Rather, it’s about what economists call ‘spill-over effects’ – all the other, external benefits having a particular industry in a country does for the economy.
“Automotive manufacturing is unique in terms of the number of industries it draws upon. It needs a variety of really advanced services and products, and needs huge volumes of them… Car manufacturers aren’t really manufacturers. Rather, they’re assemblers. The only things they don’t typically outsource are the engines and the designers.”
Toner reels off some of the technologies used in automotive manufacturing: various types of ceramics, advanced alloys, carbon composites, electronics, rubbers, plastics, paints, advanced technical skills, logistics and ordering systems.
“All these technologies are applied in other industries,” Toner says.
“When you look at manufacturing in Australia, there are five key industries – minerals processing, food processing, construction, defence, and the auto sector. They’re the major nodes. The one that has the greatest degree of import-competition, and the one that tends to be the most efficient, is the auto sector.”
“Australia is not a high-tech country. It’s a low-to-medium tech country. We can’t afford to lose medium-tech industries such as the motor vehicle industry. We don’t have much else.”
So how much do we gain from supporting the car companies?
Asked to put a dollar value on it, Toner says it’s very difficult.
“There’s been a vast number of academic and management consultant studies that try to quantify the spill-over effects. These include direct demand effects, multiplier effects, second-round effects and all that. And there’s also the intellectual spill-overs – of knowledge and the like. It’s extremely difficult to quantify. But typically, governments are convinced these spill-over effects are real and substantial.”
Toner cautions he’s not advocating the government writes car companies a blank cheque. “Australia could be screwing the car companies a bit harder for the support it does provide, in terms of technology transfer, for example.”
What does Toner think of Holden’s argument that it gives back $32 billion in investment for just $2 billion in subsidies?
“Well, it’s hardly ‘an investment’ is it, just a cost [of doing business],” he says.
“Nonetheless, I can’t see anything wrong with the underlying logic. [Holden chief] Devereux is fantastic about this – he’s really upfront, and says ‘listen, there’s global competition for this industry among Asian states. If you don’t want it, somebody else will, and these are the benefits they will gain, and these are the losses Australia will incur’.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
