Why Toyota is leaving Australia: The real story

Toyota did not want to leave Australia. But it did. In some ways we forced them into it.

I have been following this situation for some months so it’s now time to bring it all together to help Australians understand why Toyota left. It’s part of a change to our nation.

There are three main reasons why Toyota is exiting Australia and a series of smaller, but still significant, ones. The first reason is so-called ‘free trade’ agreements. Politicians rarely mention in any commentary on this. Yet this had more of an effect on Japanese executives in Nagoya than anything else.

The Japanese cannot understand why we keep signing 'free trade' agreements that are not free trade agreements at all. John Howard signed the Thailand free trade agreement, which allowed free entry of Thai motor parts into Australia but whacked huge tariffs and other restrictions on exports of Australian motor parts and cars into Thailand. We were conned.

General Motors in Australia complained that the so-called US 'free trade' agreement prevented unfettered access of Australian cars to the United States. Conned again.

The Japanese in Australia believe that the looming Korean – and indeed Japanese – 'free trade' deal will see the Australian motor industry unfairly disadvantaged once again.

Australia overcame the effect of these 'free trade' deals with massive subsidies. The Japanese could never work it out, and assumed that Australians were either stupid or did not want a motor industry.

The second reason has been well documented: the high Australian dollar. There is no doubt the Japanese would never have invested in Australia had they known the dollar was to rise in the wake if the mining investment boom. However, while it ranks the number two reason, without so many other factors the high Australian dollar could have been overcome.

Reason number three – and note the order – is industrial relations. The Japanese made a serious mistake in taking old-style, inflexible people from its Port Melbourne plant to the new plant in Altona. They foolishly signed an SPC-style agreement, which gave vast areas of control to the unions (SPC’s infinite management matrix, February 6).

General Motors Holden and Ford made the same mistake. All auto makers are now going to shut and the workers and managers will pay for the mistake with their jobs. Given proper flexible labour agreements, Toyota would have had a chance.

Australia compounded the problem first with tough industrial relations laws. Then last year, when Toyota started thinking about leaving Australia, the unions got the courts to block a vote on changes to rosters and holidays. These matters simply had to be fixed and the union leaders must take a big share of the responsibility for the closure of all three motor companies.

Meanwhile, Toyota executives in Nagoya said: “Why should we have a fight with Australian unions?” It was clear in Japan that Australian workers did not understand what was happening in the world in 2014 and in their own country. There are lots of other countries where workers want employment.

These were the three main reasons but there are a series of smaller factors that combined to play a big role in the Australian auto industry’s closure:

• The Queensland floods. The Gillard government had promised major investment in the motor industry and put the investment in the forward estimates. When the Queensland floods came, the motor money was taken out of the forward estimates to fund the relief effort. Treasury wanted to end the motor industry and saw the chance. The treasurer at the time, Wayne Swan, was a Queenslander, and then-Prime Minister Julia Gillard had no idea of the danger.
• Treasurer Joe Hockey's statements last year berating General Motors – almost daring them to shut – had a deep impact on Japan. Hockey was scoring political points and his words became a key factor driving General Motors out of Australia. His statements also had a profound effect on the Japanese in Nagoya.
• The Productivity Commission didn’t really understand how the motor industry worked and was not taken that seriously. However, alongside Hockey’s statements, the Productivity Commission’s stance was taken as a clear indication that the Coalition did not want a motor industry and was happy to the take unemployment consequences and make the big payments that will be required by government to meet retrenchment bills in the parts industry.
• The truth is that government money was not actually the problem. Unlike Ford and GMH, Toyota did not want a lot of money – that’s why the Productivity Commission report was such nonsense. What Toyota wanted was a better industrial relations agreement and help for the parts makers to invest in new plant to diversify. The money requirement for the parts industry was a fraction of what the government must now pay in retrenchment subsidies. While those wanting a motor industry lost the battle for SPC Ardmona (and rightly, given the appalling labor agreement Coca-Cola Amatil signed), cabinet had the numbers to invest in Toyota and the parts industry. Given the closing of GMH it was easy to find the money within the Coalition’s election-promised amount. But in Toyota’s mind they felt they would be seen as asking for help. In fact, Toyota set up in Australia on the basis of iron-clad agreements for co-investment, backed by both parties. It was a question of Australia honoring its word, not Toyota asking for help.
• Scale was obviously a problem but was not a major factor. In the parts industry Toyota wanted a series of efficient parts makers that were diversified. With one-off government help, that was achievable. The Toyota plant was big enough and could be easily expanded but the problem was all the other factors put the costs up and/or reduced demand.
• Australia became the dumping ground for cars from around the world. There are some 60 brands of cars in Australia – nearly twice the number of those in the US. Now that the local makers have been driven out, the price of cars in Australia will rise – particularly if the dollar falls.

In 2014 the looming closure of motor will seem minor. But when it combines with the retail and mining investment closures we will look back on 2013-14 and wonder why were so stupid. Hopefully we will learn the lessons.