The New Australian Car

Following on from an earlier post about the Chief Designer at Hyundai saying that within three years, Australians would be buying an “Australian” Hyundai – and that it would be a big seller, I discussed the notion that an indigenous car could only be that if it was designed and built locally. Then along comes another story – about a true Australian car!

Let’s recap the current situation with the local industry. For many years the Government has been injecting cash into the local operations of Toyota, GM Holden and Ford, ignoring the smaller, niche manufacturers. This was a good plan as the tax payer gave the money to the companies and they provided jobs and wages which then spread through the local communities and also through the supply chain and then on to the local communities around those companies. This meant that jobs were saved and the taxes helped many people survive without getting a direct hand-out.

A few years ago the Government at the time announced that they had signed a Free Trade Agreement with South Korea. It is my personal opinion that this was a nail in the coffin for the local factories. All of a sudden, much cheaper cars were reaching Australia and the local manufacturers were being beaten on price. Many new car buyers didn’t want a large family car and that is what Holden and Ford were typically manufacturing locally. Sales of these larger vehicles plummeted as they tried to import similar sized cars to the competition. During 2013 Ford announced it would close it’s Melbourne factory by October 2016 then late in the year, GM announced it would shut it’s Adelaide factory during 2017. The final hit came in February 2014 when Toyota announced the closure of it’s Melbourne factory in 2017 as well. All up nearly $4.4B of taxpayer money was invested in these plants over a 10 year period before the announcements.

OK, now we’re into 2015 and there have been two interesting stories appear – the first about Hyundai and the second, which has received a little media coverage is about Ethan Automotive.

Ethan Automotive
This new player in the automotive industry has big plans for Australia. They are based in Melbourne, however are looking at Adelaide for their production facilities. The company is connected to a very successful property company whose founders have several fingers in different pies – including a political party. Perhaps because of this political connection, they have been quite critical of the current Government’s plan to reduce the funding for the ATS – the Automotive Transformation Scheme. The Government has shrunk the pot because they need the funding for other expenditure, especially as they knew that Ford was pulling out and suspected that the other two would do so as well. Clearly, Ethan Automotive want some of that pot: to the tune of $600M. They want this to kickstart their business, in fact they want cash from the State and Federal coffers as well as private investors. It’s an expensive project to get going!

The really exciting thing is that the company plans to build a mix of vehicles: an SUV, a sedan and a coupe, all based on an adaptable modular design using electric, petrol and hybrid engines. The company plans to employ up to 300 people producing 12,000 cars per year rising to around 30-50,000 by the mid 2020s with prototypes on the road by 2017 and shipments to customers starting in 2018. They have poached a manager from a parts supplier to help build the company and he wants to use a production style like Aston Martin or Range Rover (according to reports). To help with the plan, they have bought a race car company (West Motorsports) – so clearly want to get their products on track as soon as possible to prove their worth.

One original idea was to take over the Holden facilities in Adelaide, however they have decided against that and want to build their own. They also feel that they can be profitable making only 10,000 cars a year – something that the big three couldn’t do despite all being owned by very large corporates, something recognised by Ethan whose spokeswoman agreed that “Holden, Ford and Toyota run high volume operations on a global platform”. This would suggest (and it is the case) that they use common components for cost efficiencies – unlike Ethan Automotive who would share smaller volumes across a much smaller base of vehicles.

My thoughts
My first thought was: How? How can a company in 2015 start up a volume car manufacturer with no money, no facilities, no equipment and most importantly no vehicle designs and produce a prototype in under two years and start selling it in three. Think about it more. They have to get the designs to a point where they can then order the tooling or have a company create the tooling to stamp out body parts. They need engines, lights, interiors, wiring looms and a whole lot more components. At the same time, they need to build the factory and put in the bespoke tooling – certainly at least one production line needs to go in! From there, they need to hire and then train workers to a quality level that is acceptable for the intended market and matches the competition.

Now consider the vehicles, they could be parts bin specials with lights, switches and other items coming from Ford, GM or Toyota – perhaps from local factories that made them for the original companies. The vehicles need to be tested in many conditions around Australia, crash tested and type approval received from the Government.

The next task (in conjunction with everything else) is the building of the marketing plan and dealer network. No wonder they will need more than a fist full of dollars. All these tasks take time – certainly the design process that starts it all.

It can be done
But there is a way – one that many manufacturers have taken to start their businesses, especially when they have been created by a parent that has no industry experience: they buy designs and tooling from a bigger player. Could this be the link between the two stories this year?

Are Hyundai supplying designs, tooling and other components to kick start Ethan Automotive (who haven’t yet announced the marque name yet). It would be logical – it gets Hyundai into a market where several major competitors are leaving and it increases the demand for their components (potentially reducing their unit prices and increasing profits). Remember, the Chief Designer of Hyundai is saying that within three years, buyers will love their “Australian” car, just at the time that Ethan are releasing theirs. It could be possible that Hyundai will partially bankroll Ethan until they get to be profitable which they expect to be within 5 years. The Free Trade Agreement with Korea means that the importation of components will be cheaper than from other countries.

Hyundai have been down this road themselves – they started in 1967 as a subsidiary of a construction company and signed a deal to build the Ford Cortina for the Korean market. They have the experience and product to help Ethan get going.

Watch this space!