Coalition's car kill is crazy

23 Comments

Scattered wooden carsAlong with its planned abandonment of carbon market pricing, the Coalition's impending destruction of the Australian car industry by calculated public stalling of decisions on government assistance is shaping up as its most disastrous high-visibility policy blunder. This is Australia's version of US Tea Party budget brinkmanship

Consider the policy inconsistencies. The Abbott Government proposes to throw billions at an overgenerous planned maternal leave scheme that nobody really wanted, and billions more at generous discretionary handouts to industries that cut carbon pollution, in the vain hope of reaching a 5 per cent reduction that will be too low to help slow global warming anyway. It proposes to build submarines in Australia at vast expense compared to off-the-shelf imported submarines. The decision to exclude the Chinese market leader Huawei — the cheapest world supplier of equipment — from any involvement in Australian telecommunications will cost taxpayers billions.

None of these policies has anything to do with responding to market forces. Yet finance ministers Hockey and Cormann, heartened by a steady drumbeat of support from influential economics commentators like the Australian Financial Review's Alan Mitchell, are ready to sacrifice Australia's car industry on the altar of an economic theory which abhors the relatively paltry $500 million per annum assistance paid to this industry under Labor. This industry — but none other — is to be wilfully abandoned as a victim of rigid free-market economic ideologies.

It does not make sense, in economic, social or national security terms.

The hapless Minister for Industry, Ian Macfarlane, is struggling to keep General Motors and Toyota manufacturing in Australia on uncommitted temporary government assistance through 2014. Later that year the Productivity Commission will issue its report; its entirely predictable advice will be to kill the industry by ending assistance.

Abbott will then face the same tough political decision as PM that he is avoiding now. But perhaps he hopes that Holden and Toyota will save him the odium, by doing meanwhile what Ford has already done — announcing the shutdown of manufacturing in Australia. He could then say it was not his decision, it was market forces.

MacFarlane's other senior Cabinet colleagues — Pyne, Johnston, Truss, Joyce — all have portfolio or electorate interest in a viable Australian motor vehicle manufacturing industry. Their silence is puzzling.

There are sound national interest policy arguments for continuing to assist GM Holden and Toyota car manufacturing in Australia, and announcing this decision without waiting for the Productivity Commission report.

These companies make good, technically advanced cars of which Australia can be proud. They sell well, and set a standard of performance in Australian conditions for imported cars to meet. They help maintain a complex skills base in this country and a level playing field for every Australian car buyer.

Strategically, Australia needs to retain this mix of technical capabilities in-country. Designing and building a modern car is not simple. Purist economists may sniff at these as older low-level technologies, but national metal-fabricating and engine-building technologies and assembly lines could quickly be converted to making armoured trucks and weapons platforms if ever needed. The future is uncertain. Australia should not abandon its ongoing manufacturing capacity to make large numbers of motorised defence vehicles if we ever had to in a hurry.

And there is nothing primitive about the IT-rich control systems in our current cars. Cars like the Cruze or Camry Hybrid are right up there with imports.

The flow-on economic and social effects of closing these industries are huge: 8000 jobs would be lost in SA, 30,000 in Victoria. Flow-on job losses are estimated by former minister Kim Carr as 200,000. Some of these may be in auto maintenance industries that would continue, but a lot won't, and I would guess 100,000 flow-on jobs lost is a reasonable estimate. What are all these businesses and workers going to do? Retrain as hospitality staff? 

There would be major regional effects on SA — a state whose de-industrialisation is now well advanced. This state needs more than wheatgrowing, tourism, cultural festivals and winemaking.

There is the major loss of embodied capital from overseas. If GMH and Toyota run down their capital stock here in government-forced firesales, they won't start up again whatever happens to the exchange rate. Here we are (or some of us), bleating how much we need foreign capital to come in and help modernise our food processing and grain handling industries, yet when we have foreign capital and management attention in place in a viable industry that makes cars that compete efficiently with imports, should we deliberately set out to kill that industry?

Do Hockey and Cormann really think GM and Toyota are bluffing, that they can be nickel-and-dimed down to a smaller subsidy? Why risk it? I am sure these global companies are not bluffing. They will be tempted to write off Australian investment as Ford is doing, to build up capacity in countries like Mexico or Thailand. GMH's withdrawal to Asia of their top American-based CEO, Mike Devereux, was a clear warning shot to the Abbott Government that GM is serious. Toyota would surely follow as Australian parts supply chains become uncommercial.

Labor had achieved a workable longterm deal with GM that the unions supported. To keep their jobs, workers had voted to abstain from pay increases. Now, the deal is voided, and workers have to accept 3 per cent pay increases that they don't want. They would rather have job security.

Abbott needs to face down extreme free-market ideologues. If he buckpasses this crisis to the Productivity Commission, knowing that such a delay may set in train a self-fulfilling dynamic of closures in the industry, he will be responsible for destroying an industry of real importance and value to Australia.


 

Tony Kevin headshotTony Kevin was a career foreign service officer for 30 years and a member of the Senior Executive Service of the Australian Public Service from 1986 to 1998. He received a first-class honours degree and University Gold Medal in economics and political science at Trinity College, Dublin in 1967.

Scattered wooden cars image from Shutterstock

Topic tags: Tony Kevin, Tony Abbott, Joe Hockey, car industry, Holden, General Motors, Toyota

 

 

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Existing comments

Only emerging industries should need help from the government.
Jyo Aadarsh | 07 November 2013


It seems to me we are still unsure as to what the government will actually do on this issue. Perhaps you are correct and they are actually making policy by defaulting on making decisions and commitments now by appearing to wait for the Productivity Commission report by which time the car manufacturers may have made their decision for them. I suppose what most people want is a sign, any sign, of this government's intentions on a number of issues. The change of style from the previous government's is radical: Rudd and Gillard were very much part of the 24/7 news cycle. With Abbott and his colleagues the exact opposite is true. Media tarting a la Rudd or Peter Beattie may not be the way to run a country or state. Flying under any news or discussion radar may also be the wrong way to do things. I suppose what intelligent people want is a clear sign of where this government intends to take the country: a sign of the general direction in which Australia is headed and what sort of future the Coalition envisions. Short of a clear sign we are stuck with the equivalent of attempting augury.
Edward F | 08 November 2013


I wonder whether those workers who may lose their jobs voted for the Abbott government.......
karin | 08 November 2013


Jyo Aadarsh asserts that "Only emerging industries should need help from the government". I suppose that it depends on one's definition of an "industry" and what "emerging" might mean. Some ":industries", such as education, need constant support. And though Australians seem reluctant to recognise the fact, EVERYTHING which we make -- "industries" no less than buildings and bridges -- needs constant maintenance. This is not only, in the mercantile world, because the competition from our "rivals" is unremitting and often fiercely government-supported, but because these industries often drive technical advances [like "undirected" or "blue-sky" university research] and, as our history should teach us, have been critical in the ways we've coped with war. In short, these are not simply "government decisions and "support", they represent the values of a COMMUNITY and, pasce hard-line economists and commentations, a community is free to make decisions about what IT feels are in its best interests. I'd suspect, in that respect, that Australians value manufacturing, including of a range of motor vehicles.
John CARMODY | 08 November 2013


Government subsidy of car production is a world wide phenomenon, and on a larger scale than Australia has done. Tony Kevin shows what we'll lose if GMH and Toyota close down. Free market ideology makes no sense in this situation
Gai | 08 November 2013


Well said! For all the pre-election noise, it is the Abbott government that is putting a wrecking ball through the economy, and, just as importantly, people's lives. We cannot afford to lose the skills training that ripples widely into other industries. I cynically wonder if such a loss will allow industry to import cheap labour on 457 visas, with the government's blessings. The Treasurer and his assistant have shown themselves to be ideological warriors blinkered by 'short-termism' and questionable values
Patricia R | 08 November 2013


History seems to support Mr Kevin’s view. During the 1920s-30s, all Australian Governments resolutely built-up the manufacturing capacity of our economy. This was essentially by tariffs, but (likewise anathema to such as the Productivity Commission) also by ‘picking winners’. Eg, in the 1920s the conservative Hughes government initiated a joint venture with AWA to build the world’s first internationally direct wireless telegraph. In 1939 the conservative Menzies government, having failed to interest local players GMH and Ford, courted ACI to manufacture a fully Australian car. The war intervened, but the manufacturing capacity that had now been established was able to be cranked up to astonishing levels. During WW2 Australia became the Empire’s ‘arsenal east of Suez’, suppling allies with anti-aircraft guns during the Blitz, miscellaneous ordnance to the USA, and enabling our self-defence in the Pacific. These extraordinary technical and mass-engineering achievements also depended on the managerial skills of seconded captains of industry, including Laurence Hartnett of GMH (whose Fisherman’s Bend plant had, incidentally, been opened by another conservative PM, Joseph Lyons). The talk during this period would be unfamiliar to today’s free market ideologues: ‘Australian jobs’, ‘balance of trade’ and strategic ‘defence’ benefits. Australia needs a balanced economy, and work for blue-collar families.
David Moloney | 08 November 2013


"There would be major regional effects on SA — a state whose de-industrialisation is now well advanced. This state needs more than wheatgrowing, tourism, cultural festivals and winemaking". I think this is true of Australia generally and that where our leadership is lacking. Key regional towns across Australia are losing foreign industry too, Bathurst and Orange in the last few weeks. The blunt truth is we are too expensive compared to labour and setups now available elsewhere. Rudd said we needed to make 'things', but I also saw how good Australians were at selling educational services in SE Asia in the 90s. In terms of the car industry aren't ARB, an Australian company that makes auto parts for cars all over the world, a possible model? At the moment they are located offshore. I just can't see the point in continuing to make cars that, for various reasons, Australians are not buying. I can see Tony's point about leveraging accumulated skills and experience into something else. What is needed is a strategy out of this impasse. We have none. That is where we are shortchanging those workers and ourselves.
Name | 08 November 2013


What's with you guys? You are searching desperately but in vain to find some issue of substance on which the newly-elected government has failed. As I recall Ford decided to pull out of OZ when the ALP ruled. I don't recall any bleat from Eureka then or since.
Bill Barry | 08 November 2013


1. Nationalise the car industry. 2. Design a car (probably electric) that really suits Australian conditions (we all live in cities, don't we?). 3. Protect that industry by tariffs or other means to give it a chance. 4. Pour some research dollars into it to make us a world leader in radical transport options.
vin victory | 08 November 2013


A footnote correction to my history above. The world’s ‘first’ internationally direct wireless telegraph should read the world’s ‘longest’ internationally direct wireless telegraph. It was the longest by far, and the longest possible, circumnavigating the globe in both hemispheres. The reason for such considerable government investment (and technical risk) was, again, strategic/defence. Direct communication with the UK would protect Australia’s communication from the vulnerabilities of intermediary relay stations in the Middle East and Asia. This decision was validated when Singapore (one of the relay stations in the alternative system) fell in 1942.
David Moloney | 08 November 2013


Are those projected 100,000 jobs lost net job losses? If the money saved from withdrawing subsidies is allowed to remain in the hands of taxpayers, won't it generate economic activity, either by being spent, or saved and invested in other industries?
HH | 08 November 2013


There is no doubt that we need a local car industry and that our manufacturers make some good vehicles. Their loss will be a tragedy on so many levels. The fact is though that they are the wrong vehicles. Australians have developed a taste for SUVs and European badges. Additionally neither the Cruze nor the Camry hybrid are right up their with the best. They are both also rans in a field of increasingly outstanding overseas competitors. I also suspect that Ford and GM in particular have no intention of remaining in this country as manufacturers regardless of what the Abbott government does. These decisions were made in Detroit long before him. Ford seemed to deliberately sabotage the brilliant Falcon and Territory by having no export program for either. Without building international models with extensive export potential the economies of scale are simply not present. The true free marketeers here are the car companies. Even the fiecely patriotic Japanese companies have moved off shore to remain competitive. Have you checked out where a Honda Jazz is now made for our market?
martin loney | 08 November 2013


The same attitudes are expressed in New Zealand . The trans Pacific trade deal appears to be one in which for trade purposes N.Z and Australia are counted as a new state of the U.S.A .
michael ansted | 08 November 2013


If we are to maintain any ability to defend ourselves, the preservation of the machine tool industry is essential. As our defence links with the US and its armaments industry become more problematic (differing attitudes to China), some capacity for self sufficiency must be maintained. Car manufacture is the simplest and probably the least expensive way to do it.
disillusioned | 08 November 2013


The governments approach to the car industry reminds me of the old TV character Maxwell Smart. "We will save the car industry". No we wont. "Would you believe we will look at saving the car industry? It wont win us any votes. 'What about if I tell you we dont know what to do about the car industry?" Sums it up in my mind
John | 08 November 2013


Thank you David Moloney, for remembering Lawrence Hartnett, but you did not mention the more extensive work done by the Secondary Industries Commission - Chairman, Mr. (later Sir) J. K. Jensen, life-long member of the Commonwealth Public Service, responsible as Secretary Dept. of Munitions, for the plan used by Mr. Essington Lewis to expand and co-ordinate the munitions production programme during WWII. Other Commission members - members Mr. (later Sir) Walter Scott , and Mr. F. T. Merrett. See History of Munitions Production in Australia, 1915-45 - Andrew Ross. I was JKJ's Personal Typist, 1944-50
Shirley Pitcher | 08 November 2013


Some really thoughtful, informed correspondence here which illustrates the huge gulf between benign 'invisible hand' macroeconomic theory, and the reality of industry skills and capital particularism, and the consequent need for specific industry-based realistic planning. We do not live in economics 101 textbooks. Sadly and coincidentally we learned today of Qantas plans to close its repair factory at Geelong. This raises many similar issues - lack of transferability of specialist engineering skills, strategic importance to nation of keeping such skills, regional impacts ... that car manufacturing closures would raise. I really wonder who is thinking in a total, integrated way about Australia's future in an uncertain world? Economics should be the servant, not the master, of national policymaking. Increasingly, we are giving economic rationalism too much power over major national decisions like these. I drew my article to the attention of Mr Shorten's office. Let us hope the issue gets some solid parliamentary attention. If Holden and Toyota fold their tents here, it will be worse - much worse - than the bad news from Ford and now Qantas.
tony kevin | 08 November 2013


A reminder to the contributors who are concerned if Holden and Toyota close down due to the inability to make a yearly profit, is not the end of the world. Remember the once large "Leyland Australia" manufacturing local cars closed down in the seventies because they failed to make a profit. And "Pressed Metal Corporation" assembling Fiat vehicles, they also closed down. It is madness to pour money into an industry that is unable to make a profit. If the needs arise to start a new industry for the security of Australia with government money (our money), the knowledge and the skill is available in Australia.
Ron Cini | 08 November 2013


Jyo Aadarsh 07 November: "Only emerging industries should need help from the government" ??? At present China's (and others)cheap manufactures threaten to make us dependent on them, and so close down our manufacturing ability and when this happens, their prices will go up, we won't be able to recover our lost abilities.
Robert Liddy | 09 November 2013


Appropriate perhaps that in an article written by a former civil servant, that Shirley Pitcher recalls with gratitude Sir JK Jensen, the civil servant who brought war manufacturing and so much else together. He was apparently not particularly forthcoming (initially anyway), but knew what mattered and, thankfully was resolute in achieving it. More evidence too of the esteem in which he seems to have been universally held. And, again, an opportunity to acknowledge Essington Lewis and the other great industrialists we had to hand in the war.
David Moloney | 11 November 2013


I commend an excellent article, open access, "Tony Abbott's 300,000 new enemies". by Robert Gottliebsen in Business Spectator today - http://www.businessspectator.com.au/article/2013/11/11/national-affairs/tony-abbotts-300000-new-enemies?utm_source=exact&utm_medium=email&utm_content=504872&utm_campaign=kgb&modapt= . There are excellent practical suggestions here for how government might to help save 150,000 jobs now at risk in the Australian motor industry. Ron Cini appears to believe in the benign invisible hand in the long run, beloved of laissez-faire economists. I believe that one might show a little more charity in thinking about the 150,000 automotive workers whose jobs are currently at risk from the government-caused threats to Holden and Toyota. My guess is that Ron Cini, like me, might be on a secure retirement pension? Does it not behove us to try to put ourselves in the shoes of people whose jobs are at clear avoidable risk now?
tony kevin | 11 November 2013


Just read November, 2013 'killing car industry' article. Please Google:Australian Car Manufacturing Industry-National Defence. Prod. Comm's Report makes NO MENTION of vital necessity of car mfg. industry for defence. My two submissions are No.277 & 283. Also, read Sir John Storey, Biog, by John Lack. Storey made 700 Beaufort bombers, 350 Beaufighters, 70+ Lincoln (ex Lancaster) patrol planes at GM-H factories, with Ford + 600 other mfg. companies during WWII. Support Senator Lambie. We will be almost defenceless, by design, after last US car mfr. closes and departs. I sent my two submissions to Car Mfg. Inquiry to all 76 senators & few other organisations. Any, or a combo of Asia-Pacific neighbours could attack, invade, occupy. After GM-H and Ford plants close here, and with no tyres made here for ten years, oil refineries nearly defunct, aluminium plants closing, food growing, processing and preserving nearly all foreign-owned, TCF industries closed, how to defend? Rot started with Hawke, as president of ACTU, 1969-1980, creating strikes, resulting in trebling of wages from $100 in 1971, to $300 in 1981, per week, as per Lima Declaration, Peru, March, 1975, which stated that First World nations were to transfer tech, industry to Third World
Jeff Leddin | 29 August 2014


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