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Who killed the car industry?


Nose of a Holden carWho killed the car industry? For the end of motor-vehicle manufacturing in Australia is now virtually certain after this week's announcement by General Motors that its Holden subsidiary will cease making cars in this country in 2017. With Holden's longtime rival Ford already set to depart in October the year before, it is extremely unlikely that the remaining car maker, Toyota, and the crucially important components makers can survive.

Without the big two the components companies will not have a sufficiently large market to justify production, and their demise will force Toyota out, too. An industry that directly employs more than 45,000 people and indirectly employs nearly 200,000 will soon disappear, ripping a $21.5 billion hole in the economy and quite possibly triggering a recession in the manufacturing states of Victoria and South Australia.

That would have flow-on consequences in other states, generating, among other things, a welfare bill that dwarfs the $400 million a year now paid in 'co-investment' — i.e. public subsidies — to the car industry. Even the economic rationalists, to whom all subsidies and trade barriers are an abomination, and who for decades have cheered on the demise of the car industry, are registering faint signs of alarm about that prospect: their holy grail, the balanced budget, would become more elusive than ever.

So then, who dunnit? The immediate responsibility for this looming economic disaster rests with the Abbott Government, and not merely because of its extraordinary use of a bullying speech in Parliament by the Treasurer, Joe Hockey, to goad Holden into announcing a decision that its masters in Detroit had probably already taken.

The Government had decided to cut the $400 million co-investment payments to $200 million a year, with no guarantee of public assistance in the longer term. For the carmakers, who like all manufacturers have struggled to compete with overseas rivals because Australia's overvalued dollar makes domestic products too expensive, the Government's refusal of support was a death sentence.

In the longer term, however, this should be seen as a bipartisan disaster. What happened this week was the culmination of a process that began under the Hawke Government, which floated the dollar and began the withdrawal of protective tariffs and subsidies from local industries. Labor introduced economic-rationalist assumptions to policymaking in Australia, and the chimera of the free market continues to dominate most economic debate in the federal and state parliaments and in the mainstream media.

When the history of these times is written Australia will be seen as an oddity in this respect, for only here and in New Zealand has the pure doctrine of neoliberalism, to give economic rationalism its international label, been embraced so wholeheartedly.

It is true that most countries pay lip service to the ideal of a free market when participating in international trade negotiations. But then they do what is in their national interest anyway.

Compare the Obama administration's bailout of General Motors during the global financial crisis with the attitude that successive Australian governments have taken to the car industry. GM was offered massive public subsidies to stave off collapse — but in return the administration demanded, and was given, the right to appoint the president of the corporation, and membership of the corporate board was broadened to include a representative of the United Auto Workers of America. In effect, President Obama nationalised GM for the duration of the crisis.

The executive government of the United States, the nation that is the ideological and financial centre of global capitalism, did not shrink from treating a corporation that is an icon of global capitalism in this way. But imagine the howls of protest from neoliberal commentators if the Australian government attempted a similar hands-on intervention in the car industry or any other form of manufacturing.

Because neoliberalism is such a narrow ideological frame through which to view economic activity, much commentary on public subsidy of the carmakers reduces the issue to a question of whether there is any point in continuing to pour taxpayers' dollars into a loss-making industry. Among other things, this evades the question, not commonly asked, of why we continue to subsidise other industries whose profitability would suggest that they do not need assistance.

Mining, for example, receives a $3 billion a year diesel-fuel rebate that makes $400 million a year for the car industry look measly. And it is measly in international terms: Australia's per capita contribution to the car industry is $US18, compared with $90 per capita in Germany, $96 per capita in the US and $334 per capita in Sweden. Apart from Australia, every country that has a car industry accepts that it will not survive without public subsidy.

The narrow frame of the debate also ignores what the industry returns to the wider economy. In the past 12 years Holden received an average of $150 million from the public purse but in that time it generated $2.7 billion in economic activity, mostly through contracts with the now threatened components makers.

In terms of income-tax revenue alone, the industry was hardly a drag on the national economy. Yet comparatively few media commentators — former Age economics editor Tim Colebatch, The Guardian Australia's Mark Skulley and industry analyst Ian Porter are honourable exceptions — have explained this broader context.

Most important of all, the car industry has been the chief skills repository of Australian manufacturing, and without new sources of employment for the bearers of those skills they will eventually be lost to the economy. The cost of losing these jobs, in human as well as financial terms, will be immense. We are living in a time when governments can contemplate economic catastrophe with apparent equanimity.


Ray Cassin headshotRay Cassin is a contributing editor.



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Existing comments

A brave voice of reason. It is amazing to me just how entirely Australia has fallen for neoliberalism. A labor party communications success story.

Edwina Byrne | 11 December 2013  

Wow! A thousand word treatise on who killed the car industry in Australia without the word "union"! That's chutzpah!

HH | 11 December 2013  

Yes the miners get their $3 billion and even cray fishermen get the diesel fuel rebate. I've never met a poor cray fisherman. Time some changes were made but it wont happen on Abbott's watch

John | 11 December 2013  

Well at least Ray gave us 1000 words of reasoned and nuanced argument rather than HH's mere assertion in nineteen words.

Ginger Meggs | 12 December 2013  

Except that my "mere" assertion happens to be true, GM.

HH | 12 December 2013  

"The executive government of the United States, the nation that is the ideological and financial centre of global capitalism, did not shrink from treating a corporation that is an icon of global capitalism in this way. But imagine the howls of protest from neoliberal commentators if the Australian government attempted a similar hands-on intervention in the car industry or any other form of manufacturing." Ray's comment neatly epitomizes the inability of the Left to grasp the distinction between genuine free market capitalism and crony capitalism. For the umpteenth time, let's just remind readers that any attempt of a government to bail out a failing enterprise is antithetical to free market capitalism, but the epitome of "crony capitalism", which is but one or two tiny paces from "fascism" or "corporate socialism", or in another historically unfortunate guise "national socialism". Is it that hard to grasp? Next straw man, please.

Name | 12 December 2013  

Wow! A thousand word treatise on who killed the car industry in Australia without one reference to the fact that Holden's market share was above 50 percent in 1958 but just slightly more than 15 percent in 2006. Now, I wonder how the unions managed to persuade their membership to buy imported cars rather than the ones built by their comrades in Australia. Any thoughts HH?

Paul | 12 December 2013  

The speed with which Holden bailed out when Joe Hockey threatened to halve their subsidy attests to a dubious commitment or interest in this country and its workforce. Maybe better off without them! Refreshing, however, to see an article in ES which apportions some blame and the origin of the problem to the great ALP led by the sainted union supremo, the 'old silver bodgie', Hawke himself, aided and abetted by the self-professed architect of the dollar float the "true believer', Keating.

john frawley | 12 December 2013  

I sure do, Paul. You could have 100 percent market share, but still make a loss if your costs are more than your revenues. Reverse that situation and you can still make a profit with 1 percent of market share or less. Pretty basic stuff, really, except for the left.

HH | 12 December 2013  

At last an informed analysis that places the shut down in perspective. That the much touted, so-called 'reforms' introduced by Labor, meant they now fully embraced the ideology of neoliberalism. Chifley's 'Light on the Hill' was well and truly doused by Keating and Hawke. The Liberal Party now has no opposition to it's agenda. This is evident in the way the Abbott government is arrogantly abusing it's power, they have no real opposition. The democratic system functions only when there is an opposition. The example of the way Obama could deal with Holden is an example of it working. It happened here in Australia in Chifley's day.

Reg Wilding | 12 December 2013  

This is a very welcome contribution to the discussion about the fate of the care industry and the overwhelming dominance of neoliberal economic philosophy. Despite the GFC, a failure of neoliberalism, this ideology and its proponents are still in the ascendancy. Why, when it was tax payers who bailed out capital in order to reduce the impacts on people's lives- hence Barack Obama's rescue of the auto industry. Our societies are about people and communities, not merely economic units and flows of capital. Yet neoliberalism holds sway over most public policy and is the dominant ideology of both major political parties. The Labor Government decision on single parents was a classic example of that. No subsidies to the car manufacturers? Bad luck about the unemployment and social costs that will follow- the neoliberals are characteristically short sighted. Neoliberalism has become so entrenched as conventional wisdom that most people do not step back and analyse how arguments are being framed. Thank you, Ray Cassin.

Kate Jeffery | 12 December 2013  

Your assertion happens to be true, HH? Is that just because it's your assertion, or is there a cogent argument for it? If so, let's hear it.

Ginger Meggs | 12 December 2013  

So. The Abbott "Party" that has been in business for a massive 3-4 months is now to blame for the Indonesia fiasco, which problem was initiated on Labour's watch: and for the car industry's demise. Really!! It had nothing to do with the pay demands of the unions: nothing to do with the refusal of Governments at ALL levels including the local governments to refuse "homemade varieties" of motor vehicles yet heavily discounted overseas models' many of which they 'bought' at a pittance: and nothing to do with our over priced dollar. No. Let's make Tony and Joe "whipping boys" responsible for all Australia's woes. Then we don't have to accept that the US of A was going to pull the plug anyway. We could have built on Holden's dream in the 50's and 60's to have a unique Aussie car produced by Aussies, for Pussies. We have the expertise.. All it needed was to Nationalise the car industry and keep the union about out. Too late. Now we are stuck with a mega disaster. And all Labour and Academics seem capable of is.mudslingimg. Lets get off our chuffs. The brains are here in Oz. Let's use them.

Karl H Cameeon-Jackson | 12 December 2013  

Can someone give me an ethical argument why an Australian mechanic (for example) is paid $80 an hour, but in Pakistan they only receive $2 an hour. Most Pakistanis can only afford meat once a month. Perhaps Australians have to get used to eating less meat.

Dennis | 12 December 2013  

The imminent demise of Holden and the trouble Qantas is having seem to be two symptoms of the same problems underlying our economy. Perhaps we need to move beyond neoliberalism to an informed bipartisan consensus on where the long term national interest and survival lie? The real debate on that appears not to have commenced. Perhaps the experts were all so brainwashed by the School of Milton Friedman they can't see beyond him?

Edward F | 12 December 2013  

We are all guilty of killing the car industry. We all started buying smaller and more economical cars or SUV's, all of them imported. The car industry had the head in the sand and kept on producing vehicles the people did not want. All Governments (Labor and Liberal) provided ongoing massive support and still Mitsubishi and Ford and now Holden left. The economic reforms started by Keating and continued by Coalition and Labor Governments, provided massive benefits to all Australians. We are now some of the wealthiest people on earth. If narrow minded doomsday cultist try to go back to the 50th with high duties, high costs and extreme inefficiencies, they should consider time travel.

Beat Odermatt | 12 December 2013  

"So. The Abbott,'Party' that has been in business for a massive 3-4 months is now to blame for the Indonesia fiasco, which problem was initiated on Labour's watch: and for the car industry's demise. Really!!" Yes, really. Tony Abbott himself said: “From today I declare Australia is under new management and is once more open for business,” http://www.theaustralian.com.au/national-affairs/election-2013/abbott-claims-victory-and-says-australia-is-open-for-business/story-fn9qr68y-1226714414009 A newly CEO cannot afford to merely blame the previous management for problems they may have inherited: the Board (Caucus, not just the Cabinet) and the Shareholders (us) will expect action. If the CEO's actions solve the problems, well and good. If he fails, then tries to blame someone else, the Board may find a new CEO, before the Shareholders decide that they need a new CEO and Board. I know this can be frustrating for someone who has spent many years thinking "when I'm running the show things will be different". They usually are different, but not always the way we had imagined. As a shareholder I'm wondering how I benefit from the fiasco, as you rightly call it. It I were an animal libber I might want to see the live beef trade ended, but I'm not.

Simon Crase | 12 December 2013  

The present government is still governed by "Thatcherite" ideology that states that investment should be left to merchant bankers and mainly short term loans that turn them into multi millionaires. European and Asian economies are showing that public infrastuctures must be financed by co-operation between the government and private secters and be long term.

John ozanne | 12 December 2013  

World-wide, there is excess capacity in the car industry. Is this because the industry is subsidised? Or are the subsidies and protections there because everyone has a problem? Perhaps this disaster is a blessing in disguise. We must demand new thinking and a new way forward in manufacturing in Australia which is less wasteful and anticipates problems such as rising energy costs and potential oil shortages. Possibilities include growth in renewable energy, energy storage, electric vehicles and infrastructure developments including freight rail. Decentralisation and high-density cities should also be in the mix. (Don't criticise this list - add to it!) Power distribution needs to be revamped to take advantage of locally produced energy and provide local energy storage. I await the day the power company comes to rent my roof, or offer a fair price for the energy that falls on it day after day.

Peter Horan | 12 December 2013  

Who dunnit/ John Button---that's who. Doesn't anyone remember the much- vaunted but fatally flawed "Button Plan" which provided for the manufacture of six cylinder cars only in Australa at a time when the rest of the world was switching to cheaper, more economical four cylinder cars. John Button.. That's who

Bill Barry | 12 December 2013  

Australian cars were not good enough. Australians would not buy them.

angela | 12 December 2013  

Thank goodness Mrs Merkel continues to support the German car industry. It makes me very happy on a daily basis but, let's let get one thing straight, if Mercedes-Benz made cars like the Cruze and Commodore no amount of subsidy would save their car industry either! The other more salient point is that German cars, with the exception of Opel, are manufactured by GERMAN auto makers. Detroit could not give a damn about Australia, the Holden brand, its iconic part in our culture or the economic benefit to our country. Let this be a lesson to those hell bent on selling off all of our industries to foreign companies.

Martin Loney | 12 December 2013  

Perhaps the way forward is for more of us to use public transport.

Janet | 13 December 2013  

Responding to the never ending bias comments from journalists that contribute to the Eureka. As if a Government that has been in power for 5 mins has caused the demise of Holden and Ford. Maybe you should do some genuine research and report without your spin. Some of the reasons in my opinion should include: non competitiveness with other countries because of high wages, inefficiency often due to unreasonable union demands. Is a government meant to spend our money propping up an industry that is not profitable. In Lindsay Fox's words 'Enough is Enough" A lot of businesses in Australia do not get such assistance when they are struggling to survive.

Joan Robertson | 13 December 2013  

I was pleased to see Ray Cassin use the right name for "economic rationalism" as being "neoliberalism" and really hitting the nail on the head when he named the disgraceful Hawke Keating Government as the initiators of this stupid economic regime. It was introduced around the world under different names - Thatcherism in the UK, Reganism in the US and so on. It was always introduced following a serious economic downturn, usually created as was Keating's "the recession we had to have" and as even overthrowing a democratically elected Government by " Margaret Thatcher's "good friend" Augusto Pinochet who in 1973, backed by the Nixon government, overthrew the government of the day, creating chaos, murdering men women and children, and then with the aid of Chicago University economist Milton Friedman introduced the neoliberal economic model. This is an economy for less government, for no government owned enterprises such as essential services like electricity and water and the only criteria for its success being the tyrannical bottom line. Unions and workers voices must be discredited, fragmented and destroyed. Small business will (and is) gradually vanishing and corporations on the other side of the world are deciding our fate. Australia - Poor Fella my Country.

John Morris | 13 December 2013  

In reply to Joan Robertson: Of course, Lindsay Fox is trying to tie up a subsidy deal with Jetstar and the Victorian Government for Avalon. So far, he has put off the evil day till April 2015.

Peter Horan | 13 December 2013  

One damaging feature of the pervasive ideology of Australian exceptional-ism that infuses the narrow band discourse in this country, is doctrinaire neo-liberalism. That all car-building nations provide larger per capita contibutions to this industry than does Australia, as part of supporting the common good, is an expression of this.
Australia is now a world leader in the blind faith of the vagaries of free-marketism, in the uncertainties of the free-market, and, in the steady addiction that now characterises both state and Commonwealth governments to the gambling dollar as a source of revenue.

Some decades on from Donald Horn's ironic appellation of 'The Lucky Country' to this nation, this description iis acquiring new, disturbing connotations. For government, and particularly this one, it is more important to be ideologically consistent to the tenets of neo-liberalism, than to look after the people of this nation. Thus, we allow industries to be destroyed be they manufacturing iagricultural industries, just so that a tiny percentage of the Australian workforce can have the privilege of flying in and out of mining sites, to earn large salaries from heavily supported mining companies that care little about their families, or indeed about the common good of Australian life.

Michael Faulkner | 14 December 2013  

"As if a Government that has been in power for 5 mins has caused the demise of Holden and Ford." - feels more like 3 months to me.

Simon Crase | 15 December 2013  

Joan, you quote Lindsay Fox as saying 'enough is enough'. It is utter hypocrisy. As an advocate for road building, he is one of the prime beneficiaries of taxpayer funded investment in such infrastructure and maintenance costs that follows. His transport vehicles do far greater damage to roads without his companies bearing any of those costs. What about Victorian government subsidies to his business ventures at Avalon Airport and Phillip Island? The current Victorian Government has even committed to funding a railway line to Avalon Airport which incidentally they won't do to Tullamarine, Melbourne's international airport, which would have far wider community benefit. Yes, in his case, enough is enough.

Kate | 15 December 2013  

Where I live in SA more rooftops have solar than those which do not now a days. How is it Australia does not have it's own electric car and motor cycle industry? The power industry would also benefit from an electric car industry while in transition off fossil fuels takes place. Everybody wins.

RAG | 18 December 2013  

This is not a great news for car industry that the two famous brands have decided to cease their business in the country. Measures regarding this has to be taken soon, otherwise it would cause enormous amount of loss to the car industry.

Riddoch @ automatic transmission exchange | 19 December 2013  

I like that other countries who subsidise their car industry - We get to buy their cars cheap because their government's take extra tax from their people at the point of a gun. I for one am glad to see we have decided to stop enslaving people here to the motor industry.

stephen | 01 February 2014  

Tony abbott has a plan to make us a dumb australia, it is working well, smart countries make things not import every thing they need, shame on you Abbott where are my kid's going to work in a chinese owned cole mine with all the 457 worker's, not real smart are we?

peter spencer | 08 March 2014  

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