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The car industry’s (not so) merry-go-round

Here we are again, just over three years on from the last effort to save the automotive industry …

In November 2008, it was an extension of what became the Automotive Transformation Scheme to 2020, a Green Car fund (since mostly nixed in budget cuts) and some structural adjustment support for component manufacturers. Total cost over a decade: several billions of dollars, to support around 50-60,000 jobs.

This time around there are rather fewer zeroes, but the sums are still big enough: $100 million to Holden from the federal government; $34 million in existing funding to Ford from the ATS. Plus whatever the state governments of South Australia and Victoria end up kicking in. Nevertheless, Kim Carr returns from Detroit with the future of the car industry secured — at least for a couple of years, until another crisis demands another handout.

Still, not bad for a minister supposedly such a dud he needed sacking by his prime minister.

Three years ago the Rudd government’s car package unleashed a firestorm of criticism about “new protectionism” from the commentariat (including from me). This time around, the ennui is palpable. Fairfax’s Ian Verrender did sterling work yesterday, yet again demolishing the argument for why we need a car industry. But for politicians, it’s irrelevant, and it doesn’t seem to matter which side they’re on.

Liberal frontbencher Andrew Southcott was backing the package today in the pages of The Australian Financial Review. The last Liberal to suggest governments were being too generous to the car sector was Joe Hockey a couple of years ago, and he copped a frightful pillorying from his colleagues for it. The car industry qualifies as “strategic” for politicians in a way that, say, nothing in the textile, clothing and footwear industry does. Only the other heavy manufacturing industries, steel and defence manufacturing earn similar levels of public support.

For Labor, the importance of the industry to both the Australian Workers’ Union and the Manufacturing Workers’ Union means additional pressure to open the chequebook.

Such assistance of course is exactly what the government has been advised by Treasury not to do — support those industries under pressure from the resources boom in an effort to delay or prevent structural change in the economy. The problem is particularly acute for the automotive sector, which has been hammered not just by a high dollar, or input costs inflated by the resources boom, or even subsidised foreign competition, but by Australians themselves who have turned their backs on the traditional big family car offerings local manufacturers continue to push at them, in favour of smaller vehicles.

The structural change the automotive sector faces is at least as much a reflection of its own failure to understand its customers effectively as it is external factors — a classic example of how protected industries lose their capacity to innovate. Or, more correctly, it’s that automotive manufacturers have directed their skills into securing further support from government, and playing governments off against each other, rather than more effectively meeting consumer demand or reducing costs.

Other parts of the manufacturing sector have got on with dealing with the challenge of the resources boom. The manufacturing sector has lost tens of thousands of workers in the last three years, but has maintained levels of overall output, suggesting the sector has been lifting its productivity in response to the challenge of the higher dollar. But the automotive sector continues to be shielded from that process by taxpayers (and, let’s not forget, car buyers, who still face 5% tariffs on imported vehicles).

The only way this process will ever end is when General Motors and Ford eventually overplay their hands and demand too much to continue their Australian operations. Then a government will be forced to call their bluff, or they’ll close and move on.

When that happens, depending on the overall employment situation, we might look back and wonder why we didn’t do it when the economy was in a robust condition and unemployment was low.

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  • 1
    Modus Ponens
    Posted Wednesday, 11 January 2012 at 1:19 pm | Permalink

    You also forgot the perpetually protected aluminium industry which the Grattan Institute wrote: that because the smelters are so old and inefficient that if they stopped being subsidised and closed down to have their market share replaced by existing smelters overseas - would see a significant drop in global C02 emissions…

  • 2
    Posted Wednesday, 11 January 2012 at 1:29 pm | Permalink

    Quite right.

    On Monday Crikey posters sought protection for farmers and food manufacturers to protect ‘food security’. On Tuesday governments announced more protection for 1 car manufacturer, with presumably more to come. Keene anticipates more protection for steel and defence manufacturing. As the protected sectors multiply they increase pressure on the remaining efficient parts of the economy, and of course cost all consumers and taxpayers.

  • 3
    John
    Posted Wednesday, 11 January 2012 at 1:31 pm | Permalink

    Car protection costs $300,000 per job per annum.
    It’s a price which is not worth paying.
    It will be cheaper to retrain and even relocate the car workers.

  • 4
    D. John Hunwick
    Posted Wednesday, 11 January 2012 at 1:37 pm | Permalink

    Once again BK has hit the nail on the head. Australia should have at the most one car manufacturing plant and it should be producing electric vehicles and/or other “green” cars that will be needed in a world that won’t be using much of coal or oil (too expensive in the near future). One does not need a degree in economics to conclude that propping up a specific industry like petrol guzzing cars is uneconomic let alone foolish from an environmental view. Plan now to reemploy car workers - using the money to be invested in “saving” GM or Ford. There is something grotesque about governments giving these bastards hand-outs when they can’t even run their own industry properly. But as BK says - they can’t do that unless they feel directly the cold winds of change. Let’s get on with it now.

  • 5
    chpowell
    Posted Wednesday, 11 January 2012 at 1:42 pm | Permalink

    GM, Ford: The ultimate corporate welfare queens. They don’t even make vehicles which Australians want to buy-on a permanent bailout trajectory!

  • 6
    Edward James
    Posted Wednesday, 11 January 2012 at 1:47 pm | Permalink

    If Australians are so clever. Why would our Federal Government keep doling out our tax dollars by the hundreds of millions to keep an overseas company in business in Australia? when will our representatives resolve to build australian transport for Australians we have the resources and we have the expertise. Edward James

  • 7
    Posted Wednesday, 11 January 2012 at 1:53 pm | Permalink

    Provided adequate support is provided to workers who will lose their jobs if/when the Holden plant closes down there shouldn’t be too much of a problem. I live in Elizabeth, and I don’t want to see this place become a rust-belt satellite city a la Flint, Michigan or Detroit due to the whims of global capitalism.

    Above all, priority should be given to the people who will lose the most. This group does not include the capital owners or the poor-dear ‘taxpayers’.

  • 8
    Maxwell
    Posted Wednesday, 11 January 2012 at 2:01 pm | Permalink

    I worked briefly at Mitsubishi in 2001. I started the day after 9/11, and the expectation was that since the Magna was exported to Saudi Arabia, production was probably going to drop off once hostilities in the Middle East got underway. So it proved, and I was laid off 2 months later.
    More interesting is a remark made by our foreman during the induction - according to him, Mitsubishi’s second-in-command had a tour of the Adelaide plants back in 1993, and wanted to close it all down there and then.
    So the general consensus around that place for years had been that it was only a matter of time before it did get shut, and all the state and federal money poured in was only prolonging the inevitable. Auto manufacture actually only accounts for, like, 0.5% of what Mitsubishi Corporation does worldwide (they’re mainly in finance nowadays), so it seems they thought car-making was just too insignificant to bother with and had spent some effort trying to get out of South Australia. It might be a conspiracy theory, but apparently the 380 was deliberately designed in such a way that it would fail in the marketplace and give them the perfect exit strategy.
    Unfortunately, our politicians forgot to slug them with a big fat Leaving Town Tax equivalent to all the funds they’d lapped up in decades prior. Call me old-fashioned, but I thought the way capitalism was supposed to work was that firms bribed governments, not the other way around.
    Mitsubishi escaping Adelaide in the ’00s meant that thousands went jobless (me included), and I acknowledge no government wants to be seen letting that happen without a fight (albeit a fight against the taxpayer on behalf of the corporation). Still, I can’t help thinking that if we’d just told them to go in 1993, those workers would still have lost their jobs - except they’d all be ten years younger (and we all know how hard it is to be re-employed the older you are) and the taxpayers wouldn’t have been pissing - no, gushing - in the wind.
    Moral of the story: If businessmen can’t run their operations without public money, then they’re not real businessmen. If they’re not real businessmen, they should be arrested for fraudulently posing as businessmen, their operations should be seized and sold off at auction. The end.

  • 9
    Peter Bayley
    Posted Wednesday, 11 January 2012 at 2:28 pm | Permalink

    Holden and Ford have had the inside running - through subsidies etc and squandered the advantage for far too long. This is normal behavious for a protected industry anywhere in the world. The people have decided and they have voted for the God of Wisdom, Intelligence and Harmony (Ahura Mazda). Bolstering inefficient, lazy industries NEVER works - all it does is prevent innovation elsewhere. Forget the petrol engine - we can import them cheap as chips - especially as the Great Wall department really gets cracking. Instead lets pay 60,000 engineers $300,000 a year each to come up with the worlds best sustainable / low pollution alternatives. In a country like Australia with so much abundant alternative energy it’s a crime we are not leaders in the field. Besides, we DON’T have a car industry anyway. We pay for some bloated US has-been companies to make their cars here rather than in Asia - big deal. The world’s changing rapidly, people. Time to wake up and take an initiative (somewhat different to the solar panel fiasco). Who knows, in a few years we might be exporting the Solaroo XR2000 all over the world

  • 10
    Edward James
    Posted Wednesday, 11 January 2012 at 2:41 pm | Permalink

    Yes the world is changing rapidly, and while that happens labor federally is busy selling off gas, and subsidizing over seas car builders. So we Australians can get busy fracking ! Edward James

  • 11
    askgerbil now
    Posted Wednesday, 11 January 2012 at 3:21 pm | Permalink

    The Australian car industry could certainly do better.
    It is puzzling that it does not. A quick search on web identifies some useful observations:
    1. Petrol prices are rocketing to $1.60 a litre in Sydney.
    2. Shell’s oil refinery that supplies 50% of petrol for NSW is to close in 18 months.
    3. The price of Natural Gas has been falling steadily on world markets while oil prices are climbing.
    4. Volkswagen builds and markets flex-fuel vehicles that run on both petrol and compressed natural gas.
    4. Volkswagen achieved record car sales of 5.1 million in 2011, and grew its workforce by 100,000 to 500,000.

    Might be time the Australian car industry read the writing on the web, and licensed German engine technology.

  • 12
    rachel.barley
    Posted Wednesday, 11 January 2012 at 3:26 pm | Permalink

    one question is why “the car industry qualifies as “strategic” for politicians in a way that, say, nothing in the textile, clothing and footwear industry does. Only the other heavy manufacturing industries, steel and defence manufacturing earn similar levels of public support.”

    It’s not because of the greater unionisation of the car industry compared to others, as the political support comes from all parties. Could it be because the car and heavy manufacturing industries and the military are predominantly men’s jobs, while clothing and textiles employs predominantly women? Prove me wrong, please, someone…

  • 13
    Whistleblower
    Posted Wednesday, 11 January 2012 at 3:27 pm | Permalink

    Blind Freddy can see that without economies of scale the Australian motor industry cannot compete. Long run efficiencies require output of the least 150,000 vehicles a year, and Australia cannot sustain an industry with that volume unless it produces the products that people want. This is the fact that the Mazda 3 is the best selling car in Australia and is a strong indication that both Ford and Holden and Toyota have got the market wrong in producing the wrong vehicles for the Australian market.

    Labor of course is happy to prop up local production because of the union vote, and the coalition of course is happy to support protectionism provided it benefits its supporters. Hundreds of millions of dollars being ploughed into protection for inefficient motor industry production which would be better spent elsewhere in the economy. The quicker we bite the bullet the better will stop

    Labour costs in Thailand, India and China are a fraction of Australian labour costs, and as we now import all of our electronics, and most of our clothingwe should also be importing a vehicles on the same basis, was concentrating on what we can do efficiently in this country which is to produce minerals, fuels and agricultural output to finance our required imports.

  • 14
    Old Leftie
    Posted Wednesday, 11 January 2012 at 3:41 pm | Permalink

    It’s time both parties prised the auto industry from the public tit. Let’s face, Ford’s and Holden’s main problem is they’re stuck in a time-warp, manufacturing bogan petrol-guzzlers. The majority of the market is small/medium sized cars (Mazda, Toyota, Hyundai, etc), with a growing area in hybrids or turbo-diesel. If Ford and Holden dumped their “family” cars (who has four kids and two dogs these days) and converted to small and mid-sized cars, then maybe they might survive. How about a hybrid Cruze or Barina or a turbo-diesel Commodore or Falcon?

    The other problem is Australia is a small market. The population doesn’t buy a new car every day. What other country wants to buy a Commodore or Falcon when it can import an equally good, small, fuel-efficient car from Japan, Korea or China. Take a look on the roads and you’ll still find a large number of cars (bombs) that are over 20 years old.

    Cut them loose I say. Is a drip-feed to keep 50,000 jobs worth it in the 21st century?

  • 15
    Hugh (Charlie) McColl
    Posted Wednesday, 11 January 2012 at 4:19 pm | Permalink

    So Whistleblower, while you are “… concentrating on what we can do efficiently in this country which is to produce minerals, fuels and agricultural output”, only about 10% of the available Australian workforce will be actually employed. Even today, mining employs a tiny proportion of the population but it is competing for the same people as manufacturing, project management and financial administration. If government decided to let the auto manufacturing industry go to heaven, it would have to be able to demonstrate to the whole Australian electorate, a plan for where the 60,000 or 160,000 would go and what they would do as an alternative to living and working in Geelong or Elizabeth. Try writing that policy statement in 2012. I dare you.

  • 16
    Posted Wednesday, 11 January 2012 at 5:22 pm | Permalink

    I’m torn about this protectionism. I feel sympathy for the workers putting the cars together, but I have none at all for Ford or GM management. The only way they survived in the States as long as they did was their financing side - making cash from profitable loans to customers - and even that wasn’t enough to save them.

    Instinctively, I want some sheltered workshop like Peter Bayley suggested up thread: “Pay 60,000 engineers $300,000 a year each to come up with the worlds best sustainable / low pollution alternatives. ” Hire the workers from Ford or GM, but let management go hang. Why not? It’s cheaper than the status quo, Geelong doesn’t end up like Detroit, and Australia could even turn a small profit overseas selling the things.

  • 17
    Jackol
    Posted Wednesday, 11 January 2012 at 5:54 pm | Permalink

    The reason, in my mind, why the automotive industry is “special” is because to produce a car requires a significant variety of components and skills to produce. Those components and skills are useful in almost any manufacturing process, and the car industry is one of the few top-to-bottom manufacturing industries left in the country.

    The impact that I think government is worried about is upon new industries. If you are starting a new company with the idea to produce widgets, what happens if that startup company cannot find people to do design and prototyping and PCB manufacture and testing and producing frames and casings, to fit out electrical/electronic wiring/looms, environmental stress testing etc.

    The car industry, of course, is not the only way to maintain facility in these kinds of things, but it is an easy policy way of doing so.

    It’s not just about the people directly employed by the car industry - it’s about the ability of the Australian economy to support new industries in the future.

    Further, the rationalist cry expressed by Bernard Keane that the structural adjustment of the economy in response to current conditions should just be allowed to happen is ignoring that the high relative AUD and mining boom are not permanent fixtures of this economy. It will not serve us well to “structurally adjust” all our manufacturing capability away when global and local economic conditions turn.

  • 18
    Andybob
    Posted Wednesday, 11 January 2012 at 7:18 pm | Permalink

    The Australian vehicle industry is the Mike Gatting of the industrial world.

  • 19
    Gabrielmlt
    Posted Wednesday, 11 January 2012 at 7:56 pm | Permalink

    Here’s a thought. Why don’t we use that money to buy holden back off the Americans or start a new automobile manufacturer that actually builds truly relevant cars? We have the money, the market and the technology. If Labour and Liberal agree on this waste of our money, then it obviously means they are receiving political pressure from the U.S. government. Another idea would be to back the Japanese car companies instead which afterall are the best producers of the vehicles we actually need, small economical cars, trade utes and small trucks.

  • 20
    Archer
    Posted Wednesday, 11 January 2012 at 8:10 pm | Permalink

    I have worked in the engineering offices of three auto companies in three countries, I’ve been in the industry for over 25 years. If design is your interest, nothing compares to working in such an environment when a new model program is in full swing. Talk about 3D TV, we were using 3D projection technology years ago to view concept designs and to strip a virtual car into its constituent parts. Ah, the toys, ah, the technology.

    You don’t need 60,000 engineers to innovate quality design. GM have an electric car, it’s called the Volt and there is a company in Melbourne creating solutions for retrofitting Commodores to accepting electric drives. http://www.evengineering.com.au/ What you see on the road is what is dictated by marketing as being the most viable option for the Australian market. I believe one of the problems is saturation. Our country is spoiled for choice, I have yet to see another country with such a varied selection of brands and variants for the consumer to choose from. In all my travels I have never encountered this issue.

    Another is, Australians have not taken to hybrids with enthusiasm. Look at the poor performance of the Hybrid Camry or the Prius. The Lexus is purely a status symbol. This does not mean companies are not researching, they are, it’s in their interest to.

    Our cars, by world standards are not “gas guzzlers”. A Honda Jazz on city cycle will give no better than 8.5l per hundred. To my mind that’s abysmal for a 1.5l engined small car. On quality, we are not the poor cousins to the German or the ones the Japanese snigger at. The Holden Calais’ ride and handling was compared to that of the BMW 5 series. The tooling, fixtures and some of the components for Holden are made in the same countries as for Mazda Japan or Toyota Australia. I would say VW is excellent value for money, better than Mazda.
    Why people buy diesels for city living I’ll never know.

    The capacity to design a machine as complex as a car is a special skill and it would be a great loss to the country if that knowledge were lost. There was a time when aeronautical design and automotive design were considered interchangeable skills. Whilst it pains me to admit that manufacturing may be at an end, I hope Ford and Holden have the good sense to maintain their Styling and Engineering centres here in Victoria. To keep them as centres of design excellence therefore bidding for global platform projects. For those who don’t know the Camaro was engineered in Melbourne, you know, Bumblebee from The Transformers. With today’s capacity to work globally, such facilities are training grounds for very talented designers, technologists, scientists and engineers. Professionals that are sought after by many other engineering companies.

  • 21
    AR
    Posted Wednesday, 11 January 2012 at 8:27 pm | Permalink

    D.JohnH - agree fully. I recall the Grunwick fiasco in UK decades ago - the couldn’t make military helicopters to compete with the massively subsided (Ike’s M/I complex) west coast of amerika so the entire shop floor came together and showed, with full flow charts and figures that they could convert to electric wheelchair (then imported from - guess whence?) & vehicles, at the time milk floats (now a memory thanks to the atomised, thatcher 80s unSociety when they had to be ARMOURED [FFS!] to serve the sink estates, before being abolished - the lumpen denizens only drank high alco lager & fizzy pop).
    As an utterly idiosyncratic nutter, I would favour an indigenous vehicle industry, were it entirely OZ relevant, rough, tough, parsimonious of fuel (pref. gas or ethanol -NB not the Rodent’s obscenely subsidised mate in Manildra, NSW) and able to be repaired with a hammer or large rock.

  • 22
    Mack the Knife
    Posted Wednesday, 11 January 2012 at 8:30 pm | Permalink

    I seem to remember an article a while back that said that somewhere in Melbourne or Sydney we manufacture cars for Brazil that run on 80% ethanol.

  • 23
    zut alors
    Posted Wednesday, 11 January 2012 at 10:15 pm | Permalink

    I suppose it’s expecting too much for GM and Ford to get serious about solar powered vehicles?

    If mega-bucks were spent on research and development in that area these two behemoths may manage to stay in the game. But old (oil-dependent) habits die hard so GM and Ford will just bury themselves slowly. But the Oz taxpayer should not be contributing to their advance purchase funerals.

  • 24
    drsmithy
    Posted Wednesday, 11 January 2012 at 11:16 pm | Permalink

    Labour costs in Thailand, India and China are a fraction of Australian labour costs, and as we now import all of our electronics, and most of our clothingwe should also be importing a vehicles on the same basis, was concentrating on what we can do efficiently in this country which is to produce minerals, fuels and agricultural output to finance our required imports.

    It’s worth pointing out that the Germans manage to be quite competitive building cars, and they also have labour costs vastly higher than Thailand, India and China.

    Not that I’m defending the inefficiences of the Australian car industry, but it’s clearly _possible_ for a first world country to be successful at manufacturing.

  • 25
    Alexander Berkman
    Posted Wednesday, 11 January 2012 at 11:35 pm | Permalink

    An interesting point to remember is during the late 1980’s when the then Hawke / Keating govt reduced the tariffs on TCF (Textile, Clothing & Footwear) and set up a LAP (Labour adjustment program) to retrain the workers who were going to lose their jobs as jobs went offshore. These programs helped a bucketload of people and should be considered here for not only the car industry workers but for many of the workers in high polluting / environmentally destructive industries that down the track will either need to shut down all together or cease ‘business as usual’ and become environmentally sustainable.

    As stated by others the car industry should be putting all it’s r & d $ into electric / solar / hydrogen engines. Enough of the bailouts, it’s time for them to put out environmentally efficient cars or shut up shop.

  • 26
    Alexander Berkman
    Posted Wednesday, 11 January 2012 at 11:36 pm | Permalink

    An interesting point to remember is during the late 1980’s when the then Hawke / Keating govt reduced the tariffs on TCF (Textile, Clothing & Footwear) and set up a LAP (Labour adjustment program) to retrain the workers who were going to lose their jobs as jobs went offshore. These programs helped a bucketload of people and should be considered here for not only the car industry workers but for many of the workers in high polluting / environmentally destructive industries that down the track will either need to shut down all together or cease ‘business as usual’ and become environmentally sustainable.

    As stated by others the car industry should be putting all it’s r & d money into electric / solar / hydrogen engines. Enough of the bailouts, it’s time for them to put out environmentally efficient cars or close down.

  • 27
    Jimmy
    Posted Thursday, 12 January 2012 at 2:09 pm | Permalink

    Archer - Thanks for that post, very enlightening.

  • 28
    ggm
    Posted Thursday, 12 January 2012 at 2:46 pm | Permalink

    GM and Ford don’t want independent car manuf. in Australia. Either they get subsidized, or they close down and ensure the plant is non-viable without their sayso.

    The days of the volkswagen beetle stamping moulds going to Brazil to continue making the veedub are long long gone.

    Car production deliberately sunk itself into a local supply chain in ways which goes beyond other manufacturing. You can put a cardboard box or MDF furniture plant anywhere, truck in wood and nails or cardboard rolls, and truck it out the door to sell anywhere. Cars somehow managed to suck in small traders to supply one part, two parts, another to supply liners, another to supply consumables used to fasten widgets to frobbs. This saved the carmen HUGE amounts and also went with just-in-time tricks and 90 post paid debt to make the small traders in screws FUND a lot of the car because they only get paid at the end, AND have to wear all the J-I-T Warehousing.

    So yes: there *is* a downstream multiplier consequence to shutting the GM/Ford plants. Its more than other industries. If you want a comparison, its the effect on local traders of having a building site, but you’d have to roll mobile banking and mobile docter and mobile everything in too, the tradies basically buy meat pies off small business nearby and for a year or so the shops see 2-3x income but when that last crane leaves, the tumbleweeds are back in town..

    -G

  • 29
    Edward James
    Posted Thursday, 12 January 2012 at 5:38 pm | Permalink

    Hey JIMMY can you ask ARCHER to tell us all who the uckf ARCHER is Edward James here identifed http://bit.ly/EJ_PNewsAds

  • 30
    Edward James
    Posted Thursday, 12 January 2012 at 5:41 pm | Permalink

    Show us your balls archer? Edward James writes, call me 0243419140!

  • 31
    Edward James
    Posted Thursday, 12 January 2012 at 6:06 pm | Permalink

    Australians are for the moment able to act and supply to themselves all which is needed to support advance and survive everything the rest of the world is ready to throw at it while they plan to take for themselves what they want. edward james

  • 32
    Edward James
    Posted Thursday, 12 January 2012 at 9:33 pm | Permalink

    Edward James writes; Thank you to Archer for calling this evening Thursday 12 January 2012 Nice talking with you.

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