INDUSTRY: by Peter WestmoreNews Weekly
A solution to the motor manufacturing crisis
, August 3, 2013
The announced closure of the Ford manufacturing operation in Victoria from 2016, the loss of 400 jobs at Holden’s manufacturing operation in Adelaide, and Holden’s threat to close manufacturing unless governments invest $500 million over the next five years, are the storm clouds threatening the future of motor manufacturing in Australia.
Without a critical mass, the entire industry could simply disappear.
Holden's newly-released VF Commodore
Behind these dramatic events are a number of other factors, including the current political instability which has worsened a sharp fall in Holden car sales. Holden has just released the new VF Commodore and has been manufacturing the small Cruze vehicle.
Holden reported that sales of Cruze declined rapidly by nearly 40 per cent from June to July, due to massive price-discounting and unprecedented retail finance offers from competitors.
At the present time, helped by the still high value of the Australian dollar, European manufacturers are able to flood Australia with vehicles which cannot be sold in the European Union, due to the current EU financial crisis.
In the EU, these manufacturers also receive generous government subsidies. Holden has produced research showing that, currently, Australian support for its auto industry is just $18 a head, compared to $90 in Germany, $265 in the US and $334 in Sweden (Sapere Research Group, 2011).
It is well established that with necessary investment in high-technology manufacturing processes, car plants need a throughput of at least 200,000 vehicles a year to be profitable. Both Ford Australia and Holden are well below this level.
While some people in government would be happy to see the end of car manufacturing in Australia, it constitutes the heart of what remains of secondary industry in this country. Australia is one of only 13 countries with a capacity to design and manufacture motor vehicles.
The auto industry is the largest contributor to research and development in manufacturing in Australia. It directly employs 48,000 people, and indirectly 200,000 others, and is an important source of trained engineers and technicians for other industries.
Once the technological capacity to build motor vehicles is lost, it will be almost irreplaceable.
These problems have been compounded by a recent decision of the Prime Minister Kevin Rudd, making purchases of new cars more difficult.
The Rudd government took an ad hoc decision to replace the unpopular carbon tax with an emissions trading scheme (ETS), with a loss of billions of dollars in revenue. To offset this loss, the Prime Minister announced that fringe benefits tax concessions on the purchase of new cars will be abolished, saving $1.8 billion a year.
The industry estimated that this decision alone could affect sales of up to 250,000 vehicles a year, a quarter of annual new car sales.
There are also deep-seated problems in the broader motor industry, referred to by the chief executive of the Australian Motor Industry Federation, Mike Dudley, as a “perfect storm”.
Mr Dudley said that recent research showed a current shortage of 19,000 skilled mechanics.
The convergence of all these issues requires urgent action by the next government, particularly as manufacturing declined to 8.7 per cent of the economy by 2009-10, and has since fallen even further.
The US government underwrote US auto companies at the time of the global financial crisis, pumping billions of dollars into the industry. The British government is currently investing in its car industry, aiming to expand production from 1.5 million vehicles a year to two million by 2016.
The Ford closure in Australia is part of Ford’s global rationalisation. It is also ending manufacturing in the UK, and closing a manufacturing plant in Belgium.
As things stand, Australia needs to look to the future of motor manufacturing without either Ford or Holden.
One of the key problems for Australia is that companies such as GM, Ford and Toyota are global organisations which shift manufacturing to countries where manufacturing costs are lowest. With Australia’s low five per cent tariff on imported vehicles, there is little incentive to maintain production in this country.
To maintain a viable car industry in Australia, the next federal government will need to bring together governments, industry experts, unions and investors to examine what must be done to preserve the industry here, as was done in the 1980s.
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.
Mr Milne, who worked in the car manufacturing industry for many years, has pointed out that the expertise exists in Australia to sustain a car industry which would not only compete with imports, but also win export markets in our region.
However, it will need strong government leadership and backing to succeed.