Government Intervention In Australia's Automotive Manufacturing Industry

Role of Government

Discuss about the Asia Pacific Business Environment.

The government is the main regulator of all the policies going in their regime. The government in power controls any policy, which is effecting economy or giving any adverse effect. The charge of every sector that are transportation, finance, human resource or environment, is under the control of government whether good or bad, right or wrong. The government’s intervention is the necessity of fulfilling the needs of the economy when it is unable to fuel up as per the need of the target. The main agenda of government intervention is to revamp the inefficiency of any policy that created hustle in any particular sector.

Government regulations are the basic laws that regulate and foster any country towards the growth and stabilization. It not only regulates but also witnessing a change coming with time and correcting them to avoid any kind of deterioration. The government role is of not only regulating and fostering but also allocating scarce resources equally and maintaining them for future generation by setting market forces of demand and supply to set prices. The market forces of demand and supply are the regulator of the prices that reflect the inflation index (Dowling, 2015). Their role not confined until the national boundaries, but with the pace of the growth of the world. The world divided into different countries, which ruled by every government with their policies up to their requirements and for keeping match with each other. There are the some specific causes that push government for intervention that are:

These factors encourage the intervention of the government for making changes to keep stability. For example, in market failure, Unemployment in which government invested in state education and training, Merit good means which are of good quality and under consumed  in which govt. intervened by subsidies and awareness, Monopoly of goods in which government made a competition policy and encourage new private entrants. The Government also intervenes to reduce the effects done by the economic factor that is recession and inflation. These factors covered by providing subsidies or manipulation of supply to keep the effect at least level. Rest there can be different factors depending upon the requirement of government intervention like national unity, innovation.

The industry that required strong government intervention in Australia is automotive manufacturing. The automotive industry is also known as the automobile industry. It is an industry that is on the verge of closure by the end of 2017 who are contributor as automotive manufacturer. Those are Ford, Toyota and Holden, who is only manufacturing concerns in Australia and from these companies, ford given his withdrawal by the end of 2016 whereas Toyota and Holden by 2017 (Australian Government, 2016). The main reasons of closure of their businesses are high cost of manufacturing, high competition among countries and prices of production domestically. After closure of these companies, Australia will be importer of the entire automobile used in their country. This is the huge setback to the economy of Australia due to the loss of revenue and job of components manufacturer. In, which over 48000 people employed in automotive manufacturing like assembly of cars, trucks and buses. There are at least 260 businesses located in Australia as component and accessory manufacture. From 1997 to 2012, the government of Australia has provided around $30billion as assistance to automotive manufacturers as traditional assistance for keeping them in competition with other countries. The government intervention kept automotive industry sustaining anyhow, but now it has completely lost the competition from the other countries (Department of Industry, 2016).

Automotive Manufacturing of Australia

As per the statistics, up to 250000 people lose their jobs due to closure of manufacturing units and effect on the supply chains of the local manufacturers. From the 250000 people, 50000 are those who were working with manufacturing sector and 200000 will be those who depend on the local manufacturing. This loss of jobs leaves effects for further longer time. This affected the revenue of domestic value adding as well as the economy of Australia by giving loss of $29 billion. From these manufacturers, Toyota is the most important among the automotive manufacturers for Australia. The production reports of Toyota have shown that it has strong export in the Middle East that is around 70000 locally body vehicles per annum and by setting a target of 100000 each year. The export from the Australia helps in reducing trade deficit that comes from the import of the automotives from other countries (Lynch & Hawthorne, 2015). The main reason for closure by Toyota is the high cost of labor, highly competitive market and highest transportation and utility cost. After the closure of this, there will be a huge setback to labor from the automotive sector of manufacturing, which comprises of nearly 5% of the total manufacturing sector of Australia. It can be observed from the present scenario that is represented in above figure.

This scenario has made the compulsion for government intervention in stabilizing the economy. The intervention, although made by the government assistance of $30 billion is in the form of tariff and assistance since 1997 to 2012 (Lee, 2014). It shows the effort and the role of government for their country. It also offered a new plan “A New Car Plan for a Greener Future” in 2008. For increasing public support, govt. also introduced tax assistance for the research and development activities and export program. As per the reports, 1,057,965 numbers of vehicle imported in the Australia that can avoid the loss of jobs nearly 200000 people by removing the restrictions on the import of second hand car and reducing the tax rate on luxury cars (Team, 2015). The government has introduced many assistance programs for the automotive manufacturing industries are:

• The federal government has planned to ease out the rules on imported cars.
• The government has introduced Automotive Transformation Scheme (ATS) that planned to provide assistance up to $2 billion.
• The government has planned to conduct programs for assisting Australian supply chain companies to grow domestic component suppliers with the Automotive Diversification Programme (ADP)
• There are plans initiated by the government for the training of workers and assist them by conducting programme that is Automotive Industry Structural Adjustment Programme (AISAP) from 2011-12 to 2016-17.

These are the plans or programmes which initiated by the government for the support of companies to keep them manufacturing in Australia (Spinks, 2014). After the disclosure by the companies to close their business, for an example, Ford decided to close their business by the end of 2016, Toyota and Holden decided to close their business by the end of 2017. The government has given support to recommendations that are:  

• The government should the remove fleet procurement policies that are required for the government departments to keep Australian manufactured car,
• To support the retrenched labor who lost their job in manufacturing companies by assisting them with skill and training,
• Help those who lost their job by providing them new job by extending programme further that AISAP from 2016-17 until 30 June 2018 (Onselen, 2015).
• Taking the programme for going together Australian design rules with united nation regulation
• By taking a role in the development of International Whole Vehicle Type Approval (IWVTA) which provides great accord for further enhancement of the market.
• By removing 5% tariff on imported second hand car.
• By allocating funds to various programmes for uplifting the manufacturing sector.

The above factors are chosen by the government to save them from the destabilization after the closure of manufacturing units of automotive Manufacturing in Australia. Like any other local manufacturing sector, the automotive manufacturing sector should be protected by applying tariffs or through non-tariff. This assistance in the form of a grant or subsidy provided to automotive manufacturing units by the government helped them to stay for a longer duration that is from 1997 to 2017. The government intervention has not only influenced but also kept the companies motivated for growth (Nuttall, 2016). With the closure of business, there is a heavy demand of government intervention as there will be a heavy loss of revenue and jobs. As governments, intention is shifting towards the non-financial and market impelled assistance.  

Conclusion

This change in automotive manufacturing has given a challenge to make a new policy to attract the advanced technology automotive manufacturers by giving them successful shift from their successful business without giving any kind of adverse effect. This closure has made government to think for the new sectors of automobiles For example, green gas, LPG. Without the intervention, it heavily affects the economy and welfare of people. Therefore, government intervention is most important for any sector and nationwide.

Australian Government, 2016. Australia's Automotive Manufacturing Industry. Australia's Automotive Manufacturing Industry.

Department of Industry, 2016. About the automotive industry. [Online]
Dowling, J., 2015. Australian Government warns buyer beware under proposed car import law change. Australian Government warns buyer beware under proposed car import law change, 17 April.

Lee, M., 2014. Automotive industry package. Automotive industry package, May, Available at: Lynch, J. & Hawthorne, M., 2015. Australia's car industry one year from closing its doors. Australia's car industry one year from closing its doors, 17 October.

Nuttall, S., 2016. 2015 Vehicle Sales – Trends In The Australian Automotive Market. 2015 Vehicle Sales – Trends In The Australian Automotive Market, 19 February.

Onselen, L. V., 2015. Why the car industry’s closure will hurt. Why the car industry’s closure will hurt, 07 September.

Spinks, J., 2014. End of Australian-made cars: what happened and what it means. End of Australian-made cars: what happened and what it means, 11 February.

Team, I., 2015. How much impact does government regulation have on the automotive sector?. How much impact does government regulation have on the automotive sector?, 20 April.