Dandenong, Victoria, has long been the centre of this manufacturing belt; almost half the components industry jobs are located in Victoria. If Australia’s domestic car industry downsizes markedly, Dandenong, together with Elizabeth (SA), Altona, Broadmeadows, Fishermans Bend and Geelong (Victoria) would become ghost towns. Just as Homebush (until resuscitated by the 2000 Olympics) and Acacia Ridge became rustbelt monuments to industry failure, plants in Victoria and South Australia face similar dangers. Nissan has gone. Mitsubishi has gone. Ford may be next.
As The Economist noted last year, there are 30 million units of surplus production in the global car manufacturing system. Unfortunately, it is fanciful to believe that Australia can exist as an automotive oasis, building as few as 250,000 vehicles per annum and survive without protection. Even in its peak years in the last decade, 400,000 vehicles does not even make Australia a “mass market manufacturer” in global terms. Typically, one manufacturer building over 500,000 vehicles per annum defines a “mass market” car maker.
Fact: No country has ever become a developed industrial economy without an auto industry. Not even Switzerland. From Belgium, to the Netherlands, to China, the employment, skills and export potentialities associated with car production are enormous. That’s why South Korea under Park Chung-hee in the 1970s invested heavily in auto production. South Korean car imports surpassed Japanese imports in Australia in the 2000s. That’s also why Indonesia and Malaysia in the 1990s sought to build and develop their own car industries. It’s also why China places so much emphasis upon its own auto industry as an avenue for employment growth, foreign joint ventures, direct investment and technology transfer.
Consequently, car industries develop and maintain the essential skills base that drives any modern industrial economy. In the 1960s and 1970s, Australian mechanical engineering graduates could choose between several jobs, even before they sat their final B.E. (Mech.) exams.
But federal governments continually erred by appointing bureaucrats and ex-politicians to regulate the industry. Hawke appointed Tony Cole, former Treasury Secretary, to head the Automotive Industry Authority; Cole had no knowledge of manufacturing or the auto industry. Two decades later, Industry Minister Kim Carr appointed former Victorian premier Steve Bracks as an “Automotive envoy”, following Bracks’ chairmanship of a car industry report in 2008. Like Cole, Bracks had zero experience and no apparent prior interest in the automotive manufacturing sector.
Australia is one of only 13 countries that can manufacture a car from the ground up. This industry generates a skills base, comprising mechanical, process and materials engineering, fluid mechanics, CAD/CAM designers, welders and fitters & turners, alongside specialisations in chassis systems and lubrication products. There are also significant spillover effects of this skills base into critical elements of the mining, aerospace and defence sectors.
Both sides of politics have engaged in myopic auto industry policies for several decades. Neither the ALP nor the Coalition has a strategic vision for the future of car manufacturing; their only concern is not presiding over complete industry collapse.
Gillard’s “cash-for-clunkers” scheme disappeared without a trace. Federal and state governments’ relatively small investments only partially offset the enormous investments made by vehicle manufacturers.
Rudd announced over $6 billion in subsidies when he became prime minister. Gillard’s “clunkers” scheme added $400 million. But these figures are peanuts compared with other countries’ subsidies.
Since 2008, the Bush and Obama administrations have thrown tens of billions into the auto industry, saving GM and Chrysler from bankruptcy. Billions more in subsidies have been directed at the US industry in the form of sales tax relief, and even car purchase partial tax deductibility (yes). Japan subsidises green auto technologies and has employed myriad non-tariff barriers to make foreign market entry into Japan’s auto sector unviable.
China only does joint ventures – although they welcome German imports. And don’t even get me started on the complexity of the state aids system utilised by the European Union to subsidise automotive firms throughout its 27 member countries.
The prevailing wisdom held by global automotive firms is this: the Australian market is “too small for manufacturing; too prosperous to ignore.” In the face of declining foreign investment, falling exports and slowing sales of locally-produced products, it is scarcely surprising that state and federal governments have been compelled to engage in industry intervention. But for the squawking geese in Canberra, with the noteworthy exception of John Button, simply throwing money at the problem has always been the solution.
Want governments to intervene seriously in the local industry and spur local sales? Fine. Here are just a few ideas:
Remove or cut GST on locally-made vehicles; reduce registration costs for locally-made vehicles exclusively; increase R&D tax credits for local car manufacturers and automotive components firms; and introduce significant tax credits for exports and technology licensing.
If Australians want an auto industry, they must be prepared to pay for it – as ever – through the tax system. If they don’t, then they must also shoulder the consequences: a depleted skills base; a hollowed-out manufacturing sector; major job losses in every Australian state; and the decimation of a large number of regional and urban towns.
Welcome to Ghost Town. Manufacturing population: 0.
This article first appeared at The Conversation.
