Aussie engines are running out of grunt

Amid a global renaissance for car manufacturers, low demand for Australian vehicles at home and abroad is making their future uncertain.

Car sales across Australia, the United States and the United Kingdom are either breaking or rapidly returning to all-time highs. However, behind this resurgence is a blueprint of the shift to the new-world order for global automakers. Change is needed, Canberra’s subsidies notwithstanding.

Before a small audience in a McKinsey Consulting office on New York’s 52nd Street, I asked Reuters deputy editor in chief Paul Ingrassia, a Detroit reporting legend and author of Engines of Change: a History of the American Dream in 15 Cars, how long General Motors and Ford can continue to leverage their Australian plants for federal assistance to support surrounding auto-part makers.

"I think it’s outrageous frankly,” said the bespectacled veteran, who looks a little like Bill Gates from a certain angle. "It’s the Solyndra of the southern hemisphere.”

Solyndra was a Silicon Valley solar start-up that received over $US500 million ($A489.6 million) in federal loan guarantees, only to follow up the gesture with a collapse.

It was a fraction of the US government’s green program and the smallest of details for a $US3.8 trillion budget. But with TV cameras at the Solyndra factory, President Barack Obama talked up the capacity and virtues of its products not long before the company went bust.

Aussie cars aren’t experimental solar panels and support more surrounding manufacturing jobs than Solyndra did. But our vehicles aren’t being purchased in large enough numbers at home or abroad. Without ongoing federal support, our carmakers would go the same way as those solar panel makers.

Research shows that a strong majority of Australians support government assistance to the automakers; indeed it’s a popular platform globally.

Obama won the indispensable swing state of Ohio in November last year thanks largely to his auto bailout, and across the Atlantic British Prime Minister David Cameron is championing the rising production of UK automakers as symbolic of the motherland’s comeback. In Australia, we’ve managed to secure Holden at least until 2022. Hopefully the Australian dollar has dropped by then.

Meanwhile car sales in the US, where two of our big three reside, have started 2013 so strongly that the industry is contemplating a return to pre-crisis production levels of 17 million annually, which would have been unthinkable six months ago.

But this has come about not from resurgent consumption in normal conditions, but an environment with low interest rates and a disembowelment of the wages and conditions that American autoworkers once enjoyed. The bailout also didn’t cause the forces pushing GM east to vanish.

Car sales in the UK are growing in large part because of the insatiable desire of China’s upper class for ‘status’ vehicles like Range Rovers. Ford UK, on the other hand, is battling low European sales and wages that are simply too high. It’s on the out.

Australian manufacturing workers understandably don’t want their wages cut like their American counterparts. In just the last two weeks Prime Minister Julia Gillard and Opposition Treasure Joe Hockey have made it clear that won’t be forced upon them, at least before the election in September (Gillard’s beautiful unaffordable vision, February 19; Australia to remain a high-wage economy: Hockey, Feb 28).

Australian automakers don’t have the demand from China that the UK has. You’re far more likely to find a Commodore in the Middle East.

Just 6.7 per cent of our cars end up at our largest trading partner, according to the latest data from the Australian Bureau of Statistics. Though tariffs are an issue, Britain is proof that China wants cars badly; it’s just that we don’t make them.

Next week, the Australian Chamber of Automotive Industries is likely to reveal that Aussies are purchasing cars by the shipload, in stark contrast anything else in retail.

The latest annual numbers from the FCAI show Australians purchased 1,112,032 vehicles in 2012, 10.3 per cent higher than 2011.

But the growth came from cars like the Japan’s Mazda3, our highest selling vehicle, Japan’s Toyota Hilux and Japan’s Nissan Navara.

In contrast to the Commodore-Falcon days, Australians now buy as many SUVs – a symbol of American carmakers – as we do utes.

The domestically made Holden Commodore and Cruze both registered sales percentage declines of 24.8 per cent and 13.7 per cent – that is an undeniable policy disaster. As for the Ford Falcon, that isn’t in the top 10 selling vehicles.

While the Toyota Camry was working from a low base in 2011 of 19,169, it booked a 42.1 per cent increase in 2012 and hopes are high for the hybrid engine export potential in south east Asia. The first haul for Malaysia and Thailand left in mid-January.

The Territory, Australia’s only domestically made SUV, is showing signs of life. But just 150,000 of them have been sold since its 2004 launch. Over forty-four thousand Mazda3s were sold last year alone.

Car aficionados would rightly point out you could hardly find two cars that are more different. Right they are, but it does put into perspective the bang that we’re getting for our auto-subsidy buck.

All these vehicles are also supported by government fleet buying. It was once joked that the only Territorys on the road carried idiots, politicians, or both.

This record has to be weighed against the $6.2 billion industry assistance package until 2021, plus the 33 per cent luxury car tax on vehicles above $57,466 and the $12,000 specific tariff per imported used vehicle.

But a far greater symbolic gesture than the global automaking industry has yet seen could be on the horizon, according to Ingrassia.

"GM’s biggest source of profit is China now. I wouldn’t be surprised if GM was headquartered in Shanghai a decade from now.”

Australia’s Federation of Automotive Products Manufacturers, which advocates for the auto-parts makers, the crucial residual beneficiaries of these subsidies, is of the mind that the industry is too important and strategic to let go.

They believe that production volumes need to at least double. This would surely have to come from exports as domestic buyers have shown quite clearly they don’t like Australian cars, not enough anyway.

The mere suggestion of GM moving its headquarters to Shanghai shows just how far that goal is from the American auto giant’s mind.

Alexander Liddington-Cox is Business Spectator’s North America Correspondent.