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Jan 11, 2012

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

It's only three years since the car industry was last rescued. Meantime, other parts of manufacturing have got on with the job of lifting productivity.

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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32 comments

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32 thoughts on “The car industry’s (not so) merry-go-round

  1. Modus Ponens

    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. Gavin Moodie

    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

    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

    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

    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

    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. Daniel

    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

    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

    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

    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

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