Emirates, Kuwait, the US and New Zealand.

In fact, automotive manufacturing represents one of our largest export industries, ahead of primary agricultural products such as wheat, wool and beef.

In terms of jobs, the industry as a whole employs more than 54,000 people – and nearly 30,000 of those work for auto component manufacturers.

Car manufacturing is clearly a desirable industry for Australia to cultivate. However, it’s an industry that will always be threatened by competing nations that are able to capitalise on larger markets and cheaper labour forces.

According to David Peck, from Eng-Com Pty Ltd and Swinburne’s Australian Graduate School of Entrepreneurship, this fact is not lost on Australian industry players.

“To compete internationally the car industry, like the rest of the manufacturing sector, is constantly looking for ways to reduce costs and simultaneously improve quality,” says Peck.

“The automotive industry is changing and carmakers must adapt. It’s an industry searching for new ideas, fresh perspectives and ground-breaking techniques – in short, it’s an industry looking for innovation.”

AN INDUSTRY CHANGING GEAR

The drive for innovation means that the Australian auto industry as a whole is looking for ways to capitalise on its strengths.

Mandy Parry-Jones, Editor of Australian Automotive Aftermarket Magazine, explains that the auto landscape has been changing to reflect a shifting corporate focus among global automotive manufacturers. They no longer want to be responsible for total assembly.

“They want to play a design and engineering function. They want to market and sell their brands, and arrange finance for the purchase. In the Australian context, we would be better off focusing on this value end of the industry, where we have the educated workforce and the skills base to compete,” says Parry-Jones.

“The really good news for Australia is that we are seeing component manufacturers taking responsibility for a large part of the assembly of cars – in sections. In this environment, Australia’s thriving automotive components industry has a lot to gain.”

Australia is home to more than 200 component, tooling, design and engineering firms. While the big four carmakers are scaling back, our component suppliers are adding value to Australia’s position as a car manufacturing nation – and making their mark on the country’s export balance sheet.

The Productivity Commission’s Review of Automotive Assistance report from 2002 found that the local automotive industry is experiencing a progressive shift in responsibility toward “design, product development and production down the supply chain”. As a result, producers are becoming final assemblers, connecting major sub-assemblies or modules supplied by the larger component producers.

And the shift isn’t confined to Australia.

Globalisation of the industry has allowed many Australian component companies to actively market their products to overseas manufacturers. Melbourne-based Air International is just one example of a locally owned company competing and winning in a global marketplace. This tier-one supplier of air conditioning and steering column technology has become a global manufacturing and engineering giant, employing more than 1,500 people across four continents. The company spends more than four times the Australian average on R&D and has twice won the prestigious General Motors Supplier of the Year award.

Trade missions to overseas countries featuring Australian component suppliers have also become common practice. Two of the larger delegations of recent years were engineered by Axcess Australia (funded by government and industry) to showcase cars designed and manufactured by Australian component makers. The vehicles involved no input from carmakers at all.

The larger manufacturers also appear to be viewing Australia as a good place to develop new products. Toyota is planning a $47 million R&D centre in Melbourne and Mitsubishi is set to spend $230 million on its Adelaide-based equivalent, featuring a $10 million high-speed test track.

However among the big four, it seems the greatest levels of innovation are taking place at corporate level. The new impetus is to improve systems and processes in areas where Australian manufacturers have a chance to compete.

HOLDEN INNOVATION: CHANGING THE GAME

Brent Dankesreither, Manager Holden Innovation Product Synthesis, agrees that carmakers operating in Australia can’t compete on a volume or price basis against manufacturers in developing countries.

“Each and every company in Australia essentially competes as the smallest player in a global market,” says Dankesreither. “Only those players who are actively pursuing the abilities to innovate will be ready to compete.”

Holden has recently put in place a major program to formally recognise and encourage innovative practices throughout the business.

Holden Innovation, launched in late 2002, is a stand-alone program with annual funding of $10 million. It involves 30 specialist economists, statisticians, psychologists and engineers, all dedicated to changing the company’s approach to innovation.

“As Holden does not have the resources to outspend larger global automotive companies, we have to outsmart them. Innovation is the best means to achieve this,” comments Dankesreither.

Peck explains that innovation, as a value, is very new to Holden. The company must work out how innovation can be applied to an industry with solid traditional boundaries and constraints.

“Holden Innovation is one way they hope to break down some of the barriers and accelerate the innovation process. The approach is game changing rather than incremental,” he states.

In addition to Holden’s high-profile ECOmmodore and Monaro initiatives, the company’s innovation program has been leading to improvements along the value chain.

This includes formalising “skunk-works” activities, developing in-house knowledge management systems and initiating organisational structures that favour knowledge flow between technology-focused and customer-focused departments.

Holden Innovation is also encouraging cluster activities, including partnerships with Victorian Partnership of Advanced Computing, CSIRO and Monash University.

As Dankesreither explains, “The challenge for Holden is that we need to work today to improve this further to ensure that we sustainably meet our global export vision.”

FORD: AN ORGANIC APPROACH

Ford, on the other hand, has no formal innovation programs in place. But according to Sinead McAlary, Ford Australia’s Brand Communications Manager, the company has long embraced a culture of inventive thinking as Australia’s oldest carmaker.

One of the company’s – and country’s – icons, the ute (a.k.a. the coupe utility), was first launched in 1934 following a suggestion made to the head of Ford by a farmer’s wife. She asked for a vehicle that would take the pigs to market on Saturday and the family to church on Sunday. The company took up the suggestion and developed a car that’s been a best-seller ever since. “It’s this willingness to embrace new ways of thinking that the company sees as one of its strengths.”

For the modern consumer, Ford’s newest innovation is the Falcon RTV (Rugged Terrain Vehicle) Ute, developed by a team of Ford engineers who saw a market niche and developed a vehicle without senior direction.

“Once they knew the project was viable, they pitched the idea to management, who quickly saw its potential,” McAlary explains.

The company has also instituted natural work groups (NWG) to bring together people who work on a similar job or in a similar area. These meetings give employees the chance to consider how they can improve processes and initiate new methods.

One NWG suggestion from a production line team resulted in an inventive way of installing dashboards, leading to improved procedures and safety. As McAlary highlights, “The NWG model has been so successful at Ford that it has been studied and implemented by other companies.”

VYING FOR POLE POSITION

Perhaps it is inevitable that the lion’s share of Australian carmaker operations will move offshore under pressure from international companies with larger markets and lower costs. However, no one is waving the chequered flag yet.

As Parry-Jones explains, the Australian industry offers overseas manufacturers something that is “special” and highly desired – low volume profitable production.

“Very few countries have a components industry that can make low volume production profitable, because they all deal in high volumes.

“So when a company like Porsche, or even BMW with its MINI, wants to make a small production run, their normal component suppliers have difficulty providing product that is cost effective,” says Parry-Jones.

“But what is small to them is large to us. We can produce comparatively small volumes in a way that is cost effective to the car manufacturer.”

According to Peck, we should be looking at the bigger picture. Car companies must look to break down barriers and accelerate innovation in ways that are revolutionary rather than evolutionary.

“We have the skills. We have the talent. If we are smart and technology-focused, there is no reason why Australia shouldn’t be able to re-invent itself as an assembly line for intelligent technology and intelligent manufacturing processes.”

MINI’S MAVERICK MARKETING APPROACH

It’s not just in the organisational and product spheres that the Australian car industry is embracing innovation. Marketing too is an avenue for new ideas, as shown by the eye-catching MINI campaigns.

MINI, an independent brand within the BMW Group, is carving out a reputation for advertising that is off-the-wall – sometimes literally. One of the company’s recent campaigns involved attaching a full-size MINI replica onto a billboard. Last year, the company set up a car hatch on an airport luggage carousel.

Guido Schenken, Marketing Manager for MINI Australia, states that the company’s marketing approach is designed to communicate the MINI brand’s cheeky, anti-status, fun attitude. “More than any other car on the Australian market, MINI is an emotive purchase, rather than a rational one,” he says. “MINI is about entertainment, and having fun and enjoying life.”

The brand focuses on selling a lifestyle, rather than just a car. The MINI website features fashion, accessories and gadgets such as digital cameras, MP3 players and on-board personal digital assistants to complement the MINI driving experience.

To further raise its media profile, MINI is working hard to become a pop icon. At the Australian Grand Prix in 2003, celebrities took part in the MINI Celebrity Challenge for the second year running. And on the big screen, thanks to US management, the car featured in the second Austin Powers movie, Goldmember, and in this year’s remake of The Italian Job.

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