Time to leave the car industry alone

Australia's car industry has become reliant on government handouts to survive and unless it shows the capacity to innovate, it should be left to stand on its own two feet.

Crikey

Here we are again, just over three years on from the last effort to save the automotive industry…

In November 2008, it was an extension of what became the Automotive Transformation Scheme to 2020, a green car fund (since mostly nixed in budget cuts) and some structural adjustment support for component manufacturers. Total cost over a decade: several billions of dollars to support around 50-60,000 jobs.

This time around there are fewer zeroes, but the sums are still big enough: $100 million to Holden from the federal government; $34 million in existing funding to Ford from the ATS. Plus whatever the state governments of South Australia and Victoria end up kicking in. Nevertheless, Kim Carr returns from Detroit with the future of the car industry secured – at least for a couple of years, until another crisis demands another handout.

Still, not bad for a minister supposedly such a dud he needed sacking by his prime minister.

Three years ago the Rudd government’s car package unleashed a firestorm of criticism about ‘new protectionism’ from the commentariat (including from me). This time around, the ennui is palpable. Fairfax’s Ian Verrender did sterling work yesterday, yet again demolishing the argument for why we need a car industry. But for politicians, it’s irrelevant, and it doesn’t seem to matter which side they’re on.

Liberal frontbencher Andrew Southcott was backing the package today in the pages of The Australian Financial Review. The last Liberal to suggest governments were being too generous to the car sector was Joe Hockey a couple of years ago, and he copped a frightful pillorying from his colleagues for it. The car industry qualifies as ‘strategic’ for politicians in a way that, say, nothing in the textile, clothing and footwear industry does. Only the other heavy manufacturing industries, steel and defence manufacturing, earn similar levels of public support.

For Labor, the importance of the industry to both the Australian Workers’ Union and the Manufacturing Workers’ Union means additional pressure to open the chequebook.

Such assistance of course is exactly what the government has been advised by Treasury not to do – support those industries under pressure from the resources boom in an effort to delay or prevent structural change in the economy. The problem is particularly acute for the automotive sector, which has been hammered not just by a high dollar, or input costs inflated by the resources boom, or even subsidised foreign competition, but by Australians themselves who have turned their backs on the traditional big family car offerings local manufacturers continue to push at them, in favour of smaller vehicles.

The structural change the automotive sector faces is at least as much a reflection of its own failure to understand its customers effectively as it is external factors – a classic example of how protected industries lose their capacity to innovate. Or, more correctly, it’s that automotive manufacturers have directed their skills into securing further support from government, and playing governments off against each other, rather than more effectively meeting consumer demand or reducing costs.

Other parts of the manufacturing sector have got on with dealing with the challenge of the resources boom. The manufacturing sector has lost tens of thousands of workers in the last three years, but has maintained levels of overall output, suggesting the sector has been lifting its productivity in response to the challenge of the higher dollar. But the automotive sector continues to be shielded from that process by taxpayers (and, let’s not forget, car buyers, who still face 5 per cent tariffs on imported vehicles).

The only way this process will ever end is when General Motors and Ford eventually overplay their hands and demand too much to continue their Australian operations. Then a government will be forced to call their bluff, or they’ll close and move on.

When that happens, depending on the overall employment situation, we might look back and wonder why we didn’t do it when the economy was in a robust condition and unemployment was low.

This story first appeared on www.crikey.com.au on January 11. Republished with permission.