Carmakers sing manufacturing blues: few customers

Making cars in Australia is like trying to stuff a Rugby team into a phone booth: There are too many manufacturers in too small a country. In fact, the country's 14.7 million people buy fewer than 600,000 vehicles a year -- about half the number that Californians do.

"It is just cutthroat competition," says Brian Jeffriess, manager of corporate strategy for Mitsubishi Motors Australia Ltd. "To me it's economic madness to be any kind of manufacturer in Australia."

Yet the country's automakers continue to survive through a mixture of dogged determination and government protection. The auto industry symbolizes the dilemma facing much of Australian manufacturing: a small market protected by rather high tariffs.

Just how thick the protective armor should be for manufacturers is a source of considerable debate. A federal advisory group is continuing to look into peeling back some of the sheathing. In theory at least, the government of Prime Minister Malcolm Fraser seems determined to hew down some of the high tariffs. But to do so in job-heavy manufacturing industries remains politically difficult at a time when unemployment tops 5 percent.

The country slaps a 57.5 percent tariff on imported cars, while the bill on light commercial and four-wheel-drive vehicles is 25 percent. Imported cars are limited to 20 percent of the local market, or about 90,000 autos a year.

Even this lofty protective barrier, however, is no assurance of fat profits. Last year the industry went through a cold shower. General Motors-Holden's (GMH), the country's largest carmaker, lost US$149 million (A$129.8 million). Part of the GMH debacle, however, reflected heavy investment in a new engine plant in Melbourne. Nissan (Datsun) Australia and Australian Motor Industries, the maker of Toyota products, were also awash in red ink.

Only two carmakers -- Ford Australia and Mitsubishi Motors Australia Ltd -- carded profits. Still, none of the automakers are showing any signs of bolting the market. In the short run the manufacturers are banking on an upturn in domestic sales to carry them through a period of retrenchment and retooling. In the long run they plan to jump more into the world car market.

A more vibrant national economy is expected to boost sales this year. One independent analyst, Rob O'Connell of the Melbourne-based Martec Proprietary Ltd., predicts a banner year for 1981. Total vehicle sales, he says, could top 608,000 -- well above the previous high of 603,000 in 1976. Last year the nation's automakers sold 575,000 vehicles.

Manufacturers, meanwhile, are also setting their cross hairs on a possible export market for car parts. GMH, for instance, is pumping some US$286 million (A$250 million) into a new engine plant at its sprawling complex near the smog-shrouded Yarra River in Melbourne. The first engines are expected to trundle off the assembly line by August. Eventually the plant is to churn out some 240,000 motors a year, the bulk of which will be shipped abroad.

In return for exporting the engines, the government will allow the company to import 5 percent more parts -- everything from windows to wheel bearings -- duty-free. Currently 85 percent of a car must be manufactured locally. The 5 percent setup goes into effect early next year, about the time plants will hit peak production.

By 1984 the government will permit manufacturers to import up to an additional 7.5 percent tariff-free parts in return for the same dollar-for-dollar level of exports.