Slow road to nowhere

The news that Toyota Australia and Ford Australia are set to cut back their vehicle production is terrible news for the thousands of manufacturing businesses that rely on the automotive sector either indirectly or directly.

While the Toyota shutdown is temporary – it just can’t get enough parts from Japanese parts companies affected by the tsunami – the Ford production reductions are really worrying.

After seeing sales of their flagship Falcon model drop 40% in the first three months of the year, Ford has been forced to cut production by 20%.

That will ripple through the manufacturing sector, which remains dominated by car making.

What manufacturers need is volume – their margins are so thin that they need to keep making stuff to keep their factories ticking over.

When volume falls – and these cuts are only the latest in a serious of reductions by Australian car companies in the last five years – profits dry up.

The list of problems facing the automotive industry in Australia grows by the day:

• Consumer confidence remains fragile.
• Skilled labour remains hard to find.
• Falling demand for large cars and a push towards smaller, more fuel-efficient vehicles is being exacerbated by rising fuel prices and the threat of carbon pricing.
• The Australian dollar is hampering the ability for car makers to export.
• Raw material prices continue to rise, as do fuel and energy costs.

On top of all this, the introduction of a carbon tax will reduce the competitiveness of Australian manufacturing compared to overseas rivals. Exporting – the lifeblood of manufacturing – is likely to be particularly hard hit.

The problem – and it’s been a problem for decades – is how to respond.

The millions that pour into the sector in the form of government assistance are doing little to fight off the global forces that continue to buffet this sector.

More to the point, no amount of grants can make people like big, gas-guzzling cars again.

But it seems to me that we cannot afford to let manufacturing simply die out in this country.

As parts maker Zoran Angelkovski told me this morning, the right type of assistance is needed. Cutting the Green Car Innovation Fund to pay for flood relief was a silly idea, and far too short-term.

Our only hope is to make manufacturing smarter and greener. Maybe that means we don’t make cars eventually, but transitioning to making more efficient, smaller cars looks like a great idea to me in the medium-term.

Longer term, the Government should be looking at ways to rebuild Australian manufacturing as a hub for green products – ones that people will actually need and pay for.