Automotive pride comes at a price
The critics are now on the ascendancy thanks to Holden's announcement that almost one in five workers from its South Australian plant will lose their jobs - 400 in all. And perhaps even more importantly, 100 engineers engaged in the design of cars (mainly exported models) will also be laid off. This signals that cars made here will increasingly become modified versions of those designed in other countries.
Holden's reasons are simple and, for it, the move makes financial sense. It is expensive to run manufacturing operations in Australia at the best of times. But when hit by the strong dollar it is impossible to compete with cheap imports.
There are plenty of manufacturers in other areas bemoaning similar circumstances. One need go no further than the steel industry. But car makers have been put in a special-circumstances basket by successive governments. Iconic - "like football, meat pies, kangaroos and Holden cars" as the jingle goes.
There is national pride over retaining a local car industry. Combine this with a large workforce and the industry seems to have immunity from failure.
But the controversy surrounding this decision will be greater in the light of revelations last week that Holden alone had received $2.17 billion in government funding over the past 12 years - about $150 million a year. This does not take into account government subsidies paid to Ford and Toyota.
The car makers counter that their local manufacture has a massive multiplier effect and injects 18 times that amount into the Australian economy. In part this is derived by using local manufacturers for components, developing skills and in part by employing a large workforce. But as the workforce and therefore the number of cars being produced falls, so do the positive flow-on effects.
Holden Australia chairman Mike Devereux said the subsidies the Australian government provided roughly matched those given by other G20 governments. The most outstanding of which is the US government, which has propped and bailed out its industry for years.
Indeed, the international car manufacturing wars are a bit like the currency wars. So many nations are subsidising their local industries to make and export to other countries that a manipulated and unnatural global trade has developed.
Mr Devereux argues that without the help, Australia would probably not have a car industry.
That is probably not an idle threat. But it brings us back to whether the industry should be a special case.
Take the airline industry. Qantas has been complaining for years about the cheap airfares of Asian carriers - many of which are government owned and subsidised. Qantas has received next to nothing in government handouts and had needed to restructure its loss-making international operations through joint ventures to survive.
Economic purists would argue the government should stay out of the business of industry protection. They contend Australia has no natural competitive advantage in car making. The money would be better allocated to industries where Australia can improve productivity and boost exports.
Meanwhile, Holden's downsizing is something of a slap in the face for the government, which has regularly had to defend its position on the car industry.
Last year, Ford sacked 340 people and Toyota cut 350 from its workforce.
But the government could do nothing but present a positive spin. Acting Industry Minister Gary Gray asserted that the "government remains committed to the Australian automotive sector and the manufacturing sector more broadly. We will work with the industry to ensure it is sustainable in a period where the Australian dollar is very strong, for example trading at parity or higher with the US dollar."
No mea culpa - rather an opportunity for political point scoring: "Our commitment to the sector is why we are investing $5.4 billion to 2020 under our New Car Plan ... The Coalition wants to take $1.5 billion from the automotive sector, endangering tens of thousands of jobs and the sector's viability generally."
But it is hard to think of any other manufacturer that has received such a long-term level of help. Most have instead had to adapt their operations or shut
up shop.
Australia is littered with structurally challenged businesses that are having a tough time competing with overseas competitors. And they don't have the luxury of being helped by the government until the dollar falls.
Even the mining industry is grappling with these issues.
Frequently Asked Questions about this Article…
Holden announced almost one in five workers at its South Australian plant will lose their jobs — about 400 positions — and around 100 engineers working on car design will be laid off. For investors this signals a structural shift: cars made in Australia are increasingly likely to be modified versions of overseas designs, which can reduce local manufacturing scale and related economic benefits.
The article reports Holden received about $2.17 billion in government funding over the past 12 years (roughly $150 million a year). Government subsidies have propped up the sector but critics argue they’re an expensive luxury with limited long‑term competitiveness, while the carmakers counter that subsidies support a large local workforce and generate wider economic benefits.
The article explains it’s expensive to run manufacturing in Australia and a strong Australian dollar makes it impossible to compete with cheap imports. When the dollar trades at parity or higher with the US dollar, local carmakers face higher costs relative to overseas producers and imported vehicles become more attractive to buyers.
Carmakers argue their local manufacturing has a large multiplier effect — the article cites a claimed 18‑times effect — because they source components locally, develop skills and employ many workers. They say this broader economic contribution justifies government assistance.
The article notes recent workforce cuts at other manufacturers: Ford cut about 340 jobs and Toyota cut about 350 last year. These reductions suggest the sector is contracting across multiple players, meaning the positive flow‑on economic effects tied to a large workforce will likely decline as production and employment fall.
Acting Industry Minister Gary Gray stated the government remains committed to the Australian automotive and broader manufacturing sectors and will work with the industry to keep it sustainable during periods of a very strong Australian dollar. The government also highlighted a planned investment of $5.4 billion to 2020 under its New Car Plan.
Economic purists argue the government should avoid industry protection because Australia lacks a natural competitive advantage in car making. They contend subsidy money would be better spent on industries where Australia can genuinely improve productivity and boost exports, rather than propping up structurally challenged manufacturers.
The article compares global carmaking subsidies to currency wars, noting many countries subsidize their local industries, which can create a manipulated global trade environment. For investors, this means Australian carmakers face not only domestic cost pressures but also distorted international competition — an important factor when assessing the sector’s long‑term prospects.
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