Driving down the road to nowhere

[Resurrection]

Given successive governments' policies, it is a miracle Australia still has a car
industry, writes Ian Porter.

THE mini-fracas between GMHolden and the Association of Professional Engineers, Scientists
and Managers has served to highlight just how much pressure the automotive sector is under.
It should come as no surprise to hear that GMH is assessing its options for the Commodore
that will follow the 2014 model.

GMH chairman Mike Devereux insists no decisions have been made about where the 2019-20
Commodore will be designed and engineered, but the union is correct to assert that such a
decision must be made soon.

It can take four years or more to design and engineer a new model, more if several different
versions and variants are required in different markets around the world, as is the case
with the Commodore.

For some years now, GMH and Ford Australia have both been evaluating the benefits of keeping
their local assembly operations going. The option, of course, is to close the local plants
(and, therefore, most of the parts industry) and simply import cars.

The switch to importing looks increasingly attractive as ever-more overseas manufacturers
are allowed simply to waltz into the Australian market, make the absolute minimum investment
to establish a distribution operation, ship in some vehicles excess to overseas requirements
and then start shipping Australian dollars offshore.

It's a very negative trade for Australia, which swaps a few local warehouse jobs for
annual dividends to offshore parents measured in tens of millions of dollars. It has to be
said that the local manufacturers themselves import a lot of vehicles, but at least these
imports help the local operators stay viable and, therefore, indirectly support the local
assembly operations.

The automotive industry, once the country's largest manufacturing sector and the one
that delivered much of the country's postwar prosperity, has been under enormous
pressure since the Howard and Rudd governments accepted - the former without demur - the
zero-tariff recommendations of the Productivity Commission.

The industry lost the tariff war, although it was given ample warning and time to adjust.
Unfortunately, the powers that be forgot that tariff protection was only one of two crucial
elements governing the health and competitiveness of the manufacturing sector.

Unlike many countries in this region, Australia simply chose to overlook the importance of
currency and exchange rates. The decision to go to zero tariffs was made in the early 2000s,
when the Australian dollar was still rising from historic lows of US55� at the turn of the
century.

But the mining boom has pushed the currency to twice that value, along with some help from
the US government, which worked to depress the greenback in an effort to revive its own
manufacturing sector.

Japan and China '' managed' ' their currencies to minimise the disruption to
domestic industries. Australia chose not to do this, which is why we are losing our
manufacturing sector and having to replace it with part-time and casual jobs in industries
with little or no export potential.

It's a miracle Australia still has a local car industry. It's testimony to the
perseverance of GM, Ford and Toyota, all of which were battered by the oil price shock of
2007-08 , and to the economic stimulus policies adopted after the global financial crisis.

As Devereux explained yesterday, governments can go one of two ways in support of their car
industries: tariffs or co-investment .

To be clear, the car industry is such an important part of any industrialised country's
manufacturing base that there is not a single government in the world that does not support
its automotive sector.

Under the stewardship of Kim Carr, Minister for Innovation, Industry, Research and Science,
the Rudd and Gillard governments have gone with co-investment , and the results have been
pretty good.

For an outlay of $500 million under the Green Car Innovation Fund, the three local car
makers have invested about $2 billion in their local operations in recent years. This has
been achieved during the global financial crisis, and despite the bankruptcy of General
Motors.

And that success explains why the February cancellation of the remainder of the GCIF was
such a blow to the industry. The money was needed to help the Queensland government fund the
flood recovery program (which may be taken by the cynical as a guide to where the most
marginal federal government seats are located).

Devereux confirmed this yesterday when he said GMH had shelved some (unspecified) projects
after the GCIF was cancelled.

We may never know what they were, but car companies around the world are investing heavily
in lightweight materials, more economical engines, hybrids and electric cars.

At the moment, hybrids and electrics do not sell well, but another oil price shock would
change that overnight, and the local producers have to be ready.

[Gobes32]

Originally Posted by Resurrection

Devereux confirmed this yesterday when he said GMH had shelved some (unspecified) projects
after the GCIF was cancelled.

I call BS on that statement.