Manufacturing Research Report May 2019 (logo update)

AAAA MANUFACTURER RESEARCH MAY 2019 Prepared by ACA Research

Contents

1. Research Objective & Summary

2. Industry Profile 3. Business Sentiment 4. The Export Market 5. Sample Profile

2

RESEARCH OBJECTIVE & SUMMARY

Research objective

To a c c u r a t e l y e v a l u a t e

the size, compositio n and future prospects of the Austra lian

automotive manufac tu r ing industry

4

Executive Summary

The Australian manufacturing sector is a diverse and integrated industry

• Reflecting the diversity of the Australian automotive manufacturing landscape, businesses are producing a range of products, with a common focus towards 4WDs. • Most revenue is coming from sales into aftermarket, with sales to OEMs a minority concern.

• Businesses are often part of a an integrated supply chain, actively using both Australian and overseas suppliers and production facilities.

And the industry has a healthy outlook moving forwards

• Although overall revenue has fallen since 2015, the number of businesses operating in Australia has increased, and these companies are optimistic about their growth potential (through and beyond the startup phase).

• The main threats to business growth are expected to be external economic issues rather than industry specific problems.

• In order to limit the impact of external economic forces, businesses are proactively engaging in marketing as well as investing in technology and R&D to achieve growth.

With the importance of the export market set to increase over the next 3 years

• Most manufacturers are exporting products overseas, but their core customer base remains in Australia.

• That said, the size and importance of export markets are expected to grow over the next three years.

• The USA is currently the key export market for Australian manufacturers, with South America likely to be an important growth market moving forwards.

• Despite growth in the Chinese auto market, few Australian manufacturers are targeting it as an export destination.

5

INDUSTRY PROFILE

There are 300 automotive manufacturing companies in Australia, employing nearly 10,000 workers, and turning over $4 billion per annum Industry Snapshot There are 300 manufacturing companies in Australia vs. 260 in 2015

19%

10-19 years

21%

20-29 years

19%

30-39 years

19%

40-49 years

>50 years

And have a combined revenue of

9,800 people

$4 billion

vs. 21,000 in 2015

vs. $5.2 billion in 2015

Annual revenue

Business size

Age of business < 10 years

These businesses employ

1-9 employees

51%

<$2m $2m - $4.99m

10-49 employees >50 employees

33% 16%

$5m - $24.99m >$25m

50% 25% 15%

10%

8% 13%

S9. How many years ago was your organisation established in Australia? S5. How many staff does your company employ?

S4. Which of the following annual revenue ranges is applicable to your organisation?

Base: n=61

7

With the bulk of revenue coming from sales into the aftermarket (either directly or via third parties) Proportion of Revenue Fromâ&#x20AC;Ś

41%

39%

9%

11%

Direct sales to consumers or trade

Sales to resellers, wholesalers, retailers

Online sales

Sales to OEMs

Q7. What proportion of your revenue comes from the following sources?

Base: n=61

8

Reflecting the diversity of the Australian automotive manufacturing landscape, businesses are producing a range of products such as accessories, structural components, and additives Parts Manufactured

Accessories

Engine/ Transmission

Chassis

Body

9%

26%

Electrical/ Lighting

6%

Lubricants/ Chemicals/ Coolants

2%

24%

46% Q1. Which type(s) of product does your company manufacture?

Q3. And in one sentence how would you describe the specific products you manufacture?

Base: n=61

9

There is a common focus towards 4WDs, ahead of the other vehicle types for which manufacturers are producing parts or accessories P r o d u c e P a r t s /A c c e s s o r i e s F o r â&#x20AC;Ś

The average business is producing parts/ accessories for 4 types of vehicle

86% 70% 58%

56%

46%

40%

26% 20%

18% 12%

4WDs

Passenger Light Performance Truck or vehicles commercial vehicles buses vehicles

Q6. Do you produce parts or accessories for any of the following types of vehicle?

Base: n=61

Defence or Caravans or Electric or Autonomous Trains or mining trailers hybrid vehicles Trams vehicles vehicles

10

4WDs are most likely to be the focus for more specialised manufacturers, with other vehicle types likely to be an additional area of expertise, rather than a separate line of activity P r o d u c e P a r t s /A c c e s s o r i e s F o r â&#x20AC;Ś Manufacture parts for Up to 3 types of vehicle

Manufacture parts for 4-6 types of vehicle

Manufacture parts for 7-9 types of vehicle

4WDs

70%

98%

100%

Passenger vehicles

39%

90%

100%

Light commercial vehicles

23%

72%

100%

Performance vehicles

33%

66%

82%

Truck or buses

7%

62%

93%

Defence or mining vehicles

3%

48%

92%

Caravans or trailers

1%

10%

82%

Electric or hybrid vehicles

1%

25%

46%

Autonomous vehicles

14%

3%

40%

Trains or Trams

1%

13%

28%

Q6. Do you produce parts or accessories for any of the following types of vehicle?

Base: <3 vehicle types n=23, 4-6 vehicle types n=19, 7-9 vehicle types n=19

11

Manufacturers are typically part of an integrated supply chain, actively integrating Australian and overseas suppliers and production facilities Product Sourcing & Production

29%

of the raw

materials are from within Australia

Q4. What proportion of your products are manufactured within Australia?

Q5. What proportion of the raw materials you use within your business have an overseas country of origin Base: n=61

50%

of the

products are manufactured within Australia

12

BUSINESS SENTIMENT

Automotive manufacturing businesses face a range of threats, including a consistent need for skilled staff who can deliver in an increasingly technology-driven environment Biggest Threats

Rising costs (e.g. power, fuel)

51%

Access to skilled labour

41%

Fluctuating Australian dollar

40%

Australian economic conditions

40%

Global economic conditions

38%

Innovation and disruption to our marketplace

28%

OEMs limiting customer choice

24%

Government regulation

Access to vehicle spec, info and diagnostic data

Q20. Over the next three years, what are the biggest threats facing your business?

Base: n=61

22% 8%

14

Despite these threats, the outlook for Australian automotive manufacturing is positive, with almost universal predictions of revenue growth over the next 12 months Expected Revenue Growth over next 12 months

1%

3%

4%

52%

41%

Decrease significantly

Decrease a little

Remain stable

Grow a little

Grow significantly

Q17. Thinking about the next 12 months, do you expect your business revenue toâ&#x20AC;Ś?

Base: n=61

15

Revenue growth is being driven by strong market demand, underpinned by proactive marketing and robust growth strategies To p 3 D r i v e r s O f G r o w t h

Q18. Why do you expect that?

Base: Businesses expecting growth n=52

1. H a v e a g r o w t h s t r a t e g y i n p l a c e

28%

2. Market demand increasing

20%

3. Increased marketing

20%

16

One in three manufacturers are also exploring different retail channels, tapping into the growth of DIY and IBYDIFM M a r ketplac es U s e d

None

eBay only

Amazon only

eBay & Amazon

69%

13%

7%

11%

Note: DIY – Do It Yourself, IBYDIFM – I Buy, You Do It For Me. Q8. Which (if any of the following online marketplaces does your business use> Base: n=61

17

Businesses are also differentiating by moving up the value chain, investing in new technologies and R&D to drive the development of new products and services Business Priorities 70%

39% 34%

Developing new products and services

Investing in new technology

Investing in R&D

Q19. Looking ahead to 2020, what are the main priorities for you business?

Base: n=61

33%

30%

Expanding into Employing more new industries or skilled employees sectors

4%

3%

Reducing headcount

Investing in offshore manufacturing facilities

18

THE EXPORT MARKET

Almost three quarters of Australian automotive manufacturers actively export products, comprising 16% of total Australian automotive manufacturing, and $640m in revenue

16% This equates to

of products are exported overseas

$640m

in combined export revenue (vs. $800m in 2015)

Proportion of products exported 30%

29%

19%

10%

1-9%

10-19%

Q10. What proportion of the products your business produces in Australia are exported?

Base: n=61

20-29%

12%

>30%

Do not export

20

The US is the key export market for Australian automotive manufacturers, ahead of Europe, New Zealand, and the Middle East Export Markets

Main Market Secondary Market 20%

38%

25%

19%

19%

Other

UK

4%

Singapore

Russia

Q12. Which markets are your locally produced products exported to?

Q13. Which is your main export market?

Base: n=61

3%

2%

Mexico

1%

10%

6%

Malaysia

1%

Korea

1%

13%

10%

Japan

2%

12% 6%

Indonesia

2%

China

10%

India

10%

Thailand

10%

South America

12%

Pacific Islands

6%

Canada

10%

Middle East

NZ

Europe

11%

9%

Hong Kong

15%

Africa

20%

USA

25%

11%

21

Looking to the future, Australian automotive manufacturing businesses are positive about growth in their export market Expected change in volume of exports over next three years

0%

1%

16%

33%

49%

Significantly lower

A little low

About the same

A little higher

Significantly higher

Q16. Looking forward three years, how do you expect the volume of products being exported to change?

Base: n=61

22

With the proportion of manufacturers selling products outside of Australia also predicted to increase over the next three years Export Behaviours

70%

Ye s , w e e x p o r t t o o v e r s e a s m a r k e t s

13%

No, but we are actively exploring overseas markets

1%

No, but we intend to explore overseas markets within the next three years

16%

No, And we do not intend to within the next three years

Q9. Does your business sell products outside Australia?

Base: n=61

23

Manufacturers are seeing the most significant growth opportunities in South America, ahead of Europe, the Middle East, Canada and Africa

Expected Future Export Destinations

50%

50%

53%

10%

7%

63%

72%

81%

74%

81%

Not using but considering

86%

87%

88%

88%

Not considering

88%

88%

75%

82%

93%

94%

94%

1%

0%

3%

98%

89%

7%

Other

Currently using

1%

2%

Q12. Which markets are your locally produced products exported to?

Q14. Which overseas markets are you actively exploring?

Base: n=61

1%

1%

1%

1%

2%

15%

8%

14%

13%

12%

11%

11%

11%

10%

10%

10%

6%

6%

3%

0% 2%

China

Russia

Japan

South America

Africa

Hong Kong

Mexico

Korea

India

17%

1%

Pacific Islands

19%

5%

Indonesia

26%

Malaysia

Middle East

USA

Europe

NZ

28%

9%

Singapore

0%

40%

UK

40%

Thailand

49%

Canada

9%

Exporting to China is expected to remain low

4%

24

SAMPLE PROFILE

The 2019 AAAA Manufacturers Survey is based on data collected from 61 automotive aftermarket manufacturers, across a range of company sizes and areas of specialisation Role

Annual Turnover

Business Owner/Partner/Director

59%

CEO

13%

Operations Manager

9%

Marketing Manager

7%

Divisional GM/Director

6%

Manufacturing Manager

4%

Financial Controller

1%

Age of Business < 5 years

< $2 million

50%

$2 - 4.99 million $5-24.99 million >$25 million

25% 15% 10%

Types of Products 46% 26%

Chassis components

24%

Safety or protection components

10 - 19 years

21%

20 - 29 years

19%

30 - 39 years

19%

40 - 49 years 50 years or longer

8% 13%

8%

1 - 4 employees

20 - 49 employees 50 - 74 employees

Electrical or lighting components

6%

75 - 99 employees

S3. What is your role in the company? S4. Which of the following annual revenue ranges is applicable to your organisation? S5. How many staff does your company employ in Australia? S9. How many years ago was your organisation established in Australia? Q1. Which type(s) of product does your company manufacture?

Base: n=61

31%

10 - 19 employees

6%

2%

20%

5 - 9 employess

Body components

Lubricants, chemicals or coolants

13%

Total Employees

Accessories Engine or transmission components

5 - 9 years

7%

100+ employees

20% 14% 6% 3% 7%

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Our sample also includes organisations based across the country, with head offices covering a mix of metropolitan and regional areas

Head Office - State

Manufacturing Operations - State

WA

QLD

9%

41%

NSW/ACT VIC/TAS QLD SA/NT WA

14% 14% 34% 10% 3%

Manufacturing Operations - State NSW

20% SA/NT

8% VIC/ TAS

Metro

Regional

77%

23%

22%

S6. Where is your companyâ&#x20AC;&#x2122;s Australian head office located? S7. Would you describe your companyâ&#x20AC;&#x2122;s Australian head office location as being in a..? S8. Where are your manufacturing operations located?

Base: n=61

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PLEASE CONTACT US WITH ANY QUESTIONS

Ben Selwyn Account Director, ACA Research bselwyn@acaresearch.com.au / 02 9927 3310 Jane Mackey Senior Account Manager, ACA Research jmackey@acaresearch.com.au / 02 9927 3345

Level 6, 107 Mount Street, North Sydney, NSW, 2060