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A s s | g n m e n t 1
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S e m e s t e r 2
S e p t e m b e r 2 0 1 1
ino suio
M81 4ssiqnment 68419122 8usiness conomics
{149 words)

1loo M 1soto C8A19122 Asslqomeot 1 2J250927
IN1kCDUC1ICN 2
ACkGkCUND CI AUS1kALIAN CAk MANUIAC1UkING INDUS1k 3
MAkkL1 S1kUC1UkL 4
CCS1 DkIVLkS CI AUS1kALIAN CAk MANUIAC1UkING INDUS1k S
LACUk S
CCMCNLN1S S
LCW VCLUML CI CAkS kCDUCLD 6
kCDUC1ICN IACILI1ILS AND 1LCnNCLCG 6
C1nLk CCS1 DkIVLkS 6
LNLII1S CI LCCNCMILS CI SCALL ICk 1nL GLCAL INDUS1k 7
CLkA1ICNAL LIIICILNC 7
Su8S1l1u1LS Anu LLAS1lCl1? 7
CCMCNLN1 MANUIAC1UkLkS CCML1I1ICN 8
NICnL MAkkL1 ICk AUS1kALIA 8
AUS1kALIAN 1AkIIIS AND 1AkLS 8
1nL IU1UkL CI 1nL INDUS1k 9
CCNCLUSICN 11
kLILkLNCLS 11

1loo M 1soto C8A19122 Asslqomeot 1 2J250927

I N1kCDUC1ICN
1hls reporL analyses Lhe cosL drlvers for Lhe AusLrallan car manufacLurlng lndusLry 1he key cosL
drlvers LhaL are dlscussed are
O Labour
O ComponenLs
O lgh capaclLy producLlon faclllLles
O 1echnology
O Iolume of cars produced
1he reporL wlll analyse Lhe beneflLs of economles of scale ln Lhe global auLomoLlve lndusLry and how
Lhls lmpacLs on Lhe AusLrallan lndusLry 1he key facLors are
O lgh volume overseas manufacLurers operaLe aL Lhelr mlnlmum cosLs
O lobal manufacLurers can generaLe compeLlLlon among componenL manufacLurers
O AusLrallan manufacLurers can operaLe ln nlche markeLs (wlLh rlsks)
llnally Lhe reporL provldes a brlef commenLary on Lhe fuLure of Lhe lndusLry 1he followlng lnslghLs
are hlghllghLed ln Lhls secLlon
O 1he need Lo adapL Lo chonqinq consumer preferences (wbot qooJs to ptoJoce)
O ,ore parLlclpaLlon ln Lhe global supply chaln ls requlred
O 1echnology can be used Lo galn a comporotive odvontoqe y deslgnlng and manufacLurlng
advanced or hlgh l" componenLs (bow wlll tbe qooJs e ptoJoceJ)
O xponsion of export morkets so Lhey can produce more and galn economles of scale (wbo
wlll coosome tbe qooJs)

1loo M 1soto C8A19122 Asslqomeot 1 2J250927
ACkGkCUND CI AUS1kALIAN CAk MANUIAC1UkI NG INDUS1k
ln 200S Lhe AusLrallan car lndusLry conslsLed of Lhe followlng
O ma[or manufacLurers (olden lord 1oyoLa and ,lLsublshl)*
O 7000 vehlcles manufacLured per annum (03 of global ouLpuL)*
O A comblned $20 bllllon ln sales revenue*
&(5loq 5mltb 5obol 2005)
8y ne 2011 Lhe lndusLry conslsLed of Lhe followlng
O ma[or manufacLurers (olden lord and 1oyoLa)**
O 1oLal revenue of $ 10 bllllon**
O Annual growLh of 10 beLween 2006 and 2011**
&&(l8l5 wotlJ 2011)
1he followlng graph shows Lhe dec/ininq demond for locally produced vehlcles
liqure 1 4ustro/ion vehic/e 5o/es 1rends (8oteoo of stotlstlcs 2010 p8)




0
100,000
200,000
300,000
400,000
500,000
600,000
2003 2004 2005 2006 2007 2008 2009 2010
&
3

9
8
Total Locally Produced Total mports
1loo M 1soto C8A19122 Asslqomeot 1 2J250927
,A8kL1 S18uC1u8L
WlLh only ma[or manufacLurers Lhe lndusLry can be consldered Lo exlsL ln an o/iqopo/y sLrucLure
I|gre 2 below shows Lhe key lndusLry parLlclpanLs (lncludes lmporLers)

liqure 2 (8ureau of sLaLlsLlcs 2010 p 7)

1he lndusLry also exhlblLs oLher ollgopoly characLerlsLlcs such as hlgh barrlers Lo enLry and low
proflLablllLy
CLher barrlers Lo enLry are as follows (l8l5 wotlJ 2011)
O lgh flxed cosLs
O breakeven proflL levels
O 1he cosL of developlng hlghvolume producLlon faclllLles
O AblllLy Lo access Lo Lechnology from ma[or global operaLors

1loo M 1soto C8A19122 Asslqomeot 1 2J250927
CCS1 DkIVLkS CI AUS1kALIAN CAk MANUIAC1UkING INDUS1k
1he followlng cosL drlvers wlll be analysed ln Lhe shorL and long run 1he shorL run ls characLerlsed
by consLralnLs le one or more lnpuLs are flxed (8A19122 2011 SLudy ulde unlL p 3) whereas
Lhe ln Lhe long run all facLors are varlable
O Labour
O ComponenLs
O roducLlon faclllLles
O 1echnology
Cf Lhe above facLors the constroints in the short run ore production foci/ities ond techno/oqy
1he flnal cosL drlver ls
O 1he vo|me of cars prodced 1hls ls lmporLanL because lL deLermlnes wheLher economles
of scale can be galned

LA8Cu8
Labour can be varled by addlng exLra shlfLs uslng exlsLlng sLaff and ls Lherefore generally noL a
consLralnL ln Lhe shorL run owever ln Lhe AusLrallan conLexLs unlons have Lhe power Lo negoLlaLe
agreemenLs LhaL make lL dlfflculL and cosL lneffecLlve Lo vary shlfLs as requlred by lean producLlon
meLhods
,lnchln (2007 pp J27 J46) provldes nlssan and ,lLsublshl as examples of organlsaLlons LhaL were
affecLed by Lhls cosL drlver nlssan closed lLs manufacLurlng planL ln AusLralla ln 1992 and ,lLsublshl
ln 2008

CC,CnLn1S
ComponenLs can also be varled and Lhey are Lherefore are noL a shorL run consLralnL !ohnson
(2006 p14) noLes LhaL AusLrallan manufacLured componenL are generally more expenslve Lhan
Chlnese made componenLs due Lo Lhe hlgh cosL of labour ln AusLralla
1loo M 1soto C8A19122 Asslqomeot 1 2J250927
!ohnson (2006 p14) also suggesLs LhaL AusLralla should conslder a sLraLegy where low cosL
componenLs are ouLsourced Lo low labour cosL counLrles and only hlgh l" componenLs are
manufacLured ln AusLralla
Low cosL labour counLrles have an abso|te advantage over AusLralla on Lhe manufacLure of
componenLs

LCW ICLu,L Cl CA8S 8CuuCLu
Slng eL al (2005 pJJ81) asserL LhaL Lhe volume of cars manufacLured ln AusLralla ls low (7000) per
annum As shown ln llgure 1 consumer demond is dec/ininq for locally manufacLured vehlcles and
Lherefore prices ore dec/ininq ond so is supp/y
1hls resulLs ln /oco/ monufocturers foi/inq to ochieve the benefits of economies of sco/e As a resulL
AusLrallan car manufacLurers do noL operaLe aL Lhelr mlnlmum cosL levels

8CuuC1lCn lAClLl1lLS Anu 1LCnCLC?
roducLlon faclllLles and Lechnology are a barrler Lo enLry ln Lhe car manufacLurlng lndusLry (l8l5
wotlJ 2011) 1hls also means Lhey are a slgnlflcanL cosL drlver 1hey are a consLralnL ln Lhe shorL
run as a change ls a slgnlflcanL underLaklng

C1L8 CCS1 u8lIL8S
CLher cosL drlvers are as follows
O 1axes lmposed by governmenL for example Lhe carbon Lax
O 1he currenL cosL of Lhe hlgh AusLrallan dollar (l8l5 wotlJ Moy 2011)


1loo M 1soto C8A19122 Asslqomeot 1 2J250927
LNLII1S CI LCCNCMI LS CI SCALL ICk 1nL GLCAL INDUS1k
1he economles of scale LhaL can be galned by global companles have Lhe followlng lmpacL
O Companles LhaL en[oy Lhe economles of scale are more efflclenL (operaLe aL Lhelr mlnlmum
cosL levels)
O Such companles aLLracL more componenL manufacLurers (compeLlLlon)

CL8A1lCnAL LlllClLnC?
Lconomles of scale ln allow global manufacLurers Lo produce aL Lhelr mlnlmum cosL Slng eL al
(2005 p JJ81) sLaLe LhaL AusLralla's comblned annual producLlon of 7000 ls comparable Lo Lhe
producLlon of a slngle large planL such as nu,,l ln Lhe unlLed SLaLes
Slng eL al (2005 p JJ81) also noLe LhaL global flrms operaLlng aL Lhelr mlnlmum cosLs are puLLlng
compeLlLlve pressure on AusLrallan flrms by supplylng lower cosL lmporLs
I|gre 3 below shows a sLeady decllne ln Lhe prlce of vehlcles ln AusLralla due Lo compeLlLlon from
lmporLed vehlcles Accordlng Lo Lhe |aw of spp|y Lhls has a dlrecL lmpacL on Lhe quanLlLles
produced whlch are also decllnlng as seen ln llgure 1
I|gre 3 New Motor Veh|c|e r|ce Index (8oteoo of stotlstlcs 2010 p11)

Su8S1l 1u1LS Anu LLAS1l Cl1?
lobal manufacLurers supply subsLlLuLes for locally manufacLured vehlcles and Lherefore prlces of
local vehlcles can be consldered Lo be elasLlc le Lhe effecL of prlce lncreases ls ampllfled
88
90
92
94
96
98
100
102
104
106
108
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
December Quar9er
I
3
/
e
x
1loo M 1soto C8A19122 Asslqomeot 1 2J250927
1hls can be seen ln Lhe correlaLlon beLween prlce reducLlons of globally manufacLured vehlcles
(I|gre 3) and Lhe decllne of locally manufacLured vehlcles (I|gre 1)

CC,CnLn1 ,AnulAC1u8L8S CC,L1l1l Cn
Also relaLed low producLlon AusLralla can only aLLracL a llmlLed number of componenL
manufacLurers Lhereby creaLlng llLLle compeLlLlon among componenL manufacLurers
Slng eL al (2005 p JJ81) noLe LhaL some componenL manufacLurers prefer Lo supply from overseas
due Lo Lhe small AusLrallan markeL 1hls lncreases cosLs of componenLs

nlCL ,A8kL1 lC8 AuS18ALlA
Slng eL al (2005 p JJ82) sLaLe LhaL the positive outcome of 4ustro/ios /ow vo/ume ls LhaL lL has
been able Lo esLabllsh a nlche markeL for medlum and large vehlcles eg ln Lhe mlddle easL
owever Lhls nlche ls aL rlsk of because of Lhe emergence of compeLlLors LhaL have lower labour
cosLs eg 1halland
Changlng consumer preferences due Lo hlgh fuel prlces are anoLher rlsk for Lhe lndusLry

AuS18ALlAn 1A8lllS Anu 1AxLS
AusLrallan manufacLurers were prevlously proLecLed by hlgh Larlffs on lmporLs buL Lhese have been
reduced Lherefore exposlng local manufacLurers Lo global compeLlLlon
8elssmann (2011) noLed olden's CLC's concerns abouL how low Larlffs and addlLlonal Laxes (eg
carbon Lax) have reduced barrlers Lo enLry for local manufacLurers
1hls ls evldenL ln Lhe downward Lrends seen ln Lhe proflLablllLy of Lhe local lndusLry as shown ln
flgure below
llgure Loca| Veh|c|e Manfactrers' rof|t erformance (8oteoo of stotlstlcs 2010 p16)
1loo M 1soto C8A19122 Asslqomeot 1 2J250927

uue Lo Lhe e|ast|c|ty of producLs manufacLurers cannoL slmply lncrease Lhelr prlces ln order Lo
become proflLable

1nL IU1UkL CI 1nL INDUS1k

1he AusLrallan car manufacLurlng lndusLry needs Lo respond Lo Lhe followlng facLors LhaL can affecL
lLs fuLure
O Changlng consumer preferences due Lo hlgh fuel cosLs
O lgh labour cosLs
O SLrong currency
O Low volume of producLlon (manufacLurers noL reallslng economles of scale)
O ressure from cheaper lmporLs

lobal manufacLurers can produce lower cosL vehlcles so Lhe AusLrallan car manufacLurlng lndusLry
needs Lo Lake Lhe followlng acLlons lf lL ls Lo become more compeLlLlve
1 Lva|ate trends |n consmer preferences and adapt to those changes
1loo M 1soto C8A19122 Asslqomeot 1 2J250927
a lgh fuel prlces are lmpacLlng consumer preferences for large cars and Lherefore
puLLlng mosL AusLrallan manufacLurers aL rlsk
2 Investment |n techno|og|ca||y advanced components
a AusLralla cannoL compeLe on cosL alone as emerglng economles have an obso/ute
odvontoqe on labour lnLenslve processes and Lhey also reallse Lhe beneflLs of
economles of scale
b AusLralla needs Lo focus on deslgnlng and produclng Lechnologlcally advanced or
hlgh l" (!ohnson 2006 p 1) componenLs where lL can qoin competitive ond
comporotive odvontoqes due Lo lLs hlgh skllled work force (deslgn and compuLlng
skllls)
c 1he above may have a creotive destruction effecL as currenL local producers wlll lose
some of Lhelr buslness as changes are effecLed
3 Improve sa|es vo|mes (so as to rea||se the benef|ts of econom|es of sca|e)
a AusLrallan manufacLurers should LargeL exporL markeLs more lf Lhey are Lo lmprove
Lhelr comblned sales volume Such an lncrease wlll enable Lhem Lo operaLe aL Lhelr
mlnlmum cosL (economles of scale) and compeLe wlLh uS and emerglng counLrles
manufacLurers liqure 4 below shows Lhe currenL decllnlng Lrend ln AusLrallan
vehlcles manufacLured for Lhe domesLlc and exporL markeLs
liqure 5 4ustro/ion cor Monufocturinq (8oteoo of stotlstlcs 2010 p10)

b AusLrallan car and componenL manufacLurers should porticipote more in the q/obo/
supp/y choin le sourclng some componenLs from low labour cosL counLrles and
supplylng advanced componenLs Lo local and lnLernaLlonal markeLs
1loo M 1soto C8A19122 Asslqomeot 1 2J250927
1hese changes requlre lncenLlves from Lhe governmenL eg Lax breaks for companles LhaL lnvesL
heavlly ln research and developmenL
1hls ls ln llne wlLh recommendaLlons for lnnovaLlon subsldles (of a reen Car lund) LhaL were made
by Lhe 8rack revlew (uepottmeot of looovotloo 2008)


CCNCLUSICN
AusLralla has a low volume car manufacLurlng lndusLry LhaL has Lhe sLrucLure of an ollgopoly
uemand for local vehlcles has decllned due Lo Lhe avallablllLy of cheaper subsLlLuLes from global
manufacLurers
ln order Lo be more compeLlLlve AusLrallan manufacLurers need Lo do Lhe followlng
O arLlclpaLe more ln Lhe global supply chaln by
O AdapLlng Lo changlng consumer preferences
O lnvesL ln Lechnology research




kLILkLNCLS
AusLrallan 8ureau of SLaLlsLlcs 2010 ey Aotomotlve 5totlstlcs 2010
hLLp//wwwlnnovaLlongovau/lndusLry/AuLomoLlve/SLaLlsLlcs/uocumenLs/keyAuLomoLlveSLaLlsLlcs
2010pdf Last Accessed 11 September 2011

AusLrallan ueparLmenL of lnnovaLlon 2008 A New cot lloo fot o Cteeoet lotote
hLLp//wwwlnnovaLlongovau/lndusLry/AuLomoLlve/newCarlan/ages/defaulLaspx Last
Accessed 11 September 2011

8elssmann 1 !une 2011 Car Advlce olJeo oosote of Aosttolloo cot mooofoctotloq fotote
bttp//wwwcotoJvlcecomoo/124865/bolJeooosoteofoosttolloocotmooofoctotloqfotote/
Last Accessed 10 September 2011
1loo M 1soto C8A19122 Asslqomeot 1 2J250927

LlloL 2008 8tocks tepott mops ooto fotote ,anufacLurers ,onLhly 0023230 pg10 10

l8lS World Motot veblcle Mooofoctotloq lo Aosttollo Motket keseotcb kepott
hLLp//wwwlblsworldcomau/lndusLry/defaulLaspx?lndld230 Last accessed 8 September 2011

l8lS World 1be Aossle Jollot mokes lts motk oo mooofoctotets
hLLp//wwwlblsworldcomau/newsleLLer/lssues/au/11may/newsaspx#alndusLry1
Last accessed 8 September 2011

!ohnson A !une 2006 ctoclol 1lme fot Aosttollos cot loJostty ,anufacLurers ,onLhly pg1 13
,81 SLudy ulde 2011 5bott ooJ looq koo competltlve Jeclsloo mokloq 8A19122 8uslness
Lconomlcs unlL unSW kenslngLon

,lnchln 1! 2007 1be Assemly lloe ooJ cots come lltst loot kelotloos ooJ tbe uemlse of Nlssoo
cot Mooofoctotloq lo Aosttollo Labour lsLory 8 276

Slngh ! SmlLh A and Sohal AS 2003 5ttoteqlc sopply cbolo moooqemeot lssoes lo tbe ootomotlve
loJostty Ao Aosttolloo petspectlve lnLernaLlonal !ournal of roducLlon 8esearch Iol no 16 13
AugusL 2003 7399