April 27th 2013

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Articles from this issue:

COVER STORY: Australia's motor industry on the edge of the abyss

NATIONAL AFFAIRS: Queensland ports targeted in anti-coal export campaign

CANBERRA OBSERVED: How prepared is the Coalition for government?

EDITORIAL: Julia Gillard kowtows to Beijing

UNITED STATES: Media ignore trial of abortionist who beheaded newborn infants

UNITED KINGDOM: Margaret Thatcher and the politics of conviction

NORTHEAST ASIA: North Korea, China's junkyard dog

MIDDLE EAST: Egypt becomes a nightmare for Muslim Brotherhood

EUROPEAN UNION: Cyprus the symptom of deeper eurozone crisis

SCHOOLING: Parental choice is key, not Canberra control

AUSTRALIAN HISTORY: Archbishop Daniel Mannix's public roles

LIFE ISSUES: Lighting a candle amidst the darkness

CINEMA: How can man die better than facing fearful odds?

BOOK REVIEW: A book they won't allow in our schools

BOOK REVIEW Australia's answer to Morpurgo's War Horse

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Australia's motor industry on the edge of the abyss

by Craig Milne

News Weekly, April 27, 2013

About 1,100,000 new motor vehicles are currently sold in Australia each year. This is, by any measure, a significant automotive market. And yet the local industry builds, for domestic and export sales, a mere 210,000 units — about the same number that it produced in 1957.

At its peak in 1974, the Australian motor industry built more than double the number of units than it did in 2012. Australian production has fallen to the level of over half a century ago, when the market was less than a quarter of its current size.

It gets worse. The locally manufactured share of each car is now much smaller than it was. In the late 1950s, local content was close to 100 per cent. Today a large and steadily increasing proportion of the materials and components used in all Australian-assembled cars is imported.

In 1957, the Australian industry produced more than four times the number of cars made in Japan that year and accounted for 2.4 per cent of global car production. By 2012 the Australian share of world output had fallen by 90 per cent, to just 0.25 per cent. Between 2000 and 2012 Australia slumped from 19th to 29th place in world automotive production.

In terms of the number of units produced, domestic market share and its output ranking in the world, the Australian automotive manufacturing industry is performing very poorly indeed.

Given the size, significance and maturity of the local market, the fact that Australians have been designing and building motor cars for more than a hundred years, producing car bodies in large numbers since the 1920s and mass-producing complete cars since the late 1940s, the industry should be doing much better than it is.

For a start, it should be producing at a per capita rate at least equal to the average of the group of similar automotive manufacturing nations, i.e., those with mature industries, per capita incomes above US$30,000 and open markets. Apart from Australia, there are 12 other nations in this group, and, if the local industry were performing at the average per capita output of this cohort, it would be building about 900,000 annual units.

It is worth noting that in the era of tariff and quota protection that preceded the period of trade liberalisation, Australian production was at or above 80 per cent of domestic sales. Had the regime of industry protection been retained, Australian production at the current market size would now be, all other things being equal, about 880,000 annual units.

Why is the industry in such poor shape? Apart from the overarching fact that the automotive industry, like the rest of Australian manufacturing, has been devastated by the trade-liberalising reforms implemented since 1973, there are a few industry-specific factors.

For one thing, local firms don’t produce the cars Australians want to buy. Except for a small/medium Australian-assembled Korean model, the industry doesn’t build small cars. Instead, it produces large cars, and sales in this segment have been in steep decline.

Export prospects for the locally-designed large cars, the Commodore and Falcon-based models, are limited; they do not match the refinement of foreign equivalents, such as the BMW 5 Series and Mercedes Benz E Class, nor are they price competitive due to the high value of the Australian dollar.

Another factor is that the foreign owners of the Australian industry have little interest in maintaining local manufacturing operations. These firms set up in Australia because of tariffs and, with these removed, naturally prefer to import product from lower-cost sources.

Foreign ownership and control of the Australian industry have been major factors contributing to its poor performance. It has narrowed the scope of local production, and hence market share, by the practice of filling out product ranges with imports. It has curtailed the development of an independent marketing strategy for exploiting domestic and export opportunities. It has distorted local product development decisions through principal agent conflicts, and it has frustrated the best attempts by Australian managers to develop the types of product and market opportunities that the industry has needed for its growth and natural development.

Finally, Australian governments have failed to implement a coherent policy for the industry.

Every successful automotive manufacturing nation has followed a standard industry policy template, which is to:

1) establish locally owned and headquartered core firms;

2) provide financial and regulatory support in exchange for progress on technology, quality, productivity and export performance; and

3) make sure that the established foreign firms that will seek to destroy the industry are prevented from doing so.

The Australian industry never got off the ground properly because the American firms were ensconced before World War II. The Europeans, Japanese and Koreans didn’t let that happen; they set up their own firms instead, and that is why they have thriving industries and ours is on the edge of the abyss.

Craig Milne is executive director of the Australian Productivity Council, a private-sector consultancy industry assistance organisation originally founded in 1969 as the Commonwealth-funded peak body dedicated to productivity promotion and improvement.

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