Finance Finance News The car-making tragedy that must never be repeated

The car-making tragedy that must never be repeated

car manufacturing shut-down
Economist Saul Eslake says its harder to encourage displaced workers from sectors in decline to move into sectors that are creating jobs. Photo: Getty Photo: Getty
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Toyota’s announcement this week that it will cease car manufacturing in Australia in October puts a timeframe on the final act of a genuine tragedy.

By naming October 3 as the final shutdown, the company has given fellow manufacturer Holden and literally hundreds of smaller companies that supplied them, the information they need to plan their own demise.

The Australian Manufacturing Workers’ Union has warned that “the majority” of such firms will be going, with only the lucky few managing to reorient their businesses to other forms of advanced manufacturing.

Estimates vary as to how many jobs will be lost through the auto-manufacturing supply chain, with South Australian senator Nick Xenophon estimating up to 150,000 jobs nationwide, and Labor arguing that “experts have predicted the loss of up to 200,000 jobs across the supply chain and associated industries and a $29 billion hole in our GDP”.

Was it inevitable?

For households that depend on those companies, the loss of income will be very difficult, but does that make it a tragedy?

Well yes, actually. When dramatists use that term they mean a story whose outcome seemed at every turn to be preventable, but which in retrospect appears “something that is absolutely inevitable, preordained almost”, as playwright Willy Russell once put it.

What’s not widely understood is that the ‘inevitable’ part of the shuttering of this industry is not, as its cheerleaders have often asserted, because we just can’t compete on the world stage.

Ian McAuley, a former public servant, now adjunct lecturer in public sector finance at the University of Canberra and fellow at the Centre for Policy Development, says the roots of this collapse run back almost to the day in 1948 when Prime Minister Ben Chifley drove the first Holden off the production line.

In those days, and throughout the ‘long boom’ of the Menzies years, Canberra bureaucrats and politicians shared a vision of a high-skill, high value-added manufacturing industry.

first holden
Prime Minister Ben Chifley launching the first production Holden in 1948.

They welcomed overseas manufacturers – so much so that at one point Australia had seven car companies producing 13 different models aimed at domestic customers.

The big clear-out

By the early 1970s the folly of such a ‘competitive’ market became clear. Even with tariff protection, Australian-based firms struggled to stay competitive because of a lack of scale.

By the 1980s, says Mr McAuley, not only was Australia moving towards a more open economy – lowering tariffs, deregulating finance markets and so on – but Canberra’s top boffins started to think that Australia needed just a couple of manufacturers.

Nissan stopped manufacturing here in 1992. Mitsubishi closed its factories in 2008. And only Holden, Ford and Toyota were kept going through public subsidies.

But that did not mean that Australia ‘simply couldn’t compete’ as some free-market fundamentalists have asserted.

When long-term policy shifts, such as the Button car plan launched in 1984, are contemplated, the economists, bureaucrats and politicians working on them take a long-term view.

Under the Button plan, for instance, it was envisaged that three manufacturers building six models was about all Australia could support in a lower-tariff future.

When the Abbott government came to power in 2013, such planning – in so far as it existed – was well and truly bungled.

You picked a fine time to leave us

In December 2013, when then treasurer Joe Hockey stood up in Parliament and told GM Holden “either you’re here or you’re not”, the three remaining manufacturers all got the message – and before long all said “we’re not”.

What they had been waiting for was a schedule of subsidies that would get them through to the post-mining boom era that everyone could see coming – the days when the super-high Aussie dollar would fall back to earth and improve export competitiveness.

As I wrote at the time, “GM wanted $2000 of the extra $3750 it costs it to make a car in Australia to be paid for by taxpayers while it waited until 2020 for the Australian dollar to fall to, and stay at, a reasonable level. By then it could almost certainly be producing the mix of local and export models that would return it to profit”.

Joe Hockey
Former treasurer Joe Hockey forced GM Holden to make a choice in 2013.

Toyota was in a similar position.

So going back to the long arc of history that Canberra’s best boffins usually take into consideration, the Coalition’s reining in of subsidies looks tragically ill-timed.

Had these tens of thousands of jobs been sacrificed in the mid-Howard years, when the mining boom was yet to come, more of those displaced workers would have found new jobs.

But to do it two years after the peak of the boom? That was madness.

Now the dollar is more than 25 per cent below its peak, a lightly subsidised auto industry could be helping back-fill some of the jobs hole left by the end of the mining boom – and it’s important to remember that “by international standards, annual assistance to the Australian automotive industry is relatively modest in raw dollar and per capita terms”, as the ABC’s fact-checking unit showed in 2013.

There is now a large hole blown in the Australian high-skill, high-value-added economy at the very moment we need it least.

To read more columns by Rob Burgess click here.

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