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 taxpayer through general taxation of the manufacturing industry and its employees.

It is a profitable investment by the Japanese taxpayer 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?