View Full Version : The Mitsubishi bailout...
Dippers Donuts
23 Jan 2002, 22:00
Japanese car maker (amongst many other things) Mitsubishi have put their hand up for a $140m federal govt. grant, in order to guarrantee 3000 jobs at its manufacturing facility in SA.
This is on top of the $220m already promised in the last 6-12 months as they endeavour to build a new model in Adelaide from 2005.
Do you think this is reasonable? Mitsubishi is a billion dollar company, thus I would have thought the investment dollars for such a project should come from their own funds rather than the taxpayer.
If they have to rely on govt. subsidies then surely the business in SA is not cost effficient enough to stand on its own two feet and then therefore we should "let them go".
Interesting to note that the request has come during an SA election year.
Thoughts?
Voice of Reason
23 Jan 2002, 22:11
Gee, it's a thin line we tread. I don't know the answer.
I've observed this trend for State governments to "go the bribe" in order to pump prime the local economy and preserve jobs. Examples would include Bracks in Victoria with the Port Melbourne car plant (forget which brand) that supposedly cost each Victorian taxpayer nearly $2,000. Then there was the Dutch auction set up by Branson when Virgin was going to be the "3rd" carrier - Bracks was criticised for NOT getting Virgin over the line in Melbourne (you'll recall they ended up in Brisbane). Now SA Mitsubishi.
I think it has to be a case by case proposition. Is it worth the investment? This is a complex calculation involving expected knock-on effects. Australia is exposed to cheaper labour sites overseas and already loses out to eg India for IT and back office administration, so I don't think you can stop it altogether or everyone will move offshore. On the other hand you don't want to be seen as a soft touch. I think in this case Mitsubishi are relying on the SA Govt. ignoring the sunk cost argument and just shelling out to keep them in SA (and themselves in power).
The election year pork-barrelling is a fundamental problem with politics - not sure what we can do about that.
Originally posted by Voice of Reason
Gee, it's a thin line we tread. I don't know the answer.
Yer not alone there.
I've observed this trend for State governments to "go the bribe" in order to pump prime the local economy and preserve jobs. Examples would include Bracks in Victoria with the Port Melbourne car plant (forget which brand) that supposedly cost each Victorian taxpayer nearly $2,000. Then there was the Dutch auction set up by Branson when Virgin was going to be the "3rd" carrier - Bracks was criticised for NOT getting Virgin over the line in Melbourne (you'll recall they ended up in Brisbane). Now SA Mitsubishi.
It's a problem caused by the disparity in population within Australia and the propensity of corporations to want to centralise their operations. Without offereing subsidies the smaller Australian states (and in some cases even the larger ones) cannot compete. It's a little hard to hold it against said state governments for wanting to keep jobs in their states!
I think it has to be a case by case proposition. Is it worth the investment? This is a complex calculation involving expected knock-on effects.
Agreed. What would be sensible would be if the states collaberated rather than competed so that they don't blow out the costs enormously. Then again if they did that these companies might head off overseas.
The election year pork-barrelling is a fundamental problem with politics - not sure what we can do about that.
The only thing we can do when governments do what we don't like. Vote them out.
Dippers Donuts
25 Jan 2002, 09:58
Some good points there VOR and Dave.
I wonder though if the bottom line is that we simply cannot sustain car making in this country anymore. Our higher input costs (in particular wages, which is not a bad thing IMO) must make it very tough to produce vehicles on a competitive basis.
Access Economics have come out and said that to pour more funds into Mitsubishi would be a waste of taxpayers dollars and we should let them survive and/or fall on their own two feet.
Naturally, the two main parties in SA have fallen over themselves to denounce the report and have pledged to do all they can to bail out Mitsubishi. Funny what an election does to peoples thinking...
The 3000 jobs there are obviously important but I wonder if the funds would be better invested elsewhere, where some sort of growth/return could be guarranteed (thus perhaps turning todays 3000 jobs into 6000 tomorrow).
What it would take are politicians of substance, which we are sadly lacking in this country right now.
Bloodstained Angel
25 Jan 2002, 10:37
The brutual reality is that Mitsubishi is barely a going concern these days.
They are in deep, deep trouble all over the world.
They find themselves lumped with a terrible product-liability scandal that will end up costing them billions. As well their vehicles are increasingly uncompetitive because funds for development and research are getting squeezed.
New owner Daimler-Chrysler looks set to really take the knife to Mitsubishi soon, could probably cut the whole operation down to a niche-sized Japanese operator, like Lexus or Isuzu for example.
The problems of the global firm are reflected in whats going down at Tonsley Park at the moment.
Their Magna is old, poorly packaged and put together, suffers from bad resale, is unreliable and prone to breakdown and component failure, and its volume is going down bit by bit every year as buyers stay away in droves.
Time to pull the plug I say - sure jobs will go, but how n=much longer can we siut by while a desperate and irrelevant State Government throws your tax money at a bloated corrupt and totally uncompetitive Japanese industrial conglomerate ?
cheers
Originally posted by Bloodstained Angel
Their Magna is old, poorly packaged and put together, suffers from bad resale, is unreliable and prone to breakdown and component failure, and its volume is going down bit by bit every year as buyers stay away in droves.
cheers
If you read the NVQS or the GQRS data then that statement is with respect utter crap, poorly put together my ar se. Unreliable and prone to breakdown??????
Mitsubishi are selling 8,000 VRX's or Diamanties to the US next year on top of their 20,000 normal Magna's. I wouldn't write them off.
It is not the fact that Mitsubishi goes under, it is the flow on to the hundreds of suppliers who gain the volume needed by having 4 manufactures in Australia.
The 3000 jobs in SA would be tripled in suppliers.
Originally posted by Dippers Donuts
Some good points there VOR and Dave.
I wonder though if the bottom line is that we simply cannot sustain car making in this country anymore. Our higher input costs (in particular wages, which is not a bad thing IMO) must make it very tough to produce vehicles on a competitive basis.
Wages is not the overriding factor in the cost of building a car. The cost is mainly in design and development and the retooling of plants.
It is now a global business and the cost of wages is irrelevent and with the reduction of the dollar and the freeze on wages over the last 20 years Australia is more than competitive.
The only problem with the car industry in Australia is the lack of volumes due to a small population which makes us uncompetitive. I repeat it is the volume or lack thereof that is the key. You need to produce a certain volume to make a profit irrespective of what your wages are.
Their is also the change from traditional passenger cars to crossover 4wd's that is the main reason for declining volumes of the 4 manufacturers and they have been slow to react.
The automotive industry in Australia is in very good shape, Holden are going gangbusters, Ford have turned things around ( a hint watch for the new Falcon come September, will leave the Holden for dead in terms of styling, engine power, refinement, handling, interior, it is right up their with the best of European standards and the 4WD they are working on is nothing like you would imagine, it will cause Holden to go Oh s hit thats what they have been doing), Toyota only sell 25,000 Camrys in Australia but 60,000 of them are exported.
Mitsubishi is most likely gone, strong reminders of Nissan. The auto industry in Australia is thriving particularly in the design and devlopment side at Holden and Ford.
The engineers at these two companys are now designing and devloping vehicles (ie Holden and their Cruze) and Ford are always doing design and devlopment work for Asian assemblers, you just never hear about it.
Dippers Donuts
27 Jan 2002, 22:27
Originally posted by choppy
Wages is not the overriding factor in the cost of building a car. The cost is mainly in design and development and the retooling of plants.
It is now a global business and the cost of wages is irrelevent and with the reduction of the dollar and the freeze on wages over the last 20 years Australia is more than competitive.
The only problem with the car industry in Australia is the lack of volumes due to a small population which makes us uncompetitive. I repeat it is the volume or lack thereof that is the key. You need to produce a certain volume to make a profit irrespective of what your wages are.
Their is also the change from traditional passenger cars to crossover 4wd's that is the main reason for declining volumes of the 4 manufacturers and they have been slow to react.
The automotive industry in Australia is in very good shape, Holden are going gangbusters, Ford have turned things around ( a hint watch for the new Falcon come September, will leave the Holden for dead in terms of styling, engine power, refinement, handling, interior, it is right up their with the best of European standards and the 4WD they are working on is nothing like you would imagine, it will cause Holden to go Oh s hit thats what they have been doing), Toyota only sell 25,000 Camrys in Australia but 60,000 of them are exported.
Mitsubishi is most likely gone, strong reminders of Nissan. The auto industry in Australia is thriving particularly in the design and devlopment side at Holden and Ford.
The engineers at these two companys are now designing and devloping vehicles (ie Holden and their Cruze) and Ford are always doing design and devlopment work for Asian assemblers, you just never hear about it.
I admire your blind optimism, but the reality is the auto industry in Oz is NOT in good shape. Only Holden is anywhere near profitability, the rest are ordinary to say the least, although Ford are slowly turning the ship around.
Wages I believe, do have a significant impact on the auto industry here. Holden have long made noises about the fact that it is far cheaper for them to manufacture cars in places like Thailand/Indonesia where wages are far lower. It would be far cheaper for them to make all their cars in these countries and they are continually blithely threatening the unions that should the unions push too hard they (Holden) may be forced to pack up and leave.
Also, in regards to the low dollar, it works both ways, car makers also import a lot of parts, thus they are stung big time with the low dollar.
Originally posted by Dippers Donuts
I admire your blind optimism, but the reality is the auto industry in Oz is NOT in good shape. Only Holden is anywhere near profitability, the rest are ordinary to say the least, although Ford are slowly turning the ship around.
Wages I believe, do have a significant impact on the auto industry here. Holden have long made noises about the fact that it is far cheaper for them to manufacture cars in places like Thailand/Indonesia where wages are far lower. It would be far cheaper for them to make all their cars in these countries and they are continually blithely threatening the unions that should the unions push too hard they (Holden) may be forced to pack up and leave.
Also, in regards to the low dollar, it works both ways, car makers also import a lot of parts, thus they are stung big time with the low dollar.
Not blind, the reality is that it is in reasonable shape. Their has been a major change in the Australian auto industry over the last 20 years. For example Ford used to employ 20,000 people in thier assembly plant and even in the early 90's it was still around 10,000 before Jac cut it back to a more realistic 3,500.
Wages are a factor but the major cost is development and retooling plants. If you compare wages in Australia to the US, an average plant line worker will take home b/w 40 and 50 US a year. It is also not uncommon for them to receive a 10K bonus at the end of the year. May explain why the big 3 in the US are slashing jobs but it shows that wages are not the critical part.
They are still able to make a profit (well some years!!!) because they can spread the tooling and development cost over more cars. For example Ford at the moment is probably only running 2 shifts 5 days a week whereas it probably has the capability to run 3 shifts 7 days a week. The fact that you are only putting 70,000 cars out the door instead of 140,000 which it is capable of and then you are spreading the $250 million development cost over less cars it what decides the profits.
Whereas the line sin the US and Japan pump out 300,000 to 400,000 a year, hence they can be more profitable. Doesn't matter how efficient you are and how much you slash wages their is a diminishing rate of return.
In terms of importing parts the significant % of components for Ford and Holden are made in Australia except for Toyota which is basically assembling Japanese parts here for the Toyota but I know that they two are localising a lot of components (re brake supplier PBR getting $50 million contract to supply brake components to Toyota last year). They have been murdered by the low dollar. Apparently the break even point for Toyota in Australia is 60 cents and for every cent above that it is like 10 million of profit to a certain point. Doesn't matter how many cars they sell or how much they advertise they are not going to make a profit whilst the dollar remains low.
Their are many Tier 1 suppliers that are doing very well such as Delphi, PBR, Air International, BTR, etc who employ far more people than the manufacturers. Can't rember the figures but the exports of automotive components has been very significant over the last 5 years and is growing strongly.
It is not just the assembly of parts, which is basically what the 4 manufacturers are doing, most of the manufacturing is done by suppliers and that is where the jobs are.
In fact there are very few vehicle manufacturers around the world that actually make a profit. I have seen quoted that the average maxium profit made by the big manufacturers is less than $150 US and many of them do not make any money from producing cars but actually make their money from spare parts and things like finance. ie for example Ford Credit which makes about $50 million profit a year which shows up on Fords accounts.
It is a very interesting business in that if you looked at the rate of return for the vehicle manufacturers it is probably less than a couple of percent. I still don't understand it, perhaps it is the fact that they are basically owned by conglomerates that the money is actually made from the fuel that we all use and all the taxes that we pay for the use of a car. Conspiracy Theory.
Anyway thanks for the discussion. Good to have something else to discuss.
Dippers Donuts
29 Jan 2002, 21:56
Some good points there Chopper.
Cheers, thanks for your input.
Bloodstained Angel
30 Jan 2002, 06:39
Sorry choppy - can't agree with you about the Magna
Look at the re-sale mate - that is the ultimate judge of a cars' worth.
The 'market' has this brutal way of deciding what is a good product and what is crap.
The Magna has even worse re-sale than the Ford Falcon, and thats a car with big problems at the moment.
The Magna simply cannot hold its value, and compared to better quality offerings from Holden and Toyota - its really struggles in the market.
Compare used car prices for a 2 year old Magna compared to a 2 year old Commodore or Camry, the try and tell me that Mitsubishi make a good quality product
Not according to the market they don't !
Same problem with the global firm - sure they export Magnas to Nth America but big deal - Mitsubishi last year managed a measly 2% of the total Nth American market. Buyers are staying away in droves from Mitsubishi products all over the world, and its killing them.
Main reason is that compared to its competitors, Mitsubishis products are poorly conceived, poorly packaged, poorly assembled and prone to breakdown and component failure.
... and thats not my opinion - look at the recall statistics, look at the resale value, look at the history of warranty claims, look at how many times NRMA / RACV breakdown service is called out to attend a problem with a Mitsubishi vehicle.
You know the old saying - build a better mousetrap and the world will beat a path to your door.
Excellent advice for Mitsubishi at the moment I think.
cheers
Agree that the resale value of the Magna is poor, but I am not sure this relates to the quality of the vehicle. When i think of quality I think of TGW's things gone wrong, ie when you have take your new car back to the dealer because the aircon doesn't work, somethings loose, the dash is squeaking, etc and then secondly the general finish of the vehicle ie how do the panels form together, is their any difference in the sheetmetal gaps, is their excessive wind noise because the glass is not seated properly, etc.
The Magna is no worse in this regard than say a Commodore. If you look at customer satisfaction data for the Commodore it is actually lower than both Toyota and Falcon. And if you take an impartial view say comparing Falcon to Commodore the Falcon has better steering, rides better, has a smoother transmission, etc and yet Commodore is outselling Falcon nearly 2 to 1.
Why? because they market well, they pump money into motorsport which they have dominated and have now created an aspirational product. For example a HSV Commodore may have more power than a Falcon (ignore the fact that it only occurs when it is redlining and running premium unleaded) yet the falcon kills it for torque which gives you the better practical acceleration around town. The power rating means basically squat to the average driver (and less than 5% of Commodores sold have this extra power, the rest a bog standard V6's) and yet it is an aspirational vehicle for this reason.
If the worth of a vehicle was decided on quality than a Toyota or a Falcon should be selling more than a Commodore.
Bloodstained Angel
1 Feb 2002, 06:49
yeah ok choppy
Obviously its all a pretty subjective business and I don't really want to start one of those "My car is better than your car nah nah" type arguemnets.
The point I'm really trying to make is that Mitsubishi are in trouble all around the world mainly because their products are uncompetitive and buyers are staying away accordingly.
Like the old saying - build a better mousetrap and you'll be fine.
Thats what Mitsubishi need to do to get themselves out of trouble.
Nobody would be even thinking of closing Tonsley Park down if Mitsubishi sold as many cars as Ford or Holden - think about it.
Why don't Mitsubishi sell as many cars as Ford or Holden ?
Sure, as you say, marketing and advertising have something to do with it. But the main reason is that their cars are uncompetitive and a poor buy in today's market.
cheers
They are still able to make a profit (well some years!!!) because they can spread the tooling and development cost over more cars. For example Ford at the moment is probably only running 2 shifts 5 days a week whereas it probably has the capability to run 3 shifts 7 days a week. The fact that you are only putting 70,000 cars out the door instead of 140,000 which it is capable of and then you are spreading the $250 million development cost over less cars it what decides the profits.
well theres no point making 140,000 cars if u only have 70,000 buyers.
Originally posted by Bloodstained Angel
yeah ok choppy
Obviously its all a pretty subjective business and I don't really want to start one of those "My car is better than your car nah nah" type arguemnets.
The point I'm really trying to make is that Mitsubishi are in trouble all around the world mainly because their products are uncompetitive and buyers are staying away accordingly.
Like the old saying - build a better mousetrap and you'll be fine.
Agree, they are in trouble all around the world, it tends to be a cyclical business. Take Subaru for example, they were classified as an uninspiring, low quality manufacturer of basically **** boxes.
Then they decide to get into Rallying and now have one of the most aspirational products around in the WRX.
Subaru built the better mousetrap.
To your question as to why don't Mistsubishi sell as many cars as Ford or Holden. A bit like why Collingwood have so many supporters. They can be cr ap for 5 or 10 years (or 40 years;) ) but they still have the support there to help them through the lean years.
And because it is a small front wheel drive and 'Aussies drive rear wheel drive V8's;) .