A shock but not a surprise

| December 16, 2013

Car manufacturer Holden is leaving the Australian market. Simon Cowan argues that structural change is a necessity for Australia, but urges the government to provide a safety net for suffering workers.

The announcement that Holden will cease manufacturing in Australia in 2017 was undoubtedly bad news for Holden workers and their families but, unfortunately, it shouldn’t come as a surprise – the industry has been in decline for many years.

In 2004, production of Australian-made cars was slightly above 400,000 units per year (the same level as the 1970s), whereas now it is barely 200,000 per year. According to the Federal Chamber of Automotive Industries (FCAI), sales of the Holden Commodore fell by 25% last year.

With revelations that Ford and now Holden are leaving the Australian market, the number of Australian-made cars will fall further still, affecting the viability of component manufacturers; it will also put significant pressure on Toyota’s future in Australia.

45,000 jobs in the car and component manufacturing industry are at serious risk.

Some have tried to place most of the blame for Holden’s announcement on the high Australian dollar, while others want to blame high wages and poor industrial relations practices. The unions are blaming the government, the states are blaming the Feds, and Labor and Liberal both desperately want to pin the blame on the other.

The simple truth is that automotive manufacturing isn’t competitive in this country for several reasons: costs, the high Australian dollar, lack of demand and high wages.

Ford Australia, when announcing their decision to depart these shores, said it cost four times as much to manufacture a car in Australia as it did elsewhere in Asia. Australian taxpayers cannot possibly bridge that gap, nor should they.

Conditions in Australia cannot match the wages and conditions in other Asian nations, and, frankly, we shouldn’t be attempting to.

The Australian dollar is high, but we don’t have the resources to enter into the currency war raging between the United States, Europe and Japan. The days of controlling the value of our currency are behind us for good reason. We must adapt to the cost of the dollar, not waste time fighting the world market.

Individual facilities in China and elsewhere produce up to 500,000 vehicles a year, more than double the amount produced each year by the entire Australian industry. Consumers are not purchasing enough Australian cars for it to be viable to make them here. Partly this is because Australia produces the wrong cars. Sales of small and medium cars grew strongly last year, as total new car sales rose 10%. However Australia mostly makes large sedans, and their sales fell by around 20% last year and 17% to November this year.

The sector has never been competitive and has always been dependent on taxpayer support. There are better uses for that money.

Government cannot hold back structural change in the economy through tariffs and subsidies. Industry assistance has failed workers (thousands have lost their jobs), failed consumers (who pay high prices for cars), and has cost the taxpayer billions of dollars each year.

Assigning blame for Holden’s departure is pointless. It doesn’t help the displaced workers, especially those encouraged to enter the car industry because of government assurances about the future of manufacturing.

My message is this: If you want to assist those workers, do it directly. Help them transition to competitive industries.

Structural change is an ongoing necessity for our country. It brings innovation and opportunity, wealth and prosperity, but also causes hardship. We must provide a safety net for suffering workers, but the benefits of free trade are simply too great to be stuck living in the past.

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Simon Cowan

Simon Cowan is Research Manager at The Centre for Independent Studies. Prior to joining the CIS, he practiced Corporate Law for several years at a top tier law firm in Sydney and London after which he joined the NSW Government industry division. He has degrees in Commerce and Law from the University of New South Wales, as well as qualifications in Project Management.

0 Comments

  1. Al

    Al

    December 19, 2013 at 11:58 pm

    Aussie car industry

    Simon seems to have nailed the problems facing us. If we want a car industry, perhaps governments could equalise costs with tariffs on imports, Radical, eh! But instead we are going along the free trade route. Perhaps if governments put all of their handouts to car manufactures in purchasing shares we could also have a say in who pulls the plug. Holden is Australian by birth, but has been adopted by GM. Buy Holden (not GM) and make it better, sell overseas a well made but different car.

    • alexthomas1980

      December 29, 2013 at 2:32 pm

      Just mentioning facts

      Just mentioning facts and hope it stays: Australia is a country that has lost out in many areas and will continue to do so due to 3 main reasons- innovation, technical skills and education (all way behind). Manufacturing isn’t the only industry that has faced challenges due to these 3 reasons; retail and other sectors too. Add the niche strategy that Australia has used for decades via agriculture, mining, etc and that would be the 4th failure – putting all its eggs into 1 basket for decades instead of using the diversification strategy.

      Let’s start with the tertiary education sector which few years back was Australia’s 3rd largest export sector (now 4th). How does it survive? Foreign students especially from China and India though lately South Americans, North Americans and Europeans too. How many Australians have a university qualification? Australia population represents 0.3% of the world population and just 25% of that have a university qualification. How many have a Masters qualification? Not many. Some to most firms in Australia consider Masters overqualified. Well, sad news for 90 to 99% of the businesses in Australia that represent small to medium sized ones – rest of the world have people who have either 2 Master qualifications or PhDs and professional certifications. Unless, good at entrepreneurship, not needed to study. Sadly, for Australia, that has gone behind, especially when it’s niche strategy also got busted because Australia has been behind with innovations and technologies since World War 2. Also, how many foreign exchange students from Australia land in Asia? Not many compared to ones from US, Canada, UK, etc. So, those countries are learning about Asian cultures whereas most Australian foreign students land in US, UK, etc (psychically close countries instead of the psychically distant countries as well). US, UK universities are still the best in the world and most are cheaper than the Australian ones nowadays as Australia’s become expensive for that so the universities that are on the same level as Australia are now the challengers. Which are those countries? Canada, Germany, Japan, Singapore, China (mainland and HK), etc. Addition to those, there are the blended learning (online) and MOOCs that are challenging the educational landscape, starting from primary education right unto tertiary one.

      Where is Australia for innovations and technologies? The country doesn’t encourage much of both including funding which is the reason why Australian startups end up in USA. Australia gets 75% of its GDP through services as it’s a developed nation though it has come out with some innovations but not that many compared to the rest of the world even with the basic innovations. Others have gone for coopetition like Apple, Samsung, Google,etc; Netflix and Amazon; Tesla and various automobile firms and so many others where rivals don’t just work together but innovate as well. Australia has zilch there. Then there is the blue ocean strategy as well where not only low cost innovations occur but a whole new market segment comes up. Rest of the world so many while Australia hardly any. Even New Zealand is above Australia when it comes to innovation.

      Taking marketing technology/digital marketing as the industry, here are some weaknesses including reasons why Australia has failed (they’re all genuine articles that have come up in the last few weeks to couple of months): In Australia, what would be the reality for Marketing Technology or Digital Marketing? The answer to that question could be seen from a number of genuine sources including articles ranging from the last few weeks to about a year, some of which are (same for other sectors too and not just marketers as shown under 7th and other points): 1) Marketer study warns of skills shortages in digital marketing in Australia 2) Two-thirds of Aus marketers ‘aren’t effective at digital’ 3) Aussie brands failing to embrace digital real-time customer service 4) Lack of skills a threat to projects 5) Is Australia That Far Behind in the Digital Market? 6) Big data policies lacking in Australian and New Zealand organisations: survey 7) Australian firms lagging behind 8 ) Australian retailers are digital-relationship laggards: Capgemini & Sydney University study reveals 9) Australian SMEs not meeting consumers on social media: statistics from Yellow Pages report 10) PayPal: Only 14 Percent of Australian SMEs Are Taking Advantage of Online 11) Latest ABS statistics: many Australian businesses still not engaging online 12) Australian businesses struggling with cross-channel marketing 13) Australian manufacturers are failing to invest in productivity raising IT: study 14) Average of 44 small businesses closing their doors each day, according to Australian Bureau of Statistics data 15) Experts say Australian business being left behind 16) Small Business Left Behind As Australian Business Confidence Lifts: NAB 17) Australian small businesses are late to the online marketing party 18) Too little, too late: Is Australia losing the online retail game?

      Some of the reasons for the above could be seen from the following: 1) Can Australia’s education system meet demand for digital marketers? (Even top universities of Australia are way behind compared to counterparts from US, UK, Canada, etc where students can take subjects from different schools like Arts, Engineering, Business, etc. Additionally, some Australian universities still teach traditional subjects at universities [The two university comparison examples can be University of Sydney via Commerce degree and WUSTL of US both via Marketing major]). 2) Aussie women lag behind men in numeracy skills 3) Aussies spend big on technology, but don’t know how to use it 4) Small Business Nation 2013 – Around 90 to 99% of the businesses in Australia are small to medium sized ones though most are neither innovative nor have much of technology (not tech savvy) 5) Australia is Well Behind Other OECD Countries in Pre-School Education 6) University rankings show Asian rise and Australian slip 7) Australian students slipping behind in maths, reading: OECD report 8) If Australia Could Get Over Its ‘Fear of Failure’ Tech Startup Firms Could Contribute $109B to Economy by 2033, Create 540,000 New Jobs – Google Study 9) Australia is no innovation leader: GE (connected to Australia lifts ranking in Global Innovation Index, but still lags behind New Zealand). 10) Australia at risk of squandering expat expertise as brain drain hits reverse 11) Is Australia Less Tech-Savvy than We Thought? (More of the marketing weaknesses in last 1 year and a bit on the logistics and supply chain in relation to Australia can be found under http://loveroftechnologyandbusiness.blogspot.com.au/2013/12/reality-of-australian-marketers-and.html. It also has the components or landscapes of Marketing Technology and Digital Marketing). As mentioned under that, Brand valuation could be seen via BrandZ of WPP as well as Interbrand of Omnicom and brandirectory.com that is part of Brand Finance. The top brand from Australia would be Woolworths ranked in the 100s way behind the ones from US, UK, Canada, India, China, etc. Woolworths and Coles duopoly in the supermarket sector though IGA, Aldi and Costco are 3 other players there ( https://theconversation.com/factcheck-is-our-grocery-market-one-of-the-most-concentrated-in-the-world-16520). Zara as well as others are knocking DJ and Myer ( http://www.fool.com.au/2013/08/14/clothing-retailers-be-afraid-very-afraid/ ). All of them have failed with innovation and technology (just like most Australian industrial sector) which can be seen under http://www.afr.com/p/australian_retailers_stumped_by_meuCL7di6LxiZG4VotdITL.

      US at least did something with 3D and 4D printing-part of disruptive innovation that could challenge emerging and developing nations; what has Australia come out with. US manufacturing also fell into recession 30 years back but came out 10 years later with innovation – Intel is 1 proof of that and that video is ‘Made in USA’ under America Revealed under PBS.org. Innovation took over 30 years back from customer centric approach started by P&G, IBM etc that went on to Google ,FB etc and that’s world’s top firms and ones that survive depend on innovation and technologies.

      Also, if going to say robotics, well most jobs that exist today won’t exist in 10 years time thanks to technologies – need to adapt and change. China, Japan etc have robot chefs. Self service revolution has existed for more than a century – ATMs, kiosks at airports, etc as well as retail sector are proof of that + 3D and 4D printing + blended learning that has gone online as well as MOOCs which includes Coursera and Udacity are changing educational landscape from primary to tertiary education [US,UK and Australian top unis have their courses there and it can be done for free without certificates but if want certificates, they are cheaper than traditional education though not all courses are under the MOOCs] and so on including hybrid trade shows. DVD rentals are backward technologies that rest of the world came up with a decade or 2 ago as there are Netflix, Hull etc.

      Australia’s way behind in technology and innovations – both marketing and supply chain + also transportation as it’s got on to mobile payments which rest of the developed world have been on for about a decade – some of the emerging nations have been on it for 5 to 10 years also.