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Tag Archives: Toyota Australia

What really killed vehicle manufacturing in Australia

Image from theage.com.au

Image from theage.com.au

The death knell for Australia’s vehicle manufacturing industry was not because of high labour costs, writes Andreas Bimba in this guest article, but the free-trade agreements that acted to the detriment of the local industry. And who signed them? You won’t be too surprised to learn who.

Toyota, Holden and Ford did not decide to cease local automotive manufacturing because of high labour costs (this is nothing new), nor from a lack of direct financial support (this has been fairly constant but small), although both of these factors added to the pressure. Primarily, it was because of inadequate trade protection of the Australian new car market, the historically high Australian dollar, and finally, extreme hostility shown by the current Federal Government and the Productivity Commission in regard to dealing effectively with the urgent concerns of the industry.

It is quite obvious really, but as we have come to expect, the truth of the matter has largely been ignored by our superficial national media. The main headwind of the many facing Toyota Australia’s local manufacturing operations, and also those of Holden and Ford, is the one-sided Free Trade Agreements (FTAs) signed by our Federal Governments and the almost complete lack of tariff protection.

These FTAs conform to the neo-liberal philosophy of global free trade that is currently in favour with the Coalition Government, the Federal Government’s advisory bodies such as the incompetent Productivity Commission, and also the Australian Labor party.

The Australia Thailand Free Trade Agreement (TAFTA) came into force on the 1st January 2005 and was implemented by Prime Minister John Howard.

This agreement has allowed Thailand’s subsidised vehicles into Australia without restriction but has not prevented Thailand imposing secondary restrictions that have totally prevented Australian vehicles from being sold into the Thai market. Australia’s three top selling vehicles in 2013; the Toyota Corolla (43,498 units), the Mazda 3 (42,082 units) and the Toyota HiLux (39,931 units) all came from Thailand. By comparison, for 2013 the Australian made Holden Commodore sold 27,766 units locally and the Toyota Camry sold 24,860 units locally. I have not included Australian exports in these figures.

Over the preceding eight years not one Australian government has addressed the inequities of this vehicle trade imbalance and have stood back and ignored the inevitable consequences. Perhaps the Australian automotive manufacturers have also not tried diligently enough to address this trade imbalance as most of the vehicles being imported were made by subsidiaries of the parent companies.

This chart from GoAuto clearly shows what has been happening from 2005 to 2013. For the Australian new vehicle market it shows total Australian made vehicle sales (exports excluded) and total Thailand made vehicle sales.

GoAuto The Australia Korea Free Trade Agreement (FTA) came into force on the 5th December 2013 and was implemented by the Abbott Government. Korea has an almost totally protected car market and provides substantial subsidies to its manufacturers. It is also a much larger and more advanced automotive manufacturer than Thailand.

On the 11th December 2013 General Motors Holden announced the planned closure of its Australian manufacturing operations from the end of 2017.

On the 10th February 2014 Toyota Australia also announced the planned closure of its Australian manufacturing operations from the end of 2017.

It looks fairly clear to me that Holden and Toyota Australia concluded that the Australia Korea FTA was the last nail in the coffin and that there was no longer any point in baring their trading losses in the hope that the national industrial policy environment would improve.

The fact that Holden and Toyota Australia made no headway in Canberra with either the Government or the Productivity Commission with addressing their major concerns about viability under such extremely trade exposed conditions showed that the situation in their eyes was hopeless.

A bumpy road I believe that if a Labor Government was in power that the views of knowledgeable and reasonable negotiators such as Senator Kim Carr would have prevailed and that realistic strategies to address or counteract all of the concerns of the Australian automotive manufacturers would have been implemented. This would have occurred at the time of Holden’s threatened closure and I believe would have saved the local manufacturing operations of Holden and subsequently also those of Toyota Australia.

Even though during the Rudd and Gillard Governments (as well as the Howard Government) the issues of the vehicle trade imbalance with Thailand, the lack of trade protection in general, the unreasonable barriers placed against exports, the occasional unwillingness to export and the historically high Australian dollar were not adequately addressed, I believe that Labor would have done whatever was needed to retain the Australian automotive manufacturing industry as soon as it became aware of how critical the current situation had become.

Given the above, the only reasonable conclusion that can be drawn is that the current Coalition Government is primarily responsible for the announced cessation of all Australian automotive manufacture.

Can the Coalition bring themselves to adjust the Australian automotive manufacturing national policy environment sufficiently strongly that Toyota, Holden and possibly also Ford can be persuaded to continue local automotive manufacture beyond the announced closure dates? This is not very likely even though it is strongly in the national interest on so many levels, as it would basically entail the partial abandonment of their neo-liberal economic philosophy which they possibly hold as being more important than the national interest. Perhaps it is time for a leadership spill in the Federal Liberal and National Parties?

Can the next Federal Labor Government, which has every opportunity to win in 2016, bring about a policy environment sufficiently realistic and powerful that Toyota, Holden and possibly also Ford can be persuaded to continue local automotive manufacturing? Despite all the gloom I think that is possible. Even if some or all of the original manufacturers choose not to continue with local manufacturing, it is plausible that other players whether local or foreign may take over the current manufacturing facilities, perhaps even with the original manufacturers holding a minority share of the ownership.

We will see.

The march of neo-liberalism

image What is the Abbott Government doing wrong? Many could argue long and hard over that question, but in this guest article Andreas Bimba points to their strong neo-liberalism as one of their main failings.

In December 2012 Toyota announced the opening of its new engine plant at Toyota Australia’s centralised manufacturing operations in Altona, a western suburb of Melbourne. This was a little more than a year ago. Although times were tough then with a historically high Australian dollar, a fragmented market, almost no trade protection and only moderate government co-investment (to partially compensate for relatively high Australian wages), Toyota must still have seen a future for the Australian automotive manufacturing industry.

These external negative factors have not really changed from one year ago. If anything, the Australian dollar has fallen so conditions should in reality be better.

What is different is the attitude of the current Federal Government, with their hardened attitude of the government’s primary economic advisory body, the Productivity Commission. The Productivity Commission recently recommended that all government support for the Australian automotive industry cease by 2020. This is effectively a decision that declared an Australian automotive manufacturing industry is not welcome past 2020 and that the government’s key advisers want the industry to, simply, close down.

The Abbott Government has politically moved to the right much more than any previous national government. Philosophically they could be described as neo-liberals who promote small government, minimal government intervention in the economy, free trade, globalisation and free flow of capital to the most profitable sectors of the economy. This philosophy currently has wide support in the community, especially from people who work hard, face a high cost of living and resent governments taxing them excessively and wasting that money on unnecessary social services or corporate welfare.

As the inevitable consequences of this ‘dry’ economic philosophy become better known, public support will fall and in fact it is already unlikely the LNP Coalition will win the next federal election in late 2016, even with most of the Australian commercial media being heavily biased towards them.

The neo-liberal philosophy is, however, an overly simplistic and failed economic philosophy. No one, not even China or India follow this philosophy, nor does the United States even though its business leaders often claim to be free traders but the world is well aware of the local, state and national government support US industry receives.

In a country like Australia with a relatively high living standard, the concept of total free trade will inevitable mean a race to the bottom. Firstly, most of the manufacturing industry will disappear, but it will not stop there and eventually much of the service sector will also be transferred to lower cost foreign providers. The internet provides easy trade for information based industries such as accountancy, education, engineering, architecture, IT support and so on. Even work that must be performed in Australia such as construction, food harvesting, plant operators and maintenance services are now often performed by non-resident workers allowed into the country with temporary visas such as the 457 visa.

The only sectors of the Australian economy likely to prosper in such an environment are the bulk minerals/resources industry and the bulk agricultural commodity export industry. Neither of these sectors employ many Australians. The inevitable end result of neo-liberalism is unemployment for most, and fabulous wealth for a few. The classic third world banana republic.

When Toyota closes down its Australian manufacturing operations, this means about 90 per cent of the components and other supporting businesses will go as well. Probably about 40,000 direct jobs, mostly in Victoria and South Australia, as well as some in New South Wales and Queensland. An estimated three times that number will go in the wider economy as the economic demand for goods and services of those auto manufacturing businesses and their employees will subside substantially. Probably as many as 160,000 jobs will go.

As the manufacturing industry will continue to contract under neo-liberalism the service sector of the economy will also shrink and unemployment is going to be much more than it otherwise would have been. If, however, the Abbott Government is frustrated at every step of the way, the level of economic destruction may be lessened.

With China switching to renewable and nuclear power and also transforming its economy across the board to an advanced sustainable economy, it is inevitable that the demand and price for mineral resources will fall substantially. Australia will suffer badly in such a downturn with such a narrowly focused economy.

The global atmospheric CO2 limit that has been set to avoid catastrophic climate change will inevitably lead to a collapse of the coal industry and possibly much of the gas industry in the short to medium term. This is another factor our current government fails to acknowledge. Much of the associated unserviceable loans will fall onto the major Australian banks, the government, and the Australian taxpayer.

The alternative economic approach to neo-liberalism of balanced trade protection which allows a larger and more equitable mixed economy with a healthy manufacturing, service and resource export economy is essential for Australia’s future prosperity. This approach provides a ‘level playing field’ for Australian businesses but does not remove national or international competition.

So with a Labor Government likely to be returned in late 2016 that is most likely to support a balanced trade protection philosophy, why did Toyota announce the closure of its Australian manufacturing operations for late 2017? Will Toyota change its mind about closure of its Australian manufacturing operations after the expected Labor victory in late 2016? I and a few million other Australians certainly hope so.