Australia

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.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

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. AR

    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.

  2. Mack the Knife

    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.

  3. zut alors

    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.

  4. drsmithy

    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.

  5. Alexander Berkman

    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.

  6. Alexander Berkman

    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.

  7. Jimmy

    Archer – Thanks for that post, very enlightening.

  8. ggm

    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

  9. Edward James

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

  10. Edward James

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

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