Not building cars here is good for all of us

Posted on February 13th, 2014 in Driving Emotion,Opinion by Julian Edgar

So now no cars are going to be built in Australia.

Rather deafening in its quietness among the population at large, and car enthusiasts, is the simple question: does it actually matter?

Obviously, for those individuals who lose their jobs, yes it matters. But that’s the case equally for anyone who loses their job – how does being in a role associated with car building in Australia make those jobs special cases?

So does it matter for those who love cars – car enthusiasts? Perhaps – at least for that minority of enthusiasts who like buying the (mostly) large and powerful cars that have been made in Australia. For the vast majority who over the last decade have never bought a new Australian-made car, and who never would, it’s hard to see that it matters very much at all.

And what about for the country?

Who thinks the future of the Australian economy is predicated around manufacturing? To believe that, you’d have to be blind to the employment patterns over the last 50 years. As a proportion of total employment, manufacturing in all western countries has fallen steadily over that time. The idea that all countries must make things, and that a service-based economy is intrinsically weak, is rather out of keeping with easily demonstrable statistics re individual country wealth, standard of living and so on. To take just one example, look at the export income earned in Australia through servicing overseas tertiary students – it’s massive.

And what of the loss to the country of a skills base? Well, which skills are we talking about?

To suggest that those working on production lines are highly skilled is patently ridiculous: to those who say they are, what is these employees’ formal trade? Their tertiary qualifications? The entrance criteria for such a position? The years of training required before they can perform the role?

But what of those people working in the industry that in fact do have high skill levels – say, the production engineers and the automotive design staff? It’s hard to believe that these people will find it difficult to gain work elsewhere – they have marketable and transferable skills. Therefore, they will not be lost from the pool of available labour – and furthermore, engineers and technically skilled people will continue to be trained… car building industry or no car building industry.

And is it important that we are losing the capability to design and build complex items? That is, it is vital to Australia that we retain these high-level skills? Yes, perhaps – if in fact they were world-competitive, high level skills!

But are they?

If our car designing and building skills are (were) of such great magnitude, wouldn’t we be a world leader in car design? That’s obviously not the case, so to imply – as some are doing – that we will be fundamentally limited in the future if we aren’t designing and building cars here, simply doesn’t reflect reality.

Cutting edge automotive design and development doesn’t exist in Australia – instead, we’ve got the technologies that the overseas parent companies have chosen to begrudgingly dole out.

(Don’t believe me? Well, name an automotive technology invented and developed in Australia that has subsequently been adopted widely. I can think of only one – Orbital stratified fuel injection.)

In fact, the opportunities that are now available make the end of car building in Australia a good news story. Now, finally, state and federal governments are released from the previously politically impossible action of moving massive subsidies for car production to industries that can actually flourish over the medium and long term. Those are the industries where Australia has a competitive advantage – one that’s due to its relatively educated, literate and numerate workforce, all positioned near Asia.

What an extraordinary opportunity to invest in start-up (and existing) companies performing R&D on renewables and medical technologies; to invest in knowledge-based exports like tertiary education and high level IT services; to upskill the workforce through training and further education.

Closing of car manufacturing in Australia has released us from an albatross around our necks: now we need leaders with enough gumption to take advantage of the opportunity that the massive amount of freed resources can give us.

But will I look nostalgically in 15 years’ time at a mint condition Falcon XR6 Turbo parked by the side of the road? Yes, I sure will. But that’s no reason to keep subsidising car manufacturing at the expense of other employment and growth opportunities far better suited to Australia in this century.


11 Responses to 'Not building cars here is good for all of us'

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  1. Ford Man said,

    on February 13th, 2014 at 12:20 pm

    I would share your sanguine view if there was an alternative source of jobs available for the retrenched workers. Many will stuggle to find equivalent work, or even work at all. About 1/3 of the retrenched Mitsubishi workers never worked again after the factory closed.

    Martin Ford has an interesting discussion of the technological changes the world is going through at: and likely implications for employment.


  2. Philip Armbruster said,

    on February 16th, 2014 at 4:46 pm

    As an ex Ford and BMW exec I was sad to see Ford quit manufacturing as I believe Ford had one of the best mangement training institutions in Australia.
    However it is important to realise that the car plans and local content rules were never about the car companies but to protect the component industry . The component industry contracted years ago and little is there now . This is partly because of the small scale but also poor mangement that couldn’t compete with imported product. In addition the assembly industry changed and assemblers changed to buying complete subsystems rather than individual components and this caused the rise of say nippon denso who offered complete systems. Robert Bosch IMHO virtually drives most innovation in Europe by offering complete systems.
    You say few innovations, but there were several. Ford used to build more varients on the same production line at Broadmeadows than AFAIK any other major plant.
    However Ford will not care much about local production as most of their assets were depreciated many years ago and they are now free to import competitive products from anywhere. They have been quite successful with the new ute for example which the propaganda suggests was mainly designed in Australia.
    I had to laugh about Mercedes asking for the luxury car tax to be discontinued seeing their distributor mark ups are in some cases 50%. And the obverse is that the government should also discontinue tax breaks for non productive motor vehicles eg executive novated lease etc, as both measures were introduced to prop up the local industry.

  3. Karl said,

    on February 17th, 2014 at 11:18 pm

    There are a number of issues with this post Julian. Firstly, you have massively misrepresented the scale of the subsidies being given to the the industry which are among the lowest in the world. While the subsidies amount to about $300 million per year, that money was paid back by the 45,000 people who were directly employed in the industry. That’s even before you consider the cafes, truck drivers, steel industry workers etc. who were indirectly employed by the industry. In short, there is no money to redistribute because it’ll be swallowed up by lost revenue from those tax paying employees loosing their jobs. No money to redistribute to those sexier industries, just lost employment.

    We also lose approximately $4 billion per year in vehicle and component exports. Furthermore, we will now need to import another 150,000 cars a year to replace those that are currently made locally. Ultimately this trade imbalance will force the dollar down meaning vehicle imports are no cheaper. Even after the measly 5% import tariff is removed, the AUD can fluctuate by 5c in single day meaning the tariff is hardly a big factor on import prices (assuming the government has any intention of removing the tariff anyway). A large proportion of imports already come in under an FTA anyway, so no benefit there.

    However we will see a huge impact in northern Adelaide, Geelong and the north and west of Melbourne with massive job loses I see what you’re trying so say Julian, I crtainly don’t object to that ideal. However I believe it to be a romanticized view of the true impact of these decisions. The loss of one of Australia’s largest investor in R&D is hardly helpful for a knowledge economy.

  4. Mitchell said,

    on February 18th, 2014 at 12:08 am

    Where has the government given any indication, or layed out any vision for investing in new industry? FordMan is right.
    They are pursuing a “surplus” via a shrunken economy, without any new infrastructure ( a few roads and Murdoch-approved NBN lite notwithstanding), stripping away R&D capabilities to serve the interests of their overseas based donors.
    Maybe the status quo couldn’t go on, but the willingness of government to speed up the death of an industry, without considering alternatives first is disgusting.
    Both are to blame, if only we’d given those subsidies to a local company, and revised the Button plan but make no mistake who put the final nail in!

    Also you fail to think of other examples of Aussie engineering going widespread? What about Futuris? Exporting seats to Tesla. Or PWR exporting radiators for the Porsche 918?
    Yes car manufacturing isn’t the be all and end all but where’s the incentive to invest R&D here when our manufacturing capacity is gone overseas?
    I don’t know how anyone can put a positive spin on a country’s ability to create and engineer being diminished.
    A very myopic article.

  5. Julian Edgar said,

    on February 18th, 2014 at 8:13 am

    People don’t seem to consider the opportunity cost of support for the car industry: what else could that money (and now *can* that money) be spent on that has a long-term beneficial outcome for Australia?

    It is almost as if the car industry is seen as having special benefits that could not be realised by giving that support to other wealth-generating endeavours.

    To remind people, earlier this year, the Productivity Commission found that:

    •There is ”no compelling evidence that the benefits to industries outside the automotive industry are significantly greater than those generated by other activities”;

    •Claims of a multiplier effect “fail to consider the cost of that assistance to taxpayers and the alternative uses of resources in other industries in the economy”;

    •”Governments should only offer assistance to any industry if it is in the best interests of the community overall”; and

    •The automotive manufacturing industry has been receiving ”decades of transitional assistance” but is not commercially viable.

    Why on earth wouldn’t it be better to use that money elsewhere?

  6. Ray said,

    on February 18th, 2014 at 1:22 pm

    I guess the demarcation point between the two sides is what role government plays in business. Only things that cannot be controlled to some extent (e.g. droughts or exchange rates) would justify long term government assistance/intervention. Ultimately industries and businesses should be self sufficient in the medium to long term. The Head of GM made it clear that nothing would have changed the decision to exit manufacturing in Australia, which is proof that further government assistance would have been an appeasement-based approach.

    Incidentally, there are manufacturing operations in Australia that are internationally competitive such as bus and aerospace manufacturing.

    The reality is that Australia’s future as a developed economy is in the high-tech fields, and any manufacturing will need to be high-end manufacturing like Germany has fostered with BMW, Mercedes, et al. We cannot compete when it comes to mass produced goods and average consumer products so it is pointless supporting such industries.

  7. Ford Man said,

    on February 18th, 2014 at 9:22 pm

    Hopefully in 5 years time the government will have redirected the ATS money into kicking off 45,000+ sustainable jobs in the areas you have identified, thereby generating a net benefit to Australia.

    I haven’t seen any evidence that this is what the government is planning. Have you?

    If by 2019 all the extra government sponsored sustainable medical / renewables R+D jobs haven’t materialised, would you agree the auto industry closure has been a disaster?

  8. larry said,

    on February 19th, 2014 at 12:07 am

    I think the core problem was the manufacturers inflexibility in their choice of designs,not building what the consumers are buying,and ignoring the fact their sales were unsustainable.Was this a ploy to induce the Govt to put their hand in our[ taxpayers
    pocket again] ? The company chose their own demise.

  9. Ford Man said,

    on February 19th, 2014 at 8:33 am

    Hi Larry, yes I think you are right. But that is a very different arguement to the one that Julian has put forward.

  10. Steven said,

    on February 19th, 2014 at 7:16 pm

    The kinetic suspension developed in WA and then sold to an overseas company has been included in a number of production vehicles. I don’t know of anything else off the top of my head but I’m sure there are more.

  11. Julian Edgar said,

    on February 21st, 2014 at 12:47 pm

    No analysis, no hard questions, no looking at how they got it wrong – and, oh yes, according to Toyota, the next Camry is going to be a ‘rock star’…..