29 May 2013

The disaster that is our country’s car manufacturing industry

No matter where you were in Australia last week I’m sure you heard or read about Ford’s announcement that they would cease making cars in Australian in 2016. This decision will lead to the direct loss of around 1200 jobs due to the closure of Ford manufacturing facilities in Geelong and Broadmeadows.

The media then went into its myopic apocalyptic view of this completely predictable event. ‘Manufacturing in crisis’ bleated the various newscasters on the prime time television news as if 1200 jobs going over a three year period was some sort of  major dent to the economy of Victoria. It seems the journalists who write this sort of stuff don’t even bother to do their basic research.

If they had done so they would have discovered that between May 2009 and April 2013 the Victorian economy added 952 jobs every week so when you compare 1200 jobs lost across 3 years, you gain some genuine perspective on the loss of these jobs. Also consider that manufacturing employs around 980,000 nationally.

This is not to trivialise the loss for each individual worker of their job (for many of them, the only job they have ever held) and the impact this will have on them and their families but again let’s get some perspective on this. The Federal and State governments have dashed in with various assistance packages for the workers impacted, totalling $50 million.

As you will recall both Queensland and northern NSW have experienced significant natural disasters over the past three to four years including hurricanes and floods. Collectively, many thousands of seasonal (casual) workers would have lost their jobs in these regions as tourists stayed away. What did the various governments do for these workers?

As The Age reported, a total of $10 billion has been tipped into the local car industry over just the past seven years in the form of subsidies to keep a local car manufacturing industry alive.
You have to ask the question - why?

Australian car manufacturing has always been uneconomic, propped up for decades by high tariffs and local-quota rules that ensured Australians paid way too much for cars that were not as good as imported cars.

As tariffs have come down and the Australian dollar has gone up, local car buyers have voted with their wallets and deserted locally made cars. Last month was an all-time low for the sale of new Commodores and Falcons with sales less than a quarter of what they were only 10 years ago.

The local car manufacturers have continued to shed jobs with the Ford plant in Geelong employing just over 500 workers in 2013 compared to over 5,000 in the early 1990s.

The local car manufacturers have all continued to make hundreds of millions of dollars in collective losses every year and there has been no realistic chance of that turning around, yet governments on both sides have opened the government coffers  whenever the car companies have whimpered about how tough things are.

What sort of moronic government invests in a declining industry, one with no chance of ever growing total employment again?

I am thankful the car industry gravy train is coming to a close. It cannot come soon enough. Governments should stop ignoring basic economic fundamentals and get on with the job of making it easier for efficient companies to flourish. They should also ensure the various corporate compliance and corporate law enforcement agencies do their job in ensuring the free market operates with integrity, fairness, genuine competition and long term resource-use as its guiding principles.

Imagine if that $10 billion had been invested in our education sector or in growth sectors? How much better off would our country be now? It doesn’t bear thinking about.

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