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Question:

You need articles between 4 to 6 from media (written by Uni Professors, Business leaders, Journalists, Government agencies like RBA/ABS/ACCC, or any other stakeholders in the industry) on your topic to write a decent assignment?

 

 

Answer:

Introduction to Automotive Industry Australia:

Automotive industry which was once the dominant industry in Australia is about to come to an end in near future. Car manufacture in Australia once rose to half million in 1970s, after which it again rose to more than 400,000 in 2004 and by the end of 2009, this had fallen to 210,000. Now, Australia’s car market only composed of car import from Asia and Europe. The major car producers in Australia are Toyota, Holden and Ford which produces small rear wheel family cars.

Changes in any industry are necessary with regard to change in economies. All the industries are required to give a due consideration to technology change and consumer demand. Australian manufacturing industry has started declining. GDP of manufacturing industry is showing a steep decline in market share. During 2014, the GDP rate was only around 8-9%.

The industry has almost come to an end because of the shut down announcement of the three major car manufacturers. Ford decided and announced its closure by the end of 2016 stating a reason that their manufacturing costs of cars were double than its unit in Europe and four times higher than the manufacturing cost in Asia with and end of 1,200 jobs. Holden asked the government to provide further $265 million subsidy as it was a plan of Holden to invest $1 billion so that it can carry manufacturing activity till 2022. But, Mr. Abbott’s government didn’t allow the subsidy to Holden and Holden planned to shut the unit in Australia by the end of 2017. And following Ford and Holden, Toyota also announced its closure plan to be made effective by the end of 2017. Well, there are many reasons behind their announced closure plan.

 

Reasons of the plant shut down by Holden, Ford and Toyota:

The reason given by the Toyota for closing of its manufacturing plant was economies of scale. Toyota was not able to manufacture huge and plenty of cars because of high cost high wages problem. When compared with cheaper overseas market Toyota said that the plant wasn’t making money. And there were plenty of reasons of the closure of the manufacturing industry.

Even government didn’t decide to support the manufacturing industry because of the low productivity, but government decided to give assistance to mining industry which is more productive compared to the manufacturing industry. Mining industry will create jobs and export income for Australia. But it is expected to also push the dollar up, which will make local industry less competitive, things made in local markets, will become more expensive and imports will be cheaper. There was a big demand of coal, iron ore, and natural gas in Asia, which was the biggest resource strength of Australia. Australia has a big mining industry which forced the Australian government to invest into and pour millions of dollar into energy and infrastructure projects.

As the mining industry received a big support from Australian government, manufacturing industry declined. The car manufacturing industry was already on a small scale base and because of not receiving proper support from the government, high cost and strong Australian dollar value, made it difficult to survive for them in the industry. The resources and infrastructure boom led to high cost because of which the firms couldn’t achieve the cost competitiveness. Manufacturing wages gone up by 48%, inflows from exports led Australian currency to gone up by 21% against U.S. dollar. Moreover, Australian labour productivity fell down by 1% over the ten year period. Improper work rules and lower investment in skills and labour productivity led to lower growth in manufacturing industry. Apart from the bad news of manufacturing sector, a good point to note over this news was increased productivity in different sectors like natural resources sector.

The annual production in domestic as well as export market is now just 200,000 vehicles while before several years it was over 300,000. Best practise car makers produce minimum of 250,000 cars per year. While Australia’s three major producers together are not able to reach the minimum level of production.

If we compare the car manufacturing industry with past, the industry has become so small now that every manufacturer has started relying on the other for survival. Component suppliers of all the three; Holden, Toyota and Ford were same.

Another reason behind the end of car manufacturing industry was the rise in Australian dollar. The exchange rate is hurting the local car industry. The high value of the Australian dollar has made the competition with international market difficult. Therefore, there is less scope of exports while there is a major move towards import from international market. If the Australian dollar was at the average then locally made cars would be more competitive against import and in export market. When Industry minister John Button in 1984, decided to reform the automotive industry by introducing ‘The Button Plan’ or ‘The Motor Industry Development Plan’, the industry gradually started to decline. The Button’s plan was to lower the tariffs, introduction of foreign competition, forcing industry consolidation and fostering an Australian export industry so that it can compete with the international market level. But as he lowered down the tariffs, the Australian dollar started rising and because of this rise in Australian dollar, cars production costs started rising up by $2,000 more than if the car is built somewhere else. However, the dollar’s fall in last year has reduced the import worries, but the productivity was almost lost by that time.

One more added reason for the failure of automotive industry is decline in sales. Smaller vehicles as well as utes and 4*4s together account for 80% of total sales. Which are not produced by Australia as per the demand. Australian industry failed to adapt to the change in the local market and led to adverse effect on management.

 

Long term decline in manufacturing industry was due to indifference made to it. The belief was that only those industries should be supported and be allowed manufacturing in the nation which has some natural and innate benefit arising out of it. Different governmental agencies saw the decline in manufacturing sector as a good thing as it ‘frees up’ invested labour and capital which can floe to other major productive industries and can advantages to the industry like mining industry. One more argument for the closure of the industry was that the car industry is less productive, therefore it should be closed down in order to shift the productivity engaged in the car industry towards some other more productive businesses running in Australia. The labour and capital invested in the car industry should be diverted in order to have the benefit of the worker’s productivity. But, in reality if we check then the productivity of one worker in car industry in Australia was above average then other industries. Per worker, the productivity in car manufacturing industry was $100,000 compared to around $85,000 across the economy. Withdrawal of support to the car industry would definitely reduce the average productivity per employee in the Australian economy.

The Australian industry which is already battling for growth will again fall down drastically because of the unemployment that will be faced due to the closure plan of the major car manufacturers. Last year, despite of many job losses, Australian industry still employs 8% of total Australian labour force. It gives middle wage, middle skills and full time employment working with the industry. The skill development of the labours will also decline as a result of the close of sector. The manufacturing industry trains workers and labours with the skills to install communication lines, setting up power stations, water plants transport systems. Manufacturing sector is the major supplier of these skills to the whole Australian industry. Probably 50,000 workers will have to end up with their jobs because of this harsh step taken by the car manufacturing industry including component manufacturing suppliers. Following the unemployment of the workers due to the plant closure decision of the Holden, Toyota as well as Ford, government offered to assistance to Ford and Holden employees. But, Toyota workers were not promise any financial help to them. However, government’s announcement to provide assistance to Ford and Holden employees relieved Toyota employees. $65 million and $100 million were separated to provide assistance to the Ford as well as Holden employees.

Cheap imported component parts and cars are another reason for the close of the industry. Because of the high cost of locally purchased component parts, the manufacturers were facing high production cost problem. Imported component materials were cheap compared to locally made component parts. Because of the low import tariffs, public was attracted towards buying imported cars. Companies cannot charge lesser than their production cost. This was the reason of frequent losses made by the manufacturers. Shut down plans of the manufacturers will lead to unemployment in the component manufacturing industry as well. As the component suppliers were dependent on these three manufacturers, this is going to be the major downgrade to the Australian industry.

Minimum wages required to be paid to the workers was another reason of this downfall. High wages, low import tariffs and high Australian dollar are the three big reasons of the end of the car manufacturing industry.

The fall in manufacturing industry will hit the science and technology base of the nation too. Manufacturing industry employs directly one in every five engineers and indirectly employs many engineers as their consultants. Manufacturing industry businesses allocate $4.5 billion each year to research and development expenditure which is equal to one forth of total expenditure incurred by private sectors. The manufacturing industry employs scientists, skilled technicians as well as engineers for developing new technologies and adapting to the needs of local public. Not only technical research and development activity, non-research and development activities are also taken up by the industry like system innovation, business integration, etc. This downfall is going to affect the industry adversely for capacity for innovation and development. Australian manufacturing industry was classified as “medium low and low technology” category of nations. It was ranked low despite of heavy investments made by manufacturing firms over past many years. This might have been the case because Australian industry was good in terms of academic research papers in science and technology, but when it came to converting it into commercial product and services, the ratio was low.

If the Coalition government had devoted funds to the car industry, the industry would have survived for few more years. Because there were no chances to reduce the wage rates, or increase in import tariffs or rip up free Trade Agreements. Therefore, the only hope was government assistance. Government assistance was estimated between $500 million to $1 billion annually. The local car makers started struggling financially. Ford lost around $600 million since 2008. Holden made profit only twice between 2005 to 2012. Toyota made profit in 2012 around $149 million and lost around $150 million in last three years.

The Tony Abbott led Coalition government denied further financial assistance to the manufacturers. Holden was given $275 million by Australian government in March 2012, and to further continue with the production till 2022, Holden requested further financial help of $265 million, which was declined by the Australian government. Ford was given financial assistance of $103 million to continue run the production till 2016. These were the financial assistance given by the government to the manufacturers in order to run the production till some further years.

Productivity commission in the last year recommended eliminating all kind of subsidies as well as financial assistance to the car manufacturing industry. Productivity commission suggested companies to lower their cost rather than expecting a financial assistance from government. After the close down announcement of Ford and Holden, The commission insisted Toyota and trade unions to slash the wages and workers condition and after moving towards wage slash and workers conditions, if there are no profitability rises remarks then commission insisted to close down the plant. But, only denial of government’s financial assistance was not the core reason of failure of automotive industry. Government denied further assistance only on the recommendation of Productivity Commission’s report on “Automotive Industry “, which gave recommendation to the government only after analysing and focusing upon some factors and assessing the Automotive Industry well.

 

Effect on the economy following the closure of manufacturing industry:

Stability in macro economy will not be certain if the mining industry would be given preference over the manufacturing industry. Because mining industry’s investment and commodity prices are uncertain and volatile as we as highly cyclical. It may cause the economy to swing between boom and bust.

If we talk about trade balance and current accounts, then there will be a big deficit caused by the shutdown of plants. As there will be no locally produced alternatives to imported products. More money will be needed to borrow from international market to buy the foreign made products. Spending on imported goods will swamp export revenues.

Dual economy will be created after manufacturing shutdown event. One will be highly productive and other will be low productive. One is a small group which includes resource extraction and finance sectors which are high productivity sectors. Other includes activity like child care, cleaning, security services, transport, education services which is low productivity sector. The later sector has lower productivity as well as low wages. Most of the job opportunities are provided by the later sector. During 2010-2011, most of the net employment in the industry was made by the second industry which is low productive.

Food security is going to be the biggest problem too. The reason will be the decline in manufacturing industry. Food processing sector till now had fulfilled the domestic needs and generated good amount of export revenues. But, as the dollar is being overvalued and grocery shoppers have started squeezing the prices paid to suppliers and has started using imported house brands. Based on current data, in near future Australia will be a net importer of processed foods if the current scenario keeps on going. The Australian industry would be dependent only on export of its unprocessed agricultural and mineral commodities.

Manufacturing industry’s shutdown will create problems related to environment too. People often say that manufacturing industries create many environmental problems and leave the environment in pollution. But if we look at in more in a broad way, then it is clearly seen that decline in manufacturing industry would create many other pollution related problems. Because closing of this industry would pressurise the Australian economy to produce other energy products. That will require the clearance of land, national park developments, and will damage the water tables, rivers and oceans.

 

Future plans of Australian government following the shut down announcement by car manufacturers:

However, government decided to help the automotive industry till the end of their closure plan. After looking at the Productivity Commission’s report, government declared some future plans to help workers and component suppliers to survive and to capitalise the new opportunities in different industries. Government responded to the Productivity Commission’s report on the automotive manufacturing industry. Government planned to focus on Australian automotive workers, component makers and small businesses in manufacturing supply chain, providing them and train them for the new opportunities, new jobs and new businesses where they have international competitive edge.

In October 2013, the Australian government asked the productivity Commission to take up an inquiry into the automotive industry of Australia as well as inquire about passenger motor vehicle and component production of automotive parts.

The Productivity Commission’s report focused on the factors that affected the car manufacturing industry in Australia and includes nine recommendations. The government support to the automotive industry as well as workers who will be retrenched after close of the plants by the end of 207 will be supported financially and other ways by providing them training and technology updating trainings. Government declared a plan to devote $155 million which is made up of five elements to help workers, businesses and local communities affected by the decision of Toyota, Ford and Holden.

$20 million were declared to be devoted for the Automotive Diversification Programme. It was kept aside to assist suppliers to start with their business into other sectors. $30 million were set aside for personalised skills assessments and help to identify new jobs and $60 million plan of Next Manufacturing Investment Programme is being finalised. The plans also include $15 million to the Automotive Industry Structural Programme and a $30 million Regional Infrastructure Programme. The government is focusing on a National Industry Investment and competitive agenda, to focus on long term issues relating to competition, productivity and job opportunities in future.

The Automotive Transformation Scheme will be in process till the end of 2017. The Productivity Commission recommended losing down the restrictions on the importation on second hand passenger and light commercial vehicle. But, the government hasn’t yet taken any decision regarding restriction on importation of certain vehicles as government doesn’t want Australian market to be a dumping ground of second hand vehicles. These were about the future plans of the Australian government on the unemployment which will be created following closure of the three main car manufacturers.

Australian car industry is now about to end in the near future because of many reasons cited above which indicates that there are no future prospects in the coming years. The car industry is going towards ending its career with 60 years of experience in the Australian industry.

At last, with the end of the manufacturing industry, there will be loss of thousands of jobs and in response to that government has released in budget 2014-15, to provide assistance and proper help to the employees who will be sacked from their jobs and the manufacturing industry as well till the date they continue their manufacturing business in the industry. Government has declared some skill development plans to where they will be given training to be able to cope up after their job cessation from manufacturing industry. Unemployed workers will also be given financial assistance and equipment training through Employment Pathway Fund. In short, we can say that Australian government has already made good and sufficient future plans to deal with the worst situations that are going to arise in the future due to manufacturing industry’s harsh step to close down the industry in near future.

 

References:

ANON, N.D., “Australian Government-Department of Industry and Science”, Accessed on 25 January 2015,  

ANON, N.D., “What do we lose if the car industry is allowed to fail?”, Accessed on 25 January 2015,  

ANON, N.D., “Australia’s Automotive Industry”, Accessed on 25 January 2015,  

ANON, N.D., “End of Australian Made Cars”, Accessed on 25 January 2015,  

ANON, N.D., “Why Australia’s Car Manufacturers –Toyota, Holden and Ford-All Knocked Out”, Accessed on 25 January 2015,  

ANON, N.D., “How High Cost and Low Subsidies killed Australia’s Auto Industry”, Accessed on 25 January 2015,  

ANON, N.D., “End of Australian Car Manufacturing Could Cost Up to 39,000 Jobs”, Accessed on 25 January 2015,  

ANON, N.D., “Government Supports Auto Industry Transition”, Accessed on 25 January 2015,  

ANON, N.D., “Why Does Australia Needs Manufacturing Industry?”, Accessed on 25 January 2015,  

ANON, N.D., “The End of Australian Manufacturing”, Accessed on 25 January 2015,  

ANON, N.D., “Australia’s manufacturing Cost Competitiveness”, Accessed on 25 January 2015, 

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