There are four facts we have all become aware of in the past few days – if not months – regarding car manufacturing subsidies.
Fact 1: A lot of money has been given to Australian car manufacturers over the past decade.
Fact 2: Despite great financial assistance, the future of the sector looks bleak.
Fact 3: Job losses in manufacturing are increasing. One out of ten manufacturing jobs disappeared over the last four years (estimates suggest more than 100,000 jobs) with the Federal Government projecting the loss of another 85,000 over the next five years.
Fact 4: There is a great divide regarding the long-term effect of car subsidies. Some view it as “good economics”; others see it money down the drain.
Then there is also the matter of transparency, with the Australian Financial Review and the Department of Industry entangled in a legal dispute over whether sensitive commercial details of the subsidies – released unredacted by mistake to the AFR in response to an FOI request – should be made public.
It would seem this debate is more about politics and a union membership base rather a true assessment of the cost and benefits.
But an important and less-discussed issue is the flow-on effects from the car manufacturing industry to other manufacturing sub-sectors.
According to 2010 figures from the Federation of Automotive Products Manufacturers, companies involved in Australia’s automotive supply chain manufactured and exported over $1.51 billion worth of components, and sold over $3.71 billion of components.
The report also says that between 2007 to 2011, the sector as a whole added manufacturing innovation to the value of $4.5 billion. The car industry also accounts for about 7% of total manufacturing turnover and 5% of value-added manufacturing.
Significantly, the car industry provides the base-load demand to justify the installation of production facilities in other industries. The demands it makes of its suppliers for high quality products have had significant spill-over benefits in other industries.
This includes the development of light-weight components such as carbon-fibre composites and the use of titanium and aluminium, to reduce the mass of vehicles and improve fuel economy and reduce emissions.
And this “multiplier effect” extends well beyond the car industry and its associated sectors.
As part of our research into Management Practices in Australian Manufacturing at Macquarie University we met with a senior executive of one of Australia’s most successful medical manufacturers, who explained how his company has been using a firm in Melbourne previous engaged in the automotive industry as one of their suppliers.
Without them, his company would have had to outsource the production of that particular part of their product to overseas manufacturers.
This knock-on effect has not been sufficiently explored in the public debate around the future of the car industry.
We agree an independent and rational assessment of the car industry needs to be made and that such an assessment needs to be transparent. Recent events may have tainted any attempts to that end.
However, such much-needed assessment cannot simply focus on car manufacturers alone, their productivity,their sales or their labour costs. Any cost-benefit analysis should contain measures that can value the impact the automotive industry has had and can have on other manufacturers.
Objectively examining the automotive industry, including the measures mentioned above, we believe, can add value in two ways: first, find ways to help manufacturers producing high value manufactured products such as medical and pharmaceutical products, which according to the report written by Prime Minister’s manufacturing taskforce have had “the largest increase in real exports”.
Second, in the same way we can identify how to keep employed the hundreds of thousands of Australian employees that are currently working, directly or indirectly, for Australian car manufacturers.
Australians have always taken pride in their local manufacturing; recently however, the sector is being portrayed as in a terminal decline.
Isn’t it time we focused on the opportunities ahead, rather then focus on a long lost industry? Q
John Coochey
Mr
It would appear that neither author has any economic training whatsoever unless they are advocating a move to a Marxist command economy.
James Haughton
Social Policy Researcher
http://krugman.blogs.nytimes.com/2012/01/24/chinese-manufacturing-and-the-auto-bailout/
John Coochey
Mr
And your point is? Did you choose this link at random? It has no relevance to this or any other discussion!
James Jenkin
EFL Teacher Trainer
"But an important and less-discussed issue is the flow-on effects from the car manufacturing industry to other manufacturing sub-sectors."
If the authors believe in subsidising industry, why not give the money straight to the component manufacturers, rather than having it filter it through the failing car producers? Much more efficient.
Norm Stone
logged in via Facebook
This is just a modified version of trickle down Reganomics. Economic, social and logical crap.
Dale Bloom
Analyst
The US forfeited much of its manufacturing base to Asian countries, and hoped to base its economy more on service industries. The result was massive job losses, decreased household income and an enormous trade imbalance.
Australia has based much of its economy around a few primary industries and ponzi demography. The commodity prices will eventually fall, and ponzi demography inevitably leads to spiralling debt and unemployment.
The service industries in Australia have to be highly effective in maintaining employment, although the situation in the US is not a good sign for Australia.
Jonathan Marshall
Founder
Hmm I outsource the development of some of my businesses specialized software programming requirements to India/Estonia/Philippines because it is far cheaper than sourcing locally.
But if the government would like to use tax payers money to subsidize local programmers to make them more cost effective I will use them - but why stop there why not subsidize everybody so we are all more cost effective - until the country is bankrupt.
Michael Shand
Michael Shand is a Friend of The Conversation.
Software Tester
You need to be a massive multinational corporation that spends time and money lobbying the government before you can get your subsidy, sorry
Michael Shand
Michael Shand is a Friend of The Conversation.
Software Tester
What a load of bollocks.
Eveything the Author pointed out about the car industry can be said about any other industry so why is the car industry so special?
Why we are attemptign to battle climate change, we have Ford and Holden still producing massive V8's and spending millions on marketing an ineffeiciant over priced product.
If Ford or Holden present a new vision for the future nd need help truning the corner, then we should hear them out.....if they cant compete in the market as is then let them go bankrupt.
Its amazing how these free market guys really have no morals what so ever. Its all free market principals except the huge bank corporate bail outs, but apart from that its all free market, except the massive subsidise for oil copmpanies....
bunhc of corporate idealouges
Simon Arthur
Reader
Which part is 'bollocks'? This article actually has a lot of facts in it, albeit without overloading on the details. The manufacturing industries, including Automotive, are product-producing industries. The Service industries such as Finance and IT both require product-producing industries to survive and grow. So if you're thinking that the high level of white-collar and blue-collar jobs that have been disappearing should have been averted by good Government planning, then I'd think you'd be interested in hearing about the problems in the Automotive industry which has lost its subsidies and is open to Free Trading Agreements with several countries, some of whom are exporting to Australia but not reciprocating.
As for your comments regarding Ford and Holden, you seem to forget that Ford and GM are US-owned companies, while one you didn't mention, Toyota is Japanese. Toyota is assembling Hybrids locally while GM Holden are setting up their smaller vehicle assembly line now.
John Coochey
Mr
Well actually they still get massive subsidies although tariff protection which had an effective rate of protection of over a hundred per cent even in the mid 1980's One interesting calculation is the subsidy per worker. I know for a fact that in the nineteen seventies the subsidy per worker for the bed linen industry was greater than the average salary so it would have been cheaper to send them all home on full pay than continue with the industry assistance.
Robert Merkel
logged in via Facebook
I appreciate this is an op-ed, but there's a heck of a lot of hand-waving going on here.
The only actual numbers you're quoting are from an industry body. In general, studies from industry bodies are known for their rubbery figures.
Furthermore, you're completely ignoring opportunity cost. Are there other things we could do - for instance, taken some of the huge amounts of money flowing to the automotive sector and made them available through, say, ARC Linkage Grants, would we be better off?
I can't say one way or the other, but that's the question that needs to be asked.
Norm Stone
logged in via Facebook
This thinking is perfectly in line with current economic practice. The mining tax produces no revenue and I doubt if the large corporations who have enjoyed years of welfare have paid much tax in the past either. By the time the multinationals have shifted costs and returns around the globe I would guess there is very little left for the poor countries, like Australia, other than pollution and exploitation. Some employment does occur but the main outcome is to increase the numbers of the working poor and proved stats for our leaders to show reductions and increases in whatever they want to show reductions and increases in. Why doesn't corporate welfare include breaching provisions? Deemed essential for individuals but not for thee wealthy and powerful.
Peter Hindrup
consultant
If money was to be spent upon setting up production of the Indian company, Tata Motors, Nano, I would agree. Either the only, or one of the few modern vehicles entirely designed from the ground up to take advantage of the modern materials, and construction methods available today. An efficient, city commuter car as opposed to the gas guzzling behemoths that nothing can justify.
Or developmental assistance to Engineair (Melbourne) of their Di Pietro rotary air engine which has the potential to out perform any electric car would make sense.
Disclaimer: I have no connection, financial or otherwise, with Engineair. (Although if I could get hold of four of their engines I would be remodeling a Citroen GS!)
Jonathan Marshall
Founder
Peter I think you are onto to something here.
Whenever I pick up my iPad or iPhone I cannot help but see printed on the back:
"Designed by Apple in California - Assembled in China".
I was once told for every $1 of profit Apple makes - $0.95 goes to California and $0.05 goes to China. The value is in designing not assembling - but the capital cost is in the assembling (car factories are a perfect example).
Australia should focus on the designing of cutting edge cars that are fuel efficient not in assembling them - just like Apple you do not need to be an assembler to be an innovator. Imagine if all the billions pumped into assembling cars was invested into building the capacity to innovate - you would get a much bigger bang for your buck.
Leo Kerr
Consultant
Australia is perhaps the only industrialized nation that does not give some form of incentive or tax break to purchasers buying vehicles that have no localised pollution. This is despite the enormous drain on health services incurred by poor air quality in our cities, 70-80% of which is generated by vehicle exhaust. So we have this strange situation where vehicle manufacturers (and indirectly the petroleum industry) are subsidized while clean technology vehicles are given no encouragement.