APPENDIX B:
AUTOMOTIVE COMPETITIVENESS AND INVESTMENT SCHEME ELIGIBILITY CRITERIA

Table B.1. ACIS eligibility thresholds

Measure	Description
Minimum volume or dependency	An automotive component producer must supply at least 30,000 components, or the components produced by the firm in Australia must be worth at least $500,000 and comprise at least 50 percent of all the firm’s production of components. Automotive machine tooling producers have value and dependency requirements.
National interest registration	A firm that fails the minimum volume requirement may seek registration in the national interest because of other key factors.
Original equipment (OE)	Defines OE as components fitted to the vehicle during assembly or certain types for post-assembly fitment.
One kind of automotive component [s. 17(1)(a)]	Volume requirement applying to ‘one kind of automotive component’.
Contrivances	Enables the Secretary to refuse registration or to deregister if the purpose of the Act is not being furthered.
Production definition	Defines production as including the putting together of parts.
Parts for Australian vehicles	The requirement is that the participant produce parts in Australia.

Table B.2. ACIS rates of assistance

Measure	Description
Uncapped production	Credits paid at 15% times the tariff rate, multiplied by the production value of eligible vehicles sold domestically or to New Zealand.
Capped production	Credits paid at 10% times the tariff rate times production value for domestic and NZ sales. Paid at 25% times production value times the tariff rate for other destinations.
R&D	Credits paid at 45% of eligible R&D investment.
Plant and equipment	Credits paid at 10% of eligible plant and equipment (MVPs) or 25% (MVP component use and supply chain).
Contracted R&D	MVPs may claim ACIS for R&D work they are contracted to perform. The supply chain may not claim contracted R&D.
5% cap	Limits assistance to no more than 5% of previous year’s sales.

Table B.3. ACIS – activity limitations

Measure	Description
Offshore R&D	Participants can claim the lesser of costs of own offshore research and 20% of the Australian based research.
Contracted R&D	Participants other than MVPs cannot claim for work for which they are contracted to perform.
Outsourced R&D	Participants may subcontract R&D to cooperative research centres or to other parties.
Eligible R&D	Defines what is and what is not eligible R&D.
Allowed expenses	See Table B.4.
20% loading	Encompasses other costs not listed in the regulations.

Table B.4. ACIS – allowed expenses

Measure	Description
Meaning of costs in R&D	Salary or wages.
	Allowances, bonuses, overtime and penalty rate payments.
	Leave payments for annual leave, sick leave and long service leave.
	Superannuation fund contributions, payroll tax and workers compensation insurance premiums.
	The cost of providing any vehicle or other benefits included in the employee’s remuneration package.
	Costs of graduate development programs.
	Costs of training to use software specifically related to the R&D.
	Labour costs in respect of employees managing, directly supporting or assisting, or directly involved in, the recruitment, training and development, of the employee.

APPENDIX C:
SUPPORT FOR THE AUTOMOTIVE INDUSTRY IN SELECTED ECONOMIES

Introduction

This appendix outlines the arrangements offered by several economies to support their automotive industries. These arrangements are in addition to tariffs and include specific automotive policies and investment incentives.

National automotive policies

Most major automotive-producing countries complement their tariff regimes with policies to protect and foster the development of a domestic automotive industry. In many instances, these policies are accompanied by specific investment incentives to attract automotive firms to establish operations in a country or countries. Most of these policies generally provide supply-side subsidies, the exception being France. In addition, in the more mature economies such as Germany, the subsidies are targeted at R&D. For many of the emerging economies, the subsidies are targeted at production (for example, Thailand).

Thailand

The automotive sector is one of Thailand’s five designated growth industries (the others are agribusiness, electronics, fashion and high value-added services). Thailand appears to be on track to achieve its objective of becoming the ‘Detroit of Asia’, and producing 1.8 million vehicles per annum by the end of the decade.

Thailand’s Board of Investment attracts investment from international automotive companies through generous incentives and minimal restrictions. Incentives include income tax holidays for up to eight years, guarantees, support services and reduction of, or exemption from, import duties on machinery and raw materials. Automotive investment projects valued at 10 billion baht (approximately $330 million) and related parts production attract a permanent exemption of import tax on machinery. There are no restrictions or requirements on foreign ownership, export or local content. Foreign firms are allowed to own land and, with few exceptions, to locate where they wish.[1]

More recently, Thailand has introduced incentives to encourage automakers to set up local production bases for ‘eco-cars’ that meet the most stringent European emissions standards. Eco-cars are defined as either petrol-fuelled vehicles with an engine size of no more than 1,300 cubic centimetres (cc), or diesel-fuelled vehicles with engines up to 1,400 cc. They must not consume more than one litre of fuel per 20 kilometres and must emit no more than 120 grams of CO2 per kilometre.[2] Under the scheme, companies that produce eco-cars will not have to pay corporate income taxes on their investments for eight years, and duties on imported machinery will be waived.[3]

Most of the proposals are designed to produce cars for export. Seven automakers, including Toyota, Volkswagen, and India’s Tata have proposed eco-car projects to Thailand’s Board of Investment. Each automaker is required to invest at least 5 billion baht to earn the Board’s tax incentives. As at June 2008, six eco-car projects have received Board of Investment privileges, including Honda, Nissan and Suzuki. Combined production of these cars is estimated at 800,000 units in the next six to seven years, which would make Thailand an important production base for energy-efficient passenger cars.[4]

Toyota has announced plans to make a broad range of alternate-fuel vehicles and fuels in Thailand, including a US$175 million addition to the diesel engine line at its Chonburi plant. The Japan Auto Digest also reported that the “company said it also plans to make the Camry Hybrid, and CNG [compressed natural gas] and E85 ethanol-capable vehicles over the next several years, and local reports said it is involved in experiments with a promising new oil from an inedible plant for use as biodiesel fuel”.[5]

As part of its drive to establish Thailand as a hub for the production of alternative energy or fuel efficient vehicles, the Thai Government is also providing incentives to encourage more motorists to switch to using E85, a blend of 85 percent ethanol and 15 percent petrol. To this end, the government has exempted import tariffs on E85 car parts as well as reducing excise taxes for E85-powered vehicles. However, further incentives will probably be offered, given that 14 car manufacturers in Thailand have delivered their assessment that the government’s measures and incentives are still not attractive enough to induce manufacturers to produce E85 vehicles in Thailand.[6]

Malaysia

The Malaysian automotive industry is one of the most protected in the region. It released its National Automotive Policy Framework in October 2005. The framework contains five objectives for the domestic automotive industry: a competitive and viable automotive sector (particularly for ‘national car’ makers); to become a regional hub; to enhance value-added and local capabilities; to promote an export-oriented industry; and Bumiputera (ethnic Malay) participation (including equity levels).[7]

The framework contains a range of measures to assist the development of the industry, including:

• an Industrial Adjustment Fund of interest-free loans and matching grants to assist manufacturers in facing greater competition and liberalisation (a key measure to replace the previous excise rebate for ‘national car’ producers – the previous excise regime allowed purchasers of locally produced cars such as the Proton and Perodua to receive a 50 percent rebate on vehicle excise tax);
• incentives to parts manufacturers through bilateral free trade agreement cooperation projects and a Global Supply Program;
• training, R&D and technology acquisition grants;
• market development grants to help small and medium-sized enterprises develop export markets;
• ensuring compliance with international safety and environmental standards; and
• tax and non-tax incentives ‘customised’ for specific investors and for five designated production centres – Gurun (Kedah), Bertam and Seberang Prai (Pulau Pinang), Pekan (Pahang), Tanjung Malim (Perak), and Shah Alam and Rawang (Selangor).

Most incentives are available to both national and non-national car and parts makers to encourage continued investment in the sector. However, the ‘national car’ producers receive the bulk of assistance.

Only holders of an Approved Permit (AP) may import motor vehicles, which limits them to a small share of the total market and effectively acts as an import quota. There are 76 holders of open APs and 37 franchise AP holders. The Malaysian Ministry of International Trade and Industry gives APs based on quota, but does not publish names of approved persons/companies or volumes. Generally, import license approvals for commercial vehicles are not given. The October 2005 National Automotive Policy Framework announced that APs for completely built-up cars will be phased out in the longer term, with some minor interim changes, but did not provide a timeline.[8]

Philippines

Motor vehicle and component manufacturing assembly is open to foreign companies. The Motor Vehicle Development Program prohibits the importation of used vehicles and provides special incentives for the export of vehicles and components. Automotive parts manufacturing is listed as an investment priority area and incentives are available under the Omnibus Investments Code.[9]

Export-oriented companies registered with investment agencies such as the Philippines Board of Investment, Philippine Economic Zone Authority, Clark Development Corporation and Subic Bay Metropolitan Authority are entitled to incentive packages. For example, the Board of Investment is empowered to grant an income tax holiday of up to eight years. The latter three agencies can grant special tax rates of 5 percent on adjusted gross income, plus duty exemptions on the importation of all capital equipment and raw materials.

Assemblers and manufacturers who do not operate a customs-bonded manufacturing warehouse and/or whose facilities are not located inside export zones are refunded duties paid on raw materials used in the manufacture or production of articles upon exportation of the same through a tax credit system.

In 2005, the Philippines exported cars in quantity for the first time. This was due to Ford, which invested US$250 million in a vehicle assembly plant courtesy of investment incentives.[10]

China

The Chinese Government’s automotive industry policy aims to prioritise the development of its own automotive industry over the further opening of its markets to imports. The policy aims to have Chinese-owned vehicle manufacturers supply 50 percent of the domestic market and have Chinese vehicle and component manufacturers and assemblers own all the IP relating to their products.[11] The key elements of the plan are to:

• rationalise the number of automotive producers;
• achieve 40 percent export of total component sales;
• restrict foreign car companies to two joint ventures per company; and
• retain the 50 percent limit on foreign holdings in a joint venture.

As part of its automotive policy, China introduced the Measures on the Importation of Parts for Entire Automobiles. The United States and the European Union have argued that these rules impose charges that unfairly discriminate against imported automotive parts, and discourage automobile manufacturers in China from using imported automotive parts in the assembly of vehicles. As noted by the US Trade Representative:

…the rules require all vehicle manufacturers in China that use imported parts to register with China’s Customs Administration and provide specific information about each vehicle they assemble, including a list of the imported and domestic parts to be used, and the value and supplier of each part. If the number or value of imported parts in an assembled vehicle exceeds specified thresholds, the regulations imposed on each of the imported parts a charge equal to the tariff on complete automobiles (typically 25 percent) rather than the tariff applicable to automotive parts (typically 10 percent).[12]

Several economies, including the United States, the European Union and Canada, have raised the issue in the World Trade Organization.

India

The Indian Government sees the automotive sector as a ‘sunrise sector’ and, in January 2007, launched its Automotive Mission Plan. The plan, which is a joint document prepared by industry and the government, aims to make the automotive sector a US$145 billion industry, and create additional employment for 25 million people by 2016. It also envisages additional investment of about US$40 billion.

The plan encompasses proactive action in attracting investment, affirmative action with regard to expansion of infrastructure, and development of human resources.[13]

Many firms, including Tata, Maruti, Suzuki, Toyota, Honda and Nissan have established and/or are expanding their automotive manufacturing plants in India.

India‘s 2008–09 budget contained excise duty reductions from 24 to 14 percent for hybrid cars and full excise exemptions for electric cars. The reduction in the excise duty for hybrid cars may benefit Tata and Mahindra and Mahindra, which are planning to launch hybrid vehicles, as well as Honda, which is planning to launch the hybrid Civic into the Indian market.[14]

South Africa

In South Africa, the Motor Industry Development Program was designed to help the industry adjust and increase its competitiveness in the new post-apartheid trade policy environment. The program has five main elements:

• a gradual reduction in import duties on both vehicles and components;
• an export–import complementation scheme under which vehicle and components exporters can earn tradeable ‘Import Rebate Credit Certificates’ to offset duties on imported vehicles and components;
• access to the standard duty drawback program for exporters, under which all import duties paid on components and intermediate inputs used in exported vehicles and components can be rebated;
• a duty-free allowance on imported components on around one-quarter of the value of vehicles produced for the domestic market; and
• a Productive Asset Allowance that provides import duty credits of around one-fifth of the value of qualifying investments.

The incentives in respect of components apply only to those sold directly to original equipment manufacturers. This excludes from the program after-market components, a sector in which South Africa might have some regional, and maybe even global, comparative advantage.[15]

The program has been reviewed and extended twice. It now is scheduled to continue until 2012, subject to a review that is still to be completed.

The automotive industry also benefits from a wide variety of other initiatives by national, provincial and local governments. These range from restrictions on imports of used cars to the provision of infrastructure, factory facilities and special financial arrangements. Firms that have established operations in South Africa include BMW, DaimlerChrysler, Delta, Ford, Nissan, Toyota and Volkswagen.

United States

State governments in the United States, particularly in the south, have been active in offering investment incentives to automotive makers. Incentives include property tax abatements, lower electricity rates, extension of infrastructure, payments toward worker training programs, job creation tax credits (up to US$1,000 per new position) and pre-employment job training programs. Recent examples include:

• Kia announced that it would build its first American plant in West Point, Georgia, at a cost of US$1.2 billion. The plant, which is to open later in 2008, will employ 2,500 workers. It will be capable of producing 300,000 cars a year by 2009. To facilitate this, Kia is receiving US$410 million in state and local tax credits and other assistance (such as land for the plant and the construction of a training facility), which translates into about US$160,000 for each job at the plant;[16]
• Toyota invested US$230 million in Subaru‘s Indiana plant to produce 100,000 cars a year starting in 2007. Toyota received US$14 million in incentives to invest in the plant‘s expansion;[17]
• Toyota received an assistance package of US$358.5 million (US$293.9 million from the Mississippi government and US$64.6 million from the local Blue Spring government) to build a US$1.3 billion plant that will manufacture 150,000 Highlanders by 2010;[18] and
• The US Department of Energy is providing $30 million over three years for plug-in vehicle projects. The funding will support the assembly of 80 plug-in vehicles for fleet testing by Chrysler; the enhancement of lithium-ion battery packs and charging systems, and the deployment of plug-in vehicle test fleets by GM (which also received support from state agencies); and Ford will work with Southern CA Edison and Johnson Controls–Saft to accelerate mass production of plug-in hybrids.[19]

Mexico

Mexico has two main programs to stimulate manufacturing – Maquiladora and the Program for Temporary Imports to Produce Exports, or PITEX – that largely operate in the same manner. The former is focused on companies that specialise in in-bond manufacturing and export, while the latter is for companies that may have significant domestic sales. Both programs exempt companies from import duties and applicable taxes (for example, value-added tax) on inputs and components incorporated into exported manufactured goods. In addition, capital goods and the machinery used in the production process are exempt from import duties.[20]

Mexico has applied Sectoral Promotion Programs to these initiatives. Under these programs, import duties on listed inputs and components used to produce specific products are eliminated, or reduced to a competitive level. Currently there are 22 such programs available to manufacturers, including motor vehicle and component producers.[21]

In addition to the Maquiladora and PITEX programs, Mexico approved the operation of more traditional free trade zones. The new regime allows for manufacturing, repair, distribution and sale of merchandise. There are currently two approved free trade zones, both operating in San Luis Potosi.[22]

Mexico’s other incentives to the manufacturing sector are offered at the state level and therefore the specific industry sectors they promote vary depending on the interests of each state. Across its 31 states, these incentives can be as diverse as project subsidies or other financial assistance, R&D tax exemptions, payroll tax exemptions, supplier development programs, employee housing and state-paid worker training. Furthermore, these incentives may be subject to negotiation depending on the industry and the size of the investment.

Brazil

Brazil has recently introduced specific tax reductions and/or incentives aimed at stimulating investments in specific sectors of the economy, including automotive industries.

Incentive packages offered to automotive makers include the following:

• Volkswagen received about US$14 million in financial incentives for dedicated infrastructure and fiscal incentives worth between US$83 million and US$155 million;
• Renault received a capital contribution of up to US$300 million, interest-free loans, local tax exemptions, donation of a 2.5 million square metre site, provision of all the necessary infrastructure and utilities at the site, and a 25 percent price reduction for electricity for the project;
• Mercedes-Benz received land, grants, tax breaks and extensive infrastructure development, including the construction of access roads and rail links to the plant and the development of utilities and sanitation (with lower water costs for 10 years); and
• GM received a waiver of state sales tax for 15 years, financial incentives of around US$67 million to prepare the factory site, and a 254 million reais (US$118 million) loan at a 6 percent interest rate.

Brazil also has incentives aimed at promoting the production of motor vehicles to run on ethanol-blended fuel.[23]

Slovakia

Slovakia attracts automotive investments through a mix of a low-cost (but skilled) labour force and taxation and relocation incentives. Slovakia is also a member of the European Union and is centrally located within a day’s shipping time of major markets. Since 2004, the incentives and low labour costs have helped the country attract a US$1.25 billion assembly plant from Hyundai–Kia, a US$540 million transmission plant from Ford and a US$945 million plant from Peugeot Citroen. Volkswagen has recently expanded its plant that manufactures Touareg sports utility vehicles, of which 80 percent are exported to the United States.[24]

Russia

The Russian central and regional governments offer a number of incentives to attract investment in their automotive industry. These include regional incentives for establishing automotive production plants, and the construction of a components manufacturing cluster in St Petersburg.

For example, in Kaluga, local authorities provided infrastructure and tax incentives to attract a Volkswagen assembly plant that is to begin production in 2008. Volkswagen’s investment in the plant is €370 million (US$450 million), and the plant will have the capacity to produce about 115,000 Passat and Touareg models a year.[25]

France

On 29 November 2006, the French Prime Minister announced additional government aid for R&D expenditure by the automotive supplier sector over the period 2006–08. The Agence pour l’innovation industrielle will release €120 million next year, over and above the sum of grant aid budgeted this year. The French Government also raised the threshold for tax credits on R&D expenditure by 100 percent to €16 million, and set aside €150 million for assistance to employees of automotive supplier companies undergoing restructuring. The sector currently employs around 20,000 people.

The French Government has agreed to far-reaching tax incentives for both fuel and flexible-fuel vehicles, including:

• no mineral oil tax on ethanol, no company car tax for the first two years, reduced registration tax and no value-added tax on fuel for the fleet customer;
• the installation of up to 500 E85 pumps by the end of 2007 (installation of 186 is nearly complete, and 50 are waiting for approval) and 1,500 by the end of 2008; and
• the commitment of the French administration to purchase 30 percent flexible-fuel vehicles within its overall 2008 vehicle purchases (the figure was 15 percent in 2007).[26]

Germany

In 2006, the Federal Government of Germany launched a National Hydrogen and Fuel Cell Technology Innovation Programme and is providing funding totalling €500 million for the next 10 years. Together with funds provided by the industry, this will be a long-term program with funding totalling €1 billion. The objective is to significantly step up applied research and, in particular, development activities in the field of hydrogen and fuel cells.[27]

There are also many incentive programs for investors in Germany, offered by European Union, federal and state authorities.

Japan

Although Japan imposes zero tariffs on the importation of automotive goods, the US Trade Representative states that a variety of non-tariff barriers have traditionally impeded access to the Japanese market.[28]

The industry benefits from the strong links that have developed between industry, government and public research institutions. The Japanese Government strongly supports R&D investment in the latest automotive technologies, including battery development and powertrain applications for fuel-efficient, low-emissions vehicles. For instance, Japan’s Ministry of Economy, Trade and Industry will spend US$1.72 billion over five years for next-generation power trains and fuels to cut petrol consumption and reduce carbon dioxide emissions. More than 75 percent of the funding will focus on hydrogen fuel-cell technology.[29]

APPENDIX D:
DETAILED R&D ANALYSIS

Introduction

R&D is central to improving the competitiveness and sustainability of Australia’s automotive industry. This role is even more important given that the Australian industry cannot compete with the wage costs in emerging countries such as China and Thailand. R&D allows the automotive industry to maintain a competitive edge, by driving down costs and increasing the uptake of improved technologies and processes.

R&D definitions

R&D can be defined in several different ways. It should be noted, however, that the Australian Bureau of Statistics’ definition of ‘business expenditure on R&D’ (or BERD) (as defined by the OECD Frascati Manual)[1] is not as broad as the Australian Competitiveness and Investment Scheme (ACIS) definition laid out in the ACIS Administrative Regulations 2000. The figures quoted below follow the BERD classification of R&D. Four types of activity applicable to R&D are recognised under BERD[2]:

1. Pure basic research is experimental and theoretical work undertaken to acquire new knowledge without looking for long-term benefits other than the advancement of knowledge.
2. Strategic basic research is experimental and theoretical work undertaken to acquire new knowledge directed into specified broad areas in the expectation of practical discoveries. It provides the broad base of knowledge necessary for the solution of recognised practical problems.
3. Applied research is original work undertaken primarily to acquire new knowledge with a specific application in view. It is undertaken either to determine possible uses for the findings of basic research or to determine new ways of achieving some specific and predetermined objectives.
4. Experimental development is systematic work, using existing knowledge gained from research or practical experience, which is directed to producing new materials, products, devices, policies, behaviours or outlooks; to installing new processes, systems and services; or to improving substantially those already produced or installed.

Business expenditure on R&D in the automotive sector

BERD by the Australian motor vehicle and part manufacturing sector grew by an annual average 7.48 percent over the last decade to reach $654 million in 2005–06.[3] Figure D.1 shows that following the introduction of ACIS in January 2001, the level of BERD in the automotive sector increased by 28.5 percent between 2000–01 and 2001–02 (to $490.2 million) and by 26.2 percent between 2001–02 and 2002–03 (to $618.7 million). Figure D.1 also shows that, while there has been strong growth in BERD since 1998–99 in motor vehicle body manufacturing (an increase of 626 percent), this has been offset by more moderate growth in motor vehicle manufacturing BERD (115 percent increase) and automotive component BERD (114 percent increase), and a 7 percent drop in automotive electrical equipment manufacturing BERD.

However, since 2002–03, the level of BERD in the automotive sector has plateaued at around $600 million. In particular, as shown in Figure D.2, while the annual average growth in automotive sector BERD has tripled since the introduction of ACIS, it has lagged behind the growth in BERD by the manufacturing sector as a whole (and by total BERD) over the same time frame. In addition, growth in BERD in the automotive sector has been slower since the introduction of ACIS compared with pre-ACIS growth rates. This could reflect, in part, growth from a low base in the 1990s and the ‘plateauing’ effect in recent years. In 2002–03, BERD from the automotive sector represented nearly 22 percent of total manufacturing BERD, but by 2005–06 this figure had dropped to 17 percent.

The R&D intensity of the automotive industry was 11.6 percent in 2005–06.[4] This is around three times higher than for manufacturing as a whole and around nine times higher than for the economy.

Figure D.1. BERD in the automotive sector and its subdivisions ($'000), 1998-99 to 2005-06

Figure D.2. Combined BERD of automotive, manufacturing and non-manufacturing sectors ($'000), 1998-99 to 2005-06

Source: Australian Bureau of Statistics, 2008.

Around 89 percent of the automotive sector’s BERD was for experimental development, with very little pure or basic strategic research (see Figure D.3). This suggests that the Australian automotive industry is focused on product development as opposed to the development of new technologies. Around 90 percent of the sector’s BERD is sourced from own funds; the Australian Government is the other major funding source, which includes the R&D tax concession and cooperative research centre programs.

Figure D.3. Types of R&D in the automotive sector, 2005–06

Source: Australian Bureau of Statistics, 2008.

The automotive sector employed 3,307 researchers, technicians and other supporting staff in undertaking R&D in 2005–06. Compared to a 6.9 percent annual growth in the five-year period before the introduction of ACIS, the annual growth in human resources devoted to R&D had moderated to 4.41 percent.

Another observation of interest is that in the past decade there has been a significant change in the mix of R&D employment in the automotive industry, with researchers now accounting for nearly 60 percent of all human resources devoted to R&D – in 1995–96, this figure was 44.5 percent (see Figure D.4). Over the same period, there has been a fall in the share of researchers devoted to R&D for all businesses – falling from 57.5 percent in 1995–96 to 53.9 percent in 2005–06 (with the share of technicians increasing).

Figure D.4. Type of staff employed in R&D activities in the automotive sector

Source: Australian Bureau of Statistics, 2008.

Growth in wages and salaries paid to those devoted to R&D has been broadly similar for both the automotive industry and for all businesses. Wages and salaries in the automotive industry grew by 56 percent in nominal terms over the 10 years to 2005–06, compared with 54 percent growth for all businesses. This increase in wages can be attributed to the increasing number of researchers over technicians (who generally work under researchers) and ‘other’ support (who also work under researchers and generally perform administrative or clerical tasks related to R&D).

R&D in individual automotive subdivisions

Motor vehicle manufacturing

This sector consists of units mainly engaged in manufacturing motor vehicles or motor vehicle engines.

BERD by the motor vehicle manufacturing sector increased by nearly 8 percent per annum over the 10 years to 2005–06. This was much higher growth than for manufacturing as a whole, but was significantly lower than for total BERD. Since 2000–01, growth in BERD by the motor vehicle manufacturing sector has been below that for manufacturing and for total BERD.

Between 1995–96 and 2005–06, the total of human resources devoted to R&D for the motor vehicle manufacturing sector has increased by 82.8 percent while labour costs have increased by 166.5 percent. This has led to average wages and salaries increasing from $75,729 in 1995–96 to $110,418 in 2005–06. This increase in wages can be attributed to the increasing percentage of research staff compared to technicians and ‘other’ staff. In 1995–96, only 47.5 percent of R&D staff were researchers, but the figure rose to 65.9 percent in 2004–05.

Motor vehicle body manufacturing

This sector consists of units mainly engaged in manufacturing motor vehicle bodies (including buses and trucks), caravans and trailers, and in vehicle modifications involving permanent changes to bodywork using an existing engine and chassis.

BERD for the sector increased by 24.3 percent per annum over the decade to 2005–06. It has also increased by a very strong 51.2 percent since 2000–01, albeit from a very low base.

Human resources devoted to R&D have experienced similar strong increases. However, the proportion of the more highly trained researchers to support staff remains low (only 34.5 percent of staff were researchers in 2004–05). This can be compared to the total motor vehicle sector, where 59.7 percent of R&D staff were researchers.

Automotive electrical and instrument manufacturing

This sector consists of units mainly engaged in manufacturing automotive electrical components, automotive air-conditioners or instruments.

BERD by the automotive electrical and instrument manufacturing sector fell 9.3 percent in the 10 years to 2005–06. Over the same period, human resources devoted to R&D increased from 209 to 312 person-year equivalents. It should be noted that the ratio of researchers to other support staff has actually decreased between 1995–96 and 2004–05.

Automotive component manufacturing not elsewhere classified (n.e.c.)

This class consists of units mainly engaged in manufacturing motor vehicle parts not elsewhere classified. It includes the manufacture of clutches, gearboxes, radiators and mufflers.

Over the decade to 2005–06, BERD by this sector grew by 7.64 percent per annum – above the growth for manufacturing as a whole, but below the growth by the motor vehicle manufacturing sector and for total BERD.

Human resources devoted to R&D increased by 45.4 percent in total over the 10 years to 2005–06 while labour costs for the sector increased by 164.8 percent over the same period. This led to average costs per employee in R&D increasing from $48,044 in 1995–96 to $87,440 in 2005–06. This coincided with an increase in the proportion of research staff from 36.7 percent in 1995–96 to 50.4 percent in 2005–06.

 

APPENDIX E:
QUANTITATIVE SPILLOVER STUDY — PATENT CITATIONS

Technology Spillovers from and to the Australian Automotive Industry. A Study Based on Patent Spillovers
by
Bart Verspagen

Maastricht University and UNU-Merit

17 June 2008

Abstract:

This study uses patent citations to map spillovers from and to the Australian automotive industry. The paper starts with a discussion of the way in which citations can be used to measure spillovers, and what the limitations of such an approach are. It then presents some descriptive statistics, covering both a so-called industry of manufacture perspective (which considers the automotive industry as a sector that generates technological change itself), and an industry of use perspective (which considers the automotive sector as a sector that sources technological change from other industries, including itself). In both cases, the machinery and equipment sector is an important receiver of spillovers from the automotive sector, as are other industries producing transport equipment. When an industry of use perspective is used, important amounts of spillovers are also found for “automotive-using” industries such as (land) transport, sales of motor vehicles, and private households. The study also finds that spillovers from the automotive sector are relatively concentrated, i.e., affect a relatively small number of other industries.

1. Introduction

This is a commissioned study on technology spillovers from and to the Australian automotive industry. The study uses patent citations as indicators of spillovers. The primary product of the study, which is supplied in the form of an Excel sheet, is a pair of spillover matrices in which the automotive industry is both a row and a column. The two matrices correspond to the two perspectives used in this study: industry of manufacture and industry of use. The first of these perspectives, industry of manufacture, looks at knowledge that is produced in the automotive sector (or other sectors), the second perspective, industry of use, looks at where knowledge is used.

This document is organized as follows. In Section 2, the methodology is laid out. This contains a subsection with important issues that concern the interpretation of the measures that are provided in this study. Even the reader not primarily interested in methodology should read this subsection (2.4). Sections 3 and 4 contain a presentation of the main results. Section 3 looks at spillovers from the automotive industry, and Section 4 at spillovers to the automotive industry. Each of these sections is subdivided by the two perspectives. Finally, Section 5 contains some broad conclusions.

2. Methodological notes

2.1. Patent citations as measures of technology spillovers[1]

This study uses patent citations as an indicator of technology spillovers. The basic idea is that if patent A cites patent B, the inventor of A must have learned something from B. While this is an intuitive idea, it builds strongly on the citation practice in scientific papers, which is different from patent citations. In order to arrive at a valid interpretation of patent citations, one must therefore pay attention to the way in which patent citations differ from citations made in science. This will be done, in a brief way, in the current section. The conclusion from this brief overview is that patent citations are valid, but incomplete and noisy indicators of technology spillovers.

Patents contain references to prior patents and scientific literature. The legal purpose of references in patents is to indicate which parts of the knowledge described are claimed in the patent and which parts other patents or non-patent documents have claimed earlier. As Collins and Wyatt (1988) explain, the applicant “must set out the background in such a way as to show how the claimed invention relates to, but is innovatively different from what was already public knowledge” (p.66), and his/her task is also to identify work “either related to but significantly different from, or else a useful step towards, the new invention or a use of the invention”.

Patent citations are different to references in journal articles in two respects. First, while academic citations are mainly the prerogative of the author, citations in patents are the results of a highly mediated process which involves the inventor, the patent attorney and the patent examiner (Meyer, 2000). Second, articles in journals may be cited for a variety of reasons, not all of them reflecting recognition of work done previously or a transfer of knowledge. Authors may cite articles for strategic reasons, for example, because the authors of the cited article are potential reviewers. Instead inventors have an incentive not to cite patents unnecessarily, as it may reduce the claim of novelty of the invention and therefore the scope of the monopoly rights granted by the patent.

In principle, when a patent cites another patent, this indicates that the knowledge embodied in the cited patent has been in some way useful for developing the new knowledge described in the citing patent and that the citing patent has no claim over that particular knowledge. This is the line of reasoning offered in Jaffe et al. (1993), and Jaffe and Trajtenberg (1996 and 1998). Thus, patent citations represent a ‘paper trail’ of knowledge flows between the citing and the cited inventor, although as pointed out by Jaffe and Trajtenberg (2002) ‘one that is incomplete and mixed with a fair amount of noise’ (p. 12).

Patent citations are an incomplete measure of knowledge flows because they only capture those flows that result in a novel and patentable technology and therefore they cannot be used to make inferences about knowledge transfers that do not result in a patent, such as tacit forms of knowledge, learning via imitation or reverse engineering. It should also be emphasised that knowledge flows are a much broader concept than simply what is captured by patent citations. In terms of the distinction introduced by Griliches (1992), patent citations focus on a specific form of pure knowledge spillovers. Rent spillovers, which reflect the fact that prices do not completely embody quality improvements resulting from R&D activities, are completely ignored. However, as correctly pointed out by Breschi and Lissoni (2001), although in theory patent citations try to measure pure knowledge spillovers, empirically it is hard to exclude those knowledge flows (giving rise to patent citations) which are mediated by markets or market mechanisms. Even within the category of pure knowledge spillovers, patent citations (to the extent that they are related to spillovers) are only a part of the story. For example, in order for patents to be cited, both the spillover-receiving and spillover-generating firm must be actively engaged in R&D and apply for patent protection. Therefore knowledge flows can occur without generating citations.

Patent citations are a noisy measure of knowledge flows because, though suggested by the inventor together with his attorney, the final decision on which patents to cite lies ultimately with the patent examiner. This implies that the inclusion of a given citation does not necessarily indicate that the inventor has knowledge of the technology underlying the cited patent and, thus, they do not represent an actual knowledge source utilised by the inventor in the development of the invention. In this study we will be able to eliminate this source of noise, although it is possible to identify three other sources (Jaffe et al., 1998). The first derives from the intervention of the patent attorney who may decide to cite a patent not considered prior art by the inventor. The attorney may be trying to avoid the risk of future legal battles (strictly legal citation). The second is connected with the possibility that inventors might have learnt about the cited invention only after the development of their own invention (after-fact citation). In this case citations cannot be interpreted as sources of knowledge contributing to the development of the citing patent, but they still represent realised knowledge flows between the citing and cited inventor. The third source of noise is associated with the citation of patents which, while not directly drawn upon by the inventor in the inventing process, are nonetheless seen as basic to this process (teaching citation).

Similar arguments have been raised by Breschi and Lissoni (2004) against the interpretation of patent citations as a proxy for inter-personal knowledge spillovers. These authors distinguish between two types of innovative efforts resulting in patents: cumulative efforts, i.e. the citing inventor built upon the knowledge developed by the cited patent, and duplicative efforts, i.e. the citing inventor duplicated the cited inventor research. In the latter case citations might take place with no exchange of knowledge between inventors and they are not associated to either awareness or intellectual debt between the cited and citing patent. When patents are the result of cumulative innovative efforts citations might be the result of either the citing inventor search in patents database, which does not correspond to inter-personal knowledge flows, or word of mouth diffusion process, which do reflect knowledge flows.

Despite all these limitations, some recent studies have shown that patent citations can be used as a proxy for knowledge flows. Jaffe et al. (2002) surveyed a sample of inventors of USPTO patents and asked them about the extent and the mode of their communication with the inventors they cite and about the extent to which a patent citation was indicative of this communication. The authors found evidence that a significant fraction of the links indicated by patent citations reflect some kind of spillover. Almost 40% of the inventors indicated that they learnt about the cited invention either before or during the development of their invention. But in one-third of cases they did not know about the cited patent, which could be due to the intervention of the patent attorney or patent examiner in the citation process. Duguet and MacGarvie (2005) provide evidence on the legitimacy of citations in EPO patents as a measure of knowledge flows. Matching a sample of French firms’ responses to the Community Innovation Survey with a count of citations made and received by their EPO patents, the authors were able to explore the relationship between patent citations and firms’ technology sourcing behaviour. They found that citations are significantly correlated with the way firms acquire and disseminate new technologies. In particular their results indicate that backward citations, i.e. citations made to other patents by the surveyed firms, were positively and significantly correlated with learning through R&D collaboration, licensing foreign technology, M&A, and equipment purchases. Thus, the evidence gathered in these two studies goes some way towards justifying the use of patent citations between both USPTO and EPO patents as a reasonable proxy for knowledge flows regardless of the differences that exist between these two patent systems regarding the examination process and the requirements concerning the description of the state of the art.

2.2. Patent citations and industrial classifications

Patents are classified in technological classification systems. In the case of USPTO patents, which are used in this study, this is the US Patent Classification system, which currently contains some 450 main classes, and several 10,000s of subclasses. These technological classes do not have an unequivocal relation to classification systems for economic activities, such as the Standard Industrial Classification (SIC). Therefore, in order to be able to describe technology spillovers between industries, on the basis of patent citations, a concordance between the USPC and SIC is needed.

This study uses the so-called OECD Technology Concordance (Johnson, 2002). This concordance table is based on the fact that

“between 1972 and 1995, the Canadian Intellectual Property Office simultaneously assigned IPC codes along with an industry of manufacture (IOM) and sector of use (SOU) code to each of over 300,000 granted patents. For example, in the IPC of B05 (sprayers and atomisers), a cosmetics atomiser might have an IOM in the glass container industry or metal valve industry, while a pesticide sprayer might have an IOM in the chemical fertiliser or agricultural machinery industry. Sectors of use (SOUs) would also differ, with the cosmetics atomiser used in the personal hygiene or cosmetics sector, and the pesticide sprayer used in field crop sectors. The [...] [OTC] utilised tabulated information on all 300,000 patents to determine the probability that a patent with a specific IPC has a particular IOM-SOU combination. Since other nations only report IPC information, those probabilities allow researchers to infer the IOM-SOU details of a patent based purely on the legal technological details offered by the IPC grouping.” (Johnson, 2002, p. 5).

It is important to note that this approach is essentially a statistical approach, i.e., it uses information on the large set of 300,000 patents, rather than providing a detailed picture of each individual patent. In the example of patents in class B05 in the above citation, one finds four different industries of manufacture of the patents: the glass container industry, the metal valve industry, the chemical fertiliser and the agricultural machinery industry. The concordance then applies a probability to all patents in B05 to be in either one of these four industries (e.g., each industry a 0.25 probability). But note that each individual patent in B05 will most likely cover only a subset of the four industries, as indicated in the example by the cosmetics atomiser or pesticide sprayer. The concordance, however, will assign all four industries to each patent.

This is an important caveat of the OTC, since it may lead to a bias in the estimations of spillovers provided here. For example, suppose that a country has no firms at all in the chemical fertiliser and the agricultural machinery industry. As a result, patents in B05 will refer only to the glass container industry and the metal valve industry. But the OTC will assign the patent to the four industries, rather than just the two that are relevant for this particular country. (Of course, this is an extreme example, and real-world cases will yield more subtle biases).

There are other, more technical, issues with the OTC. The most important one is that the OTC provides a concordance between the International Patent Classification (IPC) and SIC. However, the patent database that is used in this study primarily classifies patents in the USPC. Thus, in order to use the OTC, USPC classes must be translated to IPC classes. This is done using information from the EPO Espacenet database, which provides, for each US patent, IPC codes.[2] It must be noted however, that since each concordance in itself is an approximation, the use of multiple concordances is not preferred, although unavoidable. Also, the concordance does not use any information on the actual firm who applied for the patent. Thus, for example, a patent that is assigned to the automotive industry may be filed by a firm that in fact is in a different industry.

In the end, the OTC is a reliable concordance table, and in addition it provides an interesting opportunity to assign patents to two types of industries: industry of manufacture, or industry of use. This distinction in itself has been used to map spillovers. For example, Van Meyl (1997), constructed a matrix of technology spillovers assuming that knowledge spills over from the industry of manufacture of a patent to the industry of use. Such a procedure avoids the use of patent citations all together, since it relies only on a single patent.

The current study, aimed at using patent citations, applies the industry of manufacture vs. industry of use distinction in a different way. It will produce two types of spillover estimates. One from the industry of manufacture perspective, which is the usual perspective, and one from the industry of use perspective. In the first case, the measure for spillovers from (to) the automotive industry captures the knowledge that originates in the automotive industry, and asks which spillovers this knowledge produces (uses). In the second case, the industry of use perspective, the spillover measure starts by asking which knowledge is sourced by the automotive industry, and subsequently asks which spillovers this produces (uses).

2.3. Implementation issues

This study uses the so-called NBER patent database (Jaffe and Trajtenberg, 2002). This includes patents in the US, but including patents awarded to foreign applicants (e.g., Australian firms, organizations or persons). The version of the database that was used includes all patents granted during the period January 1975 – December 2002. Although more recent data are in principle available directly from the USPTO, these data do not benefit from a crucial feature in the NBER database, which is the fact that applicant names in the NBER database have been standardized. This allows the researcher to exclude so-called self-citations, i.e., citation pairs where the citing and cited applicant are the same. This study always excludes these self-citations.[3]

13,303 patents with Australian inventor were identified for the complete period 1975 – 2002. These patents are the basis for all results described in this study. Using the NBER citation database, the 13,303 Australian patents were used to construct citation pairs where both citing and cited patent are Australian. After removing records with incomplete information, 57,609 of such citation pairs remained. About 4% of these are identified as self-citations, and hence were excluded from the analysis.

Figure 1 provides an overview of how the number of citation pairs varies per year. In order to provide a better picture of when the invention activities actually took place, the figure uses the application year of the citing patent, rather than grant year. The number of citation pairs rises steadily in time, starting from a very low number in the early 1970s. It reaches a peak 5,854 patents in 1998, after which the number drops sharply. This drop is entirely explained by the truncation of the database to patents granted before 2003. Many of the patents applied for in the period 1999 – 2002 would not have been granted by the end of 2002, and hence be excluded in the database. In addition, it usually takes a few years before a patent reaches a peak in received citations (Jaffe and Trajtenberg, 2002), and hence many of the citations of the patents granted in the last couple of years in the database would not yet be included. As a result, the data for the period after 1999 are rather unreliable, and will be excluded from the analysis.

Figure E.1. Australian citation pairs in the NBER database, by year of application

Also, the citations in the early period of the database refer to a small number of patents only. This is exacerbated by the focus on the automotive industry, which comprises only a small part (between 3 and 8%) of the total data. Hence the focus of the analysis will lie on the period 1991 – 1999. In 1991, there were 81 (industry of manufacture) or 112 (industry of use) automotive patents. This number was smaller in the years before 1981, leading to unreliable estimates of spillovers.

Within the period 1991 – 1999, the shares of spillover-receiving (from the automotive industry[4]) industries are relatively stable. Figure 2 provides an illustration of this finding for the industry of manufacture perspective (similar findings arise for the industry of use perspective). Although there are year-by-year fluctuations (especially towards the end), these do not seem to be very systematic. Hence the analysis below will provide results aggregated over the full period. Aggregation is done by a simple non-weighted average of the % of the totals per year.

Figure E.2. Fraction of total spillovers from automotive industry, 1991 - 1999, 4 largest spillover receiving industries

2.4. Notes for cautious interpretation of the results

The methodological notes so far have already included a few points that should lead to careful interpretation of the results. These points can be summarized as follows:

1. Patent citations are incomplete and noisy indicators of spillovers. In particular, they capture so-called pure knowledge spillovers, but do not provide an adequate picture of spillovers related to economic transactions (so-called rent spillovers). Moreover, using patent citations as indicators of spillovers implies a certain error margin, because not all citations in fact point to spillovers.

2. The OECD Technology Concordance (OTC) that is used to assign patents to industry is based on a statistical description of 300,000 Canadian patents. To the extent that Australian patents in the US are different (in technological content) from the Canadian sample, the concordance may contain specific biases. Moreover, the fact that we had to use a USPC – IPC concordance before the OTC could be applied introduces an additional error margin.

On top of this, one important further consideration applies:

3. There are important differences between industries with regard to the propensity to patent, i.e., with regard to the fraction of all innovations that are patented. It is well-known that not all inventions are patented (Levin et al, 1987), and the degree to which this is the case differs by industry (e.g., it is generally considered to be high in pharmaceuticals, and low in aerospace). Industries that have a low propensity to patent will also tend to cite less other patents. Hence the differences in the propensity to patent will tend to introduce biases in the citation matrix between industries that is the basis for this study.

In order to reduce this bias as much as possible, the study will use a matrix that describes, for each spillover-generating industry, which fraction of its total spillovers go to which industry. In other words, in a spillover matrix where the row indicates the spillover-generating industry, and the column the spillover-receiving industry, the cells will be standardized by dividing by the row-sum. As a result, the sum of each row will be equal to one.

3. Spillovers from the automotive industry

3.1. Industry of manufacture perspective

The largest spillover receiving industry from patents originating in the Australian automotive industry is the automotive industry itself. Over the period 1991 – 1999, it captures 38% of all spillovers. A close second is the machinery and equipment industry (35%). All other industries receive less than 6% of spillovers from the automotive industry. Figure 3 provides a graphical description of spillovers from the automotive industry. The figure shows clearly that spillovers from the automotive industry are very concentrated: two industries (including the automotive industry itself) capture about two thirds of total spillovers. This notion of concentration will be investigated in a comparative perspective below.

Figure 3. Percentual distribution of spillovers from the automotive industry, 1991-1999, industry of manufacture perspective

Some industries are larger spillover receivers than others. In particular, the machinery and equipment sector is a large receiver of spillovers from all industries. On average, it receives 30% (unweighted average over industries) of all spillovers during the 1991-1999 period. Hence it may be argued that it comes as now surprise that this industry captures such a large share of spillovers coming from the automotive industry. Other large spillover capturing industries are other manufacturing, other chemicals, and instruments. Two of the latter three industries also rank high as spillover receivers from the automotive industry in Figure 3.

In order to bring out the distinctive features of the automotive industry in a clearer way, one may look at the relative spillover-receiving intensity, which is defined as the share of spillovers received from the automotive industry, divided by the average share received from all industries. A number higher (lower) than 1 indicates that an industry relies relatively intensively on spillovers from automotive. There are four (out of 53) industries in the sample with a value higher than one: the automotive industry itself (13.6), rail- and tramway locomotives and rolling stock (2.63), other transport equipment (2.03) and the machinery and equipment sector (1.18). All other sectors show a value less than 1, which indicates that they tend to receive a lower percentual share of spillovers from the automotive sector than they receive from other sectors.

Finally, the issue of concentration of spillovers will be addressed. An indicator that measures concentration is the so-called inverse herfindahl indicator, which, for industry j, is defined as Hj = 1/∑i x2ji, where xji is the share of industry j spillovers that industry i receives. The maximum possible value of H is 53 (the number of industries), this value is found if spillovers are equally distributed over all 53 industries. The minimum possible value is 1, which results if all spillovers are concentrated in one industry only.

Among the 53 industries, the average value of H is 5.0, the median value is 4.9. Since this is considerably smaller than the theoretically possible value of 53, spillover-receivers tend to be rather concentrated. The maximum value in the sample is 10.8 (in machinery and equipment). The value for the automotive industry is 3.6, which is even a bit more concentrated than the average. 13 industries have a smaller value for H than found in the automotive industry.

3.2. Industry of use perspective

As in the case of the industry of manufacture perspective, the industry of use perspective identifies the automotive industry itself as the largest receiver of automotive spillovers. Figure 4 shows the distribution of automotive spillovers over receiving industries. The percentage of automotive spillovers that remains in the industry is now 36.4, which is slightly lower than in the case of the industry of manufacture perspective. The second largest receiver of automotive spillovers remains the machinery and equipment industry, which receives 20% of automotive spillovers. But together, these two industries account for a smaller share of total automotive spillovers than before (slightly over ½ now, vs. about two thirds before). Other industries that receive a sizeable share of automotive spillovers are construction (4.9%), health and social work (4.4%), and other manufacturing (3.0%)[5].

The large spillover receiving industries, in general, in the case of the industry of use perspective are the machinery and equipment sector, health and social work, construction, office machinery, and other manufacturing. Thus, the sectors that receive a large share of automotive spillovers are also the sectors that receive a large share of spillovers in total. Thus, it makes sense to look at the relative strength of automotive spillover links, defined as before by the share of spillovers received from automotive divided by the average share of spillovers received from all industries.

In this case, there are seven industries that have a value of the relative spillover intensity that is higher than 1, which are documented in Table 1. The seven industries can be subdivided in two groups: transport equipment industries (including the automotive industry itself) and automotive user industries. The first group is on top of the list in Table 1. The latter group consists of sale of motor vehicles, land transport, and private households. These three industries do not produce any patents, or very few patents, themselves, and hence do not receive any spillovers from the automotive industry when the industry of manufacture perspective is used.

As may already be expected from the results in Figure 4, concentration of spillover-receiving industries is smaller in the case of the industry or use perspective. In this case, there are 64 industries, so the maximum possible value of H is also 64. The average value of H found across all industries is 11.0, the median value is 10.9. The automotive industry again ranks below this, with a value of 5.5, which indicates that spillovers emanating from the automotive industry are relatively concentrated.

Figure 4. Percentual distribution of spillovers from the automotive industry, 1991–1999, industry of use perspective

Table 1. Industries that receive more than an average share from the automotive industry, industry of use perspective

SIC code	Description	% received from automotive divided by average % received
34	Manufacture of motor vehicles, trailers and semi-trailers	9.07
352	Manufacture of railway and tramway locomotives and rolling stock	3.59
359	Manufacture of transport equipment n.e.c.	2.29
29	Manufacture of machinery and equipment	1.42
50	Sale of motor vehicles	1.30
60	Land transport	1.22
95	Private households	1.04

4. Spillovers to the automotive industry

4.1. Industry of manufacture perspective

There are three industries from which the automotive industry receives more than 10% of their total spillovers. These are the automotive industry itself (38.2%), rail- and tramway rolling stock and locomotives (16.4%) and other transportation equipment (16.2%). The automotive industry receives 2.8% of the total spillovers from the average industry. There are 12 industries for which the automotive industry receives a larger than 2.8% share of total spillovers. These industries are listed in Table 2.

Table 2. Industries from which the automotive industry receives more than an average share, industry of manufacture perspective

SIC code	Description	% to automotive divided by 2.8 (= average % received by automotive)
34	Manufacture of motor vehicles, trailers and semi-trailers	13.6
352	Manufacture of railway and tramway locomotives and rolling stock	5.82
359	Manufacture of transport equipment n.e.c.	5.75
52	Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods	3.52
353	Manufacture of aircraft and spacecraft	2.63
61	Water transport	1.61
22	Publishing, printing and reproduction of recorded media	1.51
29	Manufacture of machinery and equipment	1.36
28	Manufacture of fabricated metal products, except machinery and equipment	1.15
17	Manufacture of textiles	1.14
36	Manufacture of furniture; manufacturing n.e.c.	1.06
K	Real estate, renting and business	1.02

4.2. Industry of use perspective

Using the industry of use perspective, the three industries from which the automotive industry receives the largest share of their spillovers, are the same as in the industry of manufacture perspective. These three industries are the automotive industry itself (36.4%), other transportation equipment (18.9%), and rail- and tramway rolling stock and locomotives (16.8%). Table 3 lists the 14 industries that are relatively intensive suppliers to the automotive industry.

Table 3. Industries from which the automotive industry receives more than an average share, industry of use perspective

SIC code	Description	% to automotive divided by 4.0 (= average % received by automotive)
34	Manufacture of motor vehicles, trailers and semi-trailers	9.07
359	Manufacture of transport equipment n.e.c.	4.71
352	Manufacture of railway and tramway locomotives and rolling stock	4.19
50	Sale of motor vehicles	2.44
353	Manufacture of aircraft and spacecraft	1.94
95	Private households	1.87
60	Land transport	1.82
29	Manufacture of machinery and equipment	1.66
36	Manufacture of furniture; manufacturing n.e.c.	1.39
351	Building and repairing of ships and boats	1.25
63	Supporting and auxiliary transport services	1.23
28	Manufacture of fabricated metal products, except machinery and equipment	1.14
20	Manufacture of wood and wood products	1.14
51	Wholesale trade	1.04

5. Conclusions

The automotive industry in Australia is an industry from which spillovers are relatively concentrated. It serves only a few other industries with large quantities of spillovers from its own technological activities. The industries that are among the ones receiving a large amount of spillovers from the automotive industry are machinery and equipment, other manufacturing, and the other transportation equipment industries (mostly railroad equipment and other transportation equipment).

Applying an industry of use perspective adds to this the importance of a number of automotive user industries as industries that receive a large fraction of automotive spillovers. These include sale of motor vehicles, land transport, and private households.

References

Breschi, S. and F. Lissoni, 2001, Knowledge spillovers and local innovation systems: a critical survey, Industrial and Corporate Change 10, 975-1005.

Breschi, S. and F. Lissoni, 2004, Knowledge networks from patent data: methodological issues and research targets, mimeo, CESPRI, Milan

Collins, P. and S. Wyatt, 1988, Citations in patents to the basic research literature, Research Policy 17, 65-74.

Criscuolo, P and B. Verspagen, 2008, Does it matter where patent citations come from? Inventor versus examiner citations in European patents, mimeo, UNU-Merit.

Duguet, E. and M. MacGarvie, 2005, How well do patent citations measure flows of technology? Evidence from French innovation surveys, Economics of Innovation and New Technologies 14, 375-394.

Griliches, Z., 1992, The search for R&D spillovers, Scandinavian Journal of Economics 94, S29-S47.

Jaffe, A.B., M.S. Fogarty and B.A. Banks, 1998, Evidence from patents and patent citations on the impact of NASA and other federal labs on commercial innovation, Journal of Industrial Economics 46, 183-205.

Jaffe, A.B., M. Trajtenberg and R. Henderson, 1993, Geographic localization of knowledge spillovers as evidenced by patent citations, The Quarterly Journal of Economics 108, 577-598.

Jaffe, A.B. and M. Trajtenberg, 1996, Flows of knowledge from universities and federal labs: modelling the flow of patent citations over time and across institutional and geographical boundaries,

Jaffe, A.B. and M. Trajtenberg, 1999, International knowledge flows: evidence from patent citations, Economics of Innovation and New Technologies 8, 105-136.

Jaffe, A. and M. Trajtenberg, 2002, Patents, Citations and Innovations: A Window on the Knowledge Economy (MIT Press, Cambridge, MA).

Johnson, D., 2002, The OECD technology concordance (OTC): patents by industry of Manufacture and sector of use, STI Working Papers 2002/5, Paris, OECD.

Levin, R.C., Klevorick, A.K., Nelson, R.R. and S.G. Winter, 1987, “Appropriating the Returns from Industrial Research and Development,” Brookings Papers on Economic Activity

Meyer, M., 2000, What is special about patent citations? Differences between scientific and patent citations, Scientometrics 49, 93-123.

Van Meyl, H., 1997, ‘Measuring the Impact of Direct and Indirect R&D on the Productivity Growth of Industries: Using the Yale Technology Concordance’, Economic Systems Research, 9, pp. 205-212.

Appendix

code	iom?	Description
1	1	Agriculture, hunting and related service activities
2	0	Forestry, logging and related service activities
5	1	Fishing, operation of fish hatcheries and fish farms; service activities incidental to fishing
10	1	Mining of coal and lignite; extraction of peat
11	1	Extraction of crude petroleum and nat. gas; services incidental to oil and gas extraction excluding surveying
12	0	Mining of uranium and thorium ores
13	1	Mining of metal ores
14	1	Other mining and quarrying
15	1	Manufacture of food products and beverages
16	1	Manufacture of tobacco products
17	1	Manufacture of textiles
18	1	Manufacture of wearing apparel; dressing and dyeing of fur
19	1	Tanning and dressing of leather; manufacture of luggage, handbags, saddlery, harness and footwear
20	1	Manufacture of wood and products of wood and cork, except furniture; manuf. of articles of straw, plaiting
21	1	Manufacture of paper and paper products
22	1	Publishing, printing and reproduction of recorded media
23	1	Manufacture of coke, refined petroleum products and nuclear fuel
241	1	Manufacture of basic chemicals
242, ex. 2423	1	Other chemical products, ex. pharmaceuticals
2423	1	Manufacture of pharmaceuticals, medicinal chemicals and botanical products
243	1	Manufacture of man-made fibres
25	1	Manufacture of rubber and plastics products
26	1	Manufacture of other non-metallic mineral products
27	1	Manufacture of basic metals
28	1	Manufacture of fabricated metal products, except machinery and equipment
29	1	Manufacture of machinery and equipment n.e.c.
30	1	Manufacture of office, accounting and computing machinery
31, ex. 313	1	Electrical machinery and apparatus, ex. cables and wires
313	1	Manufacture of insulated wire and cable
321	1	Manufacture of electronic valves and tubes and other electronic components
322	1	Manufacture of television and radio transmitters and apparatus for line telephony and line telegraphy
323	1	Manufacture of television and radio receivers, sound or video recording/reproducing apparatus
331	1	Manufacture of medical appliances and instruments and appliances for measuring, checking, testing, navigating and other purposes, except optical instruments
332	1	Manufacture of optical instruments and photographic equipment
333	1	Manufacture of watches and clocks
34	1	Manufacture of motor vehicles, trailers and semi-trailers
351	1	Building and repairing of ships and boats
352	1	Manufacture of railway and tramway locomotives and rolling stock
353	1	Manufacture of aircraft and spacecraft
359	1	Manufacture of transport equipment n.e.c.
36	1	Manufacture of furniture; manufacturing n.e.c.
37	0	Recycling
40	1	Electricity, gas, steam and hot water supply
41	0	Collection, purification and distribution of water
45	1	Construction
50	0	Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of automotive fuel
51	1	Wholesale trade and commission trade, except of motor vehicles and motorcycles
52	1	Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods
55	0	Hotels and restaurants
60	1	Land transport; transport via pipelines
61	1	Water transport
62	0	Air transport
63	1	Supporting and auxiliary transport activities; activities of travel agencies
641	0	Post and courier activities
642	1	Telecommunications
J	0	Financial intermediation
K	1	Real estate, renting and business
72	1	Computer and related activities
73	1	Research and development
75	1	Public administration and defense; compulsory social security
80	0	Education
85	1	Health and social work
O	1	Other community, social activity
95	0	Private households with employed persons

Legend: Code gives SIC code, ‘iom?’ indicates whether industry is included as industry of manufacture in the Australian sample, see Johnson (2002).

APPENDIX F:
QUALITATIVE SPILLOVER CASE STUDIES

Project summary

The Department of Innovation, Industry, Science and Research invited Techstrat Research Pty Ltd to conduct a small qualitative study of knowledge spillovers from the automotive sector to other sectors. Techstrat conducted interviews at six companies – Toyota, Bosch, Broens, EDAG, Marand, and OzPress – and the University of Melbourne, and identified the three classes of spillovers:

• spillovers from automotive work to other non-automotive work conducted within the company;
• spillovers to suppliers; and
• spillovers to others.

Spillovers within the company

The category of spillovers within a company fell into five subgroups. First, and most obviously, all the firms studied applied the engineering and production capabilities they had developed for the automotive sector to other sectors. For example, OzPress, which is a small pressing shop, now presses parts for ride-on lawnmowers in much the same way as it did for car parts. As the companies became larger and more sophisticated, so did the capabilities and systems they applied to these other sectors. Notwithstanding, the work was fundamentally predicated on the company’s experience in the automotive sector.

Second, and relatedly, three of the companies – Bosch, Marand and OzPress – also translated key philosophies and approaches they had applied to their automotive work to work they did in other sectors. For example, while Bosch’s principal work is in the automotive sector, it applies the same basic approaches (the Bosch production system, which is very similar to the Toyota production system) to its work in consumer goods, building technology and industrial systems.

Third, three of the companies identified capabilities they developed from their automotive work, and saw ways in which these capabilities could be applied to other sectors. These companies have used this as a vehicle for entering new sectors. For example, EDAG entered the military refurbishment market on the basis that by bringing project and program management skills from the automotive sector, it could dramatically reduce the cost of supply. This spillover has created income from overseas and local highly skilled jobs.

Fourth, some of the companies took approaches from their automotive sector work and applied them to their internal operations. For example, Broens uses total quality management principles in the way it conducts its entire business operations.

Finally, at the University of Melbourne the automotive sector creates a context for teaching fluid mechanics and thermodynamics. Although many other contexts could be used in the teaching, the fact that there is a local automotive industry allows the lecturers to bring in examples from the industry in general, and from their consulting and research experience in particular, to make the material more interesting and relevant for the students.

Spillovers to suppliers

Spillovers to suppliers fell into two groups. The first involved moving suppliers into different sectors as the companies themselves moved. For instance, Marand is at the head of the supply network (Tier 1) of many suppliers (Tiers 2 and 3). As it has moved its own work into areas such as maintenance equipment for railway management, it has taken its suppliers with it.

The second spillover involved transferring particular competencies to suppliers as part of the automotive work. The suppliers presumably can use these competencies in their work for other sectors. For instance, Bosch applied significant resources to help its suppliers increase the effectiveness of their logistics, their cost of supply, and the quality of their products. This transfer of competencies to suppliers can potentially be used in other non-automotive sectors. Supplier development programs such as those undertaken by Toyota ensure that its world-class production methodology and practices are passed on to the entire supply chain.

Spillovers to others

Spillovers to others fell into four groups. First, employees leave the companies studied and work in other sectors. Two groups are of particular note. Some of the companies, such as Broens and Marand, have large apprenticeship programs. Many of their apprentices leave and work in other sectors. Further, senior employees with particular experience (such as experience working with the Toyota production system) move to companies in other sectors with the specific mandate to transfer their expertise from the automotive sector into that other company.

Second, companies would transfer expertise to companies outside the sector. Two of the companies were involved in the Innovation Insights program run by the Victorian Government. As part of the program, they would host regular visits from other companies that wanted to learn about their production systems. One interviewee was a member of a benchmarking group comprising companies principally from the mining sector. On benchmarking tours there would be transfer of expertise between the companies.

Third, four of the companies – Toyota, Bosch, Broens and Marand – were actively involved with local TAFE colleges in the creation of training programs, both for their employees and for others. This often included hosting employees from other companies to use their facilities as part of their training. Furthermore, students in these institutions will benefit from lecturers with specific knowledge of automotive industry practices such as the Toyota production system, which can then be applied to other industries.

Finally, researchers at the University of Melbourne were interested in transferring knowledge and artefacts from the automotive industry to other sectors. For instance, the engines manufactured at the Ford Geelong plant or the Holden Port Melbourne plant had lower costs and were highly efficient potential stationary power sources. They could be used very efficiently for applications such as running the air-conditioning compressors on large buildings directly, instead of using electric motors.

These different uses are summarised in Table F.1.

Table F.1. Different uses of knowledge spillovers

	Internal spillovers					Spillovers to suppliers		Spillovers to others
	Apply automotive engineering and production capabilities to other sectors	Translate automotive philosophies and approaches to other sectors	Use automotive capabilities to diversify into other sectors	Use automotive techniques elsewhere in company (e.g. admin)	Automotive provides context for transmission of generic knowledge	Move suppliers into different sectors as they move	Help suppliers develop particular competencies they can apply elsewhere	Employees move to companies in other sectors	Collaborate with TAFE colleges to train other companies or others’ employees	Visits from other companies or benchmarking tours with other companies	Transfer specific technical artefacts to other sectors
Toyota		Toyota Production System is taught to suppliers who use this knowledge in other industries		Toyota Production System			Toyota has world-class production and engineering capabilities that it passes on to its supply chain		Yes	Yes
Bosch		Consumer goods, building technology, industrial technology		Bosch production system			Logistics effectiveness, cost of supply, quality	Especially experienced personnel	Yes	Innovation Insights program
Broens	Aerospace, military, mineral exploration, yachts		Military hardware, software, hydraulics, electronics.	TQM		Yes		Esp. apprentices	Yes
EDAG	Aerospace, military refurbishment, ship fitting		Project management and program management			Aerospace, military refurbishment
Marand	Aerospace – maintenance of equipment, tools and systems. Rail – equipment for rolling stock maintenance. Heavy trucking in China. An emerging industry	Food, plastics, construction, robotics, etc.	Rail – Maintenance of equipment for maintenance of rolling stock Project management and program management			Operates at head of a supplier network. Has taken network into other sectors		Experienced personnel and apprentices	Yes
OzPress	Lawnmowers	Lawnmowers				Lawnmowers	Toyota production system			Innovation Insights, benchmarking
Melbourne University	Apply thermodynamics to aerospace, power generation etc.	Application of cost optimisation techniques to aerospace			Yes – Autos as the context for teaching fluid mechanics and thermodynamics						E.g. use of car engines to run air-conditioner compressors

Toyota

Toyota Australia is one of three car manufacturers in the Australian automotive industry, and manufactures both the Camry and the Aurion models at its plant in Altona, Melbourne. It employs about 4,500 staff in its Australian operations.

Toyota achieved the ‘Triple Crown’ in Australia as of 2007, being the biggest seller of vehicles in the passenger and commercial classes, and overall. Much of this success can be attributed to Toyota’s focus on efficiency through the application of the Toyota production system and the philosophy of continuous improvement. These techniques and systems are then passed on to Toyota’s partnership network through programs such as C21 and ASEA, as well as Toyota Australia’s own high-intensity supplier development program.

Spillovers

Spillovers to the supply chain

Toyota has broadly influenced business thinking and practice in Australia through a range of spillover mechanisms from supplier development through to skills training. Suppliers to Toyota receive a large amount of support and training about lean operations, design skills, manufacturing efficiency and quality, people management and other knowledge areas, which they can use in their supply to other industries. Other companies studied in this set (for example, Marand and Broens) illustrate such activities from the supplier perspective.

Another spillover Toyota points to is in the area of capital expenditure. Suppliers have the confidence to invest in tooling because of the presence of Toyota and other motor vehicle producers in the manufacturing industry. Quite often this equipment is used for supply to other industries, and this capacity would otherwise not exist in Australia. An example is the plastics industry, for which Toyota and others in the automotive industry build the necessary base load, capacity and expertise for the local industry to be viable. In turn, the plastic industry is able to supply other industries such as electronics and construction. Toyota executives claim that base industries such as glass and rubber benefit from similar spillovers from the automotive industry.

In 2007, Toyota opened the Toyota Institute Australia, which runs a variety of courses in the Toyota production system for suppliers (many of which supply other industries), although there is an intention to open it to a wider group of companies in the near future. A related initiative is C21, run by the Victorian Government, which offers forums on lean management, based on the SMRJ (Small & Medium Enterprises and Regional Innovation, Japan) system brought to Australia from Japan by Toyota.

Toyota supports groups such as the Society for Manufacturing Excellence and, through its multiple presentations to such forums, has seen its influence go beyond the automotive sector and even beyond the manufacturing sector. For example, participants in forums, such as hospitals, are now adopting tools like value stream mapping and lean operations.

R&D and innovation spillovers

Toyota undertakes a significant amount of research and development in Australia. There are important knowledge spillovers to research partners, such as CSIRO and universities, which are facilitated by Toyota’s Australia-based research and technology centre. Several research projects have resulted in technology that benefits non-automotive industries. Toyota also practises a global model of technology development and research. The technology Toyota uses in Australia is often world-best technology, and some of it spills over to other industries.

Toyota is an advanced company when it comes to process innovation. Knowledge about how to achieve a strong culture of process innovation is at a very high level within Toyota. This knowledge is often transferred to other industries through Toyota’s participation in conferences and other manufacturing sector events, which are well attended by representatives from other industries. Toyota managers are regular speakers and session leaders at a variety of conferences, not just industry-specific meetings. This includes participating speakers from wholly owned Toyota subsidiaries in Australia such as Aisin. For example, Toyota and Aisin executives gave a two-hour presentation to 40 university lecturers and professors who teach operations management and related subjects at some 30 universities in Australia as part of the 2007 ANZAM conference.

Training and education spillovers

Toyota generally makes a large investment in teaching and training, and advancing of the skills of its staff. This effort leads to two main types of spillovers. First, people leave Toyota and take process knowledge with them of the Toyota production system and Toyota leadership philosophy. For example, a major bank and a number of mining companies are currently undertaking initiatives to adapt the Toyota production system into their contexts. Indeed, some of those companies specifically try to hire or poach ex-Toyota managers in order to speed up their learning and implementation processes. Management consultants also play a role in these spillovers, in spreading knowledge of the Toyota production system and lean management into other sectors. However, it is important to recognise that the key source of the core of this expertise originated in Toyota and is strong in Australia because of Toyota’s manufacturing presence.

Another type of spillover occurs through the more formal partnerships Toyota has with educational institutions. Through these structures, learning from Toyota is passed on to participants from other industries or to those who will end up in other parts of the economy. Specifically this includes a close partnership with Mt Eliza Business School (Melbourne Business School and owned by Melbourne University), which Toyota has been working with for six years. This began with the meeting ‘Toyota Leaders 1’ and then followed on with ‘Toyota Leaders 2’, which includes transfer of knowledge on global Toyota content. Toyota content benefits other industry participants. Toyota staff mix with instructors and other industry people and the Toyota production system ‘rubs off’ as a spillover.

A close relationship exists with the Chisholm Institute, which supports Toyota’s trade skills development program. There is also a trades teacher on site at the Altona plant. Victoria University has been involved in human movement activity for the health and safety team initiated and sponsored by Toyota. On the retail side, Toyota Institute Australia has a partnership for training with Kangan Batman TAFE. Toyota also works with regional TAFEs all around Australia to support the skills development of mechanics in its dealerships. These skills spill over to other industries as people move and courses are offered to other sectors which draw on the Toyota course.

The four specific examples above lead to improved curriculum in a wide range of courses, through institutional learning and spillovers to other programs that service other industries.

Toyota is also often a destination for executives from other industries who are on study tours, and want to visit, study and learn aspects of ‘The Toyota Way’, which they then use in other industries and companies. Students from schools and universities are welcomed by Toyota at its factory.

Environmental standards spillovers

Toyota Australia has set high environmental standards through its Toyota Earth Charter, which has set a policy and standard that other companies and industry players are learning from and aspire to. Toyota has been very open to researchers in Australia who have studied its methods and published results in the literature for others to learn from. For example, a recent Australian textbook, Operations Management, published in 2008 by Cambridge University Press, features a detailed case study of Toyota’s environmental management processes in its supplier development network.

Toyota is rapidly moving forward on the triple-bottom-line approach, and spends a lot of effort and money on conservation, the environment, community engagement and social outcomes. It has developed advanced methods in these areas, which it deploys in Australia and publishes for others to adapt and use. Other companies and industries are learning about Toyota’s best practices in Australia and are adapting these practices into their own operations.

Bosch

The Bosch Group, headquartered in Germany, is a global supplier of technology and services. In the areas of automotive and industrial technology, consumer goods, and building technology, some 271,000 associates generated sales of €46.3 billion (approximately $75.9 billion) in 2007–08. The Bosch Group has more than 300 subsidiaries and regional companies in roughly 50 countries.

Bosch employs over 2,300 associates in Australia and New Zealand, with activities spanning the three business sectors listed below. The regional headquarters, which has had manufacturing operations in Australia since 1954, is located in Clayton, Victoria. This site has been implementing the global company initiative, the Bosch production system, similar to the Toyota production system, since 2004. For Bosch worldwide, the production system has led to the development of other systems including an engineering system, a sales system, and an HR system. These systems have also been deployed in Australia and rolled across from automotive into other industries that Bosch serves, thus acting as a form of internal spillover.

Business sectors of Bosch Australia

1. Automotive technology – Bosch performs design, development, application and manufacturing of automotive components and systems for domestic and export markets. Bosch also distributes products for the automotive aftermarket.
2. Consumer goods and building technology – Bosch distributes products from a portfolio consisting of power tools, household appliances, gas hot water systems and security systems.
3. Industrial technology – Bosch Rexroth, part of the Bosch Group, provides design engineers with motion control products, machine automation and applications engineering.

Spillovers

Innovation Insights program

Bosch is an active partner in the Innovation Insights program, an initiative of the Victorian Department of Innovation, Industry and Regional Development. This program gives businesses the opportunity to visit Victoria’s leading manufacturers and learn about world best practice. Robert Bosch Australia has been implementing the Bosch Production System (‘lean manufacturing’) for a number of years now. As part of the global Bosch network, it is able to source lean manufacturing best practices from other Bosch plants around the world and implement them in Australia. In April 2008 Robert Bosch Australia hosted its Innovation Insights open day to demonstrate to and exchange lean manufacturing ideas with visitors from other enterprises. Visitors could learn about lean tools such as 5s, visual systems, milk runs, supermarkets, customer tact and effective problem solving. Thirty-nine attendees visited Bosch from different business sectors including automotive, pharmaceutical, health and human services, finance, aerospace, food, beverage and general manufacturing.

The automotive industry was the pioneer of ‘lean manufacturing’, with a philosophy that aims to continuously improve a company’s efficiency and competitiveness. Programs such as Innovation Insights, allow other industries to benefit from the spillover of knowledge and experience in best practice and optimal processing gained in the automotive industry.

Internal Robert Bosch Australia spillover

Bosch’s experience in the automotive sector, in particular lean techniques, is spilling over into other parts of its distribution business (such as consumer goods), with logistics efficiencies, planning and warehousing techniques.

Employment and skills

The shortage of skills in the Australian employment market has led to an outflow of Bosch Automotive Technology personnel with experience in lean techniques, industrial engineering and process engineering into sectors including finance, aerospace, mining and other general manufacturing industries. For example, Bosch cites instances of its engineers moving into finance, mining and aerospace companies, as well as starting independent consulting firms, specifically to apply their lean production knowledge gained from within Bosch. These other sectors are benefiting from best practice knowledge learnt in the automotive sector.

Bosch has established a Bosch Learning Centre in Australia, in which it conducts a large amount of training. A certificate IV program has been partly created in partnership with Kangan Batman TAFE, which brings staff on-site to co-develop knowledge, the curriculum and materials. The exchange of knowledge between Bosch Australia and the TAFE is a clear example of knowledge spillover, forming part of programs rolled out to other industries.

Supplier development programs

Bosch helps its local suppliers with logistics effectiveness support, and also assesses its suppliers on total cost of supply and on quality. This assists suppliers (for example, Tier 3 firms) to develop, and these skills can be used in sectors outside the automotive industry. Bosch uses its own expert logistics and supply chain expertise, and uses lean management practices to assist its suppliers to improve their lean capabilities.

Other spillovers

The special-purpose machine building division builds equipment for automotive and other industry technology manufacture. The division sources materials and services outside of the automotive sector – for example, electrical, mechanical, software design, and manufacturing – to construct new machinery and technological solutions for the company.

Other (smaller) manufacturing industries sourcing from automotive suppliers such as Bosch leverage from existing and developed attributes derived in the automotive industry including quality standards, just-in-time delivery, and competitive global pricing.

Broens

Broens is an Australian privately owned company, established in the late 1970s, offering advanced design, precision manufacturing and engineering solutions, and serving the automotive and a number of other sectors. Its range of products includes the production of tooling, components and special purpose equipment. As part of that, Broens has developed its own significant IP in power steering systems.

Incorporating the latest technology, Broens’ core capabilities include turn-key project management, innovative design, 3D modelling software, mechatronics, automation, and advanced manufacturing. The company prides itself on its high standards of quality control and its strong investment in the development of its 185 staff. These are essential ingredients to be competitive as a supplier to the automotive sector. From those roots, Broens branched into other sectors on the back of these advanced capabilities.

Broens’ manufacturing shopfloor in Sydney is spread over some 12,000 square metres. It conducts tooling design and manufacture, pressed metal operations, stamping, machining and assembly including mechanical, electrical, pneumatic and hydraulic systems. According to the Managing Director, Mr Carlos Broens, “We build special purpose equipment for Tier 1 and 2 suppliers. We design and build our own machines for the power steering industry and we also produce components”.

Spillovers

The engineering base at Broens came from its general precision and automotive industry participation and then spilled over into its work in the aerospace, marine, mining and Defence industries. Mr Broens asserts that without his company’s experience in the automotive industry, their engineering capabilities would be limited. Those spillovers were part of a deliberate diversification strategy, as the automotive sector has become very price sensitive and ‘China-dominated’ due to their cheap cost of labour. As a result, profit margins in the automotive sector were reduced, leading Broens to adopt a strategy of diversification into other sectors starting with aerospace and then developing into the marine, mining and defence sectors.

The quality system, which was developed and established by Broens as an automotive manufacturer, was a significant spillover and a cornerstone for Broens’ success in other sectors. The automotive sector has the most rigorous quality requirements and process standards, and this experience was invaluable when working in other industries.

In the aerospace industry, the lessons learned and skills developed at Broens through its involvement in the automotive sector have clearly been transformed for the new requirements, and are used for carbon fibre products and assembly fixtures. With computer numerically controlled machining capability of up to 18m x 6m, and an international support network, Broens has moved significantly forward in aerospace, based on its automotive beginnings.

In the marine sector, Broens focuses on the significant yachting market, where it produces keels and bulbs. Using specialist materials, Broens delivers differentiated design and products, up to 18m in length and 30 tonnes in weight; and based on its automotive experience, it produces these products to tolerances of +/- 0.1mm. Broens also offers fully machined forged steels and stainless steel structures to its customers.

Broens has benefited from taking its capabilities into the mining sector by producing exploration and drilling devices. Broens is undertaking mass production of drilling components in this industry. Broens is using the manufacturing excellence and design capability derived from its work in the automotive industry for the challenges of this intense and specialised field.

Defence sector clients have also benefited from Broens’ automotive-developed expertise. Based on its automotive knowledge, Broens has sold engineering services in the defence sector, and designed and built special-purpose equipment and vehicle systems. It has also produced components for weapon systems, and added to its portfolio vehicle-based systems such as ground support equipment and aircraft loaders.

Mr Carlos Broens indicated that the spectrum of spillovers that were adapted from automotive to other sectors is wide, and includes other expertise in areas such as software, hydraulics and electronics.

On the skills front, Broens can point to some interesting human capability spillovers. As the shortage of skills presented a barrier to further growth and diversification, the company engaged in ‘accelerated training’ of its staff. Some 28 percent of Broens’ workforce are apprentices, representing a very large proportion of total staff. Broens established a partnership with TAFE NSW for that purpose, and these skills-building efforts spill into other industries through staff turnover. TAFE courses are delivered on site using a dedicated training area and a classroom facility. TAFE teachers on Broens’ site benefit from having access to the latest equipment, technology and cutting-edge methods. The firm hosts apprentices from other companies on its site, who are trained alongside Broens’ staff and apprentices. These companies include Qantas, Goyen Controls and Nepean Engineering. This is a clear and valuable skill and knowledge spillover.

EDAG Australia Pty Ltd

EDAG Australia Pty Ltd is a subsidiary of EDAG GmbH & Co. KGaA. The German parent, with 5,000 employees in 30 locations globally, is the largest independent engineering services company in the automotive sector. The group has annual sales of €700 million ($1.1 billion), comprising 80 percent from the automotive sector and 20 percent from the aerospace sector. Most of the aerospace work is for a European aircraft manufacturer. The global parent is a full-service supplier to the automotive industry, performing both product development for cars, and developing production equipment for manufacturing cars and trucks. Recent full-car projects include a midsize upper class vehicle for a German manufacturer and a station wagon variant for a French manufacturer. Similarly, the company undertakes product development for the aerospace industry. For some projects, a significant proportion of the work involves coordinating a number of contractors and managing the overall project, rather than doing a lot of the engineering in house.

The company entered the Australian market in 1999. Annual turnover is $20 million, which is about 2 percent of that of the global group. The local company does product development work in the automotive sector, and diversified into aerospace and defence work in 2006. Aerospace and defence work is now about 10 to 20 percent of turnover. The company expects this to grow to 50 percent of its work in two years due to a combination of declining automotive sector work, and increasing work in the other sectors. If the automotive sector work drops below 50 percent, it may not be viable to continue the Australian operations.

Work

EDAG works on all parts of the car except the chassis and drive train (for example, body panels, front bumpers, wheels, cockpits, etc.). The basic process involves an industrial designer giving EDAG a picture of what is wanted, and EDAG engineering it to make it ready to manufacture. For a bumper, for example, EDAG will start with a concept, and then engineer it so that it accommodates all the lights, has adequate airflow for the radiator, and provides adequate impact protection.

The company’s second area of work is in the modernisation of military hardware. Currently this work is exclusively for the Australian army, though EDAG hopes to move into naval and air force work in the future, as it builds competence in working with the military. The army has many vehicles that are up to 40 years old that need to be fitted with new equipment. Because very few military vehicles are identical, the typical production run for one of these retrofit items is 20–40 units. This is about the same size as a typical production run for a prototype. Consequently, the company is well positioned to do this sort of work. Furthermore, for larger production runs (more than 100 units) it is relatively easy for EDAG to outsource the final production to another firm with a higher level of automation.

As noted, EDAG hopes to move into naval work, an industry that has retrofit work and also work engineering the installation of equipment onto new ships. The interface between that equipment and the ship also has to be engineered. EDAG sees an opportunity in naval work, but the local purchaser (the Defence Materiel Organisation) is reluctant to require the overseas prime supplier to use local capabilities. This is a major barrier to spillovers into this sector. Similar work is presumably available for the air force, though the existing suppliers in that sector are well set up to meet this need.

EDAG does two types of work in the aerospace sector. First, it does one-off design and engineering for VIP planes. For instance, VIP planes may have several fittings such as beds and LCD screens. The connections between those fittings and the airframes will need to be engineered to meet safety requirements, vibration needs, and so forth. Second, EDAG recently bought a business in Brisbane to do turnkey refurbishment of the interior systems of aeroplanes. The idea is to provide a one-stop shop that can support several of the local airlines, and enable them to avoid having their own interior workshop. When a plane comes in for major mechanical maintenance, EDAG will pull out the entire interior at the same time, repaint it, and repair or replace all the equipment before putting it all back looking newer and fresher. Replacements and repairs of interior components often require specialist engineering and fabrication. The potential clients include small local airlines (such as Rex and SkyWest) as well as individual owners.

Knowledge spillovers

There are two ways in which knowledge spills over from automotive work to other work. The first is that there are some types of work that EDAG does in other sectors that is premised on its work in the automotive sector. That is, it could not do the work if it did not have the experience in the automotive sector. This is the case for all their work in its aerospace sector. Because this is a highly regulated and mature industry, EDAG’s entry does not involve the introduction of new capabilities to that sector (unlike the military refurbishment example).

Second, EDAG was able to enter the military retrofit market because it has well-developed project management techniques that originate from work in the automotive sector. Because the automotive sector is so competitive, it has methodologies for designing, prototyping and refining products and for managing the project so as to ensure it meets the launch window, usually under cost. These are attributes that are attractive to defence procurement officers, since defence contractors have not previously had a strong time and cost focus. When persuading the military to adopt new project planning techniques, it makes a huge difference to be able to point to a local car manufacturer doing these things. EDAG is getting increasing amounts of defence work, which suggests that what it has to offer is valued.

Secondary knowledge spillovers and barriers to knowledge spillovers

There have been knowledge spillovers to EDAG’s suppliers in the sense that the company has moved the suppliers into the defence and aerospace markets. EDAG is not aware of its work in the automotive sector leading its suppliers to develop new skills and capabilities that are used beyond the sector. However, that does not mean it is not occurring.

The main barrier to the spillovers has been learning how to deal with the new industry sectors. In the aerospace sector, especially its refurbishment work, EDAG has needed to be more meticulous with its documentation and teach its engineers and tradespeople this discipline. EDAG has found entry into the defence sector difficult. In the early stages of its work in the sector, EDAG was in a joint venture with a company with extensive military experience. The difference in the mindsets of the engineers in the two industries was profound, and proved almost impossible to work around. Subsequently, EDAG abandoned the partnership. Similarly, procurement in the two industries is dramatically different. In the automotive sector, a $7 million contract will typically have a 20-page specification, and many of the other details will be transferred in computer-aided design files. In defence, a $150,000 contract may run to 150 pages. EDAG’s engineers and tradespeople find it challenging to carefully read a 150-page contract in order to extract what is actually required of them. It has taken EDAG considerable time and effort to learn how to work with the military.

Marand

Marand began its metal cutting and tool making in the automotive industry, working initially for Holden some 40 years ago. Director and owner Tony Ellul notes that “[t]he knowledge and expertise from car engine manufacturing has directly led and allowed us to compete and prosper in other industries recently, such as aerospace and rail”.

Marand has developed and retains its ‘precision capability’, and that is part of what spills over into other industries and spurs growth. Marand develops proprietary knowledge, first and foremost in automotive, and then transfers this into other industries and activity streams. It has now matured to the point where spillovers are also flowing back into its automotive industry work from its newer businesses.

Spillovers

Rail industry spillover

Rail was the first example of a ‘new’ industry Marand entered based on its expertise developed in the automotive industry. Maintenance support of rolling stock is a substantial task, requiring large pieces of complex equipment. Marand created a subsidiary, Atlas Rail, which designs, manufactures and installs commissions such as maintenance systems. These systems of equipment used to be imported, leading to enormous economic value derived from import replacement. Marand has clients all over Australia, including Queensland Rail, BHP Billiton, Rio Tinto and Fortescue, which are all operators of rail systems.

Tony Ellul notes, “Our ability to create the rail businesses came directly from our knowledge gained in automotive over the years”. Rail customers are now wanting not just the hardware, but ‘full turn-key solutions’, and Marand is now using its knowledge gained from the auto sector to implement lean operations in maintenance for mining clients, which is another clear form of knowledge spillover. Atlas Rail has created jobs, value-added and localised what was previously imported expertise and equipment.

Marand has also sold these equipment and maintenance systems into passenger rail networks, for example in New South Wales. This business has also developed further by winning orders from light rail, and trams operator customers.

Aerospace spillover

Diversification was a deliberate business strategy for Marand, because the automotive industry in Australia is ‘lumpy’ for precision toolmaking companies. Marand took its capability to other industries such as aerospace, and in the past five years, Marand has become a Tier 1 supplier to Boeing in Australia. Tony Ellul has taken senior Boeing executives to visit Ford in Australia to clearly demonstrate first hand how smoothly work can flow, using equipment built by Marand. Marand now has contracts with the Joint Strike Fighter for maintenance equipment tools and systems. There is a multimillion system being used on the Joint Strike Fighter prototype. Marand is also now a Tier 1 supplier to Lockheed in the United States. Discussions are under way to lock in a long-term contract (until 2036). This would mean establishing facilities in the United States and Europe and becoming a global supplier, based on the expertise generated in the automotive sector that exists in its Moorabbin facility. Due to its success with the Joint Strike Fighter program, plans and discussions are under way for Marand to participate in two other programs in the aerospace sector including work:

• with and for Boeing, with assistance from the Office of Australian Industry Capability, which involves Marand exploring new developments; and
• with EADS (Airbus and Eurocopter), which is developing a similar program of working with a global corporate procurement team to build opportunity.

According to Tony Ellul, “[a]ll this was based on automotive derived capability”. Ten years ago Marand was an 85 percent automotive sector supplier. This reduced to 45 percent in 2008, due to spillovers and growth in other industries.

People and training

Marand has an apprentice program, and knowledge spillover occurs when some of these apprentices eventually leave and set up businesses elsewhere. Holmesglen TAFE teachers have been stationed at Marand to learn and develop courses.

Marand also has agencies it operates for imported equipment, in which knowledge gained from automotive work is applied to other industries, including food, plastics, construction, building materials, timber, and robotics applications elsewhere, all based on the automotive core. As an agent of foreign manufacturers, Marand has used its experience with that equipment gained from the automotive sector, to then find applications and sales and service contracts in those other industries. In other words, just as Marand spills over its application of proprietary knowledge on the products that it designs and produces in house and through its supply network, so too does it work this way in (spillovers from) third-party equipment made overseas.

Marand points out that it is because of the small automotive industry in Australia that firms such as Marand must diversify to survive and prosper. A large automotive industry such as Japan’s allows firms to grow and be robust just by supplying automotive customers, but this is not the case for Australia. Marand frequently uses subcontractors, and it claims that the skills and knowledge that it passes on to its many subcontractors also ‘spillover’ into other sectors.

A recent spillover at Marand is project management and program management knowledge, which was first gained in the automotive sector. Marand can and does now work in other industries using this expertise. This skill allows it to move from Tier 1 status in the automotive sector to become Tier 1 in the Joint Strike Fighter program, and other similar projects. It also gives Marand the program management capability to build Tier 2 networks in aerospace as it had learned to do in the automotive sector.

Benefits from spillovers

These spillovers have been an integral part of a story of growth and profit for Marand. In the past 10 years the company has grown from 75 people and $8.5 million turnover with no exports and 85 percent automotive industry work, to be much larger and stronger. It first became a Tier 1 supplier to Ford. As a system integrator, Marand produced total turn-key design and integration for Ford, Barra, Orion and Territory models in recent years. By 2007 Marand had 195 employees, with $50 million turnover of which 45 percent is automotive related. Marand’s exports are 25 percent of its business and growing. It is also a profitable business.

This strong performance has come from a change of strategy in the past decade, from an internal focus to a wider network of Tier 2 and 3 supply chain partners supplying various Marand customers. This is another form of spillover, to create, build and strengthen other companies up the supply chain, through auto and other work. Marand helps these partners in win-win relationships, through knowledge and skills gained by the company. About 100 people in other companies are working directly on Marand contracts.

In summary, spillovers at Marand have been a key source of growth, such that 70 percent of its business services and products come from new offerings that it did not have when it was a pure automotive industry supplier a decade ago. This has been based on core capabilities of flexibility and innovation.

OzPress

OzPress commenced operation as K&K Fasteners in 1970 in a converted parachute-drying hut at the Ballarat airport. During the early 1970s the business expanded and spread into an adjoining aircraft hangar, which housed the industrial metal presses. The demands of international competitiveness saw the business relocate in 1989 to the current facility at the Wendouree Industrial Estate. Through the mid-2000s, the company was in two lines of business – pressings and wiring looms for trucks. The business grew, but OzPress started to lose the wiring loom work (presumably to overseas competitors). After a change in the ownership structure in 2005, it started to trade as OzPress Pty Ltd and moved exclusively to pressing, welding and small assemblies. The company currently employs 29 people, of whom 23 work in production.

Clients

The company has four major clients and a number of minor ones. Fifty-six percent of its work is directly for Toyota (that is, as a Tier 1 supplier). It has been with Toyota ever since Toyota started producing in Australia.

Fifteen percent of OzPress’s work is for Dana Pty Ltd, and 9 percent is for Cooper Standard (Australia) Pty Ltd. Dana produces drivetrain subassemblies (that is, axles, differentials, suspension modules), and Cooper Standard manufactures vehicle components, particularly lubrication systems, noise control and vibration systems, and other body and chassis products. For these companies, OzPress provides pressings that are then incorporated into larger assemblies. Dana, Cooper Standard, and other sub-assembly manufacturers have pressing operations of their own. OzPress hopes to expand its business by taking this work over from them, so they can focus on assembly.

Fourteen percent of OzPress’s work is for Victa Lawncare Products, principally making parts for lawnmowers. Victa used to press its own parts in house, and then decided, in about 1999, to outsource the work. OzPress received contracts for a number of the small parts, while the larger parts went to other manufacturers, such as G&A.L. Harrington. As with the automotive work, most of OzPress’s work is on pressings and small welded assemblies (for example, a single nut welded on a pressed plate). Most of OzPress’s work is for high-end machines (such as ride-on mowers).

The remaining 6 percent of the work falls into two groups. A big part of it is parts and accessories, generally for the automotive industry. Typically this involves pressing a small number of units of a part that the company has pressed in the past – for a vehicle model that is not manufactured anymore. The remainder is small runs for some niche clients such as Hella (vehicle lights) and Stratco (footing plates for outdoor pergolas). The company is also looking to expand into other industries, particularly parts for minerals processing equipment.

Work process

A typical job will begin when OzPress is contracted by a client to manufacture a part. The client will provide OzPress with a drawing and a specification. OzPress will then approach a toolmaker (its current toolmaker is in China), who will make a tool that can be used to manufacture the part. That tool will be the property of the client, not OzPress. However, OzPress will be retained to use that tool to stamp out the designated part for as long as the client wants (generally for the life of the product).

The company generally wins contracts for one or two new parts each year. In a recent Ford model, the company was asked to produce four different parts for supply to Cooper Standard. The company produces over 30 parts for the current Toyota Camry and Aurion.

Knowledge spillovers

One of the main knowledge spillovers is from the automotive work to the work for Victa. In the narrow sense, all the work for Victa is predicated on automotive work, in that they use the same basic technology for both industries, and were in the automotive sector first. Without the automotive work, the company would not be viable.

More broadly, the company’s relationship with Toyota has meant that its quality and efficiency are constantly improving. It applies the same efficiency and quality improvement techniques to its Victa work, and in so doing, reduces cost and increases quality there too. OzPress uses the Toyota procedures for the Victa work for two reasons. First, it means it has lower cost and higher quality. Second, it means OzPress has consistency in operations and management throughout the company.

One area where OzPress has improved dramatically is in the commissioning of new parts. In the past, OzPress would be sent a design from the toolmaker, in order to make some trial parts. If the parts were out of specification, OzPress would tinker with the tool until they were within specification, and then it would accept that tool and begin production. Such a tool, however, would be ‘buggy’. That is, it would have defects which meant that it generated difficulties in manufacturing or the occasional out-of-specification part.

In contrast, in the Toyota system the project is managed more carefully and systematically, from concept design, to tooling, to the procedure for running the new tool. Every tool goes through three testing (and modification) phases to make sure it is right, including running it at the full production rate for a period. Consequently, when the part goes into scale production, it can reliably produce to the specification for long periods of time. These skills gained from the Toyota production system have given OzPress the necessary capability to make high-quality tools from concept to production. These skills can be applied in other non-automotive sectors in which OzPress operates.

More generally, Toyota gives OzPress cost and quality targets and then teaches it tools and techniques to meet them. Those tools and techniques are spread throughout the business.

A third domain for knowledge spillovers is through their suppliers. The company’s main suppliers are Toyota Tsusho (steel and nuts), Excellent Plating and Alliance Electroplaters (painting and coating), Coldforge Products (rivets and bolts), and its toolmaker. With the exception of Alliance Electroplaters, Toyota does not interact with the suppliers. Rather, it simply expects OzPress to ensure that its standards are met. The effect, however, is that OzPress teaches its suppliers about the Toyota production system. In the case of Alliance, Toyota is very concerned about environmental emissions from electroplaters, and so it has an ongoing accreditation program, even though it is a second-tier supplier.

Another domain for knowledge spillovers is through plant visits from other companies. They have one or two a year. For example, in 2008 a group of 17 people from the Tasmanian Food Association came through, brought by the Tasmanian Government and the Victorian Innovation Insights program. Visitors included representations from a potato chip manufacturer and an abattoir. OzPress was able to demonstrate the skills that Toyota has taught so the visitors could get ideas for their own plants. In 2007, it had a group through as part of manufacturing week.

The company has joined a benchmarking group that principally involves mining suppliers. The group aims to travels overseas to look at other companies and facilitate knowledge transfer between participants on those trips.

The University of Melbourne Department of Mechanical Engineering

The principal interviewee for this case study was Dr Michael Brear, who is a senior lecturer in the Department of Mechanical Engineering, where he is involved in teaching, researching, and consulting in the areas of thermodynamics and fluid mechanics. The department undertakes a range of consultancy work for the automotive and other manufacturing industries. Another group in the department also does research within the automotive sector, focusing on the dynamics of mechanical systems. In particular, they have done a lot of work on automotive braking. More generally, the department has depth in the traditional areas of mechanical engineering including dynamics, fluid mechanics and design. It does not have much depth in production engineering, industrial engineering and supply chain management.

Spillovers from the Department of Mechanical Engineering occur on three levels. At the first, the department teaches students fundamental analytic capabilities that are independent of the domain of study. For example, undergraduate students learn how to analyse problems systematically. Postgraduate students learn how to design, carry out, and write up experiments. At the second level, there are spillovers within the specific domain of study. That is, the basic engineering principles of thermodynamics and fluid mechanics are fundamentally built from the laws of physics. Those principles find use outside the automotive sector. At the third level, there are particular technical artefacts and techniques produced for the auto sector that have application in other domains.

Level 1 spillovers – spillovers of generic engineering skills

These spillovers arise because the automotive industry provides a useful context for studying thermodynamics and fluid mechanics. The theory is generic to mechanical engineering, and so is no more specific to the automotive sector than to any other sector that might inform the work of the department. However, the fact that there is a local automotive sector means that the faculty are able to make the theory meaningful for students in many ways – particularly by bringing in examples from their research and consulting, and by holding up the carrot of possible employment. Further, the local original equipment manufacturers take on undergraduate students for so-called ‘co-op’ years in which students take a year out from their studies and work full time within the company with equivalent responsibilities as graduates. This program has proven very successful educationally for the students and universities. The important things students learn are generic skills. They take them with them wherever they get work. For example, many students go to work in banking and financial services or management consulting in addition to traditional engineering disciplines.

Level 2 spillovers – spillovers of thermodynamics and fluid mechanics

Because of the strong research and consulting links to the automotive sector, the sector informs both undergraduate and graduate training in thermodynamics and fluid dynamics (in the case of the interviewee’s research group) and dynamics of machines (in the case of the other research group). The faculty and students then develop expertise in thermodynamics and fluid mechanics (or dynamics of machines) and can apply them to any engineering problem that is relevant.

For example, the group that does research on automotive braking has recently been consulting to and researching with precision machine tool manufacturers. The facilities and capabilities developed by the group while undertaking automotive research and consulting has been enabling its research and consulting to these other industries.

Similarly, the basic principles of fluid mechanics and thermodynamics are of fundamental importance to all aspects of combustion. As such, students of thermodynamics and fluid mechanics can apply what they learn to power generation technologies such as gas turbines, boilers, wind turbines and solar collectors. Similarly, they can use this learning in all aspects of transportation including internal combustion engine design (petrol, diesel, hydrogen, natural gas), jet engine design and hybrid power systems. So, for example, recent consulting clients of the department have included a manufacturer of small jet engines, a truck manufacturer, and chemical engineers who wanted to make gasoline from methane, and wanted to generate electricity from the process.

These spillovers also take a much more concrete form, as spillovers of specific technologies within the research laboratory. In particular, the software or hardware tools might be developed or purchased for automotive work, and then used in research for other areas of applied thermodynamics and fluid mechanics such as gas turbines.

Level 3 spillovers – specific artefacts

These spillovers involve the creation of specific artefacts within the automotive sector, and then their application to other sectors. They fall into two subcategories. The first group involves domains in which the basic engineering disciplines apply, but in which the automotive sector is ahead of other sectors. For example, automotive engine designers, who are trained by the university, can apply their extensive experience of making products cheaply and reliably into sectors such as aerospace, where traditionally the engineering is more focused on device performance rather than device performance for a given cost. Just as road vehicles are becoming more technologically advanced, so too are aircraft being forced to become cheaper and lighter because of competition, and the spillover between these industries is often two-way. In as far as another sector finds there is need for these capabilities, then knowledge can be expected to spill over from the automotive sector to the other sector.

The second group involves the transfer of specific artefacts from the automotive sector to other sectors. For example, because of the competitive pressure, and the amount of engineering effort that goes into their design, automotive engines are very well engineered and very efficient. Certain Australian-built engines, while too heavy to enable lower fuel consumption for passenger vehicles (because they have cast iron blocks) are nonetheless very efficient, and therefore have many potential applications as a stationary power source. As such, they potentially have enormous use as stationary engines outside of vehicles. An automotive engine can be reconfigured to produce about 30 kilowatts of power very efficiently; more efficiently than, say, gas turbines. This particular spillover has not occurred extensively in the past because vehicle manufacturers generally build their engines only for use in cars, and minimisation of greenhouse gas emissions is only now becoming a strong business incentive.

There are a number of applications in which these engines are either used or could be used. For example, instead of running its air-conditioners electrically, a hospital might use an automotive engine (running natural gas or LPG as the fuel) to run the compressors in its air-conditioning system. It could then capture the heat from the engine exhaust, and use that to boil water and so raise steam for heating or its laundry. This approach to air-conditioning generates much lower levels of greenhouse gases than using centralised power from coal-fired power stations, and more generally is referred to as ‘cogeneration’. Indeed, cogeneration is already being used extensively in Europe and the United States to achieve large reductions in carbon emissions from such applications.

The potential spillover is enormous. Five percent of the electricity used in the industrial world is used to compress air. Ten to 20 percent of Australia’s greenhouse gas emissions come from heating, ventilation and air-conditioning systems.

APPENDIX G:
COMPARATIVE IN-SERVICE EMISSIONS TESTING

Vehicles

Ford Falcon AU 2001 station sedan bi-fuel retrofit venturi gas system.

Odometer 95,000 kilometres.

Holden VS Acclaim 1996 sedan bi-fuel retrofit venturi gas system.

Odometer 215,000 kilometres.

Test cycle Euro 3 in both cases (ADR 79/01 Type 1 test).

Fuel commercially available.

Mechanical tune: basic check for original specification and fuel functionality and original exhaust catalyst still retained. Test performed in June 2008 using a National Association of Testing Authorities laboratory.

Table G.1 Comparative in-service emissions test using ADR 79/01 cycle, ULP vs LPG

Ford Falcon AU Futura wagon 4.0L SCT 269 odo 95,154
FUEL	HC: g/km	CO: g/km	CO2: g/km	NOx: g/km	Combined cycle L/100 km
ULP	0.479	2.606	270.9	1.509	11.54
LPG	0.173	0.994	240.95	1.29	14.89
Holden vs Acclaim sedan 3.8L PDT 166 odo 213,942
ULP	0.525	4.216	278.77	2.365	12.46
LPG	0.479	6.724	247.63	1.658	15.91

Notes:

All fuels used were from the retail sector (standard pump fuels).

Both the 2001 AU Falcon and 1996 VS Commodore were fitted with standard fumigation systems, Parnell/IMPCO.

To achieve a direct comparison the latest ADR 79/01 test method was used (Euro 3 level).

When reviewing the results, both vehicles passed their relevant ADR requirement for their date of manufacture but failed current 79/01.

The CO2 gains were both over 10%.

Important to note the kilometres of both vehicles highlighting the benefits of older installations being installed.

Both vehicles have their original catalytic converters.

No optimisation was carried out on either vehicle prior to the test. Both vehicles had mechanical inspections ensuring both fuel selection and vehicle/engine performed satisfactorily.

Source: LPG Australia.

APPENDIX H:
GOVERNMENT FLEET PURCHASING ARRANGEMENTS

	Prefer Aust. made?	Target and date	8- cylinder	6- cylinder	4- cylinder	LPG	Hybrid	Other	Comment
Australian Government	Yes	Increase proportion of fleet vehicles with scores in top half of the Green Vehicle Guide (GVG) (10.5 or greater) from 18% to 28%
Queensland		Annual emissions from QFleet will be reduced by: 15% by end of 2010 25% by end of 2012 50% by end of 2017 Referred to a 30/6/2007 benchmark. Minimum 5.5 GVG greenhouse rating for passenger vehicles. Minimum 3.5 rating for light commercial							Choice of vehicle based on emissions rather than number of cylinders. Proportion of diesel, hybrid, microlight and small vehicles in passenger fleet to increase by 50% 80% of light commercial fleet will use diesel or LPG. Petrol vehicles to use E10 when available.
New South Wales		Each agency to achieve an average score for its vehicles of 12/20 by end of 2007–08. 20% reduction in emissions by 30 June 2008 (2004–05 baseline)	No, except in specific cases				At least 1% of agency fleet to be hybrid		E10 to be used where available
ACT		10% fleet will comprise fuel efficient, low emissions vehicles (four star or higher in GVG) by 2008.	No	Phasing out, unless required for specific cases	Preferred		Has small fleet
Victoria	Yes				Required for >30,000 km/year	Required for >30,000 km/year.	Committed to a fleet of 150 hybrid vehicles
Tasmania		All passenger vehicles to meet GVG Greenhouse rating of 5.5 or better by 2010. All light commercial and 4WD vehicles must meet rating of 3.5 or better by 2010.
South Australia	Yes	SA Tackling Climate Change Strategy states that the SA Government will “reduce emissions from the government vehicle fleet by converting 50% of state government cars to lower emission fuels by 2010; and reduce emissions generated by government travel by applying greenhouse friendly corporate travel policies for the location of government workplaces, commuting, aircraft and taxi use, and vehicle salary packaging.” The Climate Change and Greenhouse Emissions Reduction Act 2007 also sets a South Australian target “to reduce by 31 December 2050 greenhouse gas emissions within the State by at least 60% to an amount that is equal to or less than 40% of 1990 levels as part of a national and international response to climate change”.				37% of passenger and light commercial vehicles operate on lower-emissions fuels	Has small fleet of hybrids		Lower emission fuels include conventional fuels used in efficient power trains such as hybrid vehicles and high efficiency common rail diesel engines.
Western Australia			No	Allowed for specific cases	Preferred	25% of 6-cyclinder vehicles to be on LPG	Will purchase hybrid fleet	Will use alternative fuels in fleet	New strategy being developed.
Northern Territory		Reduce emissions from government passenger fleet by 5% per kilometre travelled by June 2007 (2003–04 levels)

APPENDIX I:
STATE AND TERRITORY STAMP DUTIES AND REGISTRATION FEES — INDICATIVE EXAMPLES

Jurisdiction	Stamp duty arrangement	Stamp duty amount	Initial registration (one year)	CTP insurance	Total cost (est.)
New South Wales	3% of the new car price including GST up to $45,000 and 5% for any amount that is over $45,000	$900.00	$303.00	$334.00	$1,537.00
Australian Capital Territory	3% of the new car price including GST up to $45,000 and 5% of each dollar over $45,000	$900.00	$264.50	$386.75	$1,551.25
Victoria	2.5% of the new car price up to $35,000 – 4% of the total new car price when between $35,000 and $45,000 and 5% of the total new car price when over $45,000	$750.00	$172.80	$391.60	$1,314.40
Western Australia	2.75% of the new car price up to $15,000 – a sliding scale between $15,000 and $40,000 from 2.75% to 6.5%, and 6.5% for every dollar over $40,000	$1,275.00	$259.60	$225.23	$1,759.83
Tasmania	3% of the new car purchase price up to $35,000, 11% for every dollar between $35,000 and $45,000 and 4% for every dollar over $45,000	$900.00	$230.45	$338.00	$1,468.45
Queensland	2% of the purchase price for hybrids, 3% for 4 cylinder vehicles, 3.5 for 6 cylinder vehicles and 4% for V8s and above	$900.00	$272.05	$285.20	$1,457.25
Queensland (based on a new $30,000 Toyota Camry Hybrid)	2% of the purchase price for hybrids	$600.00	$163.95	$285.20	$1,049.15
Northern Territory	3% of the new car price including GST	$900.00	n/a	$426.30	$1,326.30
South Australia	$60 for the first $3,000 of the new car purchase price, and 4% of the total dollar amount exceeding the $3,000	$1,140.00	$113.00	$371.00	$1,624.00
National average		$958.13	$230.77	$344.76	$1,533.66

Notes:

Table based on a new $30,000 passenger motor vehicle, 4-cylinder, under 1.5 tonnes, and purchased for non-commercial purposes.

Insurance premiums were provided by the relevant authority in each state or territory and are based on a new Commodore, garaged in the capital city, with a driver aged 40 years as at 1 October, 2006.

Initial registration includes mandatory costs such as transaction fees, vehicle inspections and licence plates.

APPENDIX J:
KEY AUTOMOTIVE STATISTICS

This Appendix contains extracts from Key Automotive Statistics, published annually by the Department of Innovation, Industry, Science and Research. It can be viewed at www.innovation.gov.au/Industry/Automotive/Pages/AutomotiveIndustry.aspx

Motor vehicle sales in Australia

Table J.1. New motor vehicle sales in Australia, 1994 to 2007

Year	Passenger		Light trucks/ SUVs		Heavy trucks		Total
	Units	(%)	Units	(%)	Units	(%)	Units	(%)
1994	460,698	74.8	137,252	22.3	18,336	3.0	616,286	100
1995	488,372	76.0	136,449	21.2	17,736	2.8	642,557	100
1996	492,058	75.7	142,830	22.0	15,161	2.3	650,049	100
1997	540,353	74.8	165,711	22.9	16,578	2.3	722,642	100
1998	584,360	72.4	203,941	25.3	19,368	2.4	807,669	100
1999	547,575	69.6	218,848	27.8	20,422	2.6	786,845	100
2000	553,673	70.3	213,571	27.1	19,856	2.5	787,100	100
2001	529,452	68.5	224,270	29.0	18,959	2.5	772,681	100
2002	540,240	65.5	262,937	31.9	21,132	2.6	824,309	100
2003	588,511	64.7	297,167	32.7	24,133	2.7	909,811	100
2004	589,985	61.8	336,763	35.3	28,481	3.0	955,229	100
2005	608,804	61.6	348,170	35.2	31,295	3.2	988,269	100
2006	598,394	62.2	332,638	34.6	31,634	3.3	962,666	100
2007	637,019	60.7	375,732	35.8	37,231	3.5	1,049,982	100

Source: VFACTS, retail sales

Table J.2. Total market share, by marque in Australia, 1994 to 2007

Marque	Market share (%)
	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Toyota	20.6	18.8	18.6	17.4	19.6	19.5	20.2	18.3	19.2	20.5	21.1	20.5	22.2	22.5
Holden	18.8	19.2	19.2	16.6	19	19.7	19.7	21.4	21.6	19.3	18.6	17.7	15.2	14
Ford	20.3	21.5	20.3	18	15.9	16.1	14.5	13.8	13.2	13.9	14.2	13.1	11.9	10.3
Mazda	5	4.4	4.1	4.3	3.4	3.4	3.5	4.4	4.7	5.8	5.8	6.7	6.6	7.4
Mitsubishi	12.2	10.1	9.4	11.4	10.4	8.9	9.3	8.8	8.2	8	6	5.8	5.6	6.2
Honda	2.6	2.2	2.5	2.4	3.2	3.6	3.8	2.7	2.9	3.4	3.8	4.8	5.6	5.8
Nissan	4.1	3.7	3.9	4.5	5.7	6.2	5.8	5.6	6.1	6.4	6.7	5.7	5.5	5.7
Hyundai	4	5.4	7.5	8.3	7.1	6	5.8	5.2	4.1	3.4	4.5	4.9	4.8	4.8
Subaru	1.4	1.2	1.3	2	2.5	3.2	3.4	3.5	3.4	3.3	3.5	3.6	3.9	3.7
Other	11	13.5	13.2	15.1	13.2	13.4	14	16.3	16.6	16	15.8	17.3	18.7	19.6
Total	100	100	100	100	100	100	100	100	100	100	100	100	100	100

Source: VFACTS, retail sales

Table J.3. Sales volume and market share in Australia, by market segment, 2000 to 2007

	2000		2001		2002		2003		2004		2005		2006		2007
Model line	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)
Passenger
Light	89,977	11.4	66,942	8.7	66,235	8	76,716	8.4	83,944	8.8	95,890	9.7	116,086	12.1	127,891	12.2
Small	154,050	19.6	162,046	21	164,943	20	175,651	19.3	181,160	19	218,013	22.1	219,358	22.8	232,388	22.1
Medium	40,628	5.2	37,387	4.8	38,951	4.7	47,164	5.2	49,983	5.2	86,234	8.7	87,624	9.1	92,579	8.8
Large	198,766	25.3	190,303	24.6	188,348	22.8	203,524	22.4	181,678	19	167,381	16.9	136,606	14.2	139,677	13.3
Upper large											6,823	0.7	7,334	0.8	9,346	0.9
People movers	11,736	1.5	12,140	1.6	12,791	1.6	11,852	1.3	15,232	1.6	15,738	1.6	15,442	1.6	16,202	1.5
Sports	9,544	1.2	8,820	1.1	13,988	1.7	10,175	1.1	8,903	0.9	18,725	1.9	15,944	1.7	18,936	1.8
Prestige	29,590	3.8	22,773	2.9	24,830	3	29,167	3.2	37,079	3.9
Luxury	19,382	2.5	29,041	3.8	30,154	3.7	34,262	3.8	32,006	3.4
Total passenger	553,673	70.3	529,452	68.5	540,240	65.5	588,551	64.7	589,985	61.8	608,804	61.6	598,394	62.2	637,019	60.7
Light trucks
Light buses	1,619	0.2	1,277	0.2	1,615	0.2	1,787	0.2	1,544	0.2	2,298	0.2	2,622	0.3	2,465	0.2
Vans	19,006	2.4	16,870	2.2	18,270	2.2	21,598	2.4	22,387	2.3	21,571	2.2	20,453	2.1	20,300	1.9
SUVs	105,510	13.4	116,236	15	138,064	16.7	150,578	16.6	173,087	18.1	180,292	18.2	170,847	17.7	198,176	18.9
PU/CC 4X2	47,276	6	53,817	7	59,516	7.2	70,966	7.8	79,298	8.3	79,534	8	69,545	7.2	70,606	6.7
PU/CC 4X4	39,533	5	35,371	4.6	42,039	5.1	50,670	5.6	58,692	6.1	62,728	6.3	67,639	7	82,691	7.9
Trucks 2,500-3,500 kgs GVM	627	0.1	699	0.1	953	0.1	1,568	0.2	1,755	0.2	1,747	0.2	1,532	0.2	1,494	0.1
Total light trucks	213,571	27.1	224,270	29	260,457	31.6	297,167	32.7	336,763	35.3	348,170	35.2	332,638	34.6	375,732	35.8
Heavy trucks
Trucks 3,501-7,500 kgs GVM	7,705	1	7,598	1	10,569	1.3	8,480	0.9	9,585	1	11,191	1.1	11,488	1.2	12,579	1.2
Trucks 7,501-15,000 kgs GVM	5,163	0.7	3,892	0.5	4,365	0.5	4,837	0.5	5,947	0.6	6,992	0.7	7,116	0.7	8,357	0.8
Trucks 15,001+ kgs GVM	5,863	0.7	6,723	0.9	8,063	1	10,227	1.1	12,132	1.3	12,274	1.2	12,292	1.3	15,370	1.5
Buses	1,125	0.1	746	0.1	615	0.1	589	0.1	817	0.1	838	0.1	738	0.1	925	0.1
Total heavy trucks	19,856	2.5	18,959	2.5	23,612	2.9	24,133	2.7	28,481	3	31,295	3.2	31,634	3.3	37,231	3.5
TOTAL VEHICLES	787,100	100	772,681	100	824,309	100	909,811	100	955,229	100	988,269	100	962,666	100	1,049,982	100.0

Note: From 2005, prestige and luxury cars are merged into other categories. Also, from 2005 there is a new category for ‘upper large’ cars.

Source: VFACTS, vehicle retail sales

Table J.4. Sales volumes and segment shares of locally produced and imported passenger motor vehicles, by market segment, 2000 to 2007a

	2000		2001		2002		2003		2004		2005		2006		2007
Model line	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)
Light and small segments
Locally produced	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0.0
Imports	244,027	44.1	228,988	43.3	231,178	42.8	252,367	42.9	265,104	44.9	313,903	51.6	335,444	56.1	360,279	56.6
Total light/small	244,027	44.1	228,988	43.3	231,178	42.8	252,367	42.9	265,104	44.9	313,903	51.6	335,444	56.1	360,279	56.6
Medium segment
Camry 4 (inc. the Apollo 4)	19,644	3.5	18,256	3.4	20,536	3.8	25,261	4.3	26,286	4.5	24,446	4	24,221	4	26,336	4.1
Locally produced	25,132	4.5	18,256	3.4	20,536	3.8	25,261	4.3	26,286	4.5	24,446	4	24,221	4	26,336	4.1
Imports	15,496	2.8	20,037	3.8	18,415	3.4	21,903	3.7	23,697	4	61,788	10.1	63,403	10.6	66,243	10.4
Total medium	40,628	7.3	38,293	7.2	38,951	7.2	47,164	8	49,983	8.5	86,234	14.2	87,624	14.6	92,579	14.5
Large segment
Commodore (inc. Lexcen)	83,610	15.1	85,246	16.1	88,478	16.4	86,553	14.7	79,170	13.4	66,794	11	56,531	9.4	57,307	9.0
Falcon, Fairmont	60,460	10.9	53,534	10.1	54,629	10.1	73,220	12.4	65,384	11.1	53,080	8.7	42,390	7.1	33,941	5.3
Camry 6, Vienta (inc. Apollo 6)	22,449	4.1	20,230	3.8	19,004	3.5	19,343	3.3	19,654	3.3	14,995	2.5	9,431	1.6	22,044	3.5
Avalon, Aurion
Magna 6, Verada, 380	26,271	4.7	24,381	4.6	23,405	4.3	23,666	4	15,968	2.7	16,017	2.6	13,065	2.2	10,948	1.7
Locally produced	192,790	34.8	183,391	34.6	185,516	34.3	202,782	34.5	180,176	30.5	150,886	24.8	121,417	20.3	124,240	19.5
Imports	5,976	1.1	6,736	1.3	2,832	0.5	742	0.1	1,502	0.3	16,495	2.7	15,189	2.5	15,437	2.4
Total large	198,766	35.9	190,127	35.9	188,348	34.9	203,524	34.6	181,678	30.8	167,381	27.5	136,606	22.8	139,677	21.9
Other segmentsb
Statesman, Caprice	6,370	1.2	5,518	1	4,958	0.9	5,424	0.9	4,651	0.8	3,573	0.6	3,076	0.5	4,754	0.7
Monaroc	0	0	176	0	4,274	0.8	2,889	0.5	2,656	0.5	2,834	0.5	912	0.2	152	0.0
Fairlane/LTD	3,076	0.6	2,455	0.5	2,101	0.4	2,535	0.4	2,190	0.4	1,980	0.3	1,158	0.2	1,780	0.3
Locally produced	9,446	1.7	8,149	1.5	11,333	2.1	10,848	1.8	9,497	1.6	8,387	1.4	5,146	0.9	6,686	1.0
Imports	60,806	11	63,895	12.1	70,430	13	74,608	12.7	83,723	14.2	32,899	5.4	33,574	5.6	37,798	5.9
Total other	70,252	12.7	72,044	13.6	81,763	15.1	85,456	14.5	93,220	15.8	41,286	6.8	38,720	6.5	44,484	7.0
Total PMVs
Total locally produced	227,368	41.1	209,796	39.6	217,385	40.2	238,891	40.6	215,959	36.6	183,719	30.2	150,784	25.2	157,262	24.7
Total imports	326,305	58.9	319,656	60.4	322,855	59.8	349,620	59.4	374,026	63.4	425,085	69.8	447,610	74.8	479,757	75.3
TOTAL	553,673	100.0	529,452	100.0	540,240	100.0	588,511	100	589,985	100.0	608,804	100.0	598,394	100.0	637,019	100.0

Note:
a. Figures from 2005 onwards include changes of classifications.
b. Comprises upper large, people movers, sports, prestige and luxury vehicles.
c. Local production of the Holden Monaro commenced in 2001.

Source: VFACTS, Vehicle retail sales

Table J.5. New passenger motor vehicle sales volumes and market shares in Australia, by vehicle and purchaser type, 2000 to 2007

	2000		2001		2002		2003		2004		2005		2006		2007
Segment	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)
Fleet PMV sales a
Small segment b	53,609	9.7	64,978	12.3	76,174	14.1	74,234	12.6	78,072	13.2	89,647	14.7	105,484	17.6	116,054	18.2
Medium segment	20,041	3.6	17,606	3.3	14,531	2.7	19,547	3.3	22,060	3.7	22,671	3.7	40,912	6.8	45,556	7.2
Large segment	150,769	27.2	144,924	27.4	144,099	26.7	159,346	27.1	144,964	24.6	126,712	20.8	104,871	17.5	101,521	15.9
Otherc	30,632	5.5	34,236	6.5	39,277	7.3	40,531	6.9	42,314	7.2	40,124	6.6	17,020	2.8	21,851	3.4
Total fleet PMV sales	255,051	46.1	261,744	49.4	274,081	50.7	293,658	49.9	287,410	48.7	279,154	45.9	268,287	44.8	284,982	44.7
Private PMV sales
Small segment	190,418	34.4	164,010	31	155,004	28.7	178,133	30.3	187,032	31.7	216,408	35.5	229,960	38.4	244,225	38.3
Medium segment	20,587	3.7	20,687	3.9	24,420	4.5	27,617	4.7	27,923	4.7	29,162	4.8	46,712	7.8	47,023	7.4
Large segment	47,997	8.7	45,379	8.6	44,249	8.2	44,178	7.5	36,714	6.2	26,532	4.4	31,735	5.3	38,156	10.8
Other	39,620	7.2	37,632	7.1	42,486	7.9	44,925	7.6	50,906	8.6	57,548	9.5	21,700	3.6	22,633	3.6
Total private PMV sales	298,622	53.9	267,708	50.6	266,159	49.3	294,853	50.1	302,575	51.3	329,650	54.1	330,107	55.2	352,037	55.3
Total PMV sales	553,673	100	529,452	100	540,240	100	588,511	100	589,985	100	608,804	100	598,394	100	637,019	100

Note:
a. Includes sales to private businesses and government.
b. Small segment includes light and small vehicles.
c. Other group comprises people movers, sports, prestige and luxury vehicles.

Source: VFACTS, vehicle retail sales

Table J.6. SUV, light truck and heavy truck sales volumes and market shares in Australia, by marque, 2003 to 2007

Marque	2003		2004		2005		2006		2007
	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)
Toyota	83,765	26.1	93,510	25.6	92,579	24.4	99,072	27.2	102,324	24.8
Ford	37,103	11.5	51,100	14	58,149	15.3	47,966	13.2	48,794	11.8
Nissan	37,364	11.6	38,818	10.6	35,929	9.5	39,890	11	45,225	11.0
Holden	42,852	13.3	53,172	14.6	51,634	13.6	38,119	10.5	41,832	10.1
Mitsubishi	23,887	7.4	24,062	6.6	28,520	7.5	26,471	7.3	37,277	9.0
Subaru	17,167	5.3	18,510	5.1	18,424	4.9	19,447	5.3	19,967	4.8
Mazda	13,085	4.1	12,546	3.4	11,436	3	10,085	2.8	19,781	4.8
Honda	10,685	3.3	9,450	2.6	9,673	2.5	10,627	2.9	12,646	3.1
Other	55,392	17.4	64,076	17.5	73,121	19.3	72,595	19.9	85,117	20.6
TOTAL	321,300	100	365,244	100	379,465	100	364,272	100	412,963	100.0

Source: VFACTS, vehicle retail sales

Table J.7. SUV and truck sales volumes and segment shares in Australia, by model, 2001 to 2007

	2001		2002		2003		2004		2005		2006		2007
Model line	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)	Units	Share (%)
SUVs and light trucks
Ford Territory a	0	0	0	0	0	0	13,583	4	23,454	6.7	18,364	5.5	17,290	4.6
Ford Falcon utility a	16,955	7.6	17,883	6.9	20,212	6.8	20,123	6	18,384	5.3	15,858	4.8	13,758	3.7
Holden Adventra a	0	0	0	0	0	0	2,500	0.7	3,153	0.9	2,543	0.8	655	0.2
Holden utility 4x2 a	11,173	5	13,791	5.3	17,211	5.8	20,813	6.2	18,877	5.4	13,377	4	11,511	3.1
Holden utility 4x4 a	0	0	0	0	0	0	1,559	0.5	1,325	0.4	697	0.2	9	0.0
Other	196,142	87.5	228,783	87.8	259,744	87.4	278,185	82.6	282,977	81.3	281,799	84.7	332,509	88.5
Total light trucks	224,270	100	260,457	100	297,167	100	336,763	100	348,170	100	332,638	100	375,732	100.0
Heavy trucks
3.501 – 7.5 tonnes
Mitsubishi Canter b	1,322	17.4	1,278	12.1	1,391	16.4	1,727	18	2,057	18.4	1,791	15.6	1,955	15.5
Other	6,276	82.6	9,291	87.9	7,089	83.6	7,858	82	9,134	81.6	9,697	84.4	10,624	84.5
3.501 – 7.5 tonnes total	7,598	100	10,569	100	8,480	100	9,585	100	11,191	100	11,488	100	12,579	100.0
7.501 – 15 tonnes
Isuzu b	1,670	42.9	1,809	41.4	1,881	38.9	2,311	38.9	2,785	39.8	2,581	36.3	3,121	37.3
Hino b	1,187	30.5	1,336	30.6	1,725	35.7	2,140	36	2,300	32.9	2,420	34	2,725	32.6
Mitsubishi b	447	11.5	422	9.7	474	9.8	585	9.8	963	13.8	1,094	15.4	1455	17.4
Other	588	15.1	798	18.3	757	15.7	911	15.3	944	13.5	1,021	14.3	1,056	12.6
7.501 – 15 tonnes total	3,892	100	4,365	100	4,837	100	5,947	100	6,992	100	7,116	100	8,357	100.0
Over 15 tonnes
International a	12	0.2	35	0.4	13	0.1	79	0.7	210	1.7	203	1.7	263	1.7
Kenworth a	678	10.1	1,319	16.4	1,658	16.2	2,289	18.9	2,283	18.6	2,053	16.7	2,757	17.9
Mack a	715	10.6	697	8.6	909	8.9	1,076	8.9	1,123	9.1	1,082	8.8	1,339	8.7
Volvo a	942	14	858	10.6	1144	11.2	1,164	9.6	1,137	9.3	1,138	9.3	1,383	9.0
Mitsubishi b	145	2.2	148	1.8	473	4.6	567	4.7	684	5.6	788	6.4	1059	6.9
Mercedes b	175	2.6	279	3.5	426	4.2	422	3.5	408	3.3	345	2.8	367	2.4
Other	4,054	60.3	4,727	58.6	5,604	54.8	6,535	53.9	6,429	52.4	6,683	54.4	8,202	53.4
Total over 15 tonnes	6,723	100	8,063	100	10,227	100	12,132	100	12,274	100	12,292	100	15,370	100.0
Buses
Volvo a	1	0.1	0	0	0	0	0	0	0	0	0	0	0	0.0
Other a	745	99.9	615	100	589	100	817	100	838	100	738	100	925	100.0
Total buses	746	100	615	100	589	100	817	100	838	100	738	100	925	100.0
Total heavy trucks	18,959		23,612		24,133		28,281		31,295		31,634		37,231
TOTAL	243,229		284,069		321,300		365,044		379,465		364,272		412,963

Note:
a. Assembled/manufactured locally
b. Not assembled/manufactured locally

Source: VFACTS, vehicle retail sales

Motor vehicle production in Australia

Table J.8. Production of locally-made passenger motor vehicles, derivatives and SUVs, 1997 to 2007

Model	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Ford Falcon family total	88,010	83,436	86,072	85,829	73,388	83,607	104,990	92,747	79,595	60,847	49,701
Domestic market	84,152	78,345	80,410	80,890	68,768	77,382	97,069	86,389	73,972	56,470	46,159
Export market	3,858	5,091	5,662	4,939	4,620	6,225	7,921	6,358	5,623	4,377	3,542
Ford Territory total								18,266	28,431	20,623	18,877
Domestic market								16,274	23,710	17,988	16,607
Export market								1,992	4,721	2,635	2,270
Holden Commodore family total	92,174	116,556	117,476	125,600	129,665	143,161	153,321	165,252	151,901	125,855	107,795
Domestic market	89,480	107,260	97,401	98,821	101,074	111,416	117,262	112,971	91,710	79,828	71299
Export market	2,694	9,296	20,075	26,779	28,591	31,745	36,059	52,281	60,191	46,027	36,496
Holden Vectra total		2,817	10,122	7,551
Domestic market		2,375	7,276	5,132
Export market		442	2,846	2,419
Mitsubishi Magna family total a	59,275	46,506	34,766	38,451	43,502	46,437	34,763	21,418	18,672	10,493	10,321
Domestic market	41,579	36,957	24,798	26,415	24,287	22,387	24,777	15,893	16,174	10,438	10,074
Export market	17,696	9,549	9,968	12,036	19,215	24,050	9,986	5,525	2,498	55	247
Toyota Camry family total b	57,586	80,609	85,046	87,916	91,781	78,790	106,897	104,864	105,481	103,619	111,891
Domestic market	30,077	46,598	40,392	33,605	26,608	28,971	40,685	39,546	36,492	26,172	26,902
Export market	27,509	34,011	44,654	54,311	65,173	49,819	66,212	65,318	68,989	77,447	84,989
Toyota Avalon total				14,339	8,838	7,756	6,697	4,990	3,741
Domestic market				13,805	8,776	7,507	6,697	4,990	3,741
Export market				534	62	249	0	0	0
Toyota Aurion total										7,991	37,040
Domestic market										5,790	24,351
Export market										2,201	12,689
TOTAL PRODUCTION	319,266	353,892	347,823	359,686	347,174	359,751	406,668	407,537	387,821	329,428	335,625
Domestic market	267,509	295,503	264,618	258,668	229,513	247,663	286,490	276,063	245,799	196,686	195,382
Export market	51,757	58,389	83,205	101,018	117,661	112,088	120,178	131,474	142,022	132,742	140,243

Note:
a. Includes Magna, Verada, Diamante and 380 models.
b. Production and export figures for Toyota Camry include ‘completely knocked down’ units (unassembled vehicles).

Source: Department of Innovation, Industry, Science and Research industry survey

Table J.9. Value of production of locally-made passenger motor vehicles and derivatives, 1997 to 2007

Year	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Production value ($b)	7.23	8.18	8.18	7.74	7.97	7.99	8.48	8.89	8.41	7.84	7.74

Source: Department of Innovation, Industry, Science and Research industry survey

Table J.10. Quality performance of locally-made PMVs, 2000 to 2006

Category	Model	Sample average faults per vehicle
		2000	2001	2002	2003	2004	2005	2006
Medium	Toyota Camry (4)	0.7	0.9	0.8	0.8	0.6	0.7	0.5
	Medium category average	0.8	0.8	0.7	0.6	0.6	0.6	0.5
Large	Ford Falcon	1.5	1.2	1.3	1.4	1.3	1.3	1
	Holden Commodore	1.1	1.1	1.2	1.2	1.3	1.2	1.2
	Toyota Aurion	n/a	n/a	n/a	n/a	n/a	n/a	0.7
	Toyota Camry (V6)	1.1	0.7	0.9	0.8	0.7	0.8	0.6
	Mitsubishi 380	n/a	n/a	n/a	n/a	n/a	n/a	0.6
	Toyota Avalon	1	1.4	0.7	0.9	1.1	1.1	n.a
	Mitsubishi Magna	0.9	1	0.9	0.9	1	0.7	n.a
	Large category average	1.1	1.1	1	1	1	1	0.8

Note: Faults data derive from responses to surveys of private new car buyers in the first three months of ownership.

Source: AC Nielsen, 2006 New Car Buyer Survey

Table J.11. Sales of components by Federation of Automotive Product Manufacturers member companies, 1997 to 2007

Year	Domestic sales ($b)	Export sales ($b)	Total sales ($b)	Annual growth (%)
1997	4.98	0.72	5.70	2.7
1998	5.10	0.75	5.85	2.6
1999	5.69	1.05	6.74	15.2
2000	5.28	1.17	6.45	-4.3
2001	5.31	1.18	6.49	0.6
2002	6.09	1.37	7.46	14.9
2003	7.02	1.31	8.33	11.7
2004	6.46	1.17	7.63	-8.4
2005	6.31	1.02	7.32	-4.0
2006	5.15	1.19	6.34	-13.4
2007	6.17	1.51	7.67	21.0

Note: Sales figures are in current prices

Source: Federation of Automotive Product Manufacturers

Prices

Table J.12. Quarterly index of motor vehicle prices, Consumer Price Index (CPI) and average weekly earnings, 1998 to 2007

Year	Quarter	CPI (all groups)a	CPI (motor vehicles)a	Average weekly earnings b	AAIR affordability index c,d	Year	Quarter	CPI (all groups)a	CPI (motor vehicles)a	Average weekly earnings b	AAIR affordability index c,d
1998	March	120.3	111.4	137.0	123.0	2003	March	141.3	106.1	169.0	159.3
	June	121.0	109.1	138.0	126.5		June	141.3	105.1	172.9	164.5
	September	121.3	106.9	139.5	130.5		September	142.1	104.6	174.9	167.2
	December	121.9	106.0	141.1	133.1		December	142.8	103.8	177.5	171.0
1999	March	121.8	105.5	140.9	133.5	2004	March	144.1	101.9	178.7	175.3
	June	122.3	105.1	142.1	135.2		June	144.8	102.0	178.6	175.1
	September	123.4	105.8	141.9	134.1		September	145.4	100.2	181.5	181.1
	December	124.1	104.1	144.7	139.0		December	146.5	101.7	184.7	181.6
2000	March	125.2	104.6	145.8	139.4	2005	March	147.5	100.3	187.9	187.2
	June	126.2	104.6	147.7	141.2		June	148.4	99.2	190.3	192
	September	130.9	102.0	150.4	147.5		September	149.8	99	192.3	194.4
	December	131.3	101.6	150.8	148.4		December	150.6	97.9	193.9	197.9
2001	March	132.7	103.5	151.8	146.7	2006	March	151.9	99.3	195.1	196.3
	June	133.8	105.6	154.8	146.6		June	154.3	98.3	195.6	199.5
	September	134.2	106.0	156.9	148.0		September	155.7	99.1	197.6	199.2
	December	135.4	106.6	159.2	149.3		December	155.5	99.4	199.0	200.4
2002	March	136.6	107.6	161.3	149.9	2007	March	155.6	99.5	201.2	202.2
	June	137.6	106.6	162.8	152.7		June	157.5	99.7	204.2	204.8
	September	138.5	105.6	165.0	156.3		September	158.6	99.6	207.2	208.0
	December	139.5	106.6	167.5	157.1		December	160.1	98.9	208.5	210.8

Note:
a. From ABS cat. no. 6401.0.
b. Average weekly earnings (full-time adult total earnings) rebased from ABS cat. no. 6302.0.
c. All indexes have 1989-90 as base year. The Affordability Index is based on methodology used by the former Automotive Industry Authority and the Australian Automotive Intelligence Report (AAIR).
d. The Affordability Index is based on methodology used by the Automotive Industry Authority and the Australasian Association for Institutional Research.

Source: ABS cat. no’s 6401.0 and 6302.0

Table J.13. Australian dollar value against selected international currencies, 1998 to 2007

Year	Quarter	Yen	US Dollar	Euro	Won	Year	Quarter	Yen	US Dollar	Euro	Won
1998	March	86	0.67	n/a	1025	2003	March	71	0.60	0.55	722
	June	86	0.63	n/a	865		June	77	0.65	0.56	780
	September	83	0.59	n/a	783		September	76	0.66	0.58	769
	December	74	0.62	n/a	781		December	79	0.73	0.60	866
1999	March	75	0.63	0.57	758	2004	March	82	0.76	0.62	893
	June	79	0.66	0.63	772		June	78	0.71	0.59	824
	September	72	0.65	0.61	779		September	78	0.70	0.58	817
	December	67	0.65	0.63	751		December	80	0.77	0.58	819
2000	March	67	0.62	0.64	695	2005	March	82	0.78	0.60	792
	June	62	0.59	0.63	657		June	83	0.77	0.61	776
	September	61	0.57	0.63	631		September	85	0.76	0.62	783
	December	59	0.53	0.61	640		December	87	0.74	0.62	761
2001	March	62	0.52	0.57	666	2006	March	86	0.74	0.61	712
	June	62	0.51	0.59	663		June	86	0.75	0.59	713
	September	62	0.51	0.57	662		September	88	0.76	0.59	724
	December	64	0.51	0.57	662		December	92	0.78	0.60	731
2002	March	69	0.52	0.60	684	2007	March	94	0.79	0.60	742
	June	69	0.56	0.59	690		June	101	0.83	0.62	773
	September	66	0.55	0.56	661		September	100	0.85	0.62	789
	December	68	0.56	0.56	676		December	101	0.90	0.61	825

Source: Reserve Bank of Australia Statistical Table F11

Trade

Table J.14. Value and growth of automotive exports, 1998 to 2007

Year	Vehicle exports		Components exports		Total exports
	Value ($b)	Annual growth (%)	Value ($b)	Annual growth (%)	Value ($b)	Annual growth (%)
1998	1.30	2.7	1.28	- 10.8	2.57	- 5.4
1999	1.76	35.7	1.49	17.1	3.25	26.3
2000	2.42	37.9	1.80	19.9	4.22	29.9
2001	3.26	34.6	1.68	- 6.6	4.94	17.0
2002	3.08	- 5.6	1.77	3.9	4.85	- 1.8
2003	2.98	- 3.4	1.77	- 0.3	4.74	- 2.3
2004	3.03	1.7	1.68	- 4.9	4.71	- 0.7
2005	3.47	14.7	1.71	2	5.19	10.2
2006	3.06	- 11.8	1.82	6.2	4.88	- 5.8
2007	3.24	5.7	1.87	2.6	5.11	4.6

Note: Export figures are in nominal prices

Source: Department of Foreign Affairs and Trade, STARS Database

Table J.15. Automotive exports by destination, 2002 to 2007

Region	2002		2003		2004		2005		2006		2007
	Exports ($ m)	Share (%)	Exports ($ m)	Share (%)	Exports ($ m)	Share (%)	Exports ($ m)	Share (%)	Exports ($ m)	Share (%)	Exports ($ m)	Share (%)
Middle East	1,801	37.1	1,893	39.9	1,745	37.1	1,944	37.5	2,205	45.2	2,299	45.0
New Zealand	720	14.8	825	17.4	758	16.1	789	15.2	653	13.4	754	14.8
NAFTA	1,111	22.9	791	16.7	1,026	21.8	805	15.5	657	13.4	568	11.1
Republic of Korea	365	7.5	449	9.5	324	6.9	386	7.4	389	8	399	7.8
EU25	170	3.5	145	3.1	209	4.4	242	4.7	309	6.3	233	4.6
ASEAN	255	5.3	185	3.9	188	4	247	4.8	202	4.1	216	4.2
China	16	0.3	58	1.2	65	1.4	285	5.5	91	1.9	200	3.9
South Africa	30	0.6	68	1.4	78	1.7	188	3.6	84	1.7	103	2.0
Japan	164	3.4	105	2.2	85	1.8	64	1.2	61	1.2	67	1.3
Rest of world	221	4.5	224	4.7	230	4.9	237	4.6	233	4.8	268	5.2
Total	4,853	100	4,743	100	4,708	100	5,187	100	4,884	100	5,106	100

Note: Figures in nominal prices

Source: Australian Bureau of Statistics

Table J.16. Exports of new completely built-up passenger motor vehicles, derivatives and SUVs, 1999 to 2007

Year	Units	Annual growth (%)
1999	83,205	42.5
2000	101,018	21.4
2001	117,661	16.5
2002	112,088	- 4.7
2003	120,178	7.2
2004	131,474	9.4
2005	142,022	8.0
2006	132,742	- 6.5
2007	140,243	5.7

Source: Department of Innovation, Industry, Science and Research industry survey

Table J.17. Exports of components, 1997 to 2007

	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Component	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)	($ m)
Engines	405	291	356	472	270	180	255	300	434	575	515
Engine parts	199	146	153	172	146	159	146	153	150	132	128
Other components	844	841	985	1,156	1,262	1,431	1,364	1,227	1,129	1,113	1,225
Total	1,448	1,278	1,494	1,800	1,678	1,770	1,765	1,680	1,713	1,820	1,868

Note: Export figures are in nominal prices.

Source: Department of Foreign Affairs and Trade, STARS Database

Table J.18. Value and growth of automotive imports into Australia, 1998 to 2007

Year	Vehicle imports		Components imports		Total imports
	Value ($b)	Annual growth (%)	Value ($b)	Annual growth (%)	Value ($b)	Annual growth (%)
1998	9.38	23.3	5.15	16.3	14.54	20.7
1999	9.92	5.7	5.09	- 1.2	15.01	3.2
2000	11.17	12.6	5.78	13.4	16.94	12.9
2001	11.61	4.0	6.02	4.2	17.62	4.0
2002	13.20	13.7	5.71	- 5.1	18.91	7.3
2003	14.52	10.0	5.77	1.0	20.29	7.3
2004	15.72	8.2	5.81	0.7	21.52	6.1
2005	17.46	11.1	5.99	3.1	23.45	8.9
2006	18.36	5.2	6.16	2.9	24.52	4.6
2007	20.91	13.9	7.04	14.3	27.95	14.0

Note: Figures are in nominal prices

Source: Department of Foreign Affairs and Trade, STARS Database

Table J.19. Automotive imports into Australia: By source country, 2002 to 2007

Source	2002		2003		2004		2005		2006		2007
	Imports ($m)	Share (%)	Imports ($m)	Share (%)	Imports ($m)	Share (%)	Imports ($m)	Share (%)	Imports ($m)	Share (%)	Imports ($m)	Share (%)
Japan	8,820	46.6	9,330	46	9,675	45	9,572	40.8	9,129	37.2	9,448	33.8
EU25	4,176	22.1	4,702	23.2	4,686	21.8	5,208	22.2	5,135	20.9	6,128	21.9
NAFTA	2,972	15.7	2,788	13.7	3,153	14.6	3,090	13.2	3,618	14.8	3,966	14.2
ASEAN	951	5	1,241	6.1	1,337	6.2	2,159	9.2	2,681	10.9	4,483	16.0
Republic of Korea	767	4.1	784	3.9	949	4.4	1,222	5.2	1,546	6.3	1,687	6.0
South Africa	435	2.3	579	2.9	581	2.7	887	3.8	995	4.1	768	2.7
China	165	0.9	217	1.1	303	1.4	387	1.6	523	2.1	660	2.4
Taiwan	168	0.9	163	0.8	181	0.8	199	0.8	319	1.3	284	1.0
South America	180	0.9	159	0.8	170	0.8	199	0.8	136	0.6	95	0.3
Rest of World	278	1.5	325	1.6	489	2.3	523	2.2	443	1.8	445	1.6
Total	18,910	100	20,288	100	21,523	100	23,445	100	24,524	100	27,944	100

Note: Figures are in nominal prices.

Source: Department of Foreign Affairs and Trade, STARS Database

Table J.20. Imports of completely built-up vehicles, passenger motor vehicles and other motor vehicles, 2000 to 2007

Year	CBU PMVs (units)	Other vehicles (units)	Total vehicles (units)	Annual growth (%)
2000	319,471	234,083	553,554	6.5
2001	330,464	210,657	541,121	- 2.2
2002	316,431	264,966	581,397	7.4
2003	354,520	296,209	650,729	11.9
2004	366,547	327,842	694,389	6.7
2005	436,750	360,770	797,520	14.9
2006	476,251	368,521	844,772	5.9
2007	506,136	426,089	932,225	10.4

Source: Department of Foreign Affairs and Trade, STARS Database

Employment and labour productivity

Table J.21. Australian automotive industry employment, 1997–98 to 2005–06

Industry sector	1997–98	1998–99	1999–00	2000–01	2001–02	2002–03	2003–04	2004–05	2005–06
Motor vehicle manufacturing a	19,719	18,168	16,519	23,243	25,600	26,600	28,100	27,800	27,100
Motor vehicle body manufacturing b	8,443	7,888	10,260	9,908	10,900	10,300	11,600	12,400	15,300
Automotive electrical and instrument manufacturing c	4,734	5,001	5,287	5,085	4,200	3,000	3,200	3,500	3,000
Automotive component manufacturing d	22,262	20,414	22,422	24,424	21,800	25,200	26,800	24,200	21,800
Total	55,158	51,471	54,488	62,660	62,500	65,100	69,800	67,900	67,100

Note:
a. ANZSIC Code 2811.
b. ANZSIC Code 2812.
c. ANZSIC Code 2813.
d. ANZSIC Code 2819.

Source: Australian Bureau of Statistics cat. no. 8221.0

Table J.22. Local vehicle producer labour productivity, 1997 to 2007

Year	Production volume (units)a	Production value ($b)b	Employmentc	Average vehicles produced per employee	Average production value per employee
1997	319,266	7.23	20,540	15.5	$351,996
1998	353,892	8.18	22,371	15.8	$365,652
1999	347,823	8.18	21,394	16.3	$382,350
2000	359,686	7.74	20,378	17.7	$379,821
2001	347,174	7.97	19,975	17.4	$398,999
2002	359,751	7.99	20,914	17.2	$382,041
2003	406,668	8.48	23,119	17.6	$366,798
2004	407,537	8.89	22,485	18.1	$395,375
2005	387,821	8.41	20,908	18.5	$402,238
2006	329,428	7.84	18,390	17.9	$426,319
2007	335,625	7.74	17,751	18.9	$435,947

Note:
a. Includes completely knocked down (unassembled) vehicles for export.
b. In nominal prices.
c. Includes production and non-production employees.

Source: Department of Innovation, Industry, Science and Research industry survey

Profitability and R&D expenditure

Table J.23. Profit performance of local vehicle producers, 1997 to 2007

Year	Vehicle manufacturing		Total PMV activitiesa
	Net trading profit (loss) ($m)	Return on sales (%)	Net trading profit (loss) ($m)	Return on sales (%)
1997	344	4.9	518	5.4
1998	389	5.0	502	4.6
1999	311	3.9	391	3.8
2000	427	5.1	384	3.3
2001	298	3.4	184	1.3
2002	383	4.6	411	2.5
2003	316	2.7	449	2.6
2004	(115)	- 1.0	247	1.3
2005	(590)	- 6.5	(569)	- 3.4
2006	(705)	- 8.0	(502)	- 2.8
2007	(722)	- 8.6	(449)	- 2.5

Note: Figures represent profit before tax (current prices) for Holden, Ford Australia, Toyota Motor Corporation Australia and Mitsubishi Motors Australia.
a. Includes passenger motor vehicle manufacturing, sales of imported PMVs and shared vehicles, sales of imported components as parts and accessories, and component production for local sale and export.

Source: Department of Innovation, Industry, Science and Research industry survey

Table J.24. Australian automotive industry R&D expenditure, 1997–98 to 2005–06

Financial year	R&D expenditure ($’000)	Annual growth (%)
1997–98	359,456	14.8
1998–99	316,626	- 11.9
1999–00	347,945	9.9
2000–01	381,349	9.6
2001–02	490,164	28.5
2002–03	618,719	26.2
2003–04	638,570	3.2
2004–05	607,903	- 4.8
2005–06	654,204	7.6

Note: Expenditure is in current prices and is for ANZSIC Industry Group 281, Motor vehicle and part manufacturing

Source: Australian Bureau of Statistics cat. no. 8104.0, unpublished data.