Last ‘man’ standing: what now for Toyota in Australia?

Toyota has a history of operational excellence in Australia. Joe Castro/AAP

Now that Ford and Holden have announced the 2017 closure of their Australian manufacturing and assembly operations, what are the prospects for the industry and its key remaining participant, Toyota? Unlike Ford and Holden, Toyota has large and continuing export volumes from Australia.

Toyota began producing vehicles in Australia 50 years ago, and has a proud history of local industry participation. I have been studying this and other manufacturing industries for decades and must admit to being a great admirer of Toyota in particular: both its famous TPS (Toyota Production System), and how its runs itself as a company more generally. Toyota has exported over a million cars in total from Australia, currently at a rate of some 70,000 per year.

The wealth that Toyota brings to Australia is much more than through the jobs created, capital investments and even the multiplier effect, which is often estimated at about five or six times the direct effect, via supply chain jobs and business activities.

For example, I have often helped executives in other industries to understand from Toyota’s example the meaning and practice of “operational excellence”, such as 20 years ago when we introduced quality management into Australia’s leading bank at the time, adapting it straight from Toyota’s approach (we even coined the phrase “Become the Toyota of banking!”). From banking to mining, we often hear of direct or indirect transfer of capabilities and skills where techniques such as lean operations, applied first and best in Toyota, are being adapted and applied all over our economy.

Of course these techniques could in theory still be applied if Toyota was not present in Australia, but in practice it’s not so, because the training, networking effects and capable people who learn in the automotive sector, move through the economy and take their skills with them is a critically important “spill-over” effect, that I hope we never lose! It’s very difficult to precisely quantify this significant spill-over benefit to Australia, and sadly this leads many to discount, underestimate or ignore it in their cost-benefit analyses.

Toyota and the Commonwealth government will both continue to do their sums about what level of subsidy makes sense. Toyota needs and wants to make inroads into its major challenge, which is the high cost of production and overheads in Australia, relative to its other operations. The quality of Australian built cars is now excellent, and they have brought their innovations here (e.g. hybrid synergy drive), which Ford and Holden did not really do.

From Toyota’s perspective the decision to produce cars here was made by the legendary, now late Eiji Toyoda, and the company will respect that decision even decades later, such that it will take a long term, global strategic view of Australia’s position in its overall network. We should note that Toyota has only ever closed one significant operation, which was its Fremont, California (NUMMI) plant, in which it joint-ventured with GM, and this was done after GM essentially went broke during the global financial crisis (it was revived with the help of a US government industry rescue package).

Toyota has also put significant investments here around its assembly operations, including its own dedicated suppliers and its technology/ design centre, which also creates significant skills and knowledge that bounces around the economy. From a global perspective, Toyota also has seen and used Australia as a place to learn to do business the Western way, and this includes dealing with labour unions. This will all be stacked up against the $4,000 per vehicle cost penalty (higher production cost in Australia then elsewhere) that Toyota pays for the “privilege” of producing cars here.

For the Abbott government, we can only hope that they can fully appreciate the full set of benefits that come from having a car industry here, even if it only involves one “last man standing”. The alternative is an industrial and economic nightmare in the long run, with considerable loss of capability in both science and technology, and management skill.

To appreciate and fully take this into account when the government does its sums, a long term view will be required, because the short term numbers may well not stack up, and I fear that the short term perspective and politicking on “issues of the day”, of which most Australians have had more than a gutful, might lead the government to treat Toyota as they did Holden.

What needs to occur to keep an automotive industry operating in Australia? We need a tripartite approach, comprising governments, automotive companies (Toyota and key suppliers), and labour unions in a regular and continuing dialogue, and we need to change the question, from “What would it take to keep Toyota here?” to “What is required to get this world class company (Toyota), and others, to significantly expand in Australia?” We have great science and engineering in Australia, talented managers and a fine workforce, which can be joined in a partnership between a company as good as Toyota and a visionary government: but it needs an ambitious vision to start with.

The list of industries that have been almost or completely lost in Australia is getting too long, from textiles, clothing and footwear, to much of food, TVs and electronics, tyres, and very many others.

Before we let one of the world’s very best companies leave Australia, and take a critically important industry with it, we should debate the long term strategic factors, which go way beyond the next few years’ subsidy numbers. We should study carefully how countries like Thailand have built their automotive industry as ours declined, and find ways to lower our costs, raise productivity and drive innovations, using our first world infrastructure, technical prowess and managerial capability.

Those running Toyota will be strongly encouraged if our governments and unions treat them with (deserved) respect and work constructively to find a longer-term future for the industry. There are ways to drive productivity up and keep bringing innovations into reality: the question is can we work together and do it?

Putting it as directly as I can: can this country really be silly enough to let a high capability, innovative, export earning, world class organisation up and leave, and lead to the demise of a really important industry? Of course there is a price to the taxpayer beyond which we should not go, but the consequences of underestimating that number in the long term are dire, and a positive constructive approach and dialogue, along with the subsidy that every country provides to automotive assemblers, should go a long way.

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