Buckle your seatbelts for an Australian automotive revival

If energy and commodity prices continue their current trajectory the Australian dollar will fall sharply, opening a new era for automotive manufacturing in Australia.

In Australia political correctness has taken on a whole new meaning – it is now the height of political correctness to say that our automotive manufacturing and design industry has no future. The events of the last few months show that, once again, political correctness looks like being wrong and the automotive industry has a chance of becoming an important lynch pin in the national economy.

I do not claim to be clever enough to make a definitive forecast but let me take you through a series of events which look to be ahead for Australia. If they occur, and I think they will, it would transform the outlook for the motor industry.

I realise that in setting out this scenario I am contradicting three people whom I admire: BHP chairman and ex Ford boss Jacques Nasser, former Ford chief Bill Dix and Bill Scales.

Two events have sparked this commentary – the 30 per cent fall in the gold price and an approach from a major international manufacturer which is at least thinking about establishing a major specialised global manufacturing presence in Australia.

I detailed most of the elements of my scenarios yesterday (Why the gold price signals an Australian alert, April 16) but let me summarise. The excess of energy materials created by the looming shale oil/ gas boom in the US and probably Russia and China plus the discoveries in the Middle East will depress the prices of LNG and coal. Iron ore forecasters are predicting a similar scenario for iron ore by about 2015. If those three events take place it will decimate our taxation revenues (too many of our mines and LNG projects are high cost) and will slash the dollar. Historically our dollar has moved in line with the gold price. The dramatic 30 per cent gold price fall over the last six months, if maintained, indicates that we are headed for a 70-to 75 cent dollar, not this year but around 2014-15 when these scenarios are set to bite. And remember there is a good chance that a lower Australian dollar will be helped along by a stronger US dollar and Chinese yuan. 

Once again the above set of scenarios could prove to be wrong although they are a widely held viewpoint. The Australian motor industry represents the nation’s greatest insurance against such a set of events. Look at the handouts we give the automotive industry as an insurance against my scenarios. Don’t let our motor design and manufacturing be destroyed by a commodities boom that Citibank now says is over.

Our miners are in potential trouble because of a lethal cocktail – lower prices, bloated construction costs and bad labour agreements that have been multiplied by bad industrial relations legislation.

In the motor sector the labour agreements are not as flexible as they need to be but at the moment motor executives tell me they have unions that understand the need for flexibility so the agreements are not a problem.

We are going to see in Australia an industrial relations revolution that will start with the end of the cartel-style agreements between the big building companies and the big building unions, which boost the price of commercial building and mines by between 20 and 30 per cent. Thanks to the Victorian, New South Wales and Queensland governments the end of the cartel-style agreements will force massive changes to the top and middle management of large builders if they are to survive in the longer term (Lend Lease and Leighton need a new toolkit April 16).

The miners will have to go through the same management revolution. The automotive industry should use these tough times and the forecasts of doom from Messrs Nasser, Dix and Scales to quietly move ahead of the big builders and miners.

Why would a major global manufacturer look at Australia? Firstly, technology has removed the tyranny of scale – specialised smaller operations are now economic if you have the right plant. They can see manufacturing problems in China, Europe is a mess, and they are already in the US. And suddenly the global group can see clearly what is ahead for Australia – a new era for manufacturing.

If by 2015-16 coal, LNG and iron are booming and the Australian dollar is still above 90 US cents then Messrs Nasser, Dix and Scales will be right.  But those who seek political correctness are normally wrong – at least in my view.

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