tip off

Qantas, Holden and learning to make tough decisions

Making tough decisions is an important skill for governments. This one hasn’t had the best start in dealing with Qantas and Holden.

A mere $300 million extra a year from 2016 is all that is needed to keep an Australian automotive manufacturing industry, according to today’s media reports. Extra, that is, beyond maintaining existing levels of assistance, which cost around $1 billion a year between direct government assistance and tariffs. That’s for an industry that currently employs 46,000 people, meaning we’d be paying a total of $26,000 a year for each job.

Meanwhile, a “corporate raider” named Greg Woolley has found in The Australian Financial Review a congenial platform for his proposal to restructure Qantas. Woolley was upgraded to “corporate financier” in today’s edition, which also failed to mention that his plan involved a government handout in the form of loan guarantees for his sell-and-leaseback plan for the Qantas fleet. Call me old-fashioned, but in my day buccaneering “corporate raiders” didn’t need government assistance to “swoop” (they always swooped) on their targets. Otherwise, Woolley’s proposal looks a lot like the standard corporate raider MO: flog whatever assets will make a buck (sorry, I mean “unlock value”) for a temporary boost to the share price then bail out with the long-term problems of the company unaddressed. Qantas’ problems are a lot more fundamental than owning rather than leasing their jets.

The government would have liked to have spent the period before Christmas, including the last week of federal Parliament, focusing on Labor’s refusal to help it repeal the carbon price and mining tax. Instead, the fates of Qantas and Holden will loom large. Reflexively, the Coalition has tried to combine the issues. Last week, Environment Minister Greg Hunt blamed Qantas’ announcement of a massive profit downgrade and 1000 job losses on the carbon price. Junior frontbencher Josh Frydenberg ran the same line yesterday.

For an ordinary company warning of difficulties, that might be a workable tactic. But despite the best efforts of Alan Joyce and successive boards and managements that have worked hard to trash its brand, Australians don’t see Qantas as an ordinary company. Nor do they see Holden as an ordinary company. For the government to sit by and do nothing about those except blame everything on the carbon price risks creating the impression of a do-nothing, ideological outfit.

But the line must be drawn somewhere. Another $300 million a year on top of existing handouts? That $300 million a year could be far better directed at infrastructure or education, and in any event would need to be borrowed and would cost tens of millions in extra interest every year. A loan guarantee for Qantas puts taxpayers on the hook for the stuff-ups of Qantas’ dreadful management, and will do nothing to fix its inability to deal with an aggressive competitor or lure Australians back to its international services.

The challenge for the government is thus to find a creative way to do nothing to help Qantas and Holden …”

The challenge for the government is thus to find a creative way to do nothing to help Qantas and Holden, to minimise the political fallout from what will be unpopular decisions. The first priority was to give the appearance of a proper process, which is exactly what the government did in referring car subsidies to the Productivity Commission for a pre-Christmas report — a very short timetable, but the PC has looked at the car industry innumerable times over the past decade or more. It was only permitted to provide modelling for the Rudd government’s inquiry into the car industry led by former Victorian premier Steve Bracks, for fear it would point out the truth about the industry, so the Abbott government’s referral with the stated intention of basing a decision on the outcome gave the appearance of mature reflection.

The problem was, that appearance was undermined last week by those among the conservatives labelled the dries, leaking against Holden and Industry Minister Ian Macfarlane and then the Prime Minister appearing to demand that Holden make a decision, rather than the government making a decision after the PC had completed an initial report — a reversal of the original process.

The second priority should have been to make the case against further handouts, to emphasise the key point in all this, that local car manufacturers had failed to compete effectively and meet the needs of Australian consumers, and that the money spent propping up the car industry had a real opportunity cost to the rest of us. Australians, like voters in most countries, are deeply protectionist and need to be constantly told what the real costs of propping up industries are. None of that has so far happened from the government.

Nor has the government done much preparatory work on Qantas, possibly because it is more likely to intervene. Treasurer Joe Hockey called for a debate on the future of the airline, seeming to suggest the government would take its cue from what voters wanted. The debate, such as it is, has mostly been confined to the political class of politicians, economists and media commentators, where everyone’s positions are well known and could be conducted entirely by rote.

It’s a bit rich to bag a new government for failing to carefully craft national debates on big issues like industry policy, yes, but the early signs have been, at best, very mixed. Good governments develop the skills to make and sell tough decisions. The previous government never mastered the art; will this one?

18
  • 1
    Posted Monday, 9 December 2013 at 1:17 pm | Permalink

    The new government’s position would have been much stronger, and the quality of public debate much improved, had the Coalition developed a policy in opposition as oppositions are meant to do.

  • 2
    Andybob
    Posted Monday, 9 December 2013 at 1:35 pm | Permalink

    Fortunately previous subsidies to the car industry all worked fine resulting in the vibrant and healthy vehicle manufacturing sector we have today. No doubt the new subsidies will also staunch the bleeding once and for all.

  • 3
    Mr Tank
    Posted Monday, 9 December 2013 at 1:49 pm | Permalink

    Oh Bernard! I can smell the odour of a vindicated market rationalist on your breath! Just who are you kissing/kidding? So its only another $300 mil for an exercise in National Pride and to not startle the horses any further for an already shaky government. No brainer bro! Give it up Mate - we make cars here…Just Holden together? You bet.

  • 4
    Jan Forrester
    Posted Monday, 9 December 2013 at 1:56 pm | Permalink

    No political leadership on any side here. The signs have been there for a long time. QANTAS: Politicians don’t understand not all Australians are wedded to the national icon idea. Brutal reality is they are wedded to cheap airfares. QANTAS has failed since being corporatised. There will be great pain for thousands of workers if Holden leaves and QANTAS remains junk. As there will be for SPC workers and already is for Electrolux workers in regional NSW. The argument with the auto industry is we needed the advanced skills these workers have developed. This goes to the real question here that maybe all of us have dodged: what goods and services can we produce competitively to underpin our current standard of living. the competition out there in the wider world is ferocious. And, no it is not a level playing field.

  • 5
    David Hand
    Posted Monday, 9 December 2013 at 2:02 pm | Permalink

    The Qantas / Holden issues, by emerging at the same time, have given the government the perfect opportunity to act in a visionary way and cut these industries loose from taxpayer largesse.

    It would be highly unpopular, destroy most of their political capital, almost certainly make them a one term government and set Australia up for prosperity through the next 50 years.

    All the above reasons is why they won’t do it.

    Much more likely is months and years of death by a thousand cuts, wounds shared equally by future Labor and Coalition administrations, disadvantage for Australia’s economy as we arrive at the inevitable outcome 15 years later than we should have.

  • 6
    bushby jane
    Posted Monday, 9 December 2013 at 2:25 pm | Permalink

    It is my understanding that the mining industry is subsidised far more than the motor industry, what about them Bernard? Surely we won’t give the Quantas bosses any help since they are busy wrecking their business, and sending all jobs OS.

  • 7
    Matt Hardin
    Posted Monday, 9 December 2013 at 3:45 pm | Permalink

    I second Jan’s question. What should we do in Australia? We train engineers, welders, fitters, sparkies and other peole for manufacturing and then we close the opportunities for them to work. I understand the principles of free trade and comparative advantage and hence understand why this happens but what is the end game? What do we do with the pekoe who want to make things? What do we tell the people who have spent years and thousands of dollars training to build things? Not everyone can be a creative entrepreneur or work in the service industry nor do many people want to. I look forward to an answer from the economic rationalists.

  • 8
    Peter Logan
    Posted Monday, 9 December 2013 at 4:53 pm | Permalink

    Until we have consistent policy on which industries to save and how much we’re prepared to pay we will have rent seekers from mining to cars and airlines treated in an ad hoc way.

    Mr Hockey could save billions by removing mining subsidies, for example and the miners won’t leave Australia.

    Perhaps they’re all studying Bernie Ecclestone? His grand prix in Melbourne has soaked up $559 million from government yet the governments have ignored a negative cost-benefit analysis of the event from the Auditor-General, preferring an economic ‘impact’ model from Ernst & Young. On dodgy assumptions such as Victorians three times more likely to travel to a grand prix than interstaters come to Victoria, a total of 411 jobs were ‘created’. That equals $1,360,000 per job, if we’re to believe Ernst & Young rather than the A-G. This is a good reason to abolish state governments. Can we put that in the policy mix ahead of the car industry?

  • 9
    Flickknifetipsy
    Posted Monday, 9 December 2013 at 5:15 pm | Permalink

    Well if K Rudd was responsible for the tragic deaths of young men installing pink bats, will Tony Abbott be held responsible for every suicide, heart attack, stroke and family breakdown? Will the hard line free marketeers (like Bernard) accept shared responsibility. My husband’s grandfather lost his very lucrative business in the 1930’s Great Depression. He committed suicide leaving 10 children - this tragedy still has ramifications today for his great-grandchildren and his great-great grandchildren. $26,000 per job or the more reasonable sounding $19 for each individual Australian is extremely cheap at the price! Can you tell me why Germany thinks it worthwhile to spend $90 per German citizen on their car industry?
    It’s a no brainer - spend the money on keeping Holden or close our manufacturing industry down and build more prisons to cope with the fall out from the inevitable social dislocations. Economic Rationalist = Economic Idiot. Try Economic Realism - it’s far better.

  • 10
    leon knight
    Posted Monday, 9 December 2013 at 5:51 pm | Permalink

    Other countries seem to be able to find plenty of creative ways to subsidise their manufacturing without obvious barriers, why can’t we jack up our playing field too?
    But Holden do need to cop some serious pressure to produce more suitable cars. I love the big sixes and will not enjoy their demise - but the proper answers have to be found and implemented.
    Let other countries take the really cruel decisions with the auto sector first…..

  • 11
    zut alors
    Posted Monday, 9 December 2013 at 6:23 pm | Permalink

    It would be lamentable to lose the skills we’ve honed in the car manufacturing industry. Once gone they will be nigh impossible to regain.

    If the government doesn’t throw money at this industry it will pi$$ it against the wall at something less important to the nation. But conditions should apply ie: Holden should develop more efficient ‘green’ vehicles. How about Oz developing a car which runs on hot air, there’s an abundance in Canberra.

  • 12
    dazza
    Posted Monday, 9 December 2013 at 7:05 pm | Permalink

    Bugger the car industry, meanwhile Barnaby Joyce is asking for tax breaks for the agrarian socialists farmers.
    Then of course we have the religious mob with their hands reaching to the public teat for more and more..

  • 13
    CML
    Posted Tuesday, 10 December 2013 at 2:15 am | Permalink

    Where Bernard got it wrong, is to apply the government subsidy to 40,000 jobs. If GMH pulls out, then so will Toyota - mainly because the component industries will be forced to close. It will be impossible for them to remain economic if there is only one car maker left standing.
    So Bernard, all reports that I have read are saying we will be looking at somewhere between 200,000 and 300,000 jobs lost, if the whole industry is closed down. Spread the subsidy over that number of jobs, and $19/person doesn’t sound so bad.
    Whichever way you look at, the government (taxpayer) will foot the bill. Tell me, how much will it cost to fund that number of people on the dole? To say nothing of the peoples’ lives that will be ruined. There are no other jobs available here for that number of people.
    Then there is the little matter of this causing recession in SA and VIC…. But I guess that is okay, so long as you are not one of these workers or their family?

  • 14
    Popeye
    Posted Tuesday, 10 December 2013 at 8:04 am | Permalink

    Creating the impression of a do nothing ideological outfit’? That ‘impression was created long ago - for many people long before 7 September. The fewer than 100 days since then have confirmed that impression as reality.

  • 15
    Michael Jones
    Posted Tuesday, 10 December 2013 at 10:46 am | Permalink

    Australians, like voters in most countries, are deeply protectionist and need to be constantly told what the real costs of propping up industries are.”

    Oddly, no mention of ‘the real costs’ of mining subsidies, because the unions that are in bed with the mining mob are too well connected, especially on Bernard’s side of Canberra.

    This reminds me of the US bailouts, where the auto industries were called to the carpet and sternly dressed down- but they were asking for a pittance in comparison to wall street.

    In addition to it’s lack of mates in the right wing of the labor party, manufacturing also has the stigma of being a good job for the working class.

    Manufacturing is a more labor intensive industry than others, and that makes it a target. Industries like that are supposed to be outsourced to poor, and poorly regulated developing economies, while we spend our time on mining, the ever-nebulous service industry, and in particular, office jobs with unpaid overtime.

    This is the best way for rich people to make money, and so, it’s the most ‘economically rational’ approach. This is obvious to everyone, but we must all maintain the kabuki dance of pretending that we’re talking about what’s best for the country.

    Not to mention the key ideological bias that the free market set have against manufacturing, particularly automobiles. It wasn’t that long ago they were, metaphorically and in some cases literally, sitting in Chicago, sneering at motor city across the way.

  • 16
    beachcomber
    Posted Tuesday, 10 December 2013 at 11:00 am | Permalink

    @Gavin Moodie, we thought the Abbott Opposition was just lazy when it failed to develop policy. It now appears they were incapable of making decisions. They got away with it in Opposition by mindlessly repeating 3 word slogans. In Office they tried to do it by hiding from Journalists. That strategy failed, and now we watch them flop about like a headless snake in its death throws. Which is really sad after 3 months, and will be really nauseating after 3 years.

  • 17
    Posted Tuesday, 10 December 2013 at 11:07 am | Permalink

    I do not support the Coalition, but perhaps with excessive optimism I hope the Abbott Government may improve its decision making with experience. Any decision it announces with its publication of the December mid year economic and fiscal outlook will presumably have gone thru the full Cabinet process and so should be a good indication of the Government’s decision making. Otherwise I will settle my opinion with the 2014-15 budget.

  • 18
    Dulong Ttil
    Posted Tuesday, 10 December 2013 at 7:47 pm | Permalink

    The latest China’s international trade figures, which were released during last weekend, are good but only limited to the Export from the Chinese side. The figures of Imports into China are weak and have actually dropped significantly. It means China’s demands on importing goods from other countries, e.g. Australia etc. has been reduced substantially.

    This is a not a good signal to Australia.

    In such unfavorable case, the Australian government should consider to adopt stronger monetary easing policy to drive the AUD downwards healthily. So, our Export competitiveness can be strengthened again and, our economy can be improved.

    I trust that if our A$ is lower, it can greatly improve our car exports and attract much more tourists to visit Australia. Wouldn’t it be perfect to save Holden and Qantas?

Womens Agenda

loading...

Smart Company

loading...

StartupSmart

loading...

Property Observer

loading...