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Never give up on the future of the Australian automotive manufacturing industry

Can the automotive manufacturing industry in Australia be saved? “Yes”, writes Andreas Bimba, but only if the Abbott Government is defeated in the 2016 election.

The next federal general election will probably be in late 2016 and Labor will in all likelihood win. Ford announced that closure of their Australian automotive manufacturing operations will be in October 2016. Holden announced closure will be by the end of 2017.

Australians must continue to buy locally manufactured Fords (Falcon and Territory) and Holdens (Commodore and Cruze) till those announced dates to avoid early factory closures. Also please don’t forget ‘last man standing’ Toyota (Camry and Aurion) which is just hanging in there.

The dogmatic right wing of the LNP Coalition Government will probably follow the totally worthless advice of the Productivity Commission and cut currently scheduled Automotive Transformation Scheme (ATS) industry assistance so as to force an earlier closure.

Even with an early closure it is still perfectly feasible to save the manufacturing operations of Ford and Holden which are only slightly less productive than the more up to date facilities of Toyota (Toyota knows that both Ford and Holden are very tough competitors). These manufacturing facilities are worth billions of dollars and compared to other sectors of the Australian economy, like most service industries, are highly efficient and productive.

Other factors brought Ford and Holden into their loss making position such as the historically high Australian dollar, a poorly implemented export strategy (Detroit and Canberra are primarily to blame), a poorly thought out national industrial policy/support environment created by all Australian Federal Governments which made industry investment hard to justify, an excessively open new car market (refer to the Thailand car trade imbalance) and as a result of these factors, ever declining production volumes and worsening economies of scale.

If Ford and Holden, after the Labor victory, still choose to quit local manufacturing, their manufacturing facilities can still form an extremely valuable core of a new player into the Australian automotive manufacturing industry that could be local, foreign, or a consortium. A locally owned manufacturer would be the best solution as it would allow management for the first time in Australia’s automotive manufacturing history to control its own destiny and not defer to the colonial master for permission or guidance. All the skills and technological capacity required for the successful operation of this enterprise already exist in abundance.

Manufacturing is a value adding industry that provides much more employment per unit of economic activity than the bulk resources industry. It can also be a major foreign exchange earner or replace a substantial portion of our imports. As a foreign exchange earner the industry can drive average living standards higher and can support the service sector of the economy.

A second sizable local manufacturer will greatly assist the survivability of Toyota’s Australian manufacturing operations through healthy competition, greater political and public support for the industry and better economies of scale for components suppliers.

A doubling of Australia’s current automotive manufacturing capacity so as to meet at least 50 per cent of the local 1.1 million per annum automotive market plus exports should then be the medium term aim, again to improve economies of scale and model range.

One should also not forget the other benefits of an automotive manufacturing industry such as a technology and productivity driver in the economy, a source of national confidence, a large employer of unskilled, semi skilled and tertiary qualified personnel and as a industrial capacity and technology reserve during times of national emergency. Don’t ever think a few submarines will suffice.

A moderate tariff of 10 – 15 per cent plus export credits would allow local manufacturers to pay Australian award wages and still make a profit. Such a tariff is a means of providing a level playing field with low cost and high technology manufacturers like Korea, Thailand and China.

The current alternative to tariffs of direct grants by governments is too unpredictable, making investment decisions by manufacturers hard to justify.

The current foolish federal government sees such grants as a subsidy for an inefficient industry rather than as a good investment giving a net rate of return of about five times the size of the subsidy. The current high profitability of Toyota Japan shows that the automotive manufacturing industry is a dynamic and valuable industry for countries with relatively high wages. Not just low wage countries as foolishly suggested by the Productivity Commission.

(Reference: the Productivity Commission).

The Coalition’s slash and burn economic philosophy is extremely unpopular with the Australian people and ultimately it is the views of the Australian people which will prevail and not those of ill-informed special interest groups such as the reckless financial services industry or the mining/resources industry. These sectors, apart from the superannuation industry, are the biggest recipients of government aid and extraordinary tax concessions, estimated to be valued at over $4.5 billion per annum for the mining/resources industry and about $1 billion per annum for the financial services industry.

(For further information refer to the Trade and Assistance Review 2011-12).

With a well thought out national industrial policy environment manufacturing can again thrive in this country. Will Labor get it right this time?

The best model is the Japanese METI model where government and industry work together as a partnership. Moderate government funding is provided but it is returned many times over to the tax payer through general taxation of the manufacturing industry and its employees.

It is a profitable investment by the Japanese tax payer into their manufacturing industry and it is the core of Japan’s large, productive and successful economy.

The METI model provides a level playing field that allows Japanese businesses to pay Japanese labour and other business costs (which are higher than Australia’s) and to still compete successfully with low cost and high technology competitors like Korea, Thailand and China.

(For further information refer to Ministry of Economy, Trade and Industry (Japan) and an overview of METI).

The growth of the mining/resources industry must be moderated if Australia is to have a sustainable manufacturing industry. Expansion of the fossil fuel industry must be severely limited in any case due to the global cumulative atmospheric carbon limit of 500 GtC set recently by James Hansen, and also to limit the value of any stranded or unusable assets arising from the carbon limit.

Will truth win over poorly applied simplistic ideology?

 

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36 comments

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  1. Ana Milosevic

    Truth always wins eventually, but sometimes wining is to late, and changes nothing.

  2. mark delmege

    It wont happen with a neoliberal mentality or under foreign ownership and control. It needs a whole ‘other’ approach and I wouldn’t dismiss joint operations with our closer neighbours – near north or east or west.
    Industries, especially those essential, should be seen as serving OUR needs – not us serving theirs.

  3. Stephen Tardrew

    Fantastic post Micheal. I am with you all the way. Where the hell is Shorten and the ALP when you need them. People on these blogs are more active and progressive than the trundling old factional machine of the ALP. Well argued and well received. The left needs a fact based shock Jock to counter Bolt and Jones. Flood em with research and facts. Progressives must stop talking to thier navels and act. Not just a community station but a profit based station supported by unions and business of the left. May take time to get profitable but it most certainly can be done. Similar format and market base but with heavy progressive leaning. We only got three years to turn this sinking ship around and the left desperately need an independent commercial voice.

  4. edward eastwood

    I like your enthusiasm and your optimism Andreas.
    Unfortunately, it requires two key components; first and foremost it requires a political party of vision, and they’re in short supply, or should I say Shorten supply as Stephen Tardrew points out.

    Secondly it would require this visionary party to re-introduce tariffs – gasp! shock-horror! – in the same manner as both Thailand and Japan.

    In fact, Japan has very high tariffs, some as high as 300% on imported foreign goods in order to protect their own industries. Even if Labor wins in 2016, to suggest such a move among the NLP or the ALP would risk being burnt at the stake for heresy.

    You see, among the neo-libs (NLP) and the neo-lib lite (ALP), way of thinking, it doesn’t matter whether other countries have tariffs to protect their industries – just as long as Australia doesn’t.
    In this way, ‘we’, the Australian people are doing what we perceive to be what the rest of the world is doing – or so we’re told!

    Should the rest of the world be driving over the edge of a cliff, then the only difference would be that the ALP would be determined to follow whereas the NLP especially under Abbott, are determined to lead.

    Still, it’s a nice dream – but I wouldn’t hold your breath about it coming true.

  5. revolutionarycitizen

    So when GM Detroit stated quite clearly that no level of government assistance would save Holden, was anyone on the left actually listening? It certainly appears they weren’t. GM and Ford are moving production back to North America because that is where both companies see their future sales growth (there and China). Germany offers far greater incentives for manufacturing in their market, and it still didn’t stop GM leaving Germany.

    Unless Australia suddenly triples its market base between now and 2016 there is no saving our automotive industry. Toyota will in all likelihood decide to leave when it is finished its current round of wage disputes with its workforce.

    It is just a whole lot easier and cheaper to do business elsewhere…

  6. Stephen Tardrew

    Edward the tariff issue is incredibly important. It should be used like interest rates as a type of manufacturing stabilizer. Tariffs should be scalable to the the size of a particular economy. When size of market-scale constrains manufacturing there should be an exchange mechanism to balance out the differences. It is not an equal market place and this obsession with a free market, which is manifestly not free, by Australian economists and politicians, is absurd. Its like some sort of medieval religion or maybe an attempt to placate and cow tow to our US overlords military muscle. I am not an economist however just another alternative perspective.

  7. mars08

    “So when GM Detroit stated quite clearly that no level of government assistance would save Holden, was anyone on the left actually listening? ….blah … blah….yammer… blah…just a whole lot easier and cheaper to do business elsewhere…”

    Fair enough, RC. No no level of government assistance was going to Holden. So, were YOU listening?

  8. maxakaben5

    It seems to me they made their decision some years ago – by not making cars that would sell here. Which is one reason why you should never really trust a foreign company.

  9. revolutionarycitizen

    Mars, it’s simple math, if the steal in the Commodore costs more than a fully imported Hyundai, who is going to win on price? That is what it is coming down to, even Holden stated for it to restructure its business with increased assistance it would require the amount of “Australian Content” its vehicles to be almost zero to compete on price.

    GM Detroit restructured its business to best capture future sales and costs trends, we priced ourselves out of the market, South Korea got Holden’s manufacturing quota as GM focuses on emerging Asian markets and growth in the domestic US Market. A market that is only 1,000,000 vehicles per annum is nothing compared to what the Europeans buy, and GM no-longer makes cars there either.

    I think some have an over-inflated opinion of our place in the world…

  10. mark delmege

    you need to stretch your horizons RC – think big – change the model and I dont mean car model though that would also help.

  11. revolutionarycitizen

    Mark, if Australia wants to avoid being a 2nd world back-water by 2030 a whole lot of things need to change, the manufacturing sector is only a small cog in a machine that broke a long time ago. Our entire economic model is bull****, and I am pretty sure everyone here can agree on that…

  12. mark delmege

    exactly

  13. Matt Austin

    Ford announced the end of local production last year, under a Labor government. Mitsubishi ended local production in 2008, under a Labor government. Nissan ended local production in 1992 under a Labor government. Renault ended local production in 1981, under a Liberal government. Labor had their chance when in power, so it’s disingenuous to claim that things would be different if they had a chance. They’ve had a chance, and failed.

  14. iggy648

    No, we only have to wait for the double dissolution Tony promised. Labor can do the addup sums required to see that the tax paid by 100,000 workers pays them back for their investment.

  15. Pegaso

    It is unlikely we can manufacture and assemble complete cars here in sufficient volume to make them competitive with Imports.What we can do is manufacture in volume components for cars assembled overseas.In the Aviation Industry we can and do compete with other countries in the manufacture of aircraft components.We can compete in the high tech area, and that is where our future is.This requires investment in education, science and research, something the Conservative Abbott Government does not understand or believe in.

  16. revolutionarycitizen

    “No, we only have to wait for the double dissolution Tony promised. Labor can do the addup sums required to see that the tax paid by 100,000 workers pays them back for their investment.”

    Actually it doesn’t, remember, in Australia there is no net gain to government on income taxes until they’re paid over the $50,000 limit and higher. Which means that almost all taxes raised by workers in the Automotive Industry is paid back to them in the form of various benefits, such as healthcare. Also, by the time you leave Year 12 the government has spent $150,000 educating you, so you enter the workforce with the government already requiring you to pay at the minimum $150,000 in income taxes just to cover that cost. And on it goes, in-fact, the 1/3 of the work-force who earn minimum wage will never in their life-time earn enough money to be more than a burden on the tax system. And if you factor in the number of Government employees and those people earning less than the average wage as many as half the work-force will always be a net loss to the tax system. Not good news for business and the other half of the work-force who are left with the bill.

    As for manufacturing in general, in the aircraft industry we lost billions in JSF contracts because we don’t have the capacity and the contracts we did get are a pittance compared to what other countries got. We dropped the ball, we were sold on the idea that “service sector” jobs would save our economy, and look how well that worked for the United Kingdom…

  17. bjkelly1958

    We have, as a nation, highly skilled workers in the manufacturing sector. If these people are to remain employed in a viable manufacturing sector we must expand our horizons. As Pegaso said in their post, we lack the market base to be competitive in the manufacture of motor vehicles. Sure, we have designers, engineers and skilled workers but we can’t compete on a financial basis with Asia. I believe the re-introduction of tariffs may have given some length to the car industries life but it would only been prolonging the death. We have a fairly health luxury boat building industry but it faces stiff competition in the world. We make world class auto parts as well.
    If manufacturing is to survive, I believe we need it to, we must expand our areas of expertise, and the Federal Government must support this financially.

  18. revolutionarycitizen

    “Federal Government must support this financially.”

    Why?

    Australia has a healthy and robust heavy vehicles manufacturing industry and it receives nothing from the government.

    If you still think government is the solution, you’re part of the problem.

  19. edward eastwood

    Stephen Tardrow; You won’t get any argument about tariffs from me Stephen and you’re spot on with your comments regarding their importance. Only fools and ideologues fail to protect their national industries to satisfy notions of a ‘free market’ which is neither free nor fair as you point out.

    With regards to medieval religions, monetarism or neo-liberalism is the new ‘the earth is flat and the sun moves around it’ economic ignorance based on deceit, and just as wrong as the Monasteries who pushed it in those times, as the neo-libs push their theories of a ‘free market’ nowadays.

    As for not being an economist, “You don’t need a weather-man to know which way the wind blows.” – Bob Dylan

  20. Really?

    Sorry, this is not going to work at all. Labor would not be able to save anything, else Ford and Mitsubishi would have not announced closures during the ALP’s 6 years in Government. No matter which way the government goes, Australia as a whole has made itself uncompetitive on a global scale. It’s unsustainable with the amount of competition Australia has now, and with our overall small population size it is extremely difficult to sell enough cars to turn over a decent profit.

  21. Really?

    Holden announced their closure just as the Libs got into power. Double standards? You also failed to address Ford’s closure (or ignored it to suit your argument).

  22. Romulis

    I’m a Labor voter and I agree, Michael you are showing a bit of double standard…

  23. Michael Taylor

    Really?, Mitsubishi closed its engine manufacturing plant in 2004 and announced in February 2008 – six weeks after Labor won office – that it was leaving Australia. It’s a bit rich to blame it on Labor.

  24. David

    nice to think so, but very naive. Truth is it takes years to develop a new model, they should have been starting now. ABC you need to understand the industry

  25. Terry2

    Another win for Tony with Toyota departing the scene and meanwhile big Joe says of SPC-A ” why should we be lining the pockets of Coca Cola Amatil with taxpayer money”. Not exactly ‘open for business’ I wouldn’t think.

  26. Learntoreadbetweenthelines

    5 months in government, hardly Tony Abbott’s fault, why should a government support a business that can’t support itself? Wouldn’t that be an nonviable business running on borrowed time to its inevitable demise?

    Governments are there to fulfill the collective wants and needs that the private sector cannot/will not fulfill (such as postal service), economies with private enterprise specialise in producing/exporting products that are viable to making companies a profit, the car industry was not making these companies profit, thus the decision to leave our country.

    Workers in the long term future of this country would be better off to be employed with a stable company that is making a profit, rather than one running on government assistance.

  27. rossleighbrisbane

    Gee, Learntoreadbetweenthelines, haven’t you heard, they intend to sell Australia Post too. So there’s really no point to this government at all. 🙂

  28. Learntoreadbetweenthelines

    Congratulations Ross, you managed to reply to one of the points I was making, great work! The postal service has got more competition since FedEx, DHL, etc have entered the Australian marketplace, with the declining value of the snail mail business, and the expansion of the bigger package delivery services which these multinational couriers specialise in, I think there is a case to privatise AusPost.

    However that is irrelevant, you took this conversation off-topic Ross.

  29. Really?

    Not to mention, Australia post’s service is absolutely atrocious. Why are we funding a service that clearly doesn’t deliver? (Pun intended)

  30. mark delmege

    I can’t understand why people think it rational to offshore basic and essential industries in some notion of purist economic logic. That’s just crazy. As it is our economy really only ticks along because of high immigration and the need to build more houses and associated infrastructure and people who buy shit to fill them. Oh yeah we sell some once only minerals which are mostly owned by multinats anyway and some agri produce. The way things are looking we will be a hollowed out shell without a tax base, employment opportunities and be dependent on ever more migrants to push the figures along in some vain attempt to look like we have growth – which when you really look at it is no more than an unsustainable pea and thimble switcheroo.

  31. Andreas Bimba

    The stupid have just won this battle. Congratulations to you on your most stupid of victories. You should all really be happy in a stupid sought of way. I always thought Michael Leunig was a little too pessimistic in his observations of this world but alas no, he was right. Spot on in fact.

  32. Dissenter

    Andreas Bimba, The stupid might win a small victory of sorts BUT they can never win the battle while the SMART are still standing.
    Keep on writing. Your points are correct and your intentions are pure and in Australia’s best interests.
    WE must maintain that vital skillbase because for defensive purpose at any time in our future the workforce with high tech manufacturing capacity is the workforce that MUST exist.

  33. Dissenter

    Please send your article to the Labor party Shadow minister of Industry and also to Shorten.
    Your article is balanced and presents a Vision which is possible to achieve.
    I also believe that if the economics of scale is the problem then we should also manufacture luxury cars which are very expensive. There is a domestic market but if these are unique in design and luxurious enough then they will be Objects of Desire and as such pre-ordered( which is handy) and exported.

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