Rerouting Australia's wasted auto handouts

Holden's unsavoury call for wage cuts might finally spell the end to auto industry handouts - money that would be better spent fostering innovative sectors that actually have a future.

Crikey

The penny might finally be dropping even in the union movement about what a parasitic outfit General Motors is.

The modus operandi of transnational car companies is to look for the best deal they can get from governments around the world for manufacturing vehicles. But in Australia, it appears, the jig is up. The imminent demise of the Labor government will usher in a rather less charitable government when it comes to industry support, one with a clear commitment to cutting automotive industry support and a treasurer on the record as wanting to go further. And in the current budgetary environment, even the Gillard government has no money to send to Detroit in exchange for a few thousand jobs.

With taxpayers no longer willing to stump up to keep General Motors here, the company has turned to demanding a handout from its workers – a pay cut of up to $200 a week.

That’s one handout that even the manufacturing unions are baulking at.

General Motors’ representative here, Mike Devereux, clad his request for yet another subsidy in the usual garb of productivity and high wage costs. “Clearly productivity has not been on the agenda strong enough in this country for a couple of decades,” he insisted. That might come as a shock to the Productivity Commission, which released another report last week that explored just how complex the productivity issue actually is when large sectors of the economy can’t be accurately measured.

Moreover, like most senior businesspeople, Devereux simply refuses to acknowledge the steady, and at times strong, growth in labour productivity under the Fair Work Act since 2011, and the virtual absence of wage pressures. Or, for that matter, the way the Reserve Bank and the much-maligned Labor government have engineered the historical feat of overseeing an end to a mining boom without a surge in highly damaging inflation and interest rates.

Many of the problems for the local car makers, at least the US ones, have been self-inflicted. Ford was asleep at the wheel for years, and starved of investment funds from a head office struggling to survive the slump in the huge US market during the GFC. There was no money for the new, smaller models which consumers wanted and no money for the strongly growing diesel powered segment, or smaller sports utility vehicles.

It was the same story with Holden – although it did manage to get money for the new Cruz four cylinder model, which is being made here along with the declining Commodore. But its US parent suffered in the GFC slump, had to be bailed out by the US government (Ford wasn’t and still did it tough). And, like Ford, GM has a black hole in Europe – it’s called Opel, which is a loss-maker larger than in Australia.

The managements of both companies have been in a holding operation for the past five years – at least Toyota has been proactive in trying to keep its local operations alive and competitive by using government aid and its own money to regain export markets. All companies, though, have been very active in importing cars that Australians have been buying during the three strongest sales years in the local industry’s recent history – small passenger cars, utilities (the Toyota HiLux), diesel powered models, sports utility vehicles, the models getting smaller and more efficient, and compact luxury versions of well-known models, such as BMW, Mercedes Benz, Lexus and Citroen.

Outside the car sector, it’s been a different story. Despite the ravages of the strong dollar, in 2012 the manufacturing industry as a whole only lost 3000 people in trend terms. Industry gross value-added data from the national accounts shows other sectors of manufacturing, like textiles, and food and beverages, growing strongly in terms of output. In short: Why does automotive manufacturing need yet more assistance when other sectors of manufacturing, equally trade-exposed, equally under the hammer from the currency and, allegedly, high wage costs, are growing?

As Julia Gillard pointed out much earlier in the year, when she was regularly discussing the challenge of the high dollar, the idea of trying to cut Australian wages to adjust for the impact of the dollar would see a massive drop in living standards. Devereux seems to want to go further in the direction of Gina Rinehart and slash wages to match those of developing countries where vehicles are increasingly being manufactured.

What this ultimately exposes – apart from General Motors’ global shopping for handouts – is that car manufacturing is not the high-tech, strategic industry that protection and assistance advocates have long insisted it was, but one dependent on cheap labour. There’s no Australian future for such an industry. It’s time we based industry policy on that understanding – if we’re going to intervene in industry, intervene to encourage manufacturing in areas where we are innovative and have a genuine competitive edge.

The sooner General Motors follows Ford out the door and we turn off the spigot of taxpayer subsidies, the better for Australia. That should be the Coalition’s policy.

This story first appeared on www.crikey.com.au on June 19. Republished with permission.

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