Abbott can still save the car industry

The prime minister can stop Toyota from closing shop if he gives managers greater flexibility over workers and takes steps to boost competitiveness in parts manufacturing.

Tony Abbott has an opportunity no other post-war Australian Prime Minister has ever been given – he can transform labour efficiency in manufacturing by restoring managers’ ‘right to manage’.

And that opportunity comes as a result of the pending closure of Holden. Toyota wants to stay in Australia but the only way it can stay here is to have a viable automotive parts industry and to regain control if its own workforce.

Much of the money that was earmarked for General Motors should now be diverted to the parts industry – not by way of simple grants but via other support measures to make them viable (Give Holden’s money to the parts makers, December 11). But an essential requirement before any help is given is that the workers must agree to an industrial relations agreement that sees management rather than unions in control (subject to the Industrial Relations Act) and full flexibility of shifts. 

And Abbott will need to amend the Fair Work Act (after the July 1 Senate takes power) so that the unfortunate Federal Court decision that workers by a fair vote can’t change their agreement can never be repeated.

Like General Motors, Toyota foolishly agreed to a workplace agreement that gave unions power over shifts and that spread to sectors of the parts industry. Outside the labour area, while Toyota worked with parts makers to achieve mutually beneficial outcomes, the General Motors attitude was normally to just tell the parts makers that the purchase price was being reduced.

As a result, Toyota has detailed knowledge of the parts industry and has long believed that there is a real opportunity to merge some parts makers to enable them to diversify products and markets so that they are not solely dependent on the Australian auto industry. Attempts to do this in the past have sometimes run foul of regulators but more often the parts makers did not have the money to fund the retrenchment payouts.

What is required is a series of actions that enable the parts industry to be reorganised and made internationally competitive. This will not be a low-cost exercise, but because many parts makers can’t afford retrenchment payments, should they all fail if Toyota closes then the government will be forced to pick up the tab. Some say it will cost the government between $500 million and $1 billion. Keeping the parts industry going may be costly but it saves money as well as keeping jobs.

In modern automated manufacturing, scale is no longer as vital as it was in generations gone by. It will not be easy to make parts industry transformation work and there will be closures. However, once a modern labour agreement is in place, not only will it transform the auto industry but it will set a precedent for the nation.

By adapting for automotive parts, the Direct Action co-investment systems being prepared for carbon reduction will lead to a series of fascinating auto parts proposals coming forward. Toyota should have an input as to which ones are likely to wok.

Meanwhile, there is no time to lose. Banks now know that parts makers with contracts with General Motors and Ford will go out of business unless something is done. Given that situation, banks will force action much faster than slow-moving public servants would like. Abbott will need to become personally involved.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles