MELBOURNE - Osamu Komori, president of Toyota Motor Corp. Australia Ltd., had plenty of reasons to be in good cheer last Christmas as he looked ahead to 1999.
Although new-vehicle sales in 1999 are expected to be below the record 1998 pace, the year still could rank as the second-best ever, thanks to the robust Australian economy. Toyota Australia will prepare to enter profitable new segments, and will continue its record-setting exports.
Moreover, the company had a great 1998, holding on to the No. 1 sales spot by topping Holden Ltd., General Motors' Australian unit, in a close race.
Yet Komori was not in a celebratory mood. Over a buffet lunch of cold cuts and a relish tray, he frowned when he pondered the inroads made by imports in the Australian market.
'I have some concern. Perhaps this is the only really free market. Other than the U.S.A., people are concentrating on Australia,' Komori said.
In part, Komori's worries are a function of exchange rates. The Australian dollar tumbled to about ¥72 in late 1998 from around ¥85 at the start of last year, making imported Japanese cars more expensive and strengthening the hand of imports from Korea.
Yet his core concern is a hot topic here.
With car sales across Asia plunging because of the region's economic and financial crisis, carmakers from Tokyo to Seoul to Bangkok have set their sights on Australia. For many, the market Down Under is the last lifeboat afloat on a troubled sea.
Concerned by import flood
'We only have a small population. I'm not sure the consumer base is there to buy all the cars that are pouring in,' said Hiroshi Takasaka, senior deputy managing director for sales and marketing at Mitsubishi Motors Australia Ltd.
Imports captured 53 percent of the Australian market in 1997 and 1998, up from 43 percent in 1995. The rise has been paced by sharp increases in shipments from Korea and Japan, as well as from Japanese plants in Thailand.
Those gains are expected to accelerate this year as the tariff on imported new cars drops from 20 percent to 15 percent.
'Our market is a retail dumping ground for anybody. You can move our market because it's so price sensitive, more so than other markets where brands are more entrenched, and customers more loyal,' said Doug Croker, managing director of Hyundai Motor Co.'s Australian sales arm.
'Aussies don't lack for patriotism, but their hip pocket comes first,' he said.
Peter Thomas, Holden's executive director for planning and external affairs, points out that the Australian government has been committed to trade liberalization for more than 10 years, and is not about to backtrack.
'The concept of pulling up the drawbridge is just not viable,' he said.
Indeed, Thomas and others argue, while the government's policy of trade liberalization has benefited imports, it has done far more to strengthen the Australian economy as a whole, and the automotive sector in particular.
Australia is a relatively recent convert to open markets. When the government earlier this decade proposed to ratchet duties on imports down to as low as 5 percent, carmakers howled that they would never survive. Indeed, Nissan Motor Co. shut its Australian plant in 1995.
The government eventually relented, agreeing to cut duties to 15 percent this year and stay at that level at least until 2004. Today, the combination of a go-go economy and trade doors that have opened wider is a magnet for imports, which have risen from 26.5 percent of total sales in 1987 to 53 percent last year.
At the same time, though, Australia's four carmakers are enjoying strong sales at home and rising exports as well.
And after averaging between 30,000 and 40,000 a year in the first half of this decade, Australian vehicle exports topped 54,000 last year. Production edged up 1.1 percent to 355,246.
Each maker builds one or two core models, although in a variety of body styles. The four makers and the core vehicles are Holden, Commodore and Vectra; Toyota, Camry and Corolla; Ford, Falcon and Fairlane; and Mitsubishi Magna/Verada, known as the Diamante overseas.
Toyota will drop the Corolla in mid-1999 and begin a changeover to an Avalon-like larger version of the Camry, to go on sale in 2000.
Certainly, Australia's booming economy has served the industry here - domestic and import alike. Sales last year rose 11.8 percent over 1997 to a record 807,669. Although the market is expected to dip in 1999, as buyers pause to weigh the impact of a proposed change in Australia's tax structure, the economic fundamentals remain strong.
The Australian Treasury Depart-ment forecasts economic growth in the fiscal year ending June 30 at 3.25 percent, up from its forecast of 2.75 percent last summer. The government's budget surplus is seen at $3.3 billion Australian, or about $2.1 billion U.S. at current exchange rates, up from the prior forecast of $2.6 billion Australian.
An upbeat mood, readily apparent in crowded stores and energetic shoppers in Melbourne, Adelaide, and Sydney during the recent holiday season, goes beyond Australia's nickname of 'the lucky country.'
Australia's leaders have been praised by economists for savvy management of their nation during the global financial turmoil. A decade and a half of reform has left the Australian economy more adaptable, flexible and productive. When the Asian crisis hit, Australian exporters nimbly shifted to other markets in Europe and the Americas.
But the local auto industry still is bracing for a downturn this year.
'There will be a downturn his year, largely due to the impact of the Asian crisis finally washing up
on Australia's shores,' predicts Edmund Leamy, an analyst at Standard & Poor's DRI Global Automotive Group in London.
DRI predicts the market will slow to 743,000 light vehicles in 1999, off 8 percent from 1998, an assessment shared by executives at Holden, Ford and Toyota. But the industry executives do not blame fallout from the rest of Asia - the reason for the sales drop, they say, will be Australia's new tax system.
If implemented, Australia's shift to a goods and services tax from a retail-based collection system will lower new-car prices by 7 to 10 percent - or $2,100 to $3,000 on a $30,000 vehicle. The new tax structure, which must be approved by June 30, would take effect Jan. 1, 2000.
That will push many potential 1999 sales into 2000 as car buyers wait to reap the savings, industry executives point out.
'With the tax uncertainty hanging over the market, 1999 is still a finger in the air,' said Holden's McKenzie. Nonetheless, he predicts, this year still will be the second-best in the country's history.
Mitsubishi's Takasaka, on the other hand, said he worries that sales this year could drop to as low as 690,000.
For the four automakers who produce here, exports will make up for some, though not all, of the drop. All four are investing in Australia with an eye to exports.
But Ford Motor Co. of Australia Ltd. President David Morgan, who doubles as the president of the Federal Chamber of Automotive Industries, warns that Australian vehicle exports are not an easy sell.
The large, rear-drive cars favored by fleets Down Under sell poorly in Europe or Japan, he said. And while the Mideast is a favored market, margins there are thin.
'Australia's industry as a whole, I think, should be pursuing component exports more than vehicle exports,' he says.
That is what Holden has done.
The company ships four- and six-cylinder engines to about 15 customers around the world. The largest customer by far used to be Korea's Daewoo Motors Corp., but when the collapse of the Korean car market slashed those orders, Holden stepped up its efforts to sell to Europe.
Along with other component exports, 'it has grown into a significant source of revenue. It's no longer selling excess capacity,' said Peter Thomas, who oversees engine sales for Holden.
GM Holden shipped about 3,150 Commodores to the Mideast last year, and another 2,340 to Brazil. Exports to the Mideast will more than double this year, as the Chevrolet Lumina, a rebadged Commodore, is joined by a long-wheelbase version to be known as the Chevy Caprice. Sales to Brazil of what is badged as the Chevrolet Omega may tally 3,300, depending on the economy there.
In the first quarter of 1998, Holden put its assembly plant at Elizabeth, South Australia, near Adelaide, on two shifts as it began building the Opel Vectra. On Dec. 23, GM Holden shipped its first Vectras to Japan.
Plans call for producing 50,000 Vectras a year, about two-thirds of which will be exported, mostly to Japan. That will bring Holden closer to its goal of exporting up to one-third of its vehicle production in the next five years.
The company is spending $1.4 billion Australian, or about $890 million U.S., from 1996 to 2000 to put in the second, Vectra-building, assembly line and upgrade the plant to support Vectra output.
In 1999, exports are expected to account for about 20 percent of all vehicle output.
Vectra output helped push Holden's 1998 production above 120,000, more than 11,000 above its previous record. This year, output will climb to 150,000, as the Vectra comes on full stream alongside the Commodore.
Holden also hopes to build a rear-drive large car for export to North America, but the GM board in Detroit has vetoed that plan twice. Besides, noted a company insider, the scheme would require so much more investment to expand the Elizabeth plant's body shop that it likely would be hard to justify the cost.
Markedly better labor relations across the industry, compared to prior decades, also have helped companies take on the export challenge.
This may be due to Australia's persistent 8 percent unemployment rate, and the sobering reality of seeing Nissan close its Australian plant. As a manager at Mitsubishi's Tonsley plant south of Adelaide put it, workers realize that it would not cost the home office that much to just shut down operations in Australia if those operations do not produce. That reality has Mitsubishi Australia bending over backward for its export markets.
The company's Australian sales are consistently a distant fourth among the four local producers, and it produced only about 46,574 from a plant with an annual capacity of 70,000.
'If we can do 55,000 to 60,000 cars a year, this plant can be profitable,' said managing director Michael Quinn.
Mitsubishi aims to export 10,000 Diamantes in 1999, up from just under 9,500 last year. That will still leave the company short of where it needs to be.
'Ideally, we'd like these to run 15,000,' said Quinn. But the company has been stymied.
The wagon version was exported to Japan, but was superseded by the Japan-built Legnum. And rather than make Australia the sole global production site for the Diamante, as Mitsubishi did for the Strada pickup built in Thailand, it chose to build Diamantes in Japan as well, erasing what could have been a major export market for Mitsubishi Australia.
Asked why Mitsubishi decided to build the Diamante in Japan, Quinn and Takasaka reply in unison: 'Good question.'
With the other, minor markets falling short, the company is even more reliant than before on the United States.
'We've got to get U.S. exports to 8,000 or 9,000,' said Quinn. 'But it isn't easy. In reality, we're finding the market hard.'
For a volume of 8,000 a year, the cost of promoting the Diamante is high relative to the cost of the car, he said.
Despite the problems, Mitsubishi is not backing away from exports. In fact, it is taking steps to integrate exports more closely into its operations.
'Before, we could afford to treat exports as a small option line, to put it in a shed for work elsewhere,' said Grant Hanan, general manager of assembly operations. And that is what they did, with a small building outside handling final pre-shipment inspections and preparations.
But that has changed.
'Now, we're changing the inspection line to put exports in as a high-option line, along with the top-of-the-line domestic models,' said Allan Mills, manager of vehicle assembly.
Current plans call for 70 out of every 180 cars built at the Tonsley plant to go down the new inspection line, a sharp increase from the days when exports accounted for a mere 10 percent of output.
A similar surge in export models on the line is apparent at Toyota's Altona plant.
There, exports account for roughly one-third of production, which rose to a record 100,404 units last year. Exports of 31,106 Camrys in 1998 yielded revenue of $612 million Australian, or $389 million U.S., up 13-fold from $47 million Australian in 1990. Toyota Australia targets export revenue of $700 million Australian next year and $1 billion Australian by 2005.
Toyota Australia ships Camrys to Southeast Asia, the Mideast, and Oceania; engines to South Africa; and auto parts to Japan, Thailand, and Malaysia.
That, then, is perhaps Komori's answer to the wave of imports flooding Australia: a counterwave of exports leaving the country. What was long one of the most isolated continents on Earth is, in automotive terms at least, increasingly building bridges to the rest of the world.
In fact, the local industry has little other choice, says DRI's Leamy.
'It has to become far more integrated (with the world) or it will die,' he warns.
'If the producers don't do well in Australia, they can just leave. After all, none of them have domestic roots.'