No jump-starter for stalling cars

Falls in European car sales will trigger huge spare capacity and ongoing discounting that further compromises the Australian industry.

If any more evidence was needed to support the case to phase out car manufacturing in Australia, the news overnight from Europe that car sales fell 10 per cent should be it.

The fall in car sales makes it 18 straight months of decline and sales in Europe are on track to fall the lowest level in almost two decades. This collapse in demand means that there is huge spare capacity among global car producers which will mean ongoing price discounting from some of the world’s most efficient car producers.

In simple terms, the ability of Australia’s fledgling and inefficient car producers to compete is certain to be further compromised.

My recent column outlined why the Australian car industry should be nurtured to its demise (Time to scrap Australian car making, April 9).

It has sparked a range of comments from Business Spectator readers that continue to hit my inbox.

The tone of those views was mixed. At one end, there was extreme disagreement and comments to the effect that Australia needed to maintain government support for the car industry because of the second round effects of having skilled workers involved in manufacturing and to make sure there is a decent manufacturing framework left once the mining boom ends and the Australian dollar falls back to earth. There was also a case made for maintaining car manufacturers through government subsidies because there were considerable spin-offs for the supporting or tangential industries.

Other comments were simply to support the suggestion with the main benefits being tax payers saving a few hundred million dollars a year, consumers paying less for their new car and it would allow the workers currently employed in the auto industry to be redeployed to higher income and more productive sectors in the economy where Australia has an international advantage.

It was this latter point that sparked a tangential discussion. What are these more productive sectors? What services does Australia produce well? What services exports does Australia have?

It is often forgotten that the Australian economy is dominated by the services sector, with many of the services industries open for export. The most obvious one is tourism, where the money spent by every foreign visitor to Australia is an export. It is also worth noting that every dollar spent by an Australian travelling overseas is an import, but on balance, it is likely that we will have a robust tourism sector for years to come. It is a similar story with banking, finance and funds management. When a domestic bank makes a profit from a foreigner whether it is a retail customer, broking fees, debt origination or a foreign exchange transaction, it is a service export for Australia.

With Australia’s bank and finance industry in general one of the soundest in the world, it is apparent that this sector is poised for ongoing growth overseas. This is good news as the extra work and profits derived from overseas will flow back into Australia as export receipts.

The services story extends to education with fee paying foreign students adding significantly to Australia’s export receipts. There is a similar opportunity with health care. The list could go on.

The point is that there are substitutes in the economy for car manufacturing, which unfortunately is something Australia does not do well. Tourism, banking and education, among others, are strengths.

The other aspect of the discussion and feedback surrounding the future of the car industry is that the market should ‘decide’ where the new jobs will be created. This was touched on in the original article, which noted that the role of government in industry adjustment is to give the displaced or unemployed workers a decent level of financial support in the short run, and then the retraining and skill building that will sees them move into a new job.

Australia is well placed at the moment with a low unemployment rate. This means that job opportunities are being created every day of the week. It has been 10 years since the unemployment rate was above 6.0 per cent, and one has to go back to the 1990s to find a year where there was no increase in employment. 

In other words, despite a long run decline in manufacturing employment, the Asian economic crisis, the US tech-wreck, the Great Recession and a whole host of other influences, the labour market remains flexible and fundamentally strong. For every job that has been lost, many more have been created. There is no reason to think it would be any different in the years ahead.

With the government’s policy focus homing in on skills, education and workforce participation policies, more jobs will no doubt be available in the years ahead, whether or not Australia has a car manufacturing sector.

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