Why Have an Australian Car Building Industry?

Posted on July 9th, 2008 in Opinion by Julian Edgar

Anyone who has read Sir Laurence Hartnett’s book Big Wheels and Little Wheels will know how important it was to establish a domestic Australian car manufacturing industry.

In that immediate post World War II time, it was seen as consolidating the industrial gains made by Australian in WWII; establishing a secondary industry that used the most sophisticated of manufacturing technologies this side of making aircraft (steel production, casting, machining and industrial design); and laying the foundation for a productive, long-term industry for Australia.

And when making things so dominated the employment landscape, a car manufacturing industry was also sure to provide a lot of jobs.

And in due course it did.

But now, in 2008, new Holden boss Mark Reuss is playing from the same hymn sheet.

In this article he is reported as saying, inter alia:

“Look around the world and you will see governments competing to establish an automotive manufacturing base in their countries.

“To those who don’t have one, the benefits are obvious.

“To countries that already have an automotive manufacturing industry like Australia, the message is equally clear – if you lose it, you are unlikely to ever get it back.

“And what you lose could be a lot more significant than many commentators seem to understand.”

He is also reported as saying:

“Holden alone spent $420 million in research and development last year which has made it Australia’s largest private sector R and D investor for a number of years now.”

It’s Sir Laurence Hartnett all over again.

But in 2008 – and not 1948 – I really wonder at the validity of these sentiments.

Car making is no longer the high tech earner it once was. Yes, some cars use very high technology, but at the pinnacle of manufacturing that they (nearly) were in the 1950s?

I don’t think so.

Mr Reuss’s statements about R&D look good – until you consider the outcome. His company makes a car that almost all commentators now say isn’t right for the market. When private buyers are considered, Holden manufactures a car that is well down the list (reportedly: 7th) of best selling Australian cars.

And it’s not like Holden is doing fundamental research on hydrogen-fuelled cars, or hybrid cars, or diesels, or gas turbines, or electric vehicle battery technology – or in fact, anything at all that is automotively cutting edge.

If you wanted to be really uncharitable, Mr Reuss makes a low-tech car that is massively propped up by discounted fleet sales and government subsidies. After all, if you live in Australia and pay taxes, you and I pay for a lot of that R&D that he’s talking about…

Having a domestic car manufacturing industry seems intuitively worthwhile. But if that industry costs every Australian tax payer quite a lot (in addition to the R&D subsidies, there’s still a small tariff barrier on imports), and if that industry is not actually producing anything that is better suited to this country than many other country’s products, then what’s the overall benefit?

Wouldn’t those taxpayer (and company) dollars be better invested in (say) renewable energies – eg solar power – that could really make use of unique R&D characteristics of Australia?

When you look closely, Mr Reuss’s emperor has very few clothes…

20 Responses to 'Why Have an Australian Car Building Industry?'

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  1. John Kirkham said,

    on July 9th, 2008 at 9:12 pm

    A very strong rumour going around the automotive traps is that Holden will go the way of Mitsubishi in 18 months time. There has never been much innovation out of Holden since their ‘radial tuned suspension’ days.

    Engineering wise they’ve beaten cohorts overseas with cost per dollar versus output, it’s just that Holden got away with a few distinct product ideas for instance the Monaro to name one. But they have been forever treated as a second class citizen in the GMH world. Almost as a gimmick factory.

    And so now the Australian government gets blamed. Typical. So, if the cars coming out of Asia are that good, why isn’t everybody buying them ? 100% of the time ?

    So if I am to molded to purchase an Asian made small car, does that mean the engineering in that vehicle will better ? Or what am I really buying it for… the cost of fuel doesn’t rule my life.

  2. turbin said,

    on July 10th, 2008 at 8:23 am

    Julian, please do not confuse ‘manufacturing’ technologies with in-car technologies. I will not comment on the sophistication or lack of in the local cars themselves. Please re-read the below quote from Hartnett.

    “establishing a secondary industry that used the most sophisticated of manufacturing technologies this side of making aircraft”

    I am a manager of a manufacturing department that exactly matches that description. I have only recently vistited one of the world’s most sophisticated aerospace suppliers in my industry. Technology that would blow your mind as the hands-on person I know you are. I also attended one of the world’s foremost conventions in advanced rapid manufacturing technologies.

    I know now for a fact that my facility and its peers are absolutely on the pace if just behind the best the world has to offer.

    A substantial component of our business is supply to the automotive industry. This is but part of our business and necessarily so as the auto industry is volatile and its R&D ebbs and flows. That said, without our auto customers, local and international, we could not justify the investment in the leading technologies we make available to all other sectors of the industry, from aerospace to backyard tinkerers. And yes, we also regularly manufacture for developers of aternative power sources for domestic and transport applications.



  3. Julian Edgar said,

    on July 10th, 2008 at 11:59 am

    I have made no quote from Hartnett. And I am talking specifically about manufacturing technologies!

    The point is whether or not a car manufacturing industry in Austraia is in fact the best outcome of those company, individual and government resources.

    Let me put it another way. I doubt Hartnett would in 2008 by lobbying for the creation of a car industry. For all the same reasons he used over 60 years ago, I would think he’d by pushing for government and major company support for setting up a solar cell manufacturing plant. Or a wind generator plant. Or even a micro-chip production plant.

    I think we need to question the huge resources we as a community put into maintaining our Australian car industry, and be quite sure that it’s actually the best way those resources can be used.

  4. turbin said,

    on July 10th, 2008 at 1:03 pm

    Sorry Julian, you’re right it wasn’t a quote.

    I still believe though that just because cars are a different product to say solar cells etc. does not mean that the manufacturing and development technology involved is far removed from the ‘pinnacle’. In fact the aerospace industry and military are just starting to trust in some of technologies deeply entrenched in the auto and other industries, which are inherently lower risk.

    I agree though that the technology invested in the Aus. auto industry could be better used making different auto product.

    What are the other six more preferred private buyer cars by the way?

  5. Grant McAuliffe said,

    on July 10th, 2008 at 2:14 pm


    Effective R&D in manufacturing is not about the specifications of the final product, its about how well that final product does its intended function for the investment outlayed.

    Given that Australian manufacturers can develop a vehicle with world leading ride and handling, safety, durability and yes, even reasonable economy for about 1/10 the cost of overseas competitors, I think the R&D money is well spent.

    Comparing a current Falcon XR6 turbo with one of your previous Lexuses – more power, better economy, arguably better ride/handling balance, better ESP, and oh, about 1/5 the retail cost. I wonder how carbon efficient the Lexus would be if its massive development costs were included. All those engineers, marketers etc burnt a lot of carbon developing that car. The same goes for your Insight; given its unpopularity, and the likelihood that it would have been sold at a substantial loss, I wonder how carbon efficient it really is…

    Long live Australian Manufacturing and Engineering.

  6. Julian Edgar said,

    on July 10th, 2008 at 2:38 pm

    1) As a community, we spend a lot supporting a local car industry. We pay out of our pockets via tariff protected imports and for direct R&D grants.

    2) Considering that the majority of Australians choose NOT to buy these cars, we are all effectively subsidising the purchases of those that do. That is, you and I are helping to pay the low prices that fleets buy these cars for! (And so how can that be said to be R&D money well spent – the final product is NOT doing its intended function very well, is it?)

    3) If we are chosing to support the car industry, there must be very good reasons for doing so – economic, strategic, political, etc. Because, otherwise, we could be subsidising another industry.

    4) Mr Reuss suggests that we don’t really value what we have (that’s paraphrasing him), so tell me, what in fact is the value of what we have? It’s not producing the cars that most people buy, and I would argue that it’s no longer the cutting-edge industry it was when started in Australia 60 years ago.

    Apart from the rather important fact that most Australians are choosing not to buy the cars that local companies produce, this has got zilch to do with XR6 versus Lexus – or any other model comparisons. We’re talking about Australian industry policy, not car models!

  7. Henry said,

    on July 10th, 2008 at 9:47 pm

    “1) As a community, we spend a lot supporting a local car industry. We pay out of our pockets via tariff protected imports and for direct R&D grants.”

    I would be interested to know how much the actual numbers are here.
    Also if there was no local manufacturing industry would we really pay 10% less for these imported cars? Or would the government add 10% extra tax on them? They already want to add a tax on all the cars over $56,000.

    Second while the government has supported the car industry over the years how much does this compare to the millions (billions?) invested by the car companies themselves, this is overseas money that has gone straight into local jobs.

    Finally I would say that balance in the economy is the best option. Who is saying that we have to invest in green tech over the car industry. Why can’t we do both?

  8. Julian Edgar said,

    on July 11th, 2008 at 7:49 am

    You’re right – of course it doesn’t have to be a choice between the car industry and a green industry. I just used it as an example where, if one were looking afresh today, it would seem it is one industry that has likely massive expansion in front of it, and Australia is ideally suited to exploit it.

    Re the car companys spending billions – they aren’t charities: you can be sure that they have done so only for reasons of profit (not necessarily year on year, but over the long period).

  9. Steve said,

    on July 11th, 2008 at 9:44 pm

    Turbin, here are the sales figures for overall vs private buyers:

    Top 10 selling vehicles (overall) Private
    1. Toyota Corolla 1. Toyota Corolla
    2. Holden Commodore 2. Mazda3
    3. Toyota HiLux 3. Toyota Yaris
    4. Mazda3 4. Honda Civic
    5. Ford Falcon 5. Mazda2
    6. Toyota Yaris 6. Ford Focus
    7. Toyota Camry 7. Holden Commodore
    8. Toyota Aurion 8. Mitsubishi Lancer
    9. Honda Civic 9. Suzuki Swift
    10. Mitsubishi Lancer 10. Honda CR-V


  10. Philip Armbruster said,

    on July 12th, 2008 at 4:33 pm

    I think it is quaint how many/most people equate “car industry” to car manufacturers.
    The thrust of all Australian government plans has always been to develop a component industry in Australia.
    Car manufacturers have always had to jump through hoops to gain market access, such as “local content plans” quotas and high import duties for imported cars.
    The major manufacturers went along with all this as Australia was (and is ) a profitable market if not major any more.
    All things being equal I do not really think the head offices of Ford, Toyota etc care much one way or the other whether they produce/assemble in Australia. They all have major “sunk costs” in car assembly plants mostly built in the days of protection, local content etc and I think the other major motivator is pride.
    Another consideration is whether overseas products will be profitable and or competitive in Australia, eg the Ford Taurus which was top selling car in the USA but a dog in Australia. I am sure that this was an attempt by Ford to see whether imported product could be successful, and I have no doubt that if it was succesful back then there would not be a Falcon today.
    In any case the local component manufacturers are dying. They cannot compete with China et al, and local content of Australian assembled cars is declining by month.
    The local arms of the 3 manufacturers have a vested interest in maintaining the status quo, a lot of them would be unemployed if the parent reverted to import.
    Its interesting that the top private selling cars in Australia now are imported ie the Corolla, Mazda 3.
    Julian, in a way it is hard not to have sympathy for the execs of Holden and Ford. They are stuck between a rock and a hard place. there is no way an Australian medium car could compete with a Japanese, Korean or whatever. Firstly the design cost in Japan can be amortised over millions of cars. Component costs are much lower for higher volume, and the selling price is lower. In general a medium car costs the same as a large car to manufacture, so three strikes and they are out.
    With regard to innovation and green-ness, Australian cars have never been innovative, and one reason is because component makers always supply their best customers first. So you will always see new Bosch innovations in a Mercedes or BMW before anyone else. Increasingly innovations are driven by component makers.
    Why not a diesel Falcon? The TDV6 Disco is 11K more expensive than a 4L V6 Explorer engined one and I believe that this reflects the cost differential between the engines. Would you pay 45K or whatever for a base diesel Falcon? If they sell them for less they will lose profit on every one.
    I could go on.
    I can recall an interview I had with the chairman of the Component Manufacturers Association. I said to him in about 1992 that they should be setting up in Thailand, as that was where the action will be and it would make them competitive . It lost me the job. He was offended by the implication that they were not competitive, and went on to say that they were so “lean” from the JIT policies of the car makers that they had no management to spare.( quite a contradiction) I am pretty sure they went broke years ago.
    Regards Philip Armbruster

  11. Julian Edgar said,

    on July 12th, 2008 at 6:05 pm

    Good post, Philip

  12. Bob Jay said,

    on July 14th, 2008 at 3:23 pm

    We are an island nation reliant on sea traffic for too many goods today. The decline of manafacturing industry robs us not just of the particular goods produced but more importantly the ability to rapidlly reconfigure production facilities to manafacture other things eg, from metal casting of consumer products to more military type products.
    Of course we live in peace today and ever cheaper stuff just floats in over the sea. However I believe that self sufficiency brings freedom for both individuals and nation states. Hence while goods CAN be imported SHOULD they be if we consider a more unstable geo political environment in the future?
    I say it is worth propping up a good many more local industries than we do for strategic and economic and social reasons and the car industry is a biggie to contemplate losing.
    We produce two very good conventioal cars here in outposts of GM and Ford; we don’t lead their research but the spin off benefits of the existance of those plants is considerable. Anyway the Commodore and Falcon are very good cars for the money and for their multi- tasking abilities. Many families rely on Dad’s fleet car to be the workhorse so they don’ have to buy one themselves, ergo if fleets ceased buying them more of us would have to buy the family workhorse ouselves and suddenly private demand for Commodore and Falcon would rise.

    Bob Jay

  13. Brent said,

    on July 16th, 2008 at 9:53 am

    I think we’ll see a further decline in the sales of large cars as more and more fleets buyers and govt. departments start bringing in policies that dictate the use of more economical vehicles. I know that a lot of the cars we had access to just 12 months ago have now been removed from the “approved vehicle list”. Two of those glaring omissions are the Commodore and Falcon. So there you have it, at least one government department has already rubbed a few of the Aussie built vehicles off their fleet list.

  14. Philip Armbruster said,

    on July 19th, 2008 at 10:15 am

    Having worked in the motor industry at head office level for 20 years I am hardly unbiassed BUT.
    The Australian motor industry has had many many free kicks for many years and has always done the minimum to sell cars. Its understandable that they have to make what sells.
    BUT there are many hidden subsidies
    1 Tax Concession /lease deductability for company cars. Australia is one of the only countries in the world who has this, and this is directly in opposition to pollution and fuel saving goals . 70% of traffic over the harbour Bridge is company cars.
    2 No discrimination on engine size for sales tax ( Fed) or registration taxes. Most countries have a sliding scale. This really is to benefit the local industry.
    3 Local buying rules for Governments. This is anethema to many governments and is very inefficient.
    4 No fuel economy or emission targets for the industry.
    It now must be becoming increasingly uncomfortable for the Feds to justify their policies considering how opposing they are to fuel efficiency, emissions , and urban congestion. They have just done it again with exempting petrol from carbon tax. This will slow down conversion to fuel efficient cars .
    This personally affects me as I drive an old Range rover 3.9 so on the one hand I personally applaud it , but as an economist and having been involved in the industry and Government policy for a long time, the totally schitzophrenic policies in Australia amaze me.
    Regards Philip A

  15. Mitchell said,

    on July 21st, 2008 at 12:57 pm

    Given that it was a very different economic climate when the Button plan was implemented, perhaps it’s time the government radically re-evaluated it’s stance on assisting local car makers.
    While I think a car manufacturing industry is imperative in our GDP, it’s becoming increasingly difficult to secure exports, so import duties on imported cars need to rise accordingly while the sword of Damacles lingers over their heads.
    However, this will be a delicate operation given that people these days are willing to fork out a premium for a higher quality car.
    This seems like the most cost effective way to deal with it, where the government can rake in more revenue, divert resources to a more relevant cause and our car industry gets another lease on life.
    Ultimately, you cannot expect beaurocrats to take logical action, only press friendly, knee-jerk measures.

  16. Mitchell said,

    on July 21st, 2008 at 12:59 pm

    If Ford and Holden bought out say a 2.5 litre 6, with ADEQUATE power, the public would respond accordingly, and it would take alot of pressure off them. Radical changes need to be brought in to eschew the ‘dinosaur’ label, and we have the technology to get decent power from smaller capacities these days. Duratec 25 and Alloytec 2.8- what’s the holdup?

  17. jake c said,

    on July 21st, 2008 at 6:43 pm

    The hold up may be that the cost/revenue ratio and production break even point of these smaller suggested cars may at this time be not so appealing to the accountants over at Ford and Holden?

  18. Mitchell said,

    on July 22nd, 2008 at 1:38 pm

    I was referring to just the engine capacities in Falcon and Commodore. BMW and Lexus can get ~170kW out of a 2.5Litre six, and final drives, gear ratios etc can make up for any torque deficiency. Innovation and adaptation such as this is key to industry survival.

  19. Julian Edgar said,

    on July 28th, 2008 at 4:20 pm

    http://www.abc.net.au/news/stories/2008/07/28/2316468.htm – amazing how there seems to be no cost/benefit analysis of the worth of that government support!

  20. Julian Edgar said,

    on July 31st, 2008 at 7:25 am

    Does anyone have any idea of what these statements mean? Other than, of course, we want to keep getting money?