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					Causeway Consulting Pty Ltd
ACN:   097739654
ABN:   75 097 739 654




                          Automotive Training Australia


                        Review of Training for the
                         Retail, Service & Repair
                             (RS&R) Sector
                        Meeting Future Training Needs
                               December 2001




                                 ATA01-Report1221
                                                                  Automotive Training Australia
                                               Review of Training for the Retail, Service & Repair
                                                                                    (RS&R) Sector




Contents

1         Executive Summary                                                                     1
1.1       The purpose of this report                                                            1
1.2       The approach to the study …                                                           1
1.3       The “four constructs” are inextricably linked                                         1
1.4       The services offered by the RS&R sector will be driven by increasing
          customer expectations                                                                2
1.5       How will services be offered to customers                                            3
1.6       Technology                                                                           5
1.7       Work practices                                                                       6
1.8       Environmental considerations                                                         7
1.9       An interpretation of the Report                                                     11

2         Introduction                                                                        13
2.1       The purpose of this Study                                                           13
2.2       This Report covers the Second Phase ...                                             14
2.3       Structure of the Report                                                             14
2.4       The work was carried out by...                                                      14
2.5       Acknowledgments                                                                     15
2.6       Disclaimer                                                                          15

3         Methodology                                                                         16
3.1       Overview                                                                            16
3.2       Desk research                                                                       16
3.3       Interviews & survey                                                                 16
3.4       Definitions                                                                         17

4         Desk Research                                                                       19
4.1       Sources of information                                                              19
4.2       Testing the Desk research findings                                                  19

5         Customer Service Issues                                                             20
5.1       The services offered by the RS&R sector will be driven by increasing
          customer expectations                                                               20
5.2       What is driving the increased level of customer expectation                         20
5.3       What are the customers expecting                                                    22
5.4       Does this conclusion apply to apply to the vehicle body segment                     24
5.5       How will services be offered to customers                                           24
5.6       New and used vehicle sales                                                          27
5.7       Vehicle service and parts                                                           29




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5.8       Vehicle Collision Repair                                                            32
5.9       Vehicle disposal and recycling                                                      32

6         Technology                                                                          33
6.1       “Advancements in product technologies are pushing the entire
          industry to new heights”                                                            33
6.2       What are the significant trends?                                                    33
6.3       Mechatronics                                                                        34
6.4       Systems and Module supply                                                           37
6.5       Alternative fuel sources                                                            38
6.6       Telematics and the development of the intelligent car                               41

7         Work Practices                                                                      43
7.1       The premise for this part of the study                                              43
7.2       The views are divided …                                                             43
7.3       The impact of technology on work practices                                          45
7.4       Classification of employment                                                        46

8         Environmental Concerns                                                              47
8.1       Regulation, recycling and “greener ways of getting around”                          47
8.2       What are the concerns?                                                              47
8.3       What can be done - “greener ways of getting around”                                 48
8.4       What can be done – regulation                                                       49
8.5       The Australian Situation - Regulations                                              51
8.6       The Australian Situation - Alternative Fuels                                        55
8.7       The Australian Situation - Recycling or re-use of materials and
          components                                                                          55

Appendices                                                                                    58

Appendix I - Interviews                                                                       59

Appendix II - Interview Questionnaire                                                         60

Appendix III – Workshop Report                                                                61

Appendix IV – SME Survey                                                                      62

Appendix V – Sources used in desktop research phase.                                          63




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1     Executive Summary

1.1   The purpose of this report
      The purpose of this Report is to provide Automotive Training Australia (ATA) with an
      overview of the future direction in the Retail, Service & Repair (RS&R) sector that covers
      changes in customer service, customer focus, technology, work practices and the impact of
      environmental considerations which will be capable of interpretation and translation to
      training needs.

      The Report has been produced to assist ATA in meeting one of the conditions of
      endorsement of its current training packages, which requires the training package be
      reviewed after 18 months and is redeveloped and accredited three years after initial
      endorsement.


1.2   The approach to the study …
      The Study Brief provided by ATA required the following constructs to be examined under
      the Study, namely:

          customer service and focus;

          technology;

          work practices; and

          the impact of environmental considerations.

      Definitions of these constructs can be found in Part 3 of this Report.

      This examination was carried out using a combination of desk research and interviews.

      Information and views gathered in a workshop held with the Board of ATA on 23 August
      2001 have also been used in completing the Study.


1.3   The “four constructs” are inextricably linked
      The four constructs examined in this report are inextricably linked. As an example,
      customer expectations drive work practices, technology and environmental regulation.
      Customer expectations are driven by technological developments in the vehicle, as are work
      practices. This interaction is shown in Figure 1 below.




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                                      Fig1: The interaction of the Four Constructs



                                                  Customer expectations
                                                  are driven by technology
                                                  and vice versa
                           Customer
                         Focus & Service                                               Technology
                                                    Customer concern for the
                                                    environment drives
                                                    regulation                                  Environmental regulation
              Customer expectations
              drive work practices                                           Technological      impacts on technology;
                                                                             developments       technological
                                                                             impact on work     developments enable
                                                                             practices          better environmental
                                                                                                performance




                          Work Practices                                              Environment
                                                   Environmental regulation
                                                   impacts on work
                                                   practices




      These links need to be recognised in the interpretation of the information provided in this
      Report.

      Despite the importance of these links, in preparing this Executive Summary, it has been
      decided to focus initially on Customer Service.


1.4   The services offered by the RS&R sector will be driven by increasing
      customer expectations
      This conclusion was drawn by participants in the 23 August Workshop and confirmed by
      desk research and interviews. It could be said that customers want what they have always
      wanted - a high level of workmanship from skilled technicians performed at a convenient
      location. It could also be said that customers will continue to be loyal to a particular service
      provider until either a perceived overcharging or poor service from staff abuses their trust.

      However, it would seem that two factors have combined to drive customer expectations to a
      higher level:

          the improved quality of vehicles; and

          a greater awareness by consumers of their rights.




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        Additional factors driving this increased level of expectation include:

            a greater level of competition within the RS&R sector generally;

            a greater level of competition for discretionary income (particularly important at the
            accessory retail end);

            an expectation that repairs will be done in the minimum of time (especially important in
            the body repair segment of the RS&R sector);

            the wider range of consumer choice, particularly in the new car sales segment of the
            RS&R sector;

            a general trend to expect more from service providers and retailers; and

            the increased availability of information via the Internet and other means, resulting in a
            better-informed consumer.

        This latter point has led to a greater level of focus on customer expectations by the vehicle
        manufacturers, which drives a greater level of expectation of the automotive industry,
        including the RS&R sector generally.


1.5     How will services be offered to customers

1.5.1   Internet & e-commerce
        It is anticipated that, over the next five years, more use will be made of the Internet and e-
        commerce to make contact with customers. However, it is unlikely that the volume of B2C
        (Business to Consumer) transactions effected using the Internet or e-commerce will increase.

        Overseas, large and increasing numbers of customers are using the Internet to ascertain
        dealer costs and MSRPs (manufacturer suggested retail prices) for various vehicles and
        options. Customers come to the dealer armed with a wealth of data and can negotiate with
        the sales person more effectively than in the past. In addition greater numbers of buyers are
        entering dealerships already “pre-sold” on a particular vehicle and set of options.

        In Australia, we have not been as quick to embrace the Internet for transacting business as
        (for example) our American counterparts. We are, however, using the Internet in increasing
        numbers. This has created a more informed customer with higher expectations and increased
        options.

        Notwithstanding this apparent reluctance by Australians to embrace B2C via the Internet,
        RS&R participants will need to be e-commerce capable because of the increasing use of the
        Internet as a B2B (Business to Business) medium.




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1.5.2   There is still a strong emphasis on face to face contact
        The primary means of customer contact will be face to face. The nature of that contact may
        change. As noted above, the Internet has created a more informed customer. As a result it is
        felt that the sales persons role will change in the future to acting more as a purchase advisor
        in the sales process and as a consultant for the customer. The changed role will also involve
        the salesperson being a product expert and relationship manager.

        Some overseas research has indicated that face-to-face contact may not be as important to
        those now aged between 16 and 22. This research describes them as completely
        “internalising” use of the Internet. Older customers adopt it as a means of using a “new way
        to do old things”. For these young customers the internalisation of the Internet makes them
        see information as ubiquitous and building trust as not requiring face-to-face interaction.
        Marketing to these potential customers will demand more of an electronic interface.


1.5.3   B2B e-commerce will increase
        Two examples of B2B e-commerce were highlighted by the interviews:

            on-line assessment of vehicle damage – vehicle insurer NRMA has introduced an on-line
            damage assessment process using a combination of digital camera technology and the
            internet; and

            on-line warranty repair assistance – component producer Air International is developing
            an Internet based diagnostic and repair process to assist dealer service departments in
            rectifying Air International components fitted to locally made vehicles.

        These examples, together with developments such as on line catalogues, indicate that B2B e-
        commerce will increase.

        Other studies indicate independent RS&R participants have weaknesses arising from:

            limited use of information systems;

            difficulties in making time for training

            “trial and error” time; and

            access to information.

        These weaknesses could be addressed through increased use of the Internet. The Internet is
        increasingly being used for self-paced training delivery. “Trial and error time” could be
        reduced through the use of on-line assistance.




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1.5.4   Structural issues
        The structure of the RS&R sector is changing as a result of:

            an increased focus on the “S&R” elements of the after sales value chain by the vehicle
            makers and the component producers – the vehicle makers focus has resulted in the
            acquisition or establishment of “fast fit” service networks, wrecking yards and panel
            shops;

            component producers developing accreditation programs and providing support through
            “soft franchise” or support network arrangements; and

            parts wholesalers working to group repairers together to drive theirs and the repairers
            growth through mechanisms such as accreditation and loyalty programs.

        There is a dichotomy of views as to what this will mean for the independent RS&R
        participant. These range from “working in a small business is becoming increasingly
        difficult” to “ do not underestimate the independents – they are not going to go away”.

        In Part 5 of the report, perceived “pluses” and “minuses” of the independent RS&R
        participants are examined. Alignment with a “soft franchise” or support network may assist
        the independent to overcome the minuses while retaining the pluses, and allow the
        supporting wholesaler or component producer to take advantage of the pluses. In particular,
        if the partner in such an alignment provides IT support, the alignment will enable the
        independent to overcome the weaknesses referred to 1.5.3 above.


1.6     Technology
        The following significant trends in automotive technology were identified:

            mechatronics;

            recyclability;

            systems and module supply;

            development of alternative energy sources; and

            the development of the intelligent car.

        These are examined in detail in Part 6 of this Report.

        The following conclusions have been drawn:

            a reasonable length of time will elapse before current developments in mechatronics will
            be seen in vehicles serviced by the non-dealer participants in the RS&R sector;




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            the adoption of the sub assembly and modular supply mode of vehicle manufacture will
            require the RS&R sector to understand the “theoretical underpinnings” of the way
            modules interface with each other and software and software protocols;

            there may also be a change in the way in which the RS&R sector obtains the knowledge
            to effect service and repairs - for example, it may be may be necessary to subscribe to a
            number of warranty repair assistance intranets;

            Alternative fuel sources will have minimal impact on the RS&R sector:

            -    sales of hybrid powered vehicles in Australia will be limited (perhaps up to 1,200 per
                 year) and will be serviced by specially designated dealers within the manufacturers
                 network;

            -    difficulties with the storage and delivery of hydrogen will preclude its widespread
                 use in the near future; and

            -    there may be increased sales of diesel passenger vehicles as the disadvantages of
                 diesel engines are overcome and diesel fuel quality, pricing and taxation issues are
                 addressed.

            some elements of telematics will come to Australia and the RS&R sector will be required
            to meet customers’ expectations in dealing with the technology.


1.7     Work practices

1.7.1   Customer service is likely to have the most significant impact on work practices.
        Comments made in the interviews in response to the question:

                “Which do you think will have the greater impact on work practices in the RS&R
                sector – customer service and expectations or technological change”

        indicate that customer service expectations are expected to have more of an effect on work
        practices in the sector than technological change.

        Without wishing to imply that the RS&R sector does not presently meet customer
        expectations, the sector needs to recognise that customers are expecting more from all of
        their service providers (not just in the automotive sector). It may be necessary to:

            in the case of larger organizations, separate (or maintain the separation) of the customer
            facing personnel and the technical staff, and ensure the former are properly equipped and
            trained to deal with the increased level of expectation; and

            in the case of smaller organisations, ensure that the proprietor and staff are properly
            equipped and trained to deal with the increased level of expectation.



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1.7.2   The impact of technology on work practices
        The developments in electronics or mechatronics and the move to sub assembly or modules
        in the manufacture of vehicles has led to a move from repairable to replacement parts.
        Component producers do not manufacture for serviceability. Any component that fails while
        in service (or is alleged to have failed) is merely returned for testing and destroyed.

        This has led to an increased use of diagnostic equipment, a trend that is likely to continue.
        Because of the quality of electronics in vehicles and the general reliability of vehicles, up to
        70% of work that is done will be routine servicing. There will be a greater emphasis on
        equipment-assisted diagnostics that will lead to the need for different skills. A select group
        of better-trained technicians will provide both diagnostic and rectification services.


1.7.3   Classification of employment
        Interviewees were asked:

              “Do you think the classification of employment in the RS&R sector into the following
              categories – administration, electrical, mechanical, sales and vehicle body - will be
              valid in five years time?”

        Most responses focused on the electrical and mechanical categories, noting:

            there will some blurring or merging in these areas;

            we will not be able to separate these categories

            electrical and mechanical will merge; and

            the move will be to electrical.

        Based on the developments in electronics covered in Part 6 of this Report, the comments
        would seem reasonable.


1.8     Environmental considerations
        This part of the study looked at environmental considerations, including those expressed by
        the community and the way in which regulators are reacting to those concerns. The study
        focused on:

            how those concerns might manifest themselves by way of regulation;

            greener ways of getting around such as alternative fuels or hybrid or lighter vehicles; and

            the recycling of materials and components used in the production and operation of
            vehicles.



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1.8.1     Regulation

1.8.1.1   A change to economic instruments
          There will be a change from “command and control” style of regulation to “economic
          instruments” such as:

              charges, fees or taxes;

              tradable permits;

              deposit refund schemes; and

              subsidies.


1.8.1.2   The Federal government’s approach
          The Federal Government announced its Automotive Industry Environmental Strategy in
          1997 and has implemented two pieces of legislation to give effect to that strategy:

              the National Fuel Quality Standards Act, which has as its objectives:

              -   the reduction of the level of pollutants and emissions arising from the use of fuel that
                  may cause environmental and health problems;

              -   facilitation of the adoption of better engine technology and emission control
                  technology; and

              -   the more effective operation of engines; and

              the Product Stewardship (Oil) Act of 2001 (PSOA), which has as its objectives:

              -   to develop a Product Stewardship arrangement for waste oil;

              -   to ensure the environmentally sustainable management, refining and re-use of waste
                  oil; and

              -   to support economic recycling options for waste oil.

          This latter piece of legislation may point to the style of regulation preferred by the
          Government. It falls into the category of an “economic instrument”, imposing a levy on oil
          producers and importers and rewarding producers who manufacture product from reclaimed
          oil.

          A recent report on waste tyres suggests (amongst other options) a similar approach to this
          environmental issue.




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1.8.1.3   The implications for the RS&R sector
          The move to the use of “economic instruments” to give effect to environmental legislation:

              will result in the RS&R sector becoming “agents” of the producer of oils, other
              consumables and ultimately the motor vehicle in the recovery of product;

              may result in an additional administrative burden for the RS&R participant;

              will require the RS&R participant to gain an understanding of the impact of changed fuel
              standards on vehicle performance; and

              may provide additional opportunities for the RS&R participant to derive income from the
              recycling of product.


1.8.2     Greener ways of getting around
          Overseas research and the interviews indicate that

              it is unlikely fuel cell or hydrogen powered vehicles would be introduced to the
              Australian market within the ten year time frame - difficulties with establishing the
              support infrastructure for hydrogen were referred to by all interviewees;

              hybrid vehicles would be more accepted in the market but only if the “price/amenity”
              ratio could be addressed - that is, vehicle purchasers get a lot more for their money in
              terms of accessories, power, etc. in conventional vehicles than they get in the current
              hybrid offerings; and

              the use of diesel vehicles might increase, subject to the Fuel Quality Standards Act
              improving the quality of diesel fuel offered in Australia and the tax regime being
              amended to reduce the price of diesel.

          It has been concluded that the RS&R sector will not be significantly affected by the
          introduction of alternative power sources in the short to medium term.


1.8.3     Recycling and re-use of parts

1.8.3.1   European initiatives
          The European Commission as part of its Priority Waste Streams Programme has launched a
          transnational car recycling strategy aimed in the short-term at the re-utilisation of materials,
          although emphasis will shift more to the development of ‘recyclable’ vehicles in the longer-
          term.




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          The aim of the programme is to bring together Government, industry and environmental
          interests so that a consensus may be reached on future action.

          Without providing subsidies or infringing on competition, the strategy targets a 95%
          recovery rate for vehicle materials by the year 2015.

          While it is generally held that any such strategy will require vehicle manufacturers to have a
          degree of “cradle to grave” responsibility for their product, it is probable that part of the
          responsibility will devolve to the RS&R sector.


1.8.3.2   Vehicle makers are driving re-use of parts
          One of the drivers of an increased level of re-use of parts has been carmaker activity in this
          area, with Ford being the most prominent. Its has acquired approximately 25 salvage yards
          throughout the USA to disassemble cars and trucks for parts and as an outlet for parts from
          its US plants.

          Similar activities have been conducted in Australia.


1.8.3.3   Issues to be faced
          The issues involved in the re-use of parts include:

              warranty provisions;

              terms & conditions of sale;

              part quality and descriptions;

              stock inventory management;

              delivery service;

              staff training;

              safety requirements; and

              environmental procedures including total vehicle fluid management.

          These issues need to be taken into account by any RS&R participants considering
          involvement in the recovery or re-use of recycled parts.




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1.9     An interpretation of the Report
        While not strictly required under the terms of reference for the Study, the following
        interpretation of the training needs indicated by the Study is provided for the reader.


1.9.1   Customer service & focus
        There seems to be the need for a greater emphasis on customer service training.

        While the Internet has yet to be accepted as a B2C tool, developments in the B2B area
        indicate the need for training in the business applications of the Internet and e-commerce
        generally.


1.9.2   Technology

        The impact of mechatronics and telematics
        The enabling technologies for the Intelligent Car – the next stage of mechatronics and
        telematics – will find their way into the Australian car park over the next five to ten years.
        In the short term, this development will have a greater impact on the dealer participants of
        the RS&R sector than the non-dealer participants. The latter will receive necessary training
        in the retailing, service and repair of parts and vehicles using these technologies from their
        vehicle maker franchisers. Training will need to be developed for non-dealer participants to
        prepare them for mechatronics and telematics.


        Diagnostics
        Training will need to focus more on the use of diagnostic equipment. The training should
        reflect that up to 70% of the work carried out in the S&R areas would be routine servicing,
        with rectification work being carried out by employees with a higher level of training,
        (provided or approved by the vehicle maker).


1.9.3   Work practices

        Mechanical and electrical
        These employment categories will merge as a result of the increase in mechatronics.


        Customer expectations
        These are seen as the driver of work practices.         Training will need to reflect these
        expectations.




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1.9.4   Environmental considerations

        Regulation
        Monitor regulation and provide training in the interpretation and application of regulation.


        Re-use of parts
        Provide training in the removal of re-usable parts to ensure awareness of the issues detailed
        in 1.8.3.3 above.




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2     Introduction

2.1   The purpose of this Study

      The background and purpose of this study was clearly set down in the Tender Specification.
      This document noted:

          “In 1996 Automotive Training Australia (ATA) as the national Industry Training
          Advisory Board (ITAB) was commissioned by the Australian National Training Authority
          (ANTA) to develop a training package to meet the training needs across the breadth of
          the RS&R sector. A training package is underpinned by competency standards that
          include the knowledge and skills required for a person to perform at the industry-
          required standard of operation. This project commenced with a scoping exercise
          outlining the size of the industry, breadth of coverage, existing training and
          qualifications. The next stage developed a training package that aimed at meeting
          current needs. Ministers and ANTA endorsed the training package in September 1999.
          The condition of endorsement requires that the training package be reviewed after 18
          months and is redeveloped and accredited three years after initial endorsement”. (Our
          emphasis)

      In its “brief for the Review of a training package” ANTA required that (inter alia) the
      Review must address the capacity of the training package to meet “current and future
      industry skill needs”.

      In response to this requirement ATA noted in the Tender Specification:

          “The face of the automotive industry has changed dramatically since 1996 and the
          opportunity now exists to develop a training package that meets the industry needs as
          well as the changing needs to 2012.

          The redevelopment of the package has two stages the first being the research or scoping
          component. In this stage ANTA requires that ATA conducts research into the ability of
          the training package to satisfy current and future needs. The current needs including
          restructure of the package, industry satisfaction and impediments in implementation will
          be a separate study conducted by the State and Territory ITABs and key stakeholders.
          The second phase ... is aimed at analysing future needs across the breadth of the industry
          to ensure that the revamped training package will be relevant, flexible with the ability to
          prepare a competent, motivated and satisfied work force”.




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2.2   This Report covers the Second Phase ...
      Causeway was engaged to carry out the Second Phase of the research or scoping component.
      The aim of the Study as set out in the Tender Specification is to “produce a comprehensive
      Report of future direction in the RS&R sector that covers changes in customer service,
      customer focus, technology, work practices and the impact of environmental considerations
      which will be capable of interpretation and translation to training needs”.


2.3   Structure of the Report
      In meeting the requirements of the Tender specification we have carried out two activities as
      detailed in Part 3 of this Report. The Report is structured to set out the results of each of
      these activities, together with key findings arising from these results. These are summarised
      in the Executive Summary in Part 1 of this Report.

      The Report is set out so as to record the findings of the Study in terms of each of the
      constructs to be examined under the Study, namely:

          customer service and focus;

          technology;

          work practices; and

          the impact of environmental considerations.


2.4   The work was carried out by...
      Causeway Director Stewart Leslie completed all of the activities carried out as part of this
      Study.




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2.5   Acknowledgments
      In completing this Study we have been assisted by the guidance of:

          Mr. John Barlow, Chairman, ATA

          Mr. John Braddy, Executive Director, ATA

          Mr. Peter Bennie, Chairman of the Steering Committee

          Members of the Committee

      We also acknowledge the input of the people interviewed as part of this Study. A list of
      interviewees can be found at Appendix I of this Report.


2.6   Disclaimer
      Please note that in accordance with our company policy, we are obliged to advise that neither
      Causeway Consulting Pty Ltd nor any member of employee undertakes responsibility in any
      way whatsoever to any person or organisation (other than Automotive Training Australia) in
      respect of information set out in this report and appendices, including any errors or
      omissions therein arising through negligence or otherwise however caused.




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3       Methodology

3.1     Overview
        The gathering of information used to produce this Report involved two phases:

            desk research; and

            interviews and survey.


3.2     Desk research
        Desk research involved the review of available literature to confirm the perceptions of the
        overall direction of the automotive industry in Australia and globally and the developments
        in the four specific areas nominated for review.

        Results of the initial Desk Research were used in devising the programme for a Workshop
        conducted on 23 August 2001. The Report prepared at the conclusion of that Workshop is
        attached to this Report as Appendix III.

        The information gathered in the Desk research phase was used to devise a Questionnaire to
        be used in the interviews carried out in the second phase of this Study. The Questionnaire
        was presented and approved at a meeting of the Project Steering Committee held on 25
        September 2001. A copy of the Questionnaire accompanies this Report as Appendix II.


3.3     Interviews & survey

3.3.1   Interviews
        Interviews were carried out to:

            confirm the information gathered from the Desk research phase with selected
            interviewees; and

            add to and complement the information gathered in the Desk research phase.

        Interviews were conducted between September and December 2001.                    A list of the
        interviewees can be found at Appendix I to this Report.




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3.3.2   Survey of SMEs1
        A survey of Small & Medium Enterprises (SMEs) participating in the sector was also carried
        out to confirm and complement the information gathered in the Desk Research phase. This
        survey ensures a breadth of views of future directions in the RS&R sector. The
        questionnaire used in the survey, together with an analysis of the responses, can be found in
        Appendix IV to this Report.


3.3.3   A caveat
        Data gathered from the interviews and the survey has been presented in chart form in this
        report for ease of presentation. The reader should take care in using the data so presented on
        a stand-alone basis. Any conclusions drawn or interpretation of the information presented in
        this report should be based on a combination of information drawn from all of the sources
        used in the preparation of this report – Desk Research, the results of the interviews, the
        Workshop and the SME Survey.


3.4     Definitions
        Causeway’s proposal to carry out this Study included definitions of each of the constructs
        around which the Report is built. These have been used as the basis for the Study.


3.4.1   The Retail Service & Repair (RS&R) Sector
        The RS&R sector comprises those activities dealing with everything that happens to a
        vehicle from its sale as a new vehicle to it’s dismantling at the end of its useful life.


3.4.2   Customer Service
        For the purposes of the Study the term “customer” was restricted to the end-user of the
        service provided by RS&R participants.

        Customer service is defined in terms of key processes such as pre-sales (customer
        identification, enquiry tracking, sale closing), service (repair diagnosis and execution) and
        customer handling (concern resolution, relationship management).


3.4.3   Technology
        Differentiation was made between two types of technology - that employed in the vehicle
        and that employed in delivering the services offered by participants in the sector.
        Technology employed in the vehicle was further divided into:

        1
         Please note that the distribution, retrieval and summary of data gathered from this survey was administered by
        ATA.




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            technology affecting the performance of the vehicle; and

            technology used by the driver and passengers in the vehicle such as telematics.


3.4.4   Work practices
        The examination of work practices was based on the premise that technological changes, the
        Internet and advances in communications will change the way in which the automotive
        industry operates. The Study therefore concentrated on determining perceptions of:

            what existing practices or behaviours may be unfrozen by the pressures on the industry

            what new practices may be introduced; and

            what the new standard or accepted way of doing things might be.


3.4.5   Environmental considerations
        Environmental considerations included those expressed by the community and the way in
        which the Regulators are reacting to those concerns. The Study focused on how those
        concerns might manifest themselves by way of Regulation (including taxes), “greener ways
        of getting around” such as alternative fuels or hybrid or lighter vehicles and the recycling of
        materials used in the production of vehicles.




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4     Desk Research

4.1   Sources of information
      Appendix V to this Report lists the sources of information used in the Desk research phase.


4.2   Testing the Desk research findings
      The findings from the Desk research phase were tested during the interview programme.
      The Questionnaire attached as Appendix I1 was designed to confirm the applicability of the
      Desk research findings to the Australian market. The following sections of this Report set
      out our interpretation of the two sources of information - Desk research and Interviews &
      Survey.




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5     Customer Service Issues

5.1   The services offered by the RS&R sector will be driven by increasing
      customer expectations
      At the end of the Workshop conducted on 23 August, 2001 participants were asked to
      summarise the significant points emerging from the Workshop. There was general
      agreement amongst participants that:

          “the services offered by the RS&R sector will be driven by increasing customer
          expectations”.

      This finding was tested during the interviews by asking interviewees to indicate their level of
      agreement with this statement. Survey participants were also asked to indicate their level of
      agreement with this statement. The results are summarised in Chart 1.


                                  Chart 1 - Indicate your level of agreement with the following statement:
                           "Increasing customer expectations will drive the services offered by the RS&R sector"



                 Strongly disagree


                             Disagree


         Don't know / no opinion


                                 Agree


                     Strongly agree


                                           0                         5              10                       15         20               25
                                                                                         No of respondents

        NB: Reference should be made to the caveat in para. 3.3.3 of this report
                                                                                     Interviews       Survey




5.2   What is driving the increased level of customer expectation
      Based on the comments made during the interviews and gathered in the surveys, it would
      seem that two factors have combined to drive customer expectations to a higher level:

          the improved quality of vehicles; and

          a greater awareness by consumers of their rights.




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Additional factors referred to during the interviews and in the surveys include:

    a greater level of competition within the sector generally;

    a greater level of competition for discretionary income (particularly important at the
    accessory retail end);

    an expectation that repairs will be done in the minimum of time (especially important in
    the body repair segment of the RS&R sector);

    a general trend to expect more from service providers and retailers; and

    the increased availability of information via the Internet and other means, resulting in a
    better-informed consumer.

One factor that was not mentioned during the interviews but has been revealed by Desk
research is the wider range of consumer choice, particularly in the new car sales segment of
the RS&R sector. This has led to a greater level of focus on customer expectations by the
vehicle manufacturers. One carmaker interviewee commented “five years ago we were
delighted if we met customer expectations. Today we must exceed these expectations”.




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5.3   What are the customers expecting?
      A detailed study of customer expectations is beyond the scope of this Study. However,
      research carried out by Martec Automotive Consulting Pty. Ltd. provides a guide as to
      customer expectations. The Charts set out below summarise responses to questions posed by
      Martec dealing with:

          important factors in deciding service sites

          the reasons for taking the vehicle to a particular location for service

          the reasons for recommending a particular service site

          the decision to continue to use the same repairer after expiration of warranty

          the reasons for not recommending a particular site; and

          not continuing to use the same repairer after expiration of warranty.




                 Chart 2: What factors do customers consider when deciding where to have
                                           their vehicle serviced




                                                                    Skilled technicians
                  Courteous/friendly                                        18%
                        staff
                        11%
                                                                                 Price/value for
                                                                                     money
                                                                                      14%
                 Workmanship
                    24%


                                 Trustworthy                     Convenient location
                                 & reputable                           18%
                                    15%




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                         Chart3: Why would you not recommend the service site




                                                                              Workmanship
                                                                                 25%
             Other
             26%



                                                                                 Service/staff
                                                                                    12%

                         Price
                         25%                                Location/
                                                           convenience
                                                              12%




When responses to these questions are reviewed in total the following conclusions can be
drawn:

    the main reason for selecting a particular service site is the workmanship which covers
    factors such as doing a good job, happy with the work, thorough, reliable and efficient

    this primary driver for selection is matched by the main reasons for not recommending a
    site or not continuing to use the same repairer on expiration of warranty

    the availability of skilled technicians to work on the vehicle and the convenience of
    location ranked equally as reasons for choosing a particular service location (although
    location is not as strong a driver for not choosing or recommending a particular site)

    reputation and trustworthiness is highly valued; and

    price and courtesy and friendliness of staff were not as important in decision making but
    ranks higher as a “turn off” - that is, bad experiences with pricing of work or service will
    turn people off quicker than it will turn them on.

In short, customers expect a high level of workmanship from skilled technicians performed
at a convenient location. Customers will continue to use a particular service provider until
either a perceived overcharging or poor service from staff abuses their trust.




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5.4     Does this conclusion apply to the vehicle body segment?
        The first part of the conclusion drawn under the previous heading is applicable to the vehicle
        body segment. In the event of a smash repair the vehicle owner will expect a high level of
        workmanship from skilled technicians performed at a convenient location. However the
        customer in all but a very small number of smash repairs is the vehicle owner’s insurer.

        Body repairers generally operate under a system of insurer accreditation. The continued
        referral of work to the repairer is dependent upon the ability to meet the quality and price
        expectations of the insurer.

        The answer to the question posed in the heading to this part is therefore “yes”.


5.5     How will services be offered to customers?

5.5.1   The interviews revealed...
        Interviewees and survey respondents were questioned as to how the customer and the RS&R
        participant contacted each other and how the mode of contact will change over the next 5
        years. Charts Four and Five summarise the responses. The Charts clearly show that the
        most significant impact on contact between customer and RS&R participant will come from
        the increased use of the Internet or other e-Commerce medium.


                                              Chart 4 How do customers make contact with the RS&R sector


            Via internet or other e-
             commerce medium

                                       e-mail


            Telephone or facsimile


                                 Mail order

             Face to face, over the
                    counter

                                                    0            5            10    15   20         25            30   35   40    45      50
                                                                                              No of respondents


         NB: Reference should be made to the caveat in para. 3.3.3 of this report        Interviews         Survey




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                              Chart 5 How will customer initiated contact change over the next five years?
                                                       (combined responses from interviews & surveys)




              Via internet or other e-
               commerce medium



                                   e-mail



             Telephone or facsimile



                              Mail order



              Face to face, over the
                     counter


                                             0    5        10         15        20         25            30   35      40      45   50
                                                                                     No of respondents

           NB: Reference should be made to the
           caveat in para. 3.3.3 of this report       No significant change          Moderate Change          Significant Change




5.5.2     What will be the impact - Two Australian examples
          Two examples of the impact the Internet might have on the RS&R sector were revealed by
          the interviews.


5.5.2.1   Online assessment of vehicle damage
          Vehicle accident insurer NRMA has introduced an online damage assessment process using
          a combination of digital camera technology and the Internet.

          Approved repairers using the technology are required to take digital images of the damage
          and transmit them to an assessment centre via an Intranet connection together with the quote
          for the repair. The insurance company assessor reviews the images and the quote and, after
          obtaining any clarification that might be required, approves the quote. NRMA advised that
          the volume of claims processed per assessor has increased and turn around of claims has also
          improved. The repairers using this technology are subject to field audit when considered
          necessary.




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5.5.2.2    Online warranty repair assistance
           Component producer Air International is developing an Internet based diagnostic and repair
           process to assist dealer service departments in rectifying problems with Air International
           components fitted to locally made vehicles. Claiming that the gap between vehicle
           complexity and service technician capability is increasing Air International are developing
           the system to:

                  “fix it right first time” by focusing on problems in the field rather than returning them to
                  the factory

                  assisting dealer service technicians with correct diagnosis and reducing the level of “no
                  fault found situations”; and

                  assist with “outflow prevention” - that is, to feedback problems into the component
                  production process and modify the component to eliminate recurring faults.


5.5.3      Are these isolated examples?
           Much has been written about the impact of the Internet and e-Commerce on the automotive
           industry. A brief examination of the impact of the Internet and e-Commerce on the RS&R
           sector follows using the working definition of the sector included in Part 3 of this Report.

           That definition reads as follows:

                  “The RS&R sector comprises those activities dealing with everything that happens to a
                  vehicle from its sale as a new vehicle to it’s dismantling at the end of its useful life”.

           These activities are summarised in the diagram below. Each element of that diagram is
           examined in the following Sections (with the exception of finance lease and warranty and
           vehicle use, which are beyond the scope of this report).


          Figure 2: An overview of the RS&R sector


          New Vehicle      Used Vehicle   Finance Lease     Vehicle          Vehicle       Vehicle Use             Vehicle
          Sales                  Sales       & Warranty Service & Parts Collision Repair                       Disposal &
                                                                                                                Recycling




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5.6       New and used vehicle sales

5.6.1     The US experience
          Based on research it has carried out in the USA A. T. Kearney has concluded that “the
          Internet is having various effects on automotive retailing”. A. T. Kearney have concluded:

          “We expect the role of the Internet to expand rapidly and to have wide ranging impacts on
          automotive retailing”.

          These impacts were summarised as follows.


5.6.1.1   Use of the Internet by customers
          Large and increasing numbers of customers are using the Internet to ascertain dealer costs
          and MSRPs (manufacturer suggested retail prices) for various vehicles and options. Thus
          customers come to the dealer armed with a wealth of data and can negotiate with the sales
          person more effectively than in the past. In addition, greater numbers of buyers are entering
          dealerships already “pre-sold” on a particular vehicle and set of options. Both dealers and
          manufacturers agree that the sales persons role will change in the future to acting more as a
          purchase advisor in the sales process and as a consultant for the customer. Both groups also
          see the future sales person as a product expert and relationship manager. A further
          consequence of the use of the Internet by potential customers may allow reductions in sales
          forces.


5.6.1.2   Changes in traditional sales territory
          Sales territories for dealerships are changing as some dealers use the Internet to reach
          customers outside their traditional sales territories.


5.6.1.3   Use of Internet by manufacturers
          Manufacturers are increasingly using Internet sites as marketing tools to strengthen brand
          identification and promote new features and models. Manufacturers are also advancing their
          Internet sites to function as more than mere advertising campaigns to address the competition
          coming from independent Internet car buying services such as Auto-by-Tel and Microsoft’s
          CarPoint.




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5.6.1.4   Independent Internet car buying services
          Independent Internet car buying services may offer more detailed information on specific
          vehicles than some manufacturer Internet sites as well as the ability to compare different
          makes and models. Services offered by these organisations include:

              guaranteeing a price on the vehicle of choice without negotiating through a dealer;

              buying the vehicle from the dealer and delivering it directly to the buyer; and

              allowing the buyer to place a bid on a particular vehicle and searching databases to locate
              a dealership within the buyers driving range that will sell at that price.


5.6.1.5   Young customers
          Recent research on potential young customers in 2004, people now between the ages of 16
          and 22, describes them as completely “internalising” use of the Internet while older
          customers adopt it as a means of using a “new way to do old things”. For these young
          customers the internalisation of the Internet makes them see information as ubiquitous and
          building trust as not requiring face-to-face interaction. Marketing to these potential
          customers will demand more of an electronic interface.


5.6.2     The Australian experience

5.6.2.1   The use of the Internet is increasing …
          A Report produced by the International Car Distribution Programme Australia (ICDPA)
          earlier this year commented that:

              Australians have not been as quick to embrace the Internet as our American counterparts;

              notwithstanding this, Australians are using the Internet in increasing numbers - albeit that
              many home users are restricted via severely limited bandwidth and download speed;

              many auto industry websites currently exist within the Australian market - more than the
              population and industry can support, suggesting an imminent shake out some time in the
              future;

              many of these sites have structural problems and fail to deliver the quality of information
              promised by the vendors and sought by the customers;

              the Internet has created a more informed customer with higher expectations and
              increased options;




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              customers expect that the use of a web page implies a certain level of technical
              competence; and

              corporations that ‘over promise’ and ‘under deliver’ via their website do so at their own
              peril - a poorly conceived and inadequately supported website may harm its relationship
              with customers.


5.6.2.2   … but face to face will remain the main source of contact
          Despite the availability of information on the Internet there is still a strong emphasis on face-
          to-face contact with customers. This mode of contact is not expected to change significantly
          over the next 5 years.

          Car company interviewees advised that contact would continue to be made through:

              special events mounted at the dealership - one interviewee described this as the “prime
              marketing communication”; and

              direct mail, particularly advising of special events at dealerships.

          One interviewee commented that the Internet is useful in “providing information that
          engenders customer interest in our vehicles, but the conversion to sale comes from face-to-
          face contact”.


5.7       Vehicle service and parts

5.7.1     Dealers recognise the importance of service and parts...
          Research in the United States indicates that service and part sales have decreased slightly as
          a percentage of total sales, although they have increased the relative contribution to dealer
          profits. Dealerships have been investing in their service and parts operations to attract
          customers and to compete with service providers for post-warranty vehicle maintenance,
          repair services and parts sales. Anecdotally, experience in Australia has been the same.

          Dealers realise the value of customer retention and are increasingly using follow-up phone
          calls and other techniques to generate a relationship with a customer that extends beyond the
          sale event and warranty service.


5.7.2     ...as do the vehicle manufacturers …
          The past two or three years have seen an increased level of interest in vehicle service and
          parts sales by vehicle manufacturers. This has resulted in the acquisition of service
          organisations (such as the acquisition of the Kwikfit Service chain by Ford in Europe) or an
          increased level of support for dealers in providing these services. Our interviews revealed:




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            strong levels of support for technical training by vehicle makers;

            encouragement to enhance “workshop operations” by stocking replacements parts such
            as exhausts, batteries and original equipment tyres and by offering services such as wheel
            alignment; and

            dealers being encouraged to specialise in particular types of warranty repairs such as
            transmissions so they can provide service to the dealer network in their region and offer
            the specialist service to the broader public.


5.7.3   … and the component manufacturers.
        Manufacturers of original equipment (OE) and replacement parts recognise the importance
        of having strong links into the service and parts sector. Overseas research has indicated that
        these manufacturers have sought to develop and strengthen their links with the service and
        parts sector by:

            the development of electronic links – refer to 5.5.2.2 for an Australian example;

            vertical integration through “soft franchised” networks and company owned ‘fast fit’
            chains; and

            the development of partnerships with independent after sales chains for chain branded
            parts – for example, GUD Ltd, manufacturers of the Ryco Oil Filter also manufacture
            Repco branded oil filters for that organisation.

        The interviews revealed two examples of component producers that support sellers of their
        parts. This support involves:

            an accreditation process – the customers must complete mandatory training to receive the
            accreditation;

            the provision of technical advice and support – a hotline is available to assist with
            difficulties;

            effectively granting the accredited repairer exclusivity within a specified area; and

            providing ongoing business development, marketing and training support.

        One interviewee indicated that his organisation felt it was necessary to provide this support
        because:

            it wanted to be close to its “service partners”;




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            it was concerned that the repairers may not be able to cope with developments in the way
            business is being done, such as the introduction of computers, resulting in the neglect of
            the “business side” of the workshop; and

            it wanted its “service partners” to be operating at a standard similar to that of the better
            dealer service organisations.

        He summed up the approach as changing service and repair operations from “the mechanic
        trying to be a businessman” to “a businessman running a technical workshop”.


5.7.4   What does this mean for the RS&R sector?
        The attention being paid to the service and parts sector by the vehicle and component
        manufacturers begs the question as to whether the independent repairers and service
        operators need to be part of the “soft franchise” arrangements or support networks to ensure
        their survival. One interviewee was of the opinion “working a small business is becoming
        difficult”. He went on to comment “wholesalers are the catalyst for grouping (repairers) to
        drive growth”.

        A contrary view can be found in overseas research, which concluded, “do not underestimate
        the independents, because they are not going to go away!”

        This research summarised the pluses and minuses of the “independents” as follows:

        Minuses                                                 Pluses
            lack of labour skilled in new technology                entrepreneurial

            varying reputations                                     flexible – adapted to the technology so far

            limited use of information systems                      low cost

            difficulties in making time for training                strong diagnosis skills

            difficulties in making the right equipment              close to customers
            investment decision

            trial and error time for repairs – do we focus on       better assessment of threats and opportunities
            the marque or the process?

            access to information is a problem                      survivors and independent




        Alignment with a “soft franchise” or support network may assist the independent to
        overcome the minuses while retaining the pluses, and allow the supporting wholesaler or
        component producer to take advantage of the pluses. In particular, if the partner in such an
        alignment provides IT support, the alignment will enable the independent to overcome the
        weaknesses arising from:

            limited use of information systems;



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          difficulties in making time for training – the internet is increasingly being used for self
          paced training delivery;

          elimination of “trial and error” time through the use of on line assistance; and

          access to information

      by becoming involved in e-commerce and the Internet.


5.8   Vehicle Collision Repair
      As with service and parts, vehicle manufacturers are becoming involved in vehicle collision
      repair activities. Australian examples include:

          BMW Australia’s establishment of a “greenfield” panel shop in Melbourne; and

          Ford’s acquisition of the Woods Accident Repair Centres in Melbourne.

      The impact of these operations on the sector has yet to be determined. There will be some
      tension between the insurers and the vehicle manufacturers regarding costs of repair versus
      quality of repair.

      From an Internet and e-commerce perspective, independent panel shops face the same
      challenges as those faced by the independent service and parts operators – limited use of
      information systems, difficulties in making time for training, elimination of “trial and error”
      time and access to information. The development of on-line assessing as set out in 5.5.2.1
      will result in an increased use of the Internet in this sector.


5.9   Vehicle disposal and recycling
      This aspect is well covered in Part 8 of this Report. The main development in this sector
      from an Internet/e-commerce perspective will be the development of on-line catalogues.




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6     Technology

6.1   “Advancements in product technologies are pushing the entire
      industry to new heights”
      During a presentation made at the Conference associated with the 2001 North American
      International Auto Show, Bill Carroll, President of Dana Corporation, commented:

            “There is no question that technology is changing our industry. … advancements in
            product technology are pushing the entire industry to new heights”

      The relevance of this statement to the RS&R sector was tested during the interviews. All of
      the interviewees agreed or strongly agreed with Carroll’s statement. One interviewee
      commented, “Everyone underestimates the impact of technology – it moves exponentially”.

      In this section of the report, we cover:

          the significant trends revealed by the desk research; and

          the impact of those trends on the RS&R sector.


6.2   What are the significant trends?
      The desk research revealed the following significant trends in automotive technology:

          mechatronics;

          recyclability;

          systems and module supply;

          development of alternative energy sources; and

          the development of the intelligent car.

      The applicability of these trends in the Australian context was confirmed during the
      workshop held on 23 August and during the interviews.

      In the following parts of this section, a brief explanation of each of these trends is provided.
      While each of the trends is considered separately, they are inextricably linked in determining
      what the car of the future will be.

      Please note that recyclability is covered in some detail in Part 8 of the report that deals with
      Environmental Issues.




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                              Chart 6 What do you see as the emerging trends in product technology over the
                                                            next few years?


                          Intelligent cars and IT applications

                                                              Traffic safety

            Development of alternative energy sources

                                           Systems/module supply

                                                              Recyclability

                                                             Mechatronics

                                                                                    0     5    10    15     20      25   30     35     40    45

         NB: Reference should be made to the caveat in para. 3.3.3 of this report
                                                                                                       Interviews    Survey




                                      Chart 7 Rank the nominated trends in terms of impact on your business
                                                (combined responses from interviews & surveys)


                          Intelligent cars and IT applications

                                                             Traffic safety

            Development of alternative energy sources

                                           Systems/module supply

                                                              Recyclability

                                                             Mechatronics

                                                                                    0         10        20    30        40          50       60
                                                                                    No significant change Moderate Change     Significant Change

         NB: Reference should be made to the caveat in para. 3.3.3 of this report




6.3     Mechatronics

6.3.1   What is “mechatronics”?
        “Mechatronics” is the combination of the mechanical and the electronic. Essentially,
        mechatronics involves the constant measurement and interpretation of signals by
        microprocessors in the vehicle and the automatic adjustment of the operation of the vehicle.




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          The effect of this trend is best explained by examples.


6.3.1.1   Audi’s “Multitronic” transmission

          Instead of the normal fixed-ratio gears that are found in automatics and manuals alike, a
          Multitronic gearbox uses a tightly stretched belt to link two cone-shaped shafts, one
          connected to the engine, the other to the wheels. By adjusting the position of the belt on the
          shafts, the engine can run constantly at or near its optimum speed, regardless of load.
          Different optima are available, depending on whether a driver wants performance, fuel
          economy or some intermediate combination of the two. This style of transmission is
          sometimes referred to as a Continuously Variable Transmission or CVT.

          In the case of Audi’s version of the CVT, the most significant changes are the mechanical
          properties of the materials used to make the belt, and the electronics that control the
          transmission. Audi has crafted a high-strength metal belt made of more than 1,000 separate
          but overlapping links. Meanwhile, the system measures a variety of signals, and runs them
          through a computer algorithm that works out the appropriate gear ratio at any given moment.
          These signals include engine and vehicle speed, and the angle of depression of the
          accelerator pedal.

6.3.1.2   Cadillac’s MR continuously variable suspension.

          “MR” refers to the magneto-rheological fluid that fills the vehicle’s shock absorbers. Such a
          fluid’s viscosity changes dramatically in the presence of a magnetic field, so a car that uses it
          to smooth out the road can respond within a millisecond or so to changes in the conditions,
          or to the way the driver is driving. Once again, an algorithm programmed into a specially
          designed microprocessor takes the decision on what response is appropriate. This algorithm
          looks at signals from the steering wheel and brake pedal, and measures speed and road
          conditions using sensors located in each wheel. These inputs determine the settings of
          individual shock absorbers - the actual stiffness being controlled by currents sent to
          electromagnets in each.

6.3.1.3   Displacement on demand

          Displacement on demand involves using only those engine cylinders that are actually
          necessary to power a car in the conditions that it is experiencing.

          GM’s engineers hope to make displacement on demand work by using a microprocessor to
          take the pulse of the engine thousands of times a second, and then make adjustments so
          swiftly and subtly that the driver has no idea how many cylinders are firing at any particular
          moment. The decision about which cylinders to use is based on factors including the number
          of revolutions per minute that the engine is turning, the vehicle’s speed, the load it is
          carrying, and whether it is coasting or accelerating.




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6.3.2   Developments in electronics
        The examples shown above could be considered “over the horizon” developments in
        mechatronics, and it may be some time before we see them in the majority of passenger
        vehicles operating on our roads.

        The following table summarises industry views on the technology that is under development,
        the consumer benefits from those technologies and the likely time frame for introduction, all
        of which has been made possible by electronics.

        Technology                Benefit                                                                      Timeframe
        Internet access           In-vehicle, real-time, wireless communication providing                      2001 - 2002
                                  navigation data and turn-by-turn directions, e-mail, satellite
                                  radio.
        Fibre optics              Eliminates weight and bulk of copper wiring, speeds                          2001 - 2002
                                  transmission of internal data
        Emergency alert           Instantly communicates with emergency services as airbag                     2002
                                  deploys in crash
        Laser taillights          Lowers power consumption by eliminating incandescent bulbs                   2003
        Brake-by-wire             Eliminates all hydraulic and mechanical parts in combination                 2003 - 2004
                                  with ABS, ASR suspension and VDC traction-control stability
        Movie downloads           Stream CD quality movie or internet radio to car through 3G                  2004
                                  wireless communication systems
        Voice navigation          Reduces driver visual distraction in terms of gauges, buttons                2005-2006
                                  etc.
        Image capture             Combines infrared and radar to monitor traffic on sides, front               2005-2006
                                  and back of the car with night vision capability
        Steer by wire             Intelligent cruise control, integrated braking,                  steering    2008-2010
                                  suspension/traction control, throttle control
        42V power                 Handles increased power consumption in the vehicle, allows                   2010-2020
        systems                   instant stop/restart of engine to eliminate idling and reduce
                                  pollution
        Sources: IC Insights, Forrester Research, Hansen Report (as reported in EBN)




        The table indicates a reasonable length of time will elapse before the technologies listed will
        be seen in vehicles serviced by the non-dealer participants in the RS&R sector.


6.3.3   The Australian experience
        As noted earlier, the August workshop and the interviews confirmed that the trend to
        mechatronics would emerge in Australia. It was interesting to note that survey respondents
        were almost equally divided as to whether or not mechatronics is an emerging trend in
        product technology over the next five years.



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        Anecdotally there is a sense that “mechatronics is already here” in applications such as ABS
        braking and traction control. There may also be a belief that developments such as those
        described in 6.3.1 may take some time to filter down to the vehicles serviced and repaired by
        the majority of RS&R participants.


6.4     Systems and Module supply

6.4.1   A concentration by the car companies on their core business …
        Car companies are concentrating more and more on their core tasks of:

            designing cars;

            manufacturing core technologies (body work and powertrain especially);

            adapting their organisation for lean manufacturing;

            assembling cars; and, perhaps most importantly;

            marketing and selling cars, together with offering a range of customer oriented services
            to include financing, insurance and maintenance deals on a long-term basis.


6.4.2   … which leads to a change in assembly processes.
        As a result, car companies are changing their basic assembly processes. They are
        increasingly looking at suppliers to pre-assemble functional modules which they then simply
        fix into a car as it moves down the assembly line.

        The move towards the outsourcing of certain components and subassemblies started in the
        1980’s and gathered momentum in the early 1990’s. The main drivers behind this trend were
        the desire of the vehicle manufacturers to reduce their costs and reorganise their supply base
        and purchasing activities.

        The Smart car is probably the best European example of modularisation, with the entire
        vehicle made up of a small number of modules assembled by Magna, Meritor and others in a
        supplier park co-located with the Smart assembly line.

6.4.3   The following component groups have been affected
        The first areas that were earmarked for outsourcing were typically the bulky items such as
        seats, which needed to be delivered to the assembly line in-sequence and on a JIT basis.

        Beyond seats, the typical component groups supplied as assemblies or modules include
        steering wheels, instrument panels, front-end modules (including bumpers, lighting, grilles
        and wiring), door panels, cooling systems and heating, ventilation and air conditioning
        (HVAC) systems.




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6.4.4   The impact on the RS&R sector
        The modules and sub-assemblies that make up the motor vehicle are linked by
        microprocessors and software. It will be important for those in the RS&R sector to
        understand the “theoretical underpinnings” of the way modules interface with each other and
        software and software protocols.

        There may also be a change in the way in which the RS&R sector obtains the knowledge to
        effect service and repairs. For example, it may be necessary to subscribe to a number of
        warranty repair assistance intranets (such as that described in 5.5.2.2).

        It is worth noting that the majority of survey respondents do not see systems / module supply
        as an emerging trend. As a result, the trend is not seen as having a significant impact on the
        respondent’s business.


6.5     Alternative fuel sources

6.5.1   There are four alternative fuel sources being explored
        Desk research indicates that four alternative fuel sources are being explored:

            hybrid power;

            fuel cells;

            hydrogen; and

            diesel.

        While the latter has been in use since the 1930’s, developments in diesel engines may lead to
        their increasing use in Australia. Further comments on alternative fuels can be found in Part
        8 of this Report.


6.5.2   Alternative fuel sources will have minimal impact on the RS&R sector
        Desk research and the interviews indicate that:

            sales of hybrid powered vehicles in Australia will be limited (perhaps up to 1,200 per
            year) and will be serviced by specially designated dealers within the manufacturers
            network;

            difficulties with the storage and delivery of hydrogen will preclude its widespread use in
            the near future; and




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            there may be increased sales of diesel passenger vehicles as the disadvantages of diesel
            engines are overcome and diesel fuel quality, pricing and taxation issues are addressed.

        It would therefore be reasonable to conclude that alternative fuel sources will not have a
        significant impact on the RS&R sector over the next few years. However, it should be noted
        that the survey ranked the development of alternative energy sources highest amongst the
        emerging trends and in terms of impact on business.


6.5.3   Hybrid power
        Hybrid electric vehicles (HEVs) are powered by two energy sources - an energy conversion
        unit (such as a combustion engine or fuel cell) and an energy storage device (such as
        batteries or ultra capacitors). Gasoline, methanol, compressed natural gas, hydrogen, or
        other alternative fuels may power the energy conversion unit. HEVs have the potential to be
        two to three times more fuel-efficient than conventional vehicles.

        HEVs can have either a parallel or series design. In a parallel design, the energy conversion
        unit and electric propulsion system are connected directly to the vehicle's wheels. The
        primary engine is used for highway driving; the electric motor provides added power during
        hill climbs, acceleration, and other periods of high demand. In a series design, the primary
        engine is connected to a generator that produces electricity. The electricity charges the
        batteries and drives an electric motor that powers the wheels.

        The Toyota Prius and Honda Insight were introduced in the United States in 1999 and 2000
        respectively, and into Australia during 2001. Although these are the only two hybrids
        currently available, other auto manufacturers are working on developing HEVs of their own.


6.5.4   Fuel cells
        Fuel cells produce electricity. Similar to a battery, a fuel cell converts energy produced by a
        chemical reaction directly into usable power. Unlike a battery, a fuel cell has an external
        fuel source - typically hydrogen gas - and will generate electricity as long as fuel is supplied,
        meaning that it never needs electrical recharging. Inside the fuel cell, hydrogen and oxygen
        from the air combine to produce electricity and warm water. As a simple electrochemical
        device, a fuel cell does not burn fuel, allowing it to operate pollution-free. This also makes a
        fuel cell quiet, dependable, and very fuel-efficient. All major auto companies have fuel cell
        powered vehicles under development.

        Storing hydrogen on board a fuel cell vehicle greatly simplifies the propulsion system design
        and results in a more energy efficient system because on-board fuel processing is
        unnecessary. Hydrogen is normally a gas, so a relatively large volume is required to contain
        enough energy to provide the driving range we expect from today's automobiles.




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        Currently, two methods of storing hydrogen on board a vehicle are receiving the most
        attention:

            compressed gas in storage tanks at high pressure; and

            liquid hydrogen in insulated storage tanks at low temperature and pressure.

        Research and development of chemical storage systems using metal hydride compounds and
        advanced carbon storage media is also under way.


6.5.5   Hydrogen gas
        Hydrogen gas is being explored for use in combustion engines and fuel cell electric vehicles.
        It is a gas at normal temperatures and pressures, which presents greater transportation and
        storage hurdles than exist for the liquid fuels. Storage systems being developed include
        compressed hydrogen, liquid hydrogen, and chemical bonding between hydrogen and a
        storage material (for example, metal hydrides).

        The ability to create hydrogen from a variety of resources and its clean burning properties
        make it a desirable alternative fuel.

        There are no vehicles currently available that use hydrogen as a fuel. Automobile
        manufacturers have experimented with developing vehicles that use hydrogen. Daimler-
        Benz, BMW and Mazda have produced research vehicles. The Mercedes-Benz and BMW
        vehicles use liquid hydrogen. The Mazda vehicle stores its hydrogen as a gas in a metal-
        hydride lattice of shaved metal.

        High production costs and low density have prevented hydrogen's use as a transportation fuel
        in all but test programs. It may take up to 20 years or more before hydrogen is a viable
        transportation fuel and then perhaps only in fuel cell-powered vehicles.


6.5.6   Diesel

        Diesel engines power over 25% of light-duty vehicles in Europe, and that proportion is still
        growing. The diesel share of the Japanese market is much smaller, however, while in the US
        it is almost non-existent, reflecting that market’s lack of any serious interest in fuel
        economy. In a practical sense, the diesel has suffered several drawbacks compared with the
        petrol engine:

            it tends to be rough and noisy;

            its fuel is less pleasant to handle; and

            it suffers from a limited rev range which calls for a different and somewhat specialised
            driving technique.




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        Its one major advantage is its economy. In the European market especially, manufacturers
        have sought to minimise the diesel’s disadvantages while maximising its economy
        advantage.

        It was only with the advent of the energy crises of the 1970’s that passenger car owners, fleet
        and private, began seriously to see the diesel’s better economy as a benefit for which it was
        worth suffering some disadvantage in terms of noise, refinement and drivability. This
        economic advantage was magnified, in a number of countries including France and Italy, by
        the fact that diesel fuel was taxed at a lower rate than petrol.

        As sales of the available diesel passenger cars began to rise, especially in Europe, so other
        manufacturers became determined to take a share of this rising market segment and the
        number of diesel passenger car models began to increase; while more research was devoted
        to overcoming, or at least ameliorating, the diesel’s qualitative shortcomings. As a result,
        the best diesel car models in current production approach petrol powered standards of
        performance, refinement, and ease of use.

        For example, Volkswagen has:

            developed a lightweight 1.2 litre diesel to power its Lupo model, which has fuel
            consumption of 3 litres per 100 kilometres; and, more recently;

            released a 10 cylinder TDI engine with twin turbos and pump injection for use in the
            luxury and SUV segments – VW claims the engine delivers “superlative power and
            torque”.

        While the current penetration of diesel passenger vehicles in the Australian market is limited,
        increased fuel prices, changes in the tax regime that is presently applied to diesel fuel and a
        more consistent quality of diesel fuel may lead to increased numbers of these vehicles on our
        roads.


6.6     Telematics and the development of the intelligent car

6.6.1   An overview of telematics
        Intelligent transportation systems allow "informed decisions by transportation planners,
        managers, users, and operators" about traffic flows and points of congestion. The intelligent
        car becomes part of this system through “telematics” – the integration of vehicle control and
        monitoring systems with location tracking devices and wireless telecommunications.




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        The use of telematics will result in:

            improved collision avoidance systems;

            automatic speed control to adjust spacing between cars in traffic;

            communications-based safety and security features; and

            computer-controlled braking and steering.

        The whole panoply of electronics and communications technologies will fuel the growth of
        these systems. Wireless and fibre-optic networks permit communication of traffic
        information from central computers to in-motion vehicles. Sensors installed on vehicles
        transmit information back to central databases and to adjacent vehicles so that adjustments
        can be made.

        Display technology in cars provides maps and routing information for vehicle occupants.
        Communication devices that link with the Global Positioning System to provide roadside
        rescue for motorists and information about stranded vehicles to public safety agencies have
        been developed.


6.6.2   Telematics are available in Australia
        In August this year, Holden advised that extra equipment will be offered on some its locally
        produced models, including the telematics system known as Holden Assist that was first
        featured on the limited edition Statesman International. Holden Assist is to become standard
        on the Caprice while it will be optional on the Statesman and Calais.

        The technology has been available in Australia for some time in imported luxury vehicles.

        Whether the ‘in car’ information and entertainment elements of telematics will gain wide
        acceptance in Australia is a moot point. One interviewee is of the opinion that the
        comparatively low traffic densities in Australia make it “just as easy to get around with a
        Melways and a mobile phone”. He was also of the view that relatively short travel times
        within cities means the entertainment and communication components may not be as widely
        accepted as they are projected to be overseas.


6.6.3   Impact on the RS&R sector
        Despite this view, some elements of telematics will come to Australia and the RS&R sector
        will be required to meet customer expectations in dealing with the technology. The survey
        results indicate that the respondents share this view.




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7       Work Practices

7.1     The premise for this part of the study
        The examination of work practices was based on the premise that technological changes, the
        Internet and advances in communications will change the way in which the automotive
        industry operates. The Study therefore concentrated on determining perceptions of:

            what existing practices or behaviours may be unfrozen by the pressures on the industry

            what new practices may be introduced; and

            what the new standard or accepted way of doing things might be.

        The examination was structured around the five occupational groups identified in the RS&R
        training package, viz:

            mechanical;

            electrical;

            sales;

            vehicle body; and

            administration.


7.2     The views are divided …
        There is a dichotomy of views between the interviewees and the survey respondents as to
        whether technology or customer expectations will have the more significant impact on work
        practices.


7.2.1   The interviewees
        Interviewees were asked:

              “Which do you think will have the greater impact on work practices in the RS&R
              sector – customer service and expectations or technological change”

        The majority of interviewees concluded that customer expectations would have the greater
        impact.




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        Comments made during the interviews included:

            technological capability wins the job – as the market contracts, customer service will
            become more important;

            customer service expectations are there now – they just need to be recognised;

            technology does not change as fast as the level of customer expectations;

            (at a retail level), the customer expects a high level of product knowledge, and wants to
            be sold to but not hassled; staff must understand the impact of the product on vehicle
            performance and recognise they are dealing with knowledgeable customers;

            technological change is happening and we have to cope with it – in the long run all you
            have is the customer, and they want to be respected, welcomed but not patronised and
            come to clean premises.


7.2.2   The survey
        Survey respondents were asked:

              “Which do you think will have the greater impact on the work practices in your
              business – changes in approach to customer service or technological change”?

        The majority of respondents chose the latter – technological change.


7.2.3   How does the RS&R sector react to this?
        The sector recognises that customers are expecting more from all of their service providers
        (not just in the automotive sector). Responses to the survey indicate that RS&R participants
        have been focusing on service and using advertising and marketing to increase the level of
        contact with customers. To ensure that the sector continues to meet these expectations, it
        may be necessary to:

            in the case of larger organisations, separate (or maintain the separation) of the customer
            facing personnel and the technical staff, and ensure the former are properly equipped and
            trained to deal with the increased level of expectation; and

            in the case of smaller organisations, ensure that the proprietor and staff are properly
            equipped and trained to deal with the increased level of expectation.

        It is worth revisiting two of the matters that were raised in Part 5 and considering how they
        might impact on the sector’s work practices. These matters are:

            (in the retail sector), sales persons acting more as a purchase advisor, a consultant for the
            customer, a product expert and a relationship manager; and



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            (in the repair and service sector) the opportunities to become involved in so called “soft
            franchise” or support network arrangements to obtain (amongst other things) training so
            that the service and repair enterprise becomes “a businessman running a technical
            workshop” as opposed to “the mechanic trying to be a businessman”.


7.3     The impact of technology on work practices

7.3.1   The move from repairable to replacement parts
        The developments in electronics or mechatronics and the move to sub assembly or modules
        in the manufacture of vehicles has led to a move from repairable to replacement parts.

        During interviews with component producers it was mentioned that the vehicle
        manufacturers do not value the serviceability of components.

        That is, if faced with a choice between two parts that have the same in-service functionality
        and one of these is serviceable should it malfunction while the other is not so serviceable but
        cheaper, vehicle makers will always choose the lower priced part.

        As a result, component producers do not manufacture for serviceability. Any component
        that fails (or is alleged to have failed) while in service is merely returned for testing and
        destroyed.


7.3.2   Diagnostics is the key
        One interviewee stated that the “pure mechanic is becoming a dinosaur. Twenty-five years
        ago, diagnostics skills were inherent in the employee. Now it is with machines”.

        All of the interviewees were of the view that the ability to use electronic diagnostic
        equipment is the key skill required in the service area. Because of the quality of electronics
        in vehicles and the general reliability of vehicles, up to 70% of work that is done will be
        routine servicing. A select group of better-trained technicians will provide both diagnostic
        and rectification services. This group could be as few as 20% of the service staff at a dealer.

        Interviewees were asked whether these developments would lead to a “dumbing down” of
        the service and repair sector. The general response was in the negative – it was felt that the
        greater emphasis on equipment-assisted diagnostics would lead to the need for different
        skills. This conclusion is supported by the survey results.

        Because the skills employed in the vehicle body sector will essentially remain the same,
        these comments do not apply to this sector. However, the skills would be applied to new
        materials used in the construction of vehicles.




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7.4   Classification of employment
      Interviewees were asked:

            “Do you think the classification of employment in the RS&R sector into the following
            categories – administration, electrical, mechanical, sales and vehicle body - will be
            valid in five years time?”

      Most responses focused on the electrical and mechanical categories, noting:

          there will some blurring or merging in these areas;

          we will not be able to separate these categories

          electrical and mechanical will merge; and

          the move will be to electrical.

      Based on the developments in electronics covered in Part 6 of this Report, the comments
      would seem reasonable.

      The respondents to the survey, the majority of whom believe the classifications will remain
      valid in five year’s time, do not support this view.




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8       Environmental Concerns

8.1     Regulation, recycling and “greener ways of getting around”
        This part of the study looks at environmental considerations, including those expressed by
        the community and the way in which regulators are reacting to those concerns. The study
        focused on:

            how those concerns might manifest themselves by way of regulation;

            greener ways of getting around such as alternative fuels or hybrid or lighter vehicles; and

            the recycling of materials and components used in the production and operation of
            vehicles.


8.2     What are the concerns?

8.2.1   The car is a target
        One commentator has noted, “the growth in environmentalism has serious implications for
        almost every business. For the car industry it is particularly serious. The motor car is one of
        the primary targets for environmental attack...”

        Another noted, “The American dream of a car - or two or three of them - in every garage is
        beginning to look like a nightmare for our planet. Besides their role in making the smog and
        acid rain that damage forests, crops and aquatic life over vast regions, motor vehicles are
        driving two other global problems. Motor vehicles account for (the majority) of US Carbon
        Monoxide emissions and much of the harmful ground-level ozone - a greenhouse gas and
        chief ingredient of smog. Most damaging of all ... they account for (a large part) of the
        leading greenhouse gas, carbon dioxide.”


8.2.2   The EU experience
        More recently, the European Union (EU) has noted, when releasing “Term 2001: Indicators
        Tracking Transport and Environment Integration in the EU”:

              “Overall, the report shows that transport in the EU is becoming less and not more
              environmentally sustainable...

              Progress towards a more sustainable transport system has become imperative and
              efforts to integrate environmental considerations into transport policy have to be
              redoubled.




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              Transport contributes to damage to the environment and human health by emitting
              significant levels of toxic pollutants and “greenhouse” gases, generating wastes and
              noise and fragmenting the countryside.

            Most of the reports key indicators signal unfavourable trends or show that there is still a
            long way to go to reach policy targets for “greening” transport. (For example):

                between 1990 and 1998, transport sector emissions of acidifying gases fell by 20%
                and emissions of the pollutants that cause ground-level ozone “smog” - oxides of
                nitrogen (NOx) and volatile organic compounds (VOCs) - by 25%. However, extra
                efforts are needed - also in other sectors - to reach EU targets for reducing
                emissions of these substances;

                transport is responsible for 24% of the EU’s total man-made emissions of carbon
                dioxide (CO2), the main greenhouse gas, with transport by road alone accounting
                for an 84% share of this. CO2 emissions from transport increased by 15% between
                1990 and 1998; and

                the number of cars scrapped each year in the EU’s 15 current Member States is
                expected to grow from 11.3 million in 1995 to 17 million in 2015.”


8.2.3   In summary …
        In summary, the concerns are emissions and scrapping - what do we do with the waste
        produced by vehicles during and at the end of their useful lives.


8.3     What can be done - “greener ways of getting around”
        The reaction to these issues varies. The more radical reactions including getting “the
        economic incentives right, starting with a raise in energy taxes to make gasoline prices
        reflect more fully the social (and) environmental costs of gasoline use that are currently
        hidden. Such a move would encourage greater fuel efficiency thereby reducing our need for
        imported oil and our greenhouse gas emissions. It would also create a level playing field on
        which the new and greener automotive technologies of the future could fairly compete”.

        One proponent of the “greener automotive technologies” has suggested that “artfully
        combining two proven approaches to car design - ultra light and ultra slippery construction,
        plus “hybrid-electric” propulsion... could simultaneously:

            improve modern family cars’ fuel efficiency 4 to 10 + fold;

            reduce their pollution by 10 to 1,000 fold or more; yet also

            yield comparable or better comfort, refinement, safety, acceleration and probably
            affordability”.




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        While we have yet to fully realise the “Hypercar” vision, it is first manifestations can be
        found in the Toyota Prius and Honda Insight vehicles.


8.4     What can be done – regulation

8.4.1   A move from “command and control” to “economic incentive”
        It is worth reviewing developments in regulation. Desk research indicates there is a move
        away from “command and control” style regulation to a method of regulation described as
        “economic incentive”. The RS&R sector is familiar with the “economic incentive” style of
        regulation, as will be apparent from the following.


8.4.2   Development of command & control
        In shaping the early environmental policies of the 1970s, policy-makers instituted standard-
        based systems in keeping with prevailing legal traditions of dealing with activities deemed
        excessive by society. This “command and control” pattern of regulation set uniform targets
        for how much firms should emit, often by dictating the processes that should be used in their
        facilities.

        Two broad types of command and control regulations are discernible: technology-based and
        performance-based. The former specify the methods and equipment that firms must use to
        meet the target.

        Performance standards, on the other hand set an overall target for each firm, or plant, and
        give firms some discretion in how to meet the standard. Crucially, though, performance
        standards still hold firms to a uniform level across the industry, ignoring the possibility that
        some companies may be able to make reductions more readily than others.

        In addition, early command and control regulations were often based on “end of pipe”
        solutions with little thought given to how pollution could be reduced through more systemic
        changes to the core production process or even in product design. Of course, changes at that
        level require the active input of manufacturers familiar with the industry. However,
        command and control regulations give the manufacturer little incentive to pursue such
        changes. There is no reward for beating a target, only the risk that the regulator will
        promptly raise the standard to reflect the new technology.


8.4.3   Command and control seen as burdensome, costly and leading to antagonism
        While command and control (or direct) regulations were successful in securing the first
        round of emissions reductions from previously unregulated industries, more than two
        decades after their introduction they are now viewed as increasingly burdensome. Industry
        bemoans the financial costs such regulations impose and the intrusiveness of a process,
        which often dictates their technology choice. Regulators bear the burden of keeping abreast
        of technological developments in many different industries. Moreover, the process of



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          'ratcheting' standards up over time often brings the two groups into antagonistic debate and
          involves lengthy and detailed discussion about the costs and suitability of alternative
          technologies upon which to base the next standard.

8.4.4     The alternative is economic instruments
          Economists have long advocated the use of economic instruments as an alternative, or
          supplement, to direct regulation. Most importantly, economists argue that economic
          instruments can create a system for pollution reduction that achieves the same level of
          environmental protection for a lower overall cost (or achieves more for the same cost).
          Given the importance of the overall cost of environmental protection in political debate, this
          is a crucial advantage. Economic instruments also allow for a more hands-off regulation and
          decentralised decision-making, giving greater freedom to firms and plants about how to
          comply.


8.4.5     What then, are “economic instruments”?
          This form of regulation falls into four broad categories:


8.4.5.1   Charges, fees or taxes
          These are prices paid for discharges of pollutants to the environment, based on the quantity
          and/or quality of the pollutant(s).


8.4.5.2   Tradable Permits
          These are similar to charges and taxes except that they operate by fixing an aggregate
          quantity of emissions rather than charging a price for each unit of emissions. Instead of
          being charged for releases, one needs to hold a “permit” to emit or discharge.


8.4.5.3   Deposit-refund schemes
          Under these schemes, a surcharge is levied on a product at the point of payment. When
          pollution is avoided by returning the product, or its polluting components, to a specified
          collection stream the surcharge is refunded. These economic instruments have been used
          most often for drinks containers, batteries and packaging.


8.4.5.4   Subsidies
          Where taxes or charges can be used as a penalty on discharges, subsidies can be used to
          reward the reduction of discharges in a similar manner. The financial incentive is effectively
          the same, though the flow of funds is in a different direction. A subsidy program will
          involve a transfer of funds from the Government to the industry, while a charge program
          would be a revenue source for the Government.




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        As noted at commencement of this part, RS&R participants are familiar with at least two of
        these “instruments” - charges, fees or taxes and deposit-refund schemes. The questions are
        whether this style of regulation will be extended and if so, what will be the impact on the
        RS&R sector?


8.4.6   Mandatory recyclability of vehicles
        Another form of regulation that will impact on the RS&R sector is mandatory recyclability
        of vehicles.

        European car manufacturers have been developing facilities to deal with scrapped cars for
        several years. Volkswagen opened the first disassembly plant in Germany in 1990 and
        various German initiatives have since been in the pipeline. However, one country or one
        manufacturer alone cannot adequately handle the millions of scrapped cars that arise
        annually. The European Commission as part of its Priority Waste Streams Programme has
        launched an initiative that is transnational and brings together all manufacturers. The aim of
        the programme is to bring together Government, industry and environmental interests so that
        a consensus may be reached on future action.

        A transnational car recycling strategy has been drawn up by a project group aimed in the
        short-term at the re-utilisation of materials, although emphasis will shift more to the
        development of ‘recyclable’ vehicles in the longer-term. Without providing subsidies or
        infringing on competition, the strategy targets a 95% recovery rate for vehicle materials by
        the year 2015.

        While it is generally held that any such strategy will require vehicle manufacturers to have a
        degree of “cradle to grave” responsibility for their product, it is probable that part of the
        responsibility will devolve to the RS&R sector.


8.5     The Australian Situation - Regulations


8.5.1   A broad strategy has been announced...
        In a statement released in November 1997, Prime Minister Howard made the following
        announcement:

              “In 1995, ten percent of Australia’s net emissions were generated by cars, four wheel
              drives and light commercial vehicles.



              We will implement an Automotive Industry Environmental Strategy, in consultation
              with the automotive and oil industries and other stakeholders, to enhance the
              industry’s environmental performance.




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                This strategy will involve several elements including:

                    mandatory, model specific, fuel efficiency labelling;

                    harmonised noxious emissions standards with international standards by 2006;

                    a 15 percent fuel efficiency improvement target by 2010 over current levels
                    through negotiation with automotive companies; and

                    bringing forward the phase-out of leaded petrol, taking equity considerations into
                    account.

                The Government will also develop a basic network of compressed natural gas
                refuelling stations in selected metropolitan areas to encourage light commercial
                vehicles to switch to this more environmentally friendly fuel.

                These measures will reduce air pollution and improve the health of our cities as well
                as reducing greenhouse gas emissions.”

          The statement has led to the development and implementation of the National Greenhouse
          Strategy. The elements listed above have been incorporated in this strategy.


8.5.2     … with legislation introduced
          There has also been legislation enacted to give effect to this strategy.


8.5.2.1   The National Fuel Quality Standards Act
          For example, the National Fuel Quality Standards Act was passed on 21 December 2000 and
          provides a legislative framework for setting national fuel quality standards. It has been
          described as the first step in providing a nationally consistent approach to improving the
          quality of fuel in Australia. The main object of the Act is to regulate the quality of fuel
          supplied in Australia in order to:

              reduce the level of pollutants and emissions arising from the use of fuel that may cause
              environmental and health problems;

              facilitate the adoption of better engine technology and emission control technology; and

              allow the more effective operation of engines.

          The first standards, addressing petrol and automotive diesel, were tabled on 22 August 2001.

          The next set of standards to be developed will be for LPG.




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8.5.2.2   The Product Stewardship (Oil) Act of 2001
          In addition the National Fuel Quality Standards Act, the Product Stewardship (Oil) Act of
          2001 (PSOA) has been enacted, which has as its objectives:

              to develop a Product Stewardship arrangement for waste oil;

              to ensure the environmentally sustainable management, refining and re-use of waste oil;
              and

              to support economic recycling options for waste oil.


8.5.3     Product Stewardship of Oil - the shape of things to come?

8.5.3.1   Responsibility is with the producer
          The PSOA may provide an indicator as to how the Federal Government intends to deal with
          automotive waste materials in the future. The legislation is an example of an “economic
          instrument” referred to in 8.4 above.

          Under the legislation, the domestic oil producer or oil importer is assigned sole responsibility
          for:

              the life of the product;

              clean production and distribution issues;

              recycling and waste management; and

              related research and development.

          The producer/importer is also liable for an excise style levy on all lubricants which is used to
          pay a benefit to oil recyclers for product sold.


8.5.3.2   Similar arrangements are being considered for tyres.
          In a report prepared for Environment Australia, consultants The Altech Group, when
          considering policy options to address the problems posed by waste tyres, suggests (as an
          option):

                “Direct financial assistance…to alter the effective costs to recyclers so that their
                products can compete more readily and the demand for waste tyres (be) increased.
                One example is to provide unit benefits: a recycler receives a fixed payment for each
                waste tyre or kilogram of waste tyre material, the unit benefit varying across different




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              end uses. A model for such a scheme is furnished by the Product Stewardship
              Arrangements (PSA) for Oil introduced at the beginning of 2001”.

        A further option suggested by Altech is “Extended Producer Responsibility” or EPR. Altech
        explains:

              “EPR is a strategy that transfers the cost of waste management from the community at
              large to those economic agents (producers) who are in the best position to influence
              the factors which are most problematic at the post-consumer stage. EPR can provide
              strong incentives for producers to develop products that impose lower costs to manage
              the waste. Since the costs of eventual waste management are embedded in the prices
              paid for goods, consumers will respond by making product choices that reflect the true
              (life-cycle) costs of products.

              One form of EPR...is a take-back scheme. Overseas experience suggests that
              arrangements for individual producers to take back post-consumer products may in
              some cases be cumbersome and unworkable. In the case, for example, of packaging
              waste, Governments in other countries have provided exemptions from EPR
              obligations if firms join a producer responsibility organisation (PRO) which operates
              at an industry level.

              The PROs undertake a number of activities including administrative arrangements
              with enterprises that guarantee the recycling targets, setting prices for individual
              members, reporting the performance of the scheme as required by the regulator, and
              undertaking public awareness programs.”


8.5.4   What does this mean for the RS&R sector?
        The move to the use of “economic instruments” to give effect to environmental legislation:

            will result in the RS&R sector becoming “agents” of the producer of oils, other
            consumables and ultimately the motor vehicle in the recovery of product;

            may result in an additional administrative burden for the RS&R participant;

            will require the RS&R participant to gain an understanding of the impact of changed fuel
            standards on vehicle performance; and

            may provide additional opportunities for the RS&R participant to derive income from the
            recycling of product.




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8.6     The Australian Situation - Alternative Fuels

        During the interview program, interviewees were asked, “How do you see changes in the
        source of power for vehicles evolving over the next ten years”? Four “sources of power”
        revealed by desk research were nominated for discussion - hybrid vehicles, fuel cells,
        hydrogen and diesel engines using high powered catalysts.

        Even though the interview program was limited, the views expressed are worth noting. In
        summary, interviewees felt that:

            it is unlikely fuel cell or hydrogen powered vehicles would be introduced to the
            Australian market within the ten year time frame - difficulties with establishing the
            support infrastructure for hydrogen were referred to by all interviewees;

            hybrid vehicles would be more accepted in the market but only if the “price/amenity”
            ratio could be addressed - that is, vehicle purchasers get a lot more for their money in
            terms of accessories, power, etc. in conventional vehicles than they get in the current
            hybrid offerings; and

            the use of diesel vehicles would increase, subject to the Fuel Quality Standards Act
            improving the quality of diesel fuel offered in Australia and the tax regime being
            amended to reduce the price of diesel.

        On the basis of these responses, which reflect overseas perceptions of the likelihood of use
        of alternative fuels, it has been concluded that the RS&R sector will not be significantly
        affected by the introduction of alternative power sources.


8.7     The Australian Situation - Recycling or re-use of materials and
        components

8.7.1   A greater level of re-use of parts is anticipated
        In part 8.4, reference has been made to the European car recycling strategy that has as its
        target a 95% recovery rate for vehicle materials by the year 2015. This strategy is largely
        voluntary.

        Interviewees were questioned as to how easier recycling/re-use of parts might be promoted
        and whether a greater level of re-use of parts might be anticipated. Of the eight interviewees
        who responded to these questions, five gave an unqualified “yes” to the question “Do you
        anticipate a greater level of reuse of parts”, one answered “no”, while two were unsure or
        gave qualified answers.




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8.7.2   Car maker activity in the re-use of parts
        One of the drivers of an increased level of re-use of parts is activity by the carmakers. Ford
        has probably been the most prominent, particularly in the USA. In November 1999 it
        announced its entry into the automotive recycling business with the expectation of
        developing a significant environmental enterprise for the company. The initiative
        commenced with the purchase of a recycling operation in Florida (Copher Bros).

        In addition to disassembling cars and trucks for parts, this, and other operations acquired by
        Ford also gathered parts from Ford plants for recycling. Parts are made available for resale
        to body shops, insurance companies and retail customers.

        The investment was justified on the following bases:

            it will help reduce the amount of auto parts going to landfill;

            vehicle recycling is growing and represents a healthy business proposition within the
            automotive value chain; and

            it will allow Ford to be closer to its customers after sale.

        Industry sources indicate that since this initial acquisition, Ford has acquired approximately
        25 similar operations throughout the USA. These operations trade under the “GreenLeaf”
        name.

        The interviews revealed two similar activities conducted in Australia by car importers. One
        operation was started by a European importer in an attempt to reduce the cost of parts used in
        repairs by using salvaged parts. The operation has ceased, but may recommence in the
        future. The other operation imported salvaged parts from Japan to overcome cost and
        availability issues.


8.7.3   What are the issues?
        From an RS&R perspective, the sector will become involved in this increased level of re-use
        of parts as a parts “recoverer” - removing parts for re-use - and as a “re-user” - selling or
        using recovered parts in the repair or service of vehicles.

        The Auto Parts Recyclers Association of Australia (APRAA) claims to represent more than
        300 auto parts recyclers around Australia. APRAA has an accreditation process. The factors
        considered in completing this process provide an indication as to the issues involved in the
        re-use of parts. These include:

            warranty provisions;

            terms & conditions of sale;

            part quality and descriptions;



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    stock inventory management;

    delivery service;

    staff training;

    safety requirements; and

    environmental procedures including total vehicle fluid management.

The issues were confirmed by comments made during the interviews. Those who believe
there will be increased use of parts commented on:

    warranty;

    availability of parts;

    assessing what could be reused - doubts were expressed about the re-use of electronic
    components and safety critical parts such as air bags; and

    the need for such parts in Australia because of the age of our car park.

These issues need to be taken into account by any RS&R sector participants considering
involvement in the recovery or use of “recycled” parts.




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Appendices




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Appendix I - Interviews
The following were interviewed as part of this study.

           Name                        Organisation                     Nature of Business
Mr Gary Hingle & Mr Alex
Sachinidis                     AMWU                               Trade Union
Mr Bruce Griffiths             Air International                  Component Manufacturer
Mr Kim Elliot                  Australian Automotive
                               Aftermarket Association            Industry Association
Mr Lee Kernich                 Mitsubishi Australia               Vehicle Manufacturer
Mr Angus Kennedy               Hyundai Automotive                 Vehicle Importer &
                               Distributors Aust.                 Distributor
Mr Ray Price                   Ford Motor Co                      Vehicle Manufacturer
Mr Graeme Sumners              Toyota Motor Co of                 Vehicle Manufacturer
                               Australia
Mr John Howes                  Uneeda Body Works                  Repairer
Mr Antony Boddy & Mr           NRMA and Industrial
Phil Nixon                     Manufacturers Insurance            Insurance Company
Mr Grant Anderson              Schefenacker Australia             Component Manufacturer.
Mr Jack Holstein               Robert Bosch Australia Ltd         Component Producer
Mr James Harper                BMW Australia Ltd                  Vehicle Importer &
                                                                  Distributor
Ms Angela Krepcik              Society of Automotive              Industry Association
                               Engineers Australasia




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Appendix II - Interview Questionnaire




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Appendix III – Workshop Report
The following report summarises the outcomes of the Advisory Board Workshop held on 23
August 2001.




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Appendix IV – SME Survey
The following questions were circulated amongst RS&R participants.         Responses were
directed to and summarised by ATA.




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Appendix V – Sources used in desktop research phase.
                    Source                                         Reference
Automotive Engineering International
published by SAE International                 April 200 to September 2001 editions
Global Automotive Network
published by The International Federation of
Automotive Engineering Societies               December 2000 to August 2001 editions
Wards Auto World
published by Ward’s Communications             January 2000 to September 2001 editions
Automobile International Management
published by Hermann Selzle                    Editions 2000/1 to 2001/3
“Hypercars: Materials, Manufacturing and
Policy Implications”
Lovins, Brylawski, Crame & Moore, Rocky
Mountain Institute, 1996 and as updated on
the Institute’s website.                       http://www.rmi.org/
Rocky Mountain Institute – for information
on alternative energy sources                  http://www.rmi.org/
Office for the Study of Automotive
Transportation, University of Michigan
Transportation Research Institute
http://www.osat.umich.edu/                     Management Briefing Seminars 2001
Environment Australia                          “A National Approach to Waste Tyres” –
 Environment Australia (Department of the      Report prepared for Environment Australia
Environment and Heritage) Home Page            by Altech Group, June 2001
                                               “A CPSS for Waste Oil - an EA Discussion
                                               Paper”, from Environment Australia
                                               Legislation - the National Fuel Quality
                                               Standards Act, the Product Stewardship (Oil)
                                               Act of 2001
US Federal Trade Commission                    “Guides for the Use of Environmental
                                               Marketing Claims; Final Rule” (May 1998)




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                   Source                                        Reference
World Resources Institute, for information   World Resources Institute
on Environmental effects of automobiles.     Economic instruments for pollution control
                                             and prevention -- A brief overview

                                             Duncan Austin, World Resources
                                             Institute, September, 1999
                                             Economic Instruments for Pollution
                                             Control and Prevention - A Brief
                                             Overview

International Car Distribution Programme     “Aftersales – an ICDP Perspective”
Australia                                    Presentation by Dr Andrew Tongue, Director
                                             ICDP, June 2001
Martec Automotive Consulting Pty Ltd         “Vehicle Service Study”
Autopolis                                    “Further Developments in Automotive
                                             Distribution and the Aftermarket”
                                             Paper prepared by John Wormald of
                                             Autopolis for delivery at the Belgian
                                             Independent Parts Distributors’ AFM, June
                                             2001
Ford Motor Company                           Ford Motor Company Home Page
                                             for information regarding recycling of parts.


Auto Parts Recyclers Association of          Auto Parts Recyclers Association of
Australia                                    Australia
                                             for information regarding recycling of parts.




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                   Source                                  Reference
Economist Intelligence Unit Research   “Automotive retailing in the new
Reports                                millennium: The e-commerce revolution”
                                       by L Ealey, G Mercer and research
                                       associates, 2000 edition

                                       “The electronics revolution in the motor
                                       industry”
                                       by W Kimberley, 2000 edition

Electronic Business News               In Depth: Automotive Electronics
                                       Electronics redefine the car
                                       for information regarding the use of
                                       electronics in automobiles.




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