Analysis: Australia's Free Trade Deals Are The Final Nail In The Coffin Of Its Auto Industry

Derek Kreindler
by Derek Kreindler

In the span of 24 hours, Australia inked two free trade agreements with both Japan and South Korea. Even though Holden, Ford and Toyota had already committed to ending auto manufacturing in Australia, it’s hard not to see the agreements as the last nail in the coffin of Australia’s once strong auto industry.

Although North American perception of Australia’s car market is one composed of big, rear-drive V8 sedans and Utes, that image is largely a construct in the minds of enthusiasts. The real picture is a lot less sexy.

Australia’s market is both unique and remarkably mundane. At around 1 million units annually, Australia’s new car market is a mere fraction of the United States – but it’s also far more competitive, with roughly 60 brands competing for a very small pie.

In past decades, the local auto manufacturing industry was heavily protected by tariffs, which encouraged a thriving domestic auto manufacturing industry. Holden and Ford ruled the roost, while Chrysler enjoyed a brief run of localized cars. Later on, companies like Mitsubishi, Nissan and Toyota joined the fray, establishing themselves as the favored Japanese brands.

But in 1983, the Button Plan radically changed the automotive landscape in Australia. The chief goal of the Button Plan was to consolidate the domestic auto industry by halving the number of model produced, while also looking to reduce tariffs and import quotas. The overall goal was to foster a more competitive, export-focused Australian car industry through increased competition.

In the immediate term, a number of badge engineered domestic models appeared in the showrooms of Japanese brands, but none sold particularly well. For a long time, traditional Australia vehicles like large sedans and Utes reigned supreme. But the past decade has seen a major shift in the automotive market, with rapidly changing tastes.

Much like their cousins in the United States, Australia’s traditional vehicles – large sedans and Utes – are facing a two-fronted war, and the outcome has all but been decided.

A report by Ward’s Auto shows that in 2003, large sedans (which ostensibly includes not just the Holden Commodore and Ford Falcon, but also front-drive entrants from Toyota and Mitsubishi) were the most popular cars in Australia, with 26 percent market share. A decade later, that number has fallen to just 7.6 percent.

Small cars and SUVs have overtaken the large car as the most popular segments in Australia. Rising fuel prices, shifting market tastes and a greater selection of small cars have helped propel vehicles like the Holden Cruze, Mazda3, Hyundai i30 to the top of the sales charts – to say nothing of the Toyota Corolla, which was Australia’s best-selling car in 2013.

At the other end of the spectrum, SUVs, crossovers and mid-size pickup trucks have eroded the large sedan’s domain as the family car of choice, with Ward’s reporting that one fifth of buyers are opting for mid-size or large SUVs. The Toyota HiLux was Australia’s best-selling truck in 2013, as sales of mid-size trucks (including Holden’s popular Colorado) helped dampen enthusiasm for Utes.

Beyond the lack of enthusiasm for traditional vehicles, the importance of Australian pedigree is on the wave. As Ward’s reports, the preference for Australian-made vehicles has declined substantially from over a quarter of new buyers in 2003, to roughly one eighth in 2013. Last year marked the first time that the three most popular brands in monthly sales rankings (Toyota, Mazda, Nissan) were all imports.

With a changing climate regarding imported vehicles, the FTAs with both Japan and South Korea will only reduce the cost of vehicles that Australian consumers are already gravitating to. While the FTA with Thailand arguably served as the catalyst for Australia’s major market shift towards Thai-built trucks and certain passenger cars, other factors, like a strong Australian dollar, high manufacturing costs and limited export demand for Australian cars (despite the protestations of enthusiasts across the internet) did their part in bringing about the inevitable end to Australia’s auto industry. The Japanese and South Korean FTAs won’t do any more harm to an industry on death row. But it’s impossible to ignore their symbolism in the wake of the Australian car industry’s annus horribilis.

Derek Kreindler
Derek Kreindler

More by Derek Kreindler

Join the conversation
10 of 52 comments
  • LALoser LALoser on Apr 08, 2014

    It is a bummer seeing the end of Oz Holdens. Drove them in Oz and NZ. Big fun. They were rough, coarse, rustic, whatever..but fun.

    • See 2 previous
    • Onus Onus on Apr 09, 2014

      @TonyJZX Sounds like the road you'll head down. New Zealand already has FTA with China. Though they seem to have non existent trade barriers anyways. It's purpose was really to help the New Zealand dairy industry get a foothold in China.

  • Conslaw Conslaw on Apr 08, 2014

    It's one thing to appreciate free trade; it's another thing to pray at the altar of free trade. Free trade can (but does not necessarily) efficiently maximize total wealth; but free trade theory doesn't account for changing distribution of that wealth. The gains are truly pareto-noncomparable. Our top heavy economy; no, make that the WORLD's top-heavy economy is a product of free trade. As Bill Mahr recently pointed out: 50 years ago, the leading employer in the U.S. was General Motors, with an average wage (in current dollars) of around $50/hour. Now the #1 employer is Wal-Mart, with an average wage of $8.00/hour. Are we better off? Are we going in the right direction?

    • See 4 previous
    • Big Al from Oz Big Al from Oz on Apr 10, 2014

      @charly You'd better read up. What about the NT, the average wage is over $80k? Or, Perth? The ACT or Canberra? Tasmania? Even within every state rural and urban wages differ. It isn't much different to the US. The problem in the US is it's minimum wage structure is designed poorly, as with many other social support agencies. The US welfare system is a patchwork of systems. It probably is verging on unmanageable. If the US cleans up its welfare system it will probably save billions in just administration.

  • Bd2 Probably too late to do anything about it for the launch, but Kia should plan on doing an extensive refresh of the front fascia (the earlier, the better) as the design looks really ungainly.
  • Namesakeone Since I include SUVs and minivans as trucks, I really cannot think of a brand that is truly truckless. MG maybe?
  • Sobhuza Trooper Subaru, they were almost there with the BRAT. --On a lighter note, where the hell is my Cooper Works Mini truck?
  • Mike Evs do suck, though. I mean, they really do.
  • Steve Biro I don’t care what brand but it needs to be a compact two-door with an ICE, traditional parallel hybrid or both. A manual transmission option would be nice but I don’t expect it - especially with a hybrid. Don’t show me an EV.