The end of the Australian car industry

I thought I had said all I really wanted to say about the car industry, but Toyota’s pulling out has prompted a wave of semi-hysteria about jobs and the wickedness of the Abbott Government in ignoring the needs of workers. Arguments fly backwards and forwards: every country protects its car industry, say some; Australia does more of it, say others. I remember the Gillard Government’s pumping a lot of money into Toyota to produce the hybrid Camry in Melbourne. Indeed Toyota made it pretty clear in 2008 that it wouldn’t produce the hybrid engine here unless the Federal and State Governments came to the party with subsidies, and Prime Ministrer Gillard duly opened the factory at the end of 2012. How much were the subsidies to the car-makers? Heaven knows. As you’ll see below,  Toyota seems to have received nearly $500 million from the taxpayer over the last four years.

I am of the view, as I said last time, that the time has come to accept that with our high cost-structure we simply can’t afford to make cars competitively here unless there are subsidies and a high tariff wall. I’m not much in favour of either measure. Other countries can make vehicles at least as well, and much cheaper, than we can. But I thought that Judith Sloan nailed the issue in a piece she wrote in the Australian a few days ago (12 February). Figures have been bandied around that suggest that the Australian automotive industry is receiving only $US17 per capita compared with $US265 per capita in the US. Take it from me, these figures look wrong.

She went off to the Productivity Commission’s recent report on the automotive industry. It turns out the dodgy estimates are based on a number of faulty premises. First, a highly atypical year is selected — 2009, during the global financial crisis. Second, different types of government assistance — loan guarantees, cash handouts, general industry assistance measures — are simply lumped together and added up. Third, the figures are presented in per capita terms, an approach that makes no sense at all. The only sensible measure is in terms of per vehicle produced.

 And it looks like this:

And what happens when you do that? Australia has subsidised the manufacturing of vehicles to an extraordinary extent — $US1885 per vehicle, compared with Sweden ($US297), Germany ($US206) and the US ($US166). In other words, Australia has the highest rate of budgetary assistance of the seven first-world countries listed.

So this [calculation] puts paid to this argument. The Australian government as well as state government have bent over backwards to bribe the foreign multinationals to continue to produce cars in this country. We now know that Toyota Australia has received nearly $500 million in the past four years. Given that there are some 2500 Toyota employees, this works out at $50,000 a worker a year

Some think that Toyota was going to go anyway, even before Ford and Holden make their own decisions, and Ford at least had flagged that possibility some years ago. Maybe they were, and maybe they weren’t. But surely the end was always in sight. There were once seven manufacturers producing cars in our country. The Rootes Group (I once had a Humber) merged with Chrysler in 1965 and no more Rootes Group cars were produced after 1973. Chrysler then merged with Mitsubishi, and the last Chrysler Valiant was produced in 1981. Mitsubishi stopped making its own cars in 2008.

My Dad had an Austin 6 from 1934, and the Austin Motor Company built a state-of-the-art factory in Sydney in 1950. In 1954 Austin had gone, merged into the British Motor Corporation, which then disappeared into British Leyland in 1969, which had itself gone by 1975. The Button Plan of the 1990s was intended to keep the four remaining manufacturers going, but to gently phase out subsidies. If you look back at it all, the car business didn’t ever seem to make anyone lots of money, but it did create jobs.

The car-makers are dismantling themselves, and have done so in the past whenever the returns just didn’t add up, and no one was prepared to sweeten their situation. What was the right time to phase Australian-made cars out? In my view there never was such a time, and politically you couldn’t declare that the industry would be gone in, say, ten years, and that arrangements would be made to retrain workers. The opposition, from unions, workers, cities and state governments would have been enormous.

The way it has happened is, I think, the way it had to happen. One day recently, the cost of keeping the industry going just got to be too much, and the Federal Government spat the dummy. It was probably easier for a Coalition Government to do it than a Labor Government, but even the latter would finally have had to say, ‘Enough is enough’.

Now we are bailing out farmers in drought-stricken Wherever, though Prime Minister Abbott seems to have the drought-breaking skills of Bob Hawke, who did that very shortly after he took office in 1983. I wonder what Cabinet-room arguments there will be about this undertaking, given what has happened to Toyota and SPC-Ardmona. I’ll write a piece about it in due course.