The financial collapse of any car parts maker received front page headlines not so long ago. But they have become so regular that such news is almost expected. The latest business to go under is Melbourne's Ajax Engineered Fasteners. It supplies parts to Ford and Holden. Two hundred jobs are on the line.
But there's a bigger story. What we are witnessing is the steady elimination of the car parts sector in Australia. It is doubtful much will remain in five years. What's likely to follow in a decade is the closure of one, and possibly two, of the big four car makers. On current trends, it appears inevitable.
What has caused the collapses is not fully explained by the reduction in car tariffs. An equal contributor is the inability of companies to manage their operations to peak efficiency.
Ajax's owners indicated that the pricing arrangements demanded by their customers made it uneconomic for them to operate. This is common in the sector. But the story behind this reveals what has created the industry sickness. It is largely because of failed management and industrial relations cultures.
When the car industry was confronted with tariff reductions in the 1980s, it responded well, committing to improvements in design, quality and standards. The industry has become world-competitive in many areas.
But the biggest failure has been in the management of workforce issues. Initially, the big four makers were able to convince unions and workers to adopt considerable change, to allow new production technologies to operate efficiently.
They also outsourced most parts. The industry is supposed to operate like a river. Specialised parts makers feed the car assembly plants. But the entire process stops if one parts maker stops. The industry's smart new approach to manufacturing is also its greatest weakness.
This is where industrial relations has come into play. The parts makers generally have terrible industrial relations cultures and agreements. They have experienced strikes whenever they have tried to fix their problems. The big four car makers have always applied pressure to end strikes.
Consequently, work practices that prevent maximum efficiency have become entrenched. Parts makers have become wary of spending money on technology when they can't operate properly.
The big four have also demanded yearly price decreases. Unable to extract the high levels of productivity increases needed to sustain the reductions, the local parts industry has hit the wall. Many makers saw it coming.
About two years ago, most Australian parts makers began setting up factories overseas, designed to compete with local factories. Parts makers who have not followed the strategy are not surviving. The result is the elimination of the Australian car parts sector.
But the big four car makers don't have a rosy situation either. Some have failed to create work cultures needed to respond to fast-moving market demands. With the death of the domestic car parts sector, the big four makers will buy parts from overseas. They will continue to demand lower prices. This may enable them to kick along for a while, but at some stage entrenched, unresponsive work practices will eat into operations.
Unfortunately, the Government's workplace changes have come too late. Some of the big four have internal management cultures that will prevent them from using the reforms to fix their problems. They are at risk.
Others will use the opportunities to improve work practices. This will not guarantee them success, but it should give them a chance.
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