A car components supplier employing 400 workers closed indefinitely yesterday in a move which is likely to force production shutdowns at Holden and Ford.
Autodom, which supplies components to the companies as well as to Toyota and Jayco, has shut the doors of its South Australian and Victorian plants for "an indefinite period".
Managers at Autodom told staff they would almost certainly be out of a job.
The car part maker's shutdown follows the collapse earlier this year of APV Automotive. Both businesses faced similar pressures and we look at the five key challenges the car components industry faces.
1. Low volume
Fewer cars are being manufactured in Australia with the automotive industry halving its build rates in less than four years.
Autodom chief executive Calvin Stead said in a statement yesterday that he was disappointed by the lack of support from key industry players.
"Our company is constrained by high fixed costs that cannot easily be aligned to the pace of the current volume reduction in the local car manufacturing sector," he said.
"We need time and assistance to recognise ourselves and structurally change the direction in which we are headed."
2. Strong Australian dollar
Richard Reilly, chief executive at the Federation of Automotive Products Manufacturers, told SmartCompany the strong Australian dollar was making things tough for the sector.
"The dollar is at historical highs, which is making imported vehicles cheaper for the consumer so they are more competitive," he says.
The strong dollar also hits those parts manufacturers who are trying to export.
3. Keen overseas competition
The sector is facing keen competition from overseas manufacturers in good news for consumers but bad news for the local industry.
"There is a huge range with 64 brands, and the consumer has a wonderful choice and Australian made vehicles are a small part of that. We only make 14% of the cars sold in Australia every year," says Reilly.
4. High cost of redundancies
The high cost of redundancy payouts was cited as a key reason behind the collapse of APV Automotive although it is unclear yet whether this issue impacted on Autodom.
The average negotiated redundancy payout at APV automotive was 45 weeks. However, some employees were owed a maximum cap of 100 weeks' wages.
Industrial relations lawyer Andrew Douglas told SmartCompany manufacturing generally had a cap of 20 weeks for redundancy payments and APV Manufacturing was not alone in being crippled by high redundancy payment requirements.
"These businesses are left in a position just to fold and don't have the cash reserves to pay out redundancies," Douglas said.
5. Government packages haven't kicked in yet
Autodom's plight comes despite the $35 million assistance package launched by federal and state governments in August known as the Automotive New Markets Initiative.
Reilly says the package, which aims to help suppliers diversify into new markets and new products, is "only in its infancy" with no grants announced yet.
"It is a great initiative but it hasn't had any impact yet," he says.