Automotive pride comes at a price

There is something of an obsession among the world's rich, economically developed countries in maintaining a car industry.

There is something of an obsession among the world's rich, economically developed countries in maintaining a car industry. For Australia this has become an expensive luxury, according to the numerous critics who see billions of dollars of government subsidies propping up a sector without a natural future.

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 of vehicles 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.

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