The end of GMH

December 12th, 2013

Another day, another stuffup from what already looks like the most incompetent government in Australian history. The Abbott government’s treatment of the car industry has been a disaster in policy terms, and just as bad as far as process is concerned. The key policy failure was the decision to retain fringe benefits tax breaks for cars (90 per cent of which are imported) at a cost of $1.8 billion over the forward estimates, while withdrawing Labor’s promise to give a much smaller amount in additional assistance to the remaining domestic manufacturers GMH and Toyota. Assuming Toyota also pulls out, every bit of the FBT concession will be public money sent overseas, with the exception of the slice creamed off by the salary packaging industry.

The policy process was even worse, announcing an inquiry, then pre-empting the result with a combination of leaks (of course, ABC stenographer Chris Uhlmann was happy to provide anonymity for the source) and Parliamentary taunts. Unsurprisingly, the new GM management in the US was sufficiently unimpressed to pull the plug immediately.

For the diehard fans of microeconomic reform, I guess this counts as a win. But even for them, it’s primarily a matter of cultural symbolism. The protection given to the car industry was so small that on a standard economic analysis, the welfare costs are utterly negligible. And of course, the benefits of protection were swamped by the costs of a chronically overvalued $A, which in turn reflects all manner of policy failures, from global financial deregulation to the subsidisation of the coal industry.

  1. David Allen
    December 12th, 2013 at 06:42 | #1

    I started with no confidence in these losers so I find myself at the zero lower bound. I can’t think any less of them. (That’s an economics job)

    Can we at least now move to the point of no longer accepting Joe Hockey shouting as a serious governing method?

  2. David Allen
    December 12th, 2013 at 06:43 | #2

    Dammit, stupid typo, I meant economics joke

  3. Hermit
    December 12th, 2013 at 07:04 | #3

    If I recall some numbers that were bandied about the assistance worked out to $2,500 per car and $48,000 per employee. What are we going to do with the redundant workers, and more knocking on the door to come here? Do we import everything that needs more work than simply digging out of the ground?

    In my observation Gen Xers made redundant and who don’t have a mortgage can get by with casual work like security guard or school bus driving. However succeeding waves of workers may have too much carryover debt to do this. They need secure quality jobs. It’s not clear where this is all heading.

  4. rog
    December 12th, 2013 at 07:10 | #4

    The closure of GMH signals a collapse of the LNP ideology. What exactly are their principles?

    To replace collective action with individual rights (collectives are made of individuals)
    To protect some industry (miners farmers) not others.
    To incur massive losses for minor savings (the costs of wars and border protection – WOT – swamps that of welfare health and education)
    To not see tax cuts as Keynesian
    To deny the evidence and act on faith.

    The repercussions of the loss of GMH will be be far reaching and the costs will be staggering.

  5. rog
    December 12th, 2013 at 07:12 | #5

    @Hermit GMH have a small workforce as much is outsourced so the $48K is irrelevant.

  6. kevin1
    December 12th, 2013 at 07:33 | #6

    JQ, I think you mean 90% of cars are imported not important. Fixed, thanks

  7. Jenny
    December 12th, 2013 at 07:44 | #7

    Leading aside the ham fisted incompetence of the current regime in Canberra, the broader issue is the way successive federal and state governments have been blackmailed and coerced into providing ongoing funding to prop up a particular version of a twentieth century car industry. Where has the automotive branch offices in Australia responded to the challenge of peak oil, to the changing demography of Australia and how this affects the sort of cars people actually buy?
    The fact is that beyond a certain element of nationalist nostalgia, Ford and GMH have been largely irrelevant to the transportation needs of most of Australia’s urban population for at least 30 years.
    I would actually like to see a car industry in Australia for the needs of the 21st century focusing on plug in hybrid vehicles in the short term and moving towards all electric and possibly hydrogen fuel cell technology. Ford and GMH in Australia have consistently demonstrated their utter incapacity to be relevant to this.
    The question is can Toyota remain relevant?

  8. Paul Norton
    December 12th, 2013 at 08:18 | #8

    To me the most telling recollection of Tony Abbott’s student days published in David Marr’s essay was from his contemporary who is now a prominent Sydney legal identity (and who I have grounds to believe was from the centre rather than the left of Sydney University student politics) who could not recall Abbott putting forward a single constructive proposal to the Sydney University SRC for the benefit of the student body, and whose abiding memory of Abbott was of “negativity and destruction”.

  9. Paul Norton
    December 12th, 2013 at 08:22 | #9

    Jenny @7 is right. Rather than simply preserving an industry that produces six litre V8s, the focus should be on what can be done to help the people currently employed in the vehicle industry be part of, and benefit from, the good ideas that trade unions and environmental organisations have been developing for the past 25 years about how the challenge of ecologically sustainable development and a carbon-constrained economy can be turned into an opportunity for a renewal of manufacturing and the emergence of new industry sectors.

  10. Paul Norton
    December 12th, 2013 at 08:29 | #10

    Some more background from The Age.

  11. Pete Moran
    December 12th, 2013 at 08:44 | #11

    I’m not concerned with Holden per se, but reform is what’s needed. In the short term, perhaps they won’t make the same mistakes with Toyota if they can be assisted to stay.

    We won’t be getting it from this Year Zero minority Govt (http://en.wikipedia.org/wiki/Year_Zero_%28political_notion%29)

    When the mining/fossil-fuel music stops (very soon) this nation will be left holding our d$&ks in the wind. As far as I can tell only The Greens are saying it.

  12. Paul Norton
    December 12th, 2013 at 08:57 | #12

    Pete, lovely turn of phrase and completely right. With the current Federal Government’s backwardness, the Queensland LNP’s “five pillar economy” trope and most of the peak business groups unable to think of productivity in any terms other than making people work more for less pay, our country is suffering from a nasty dose of economic primitivism at the moment.

  13. kevin1
    December 12th, 2013 at 09:08 | #13

    A very apt insight from JQ about who benefits from the $1.8B of FBT subsidies – this doesn’t yet seem to be on the radar for the media “stenographers”. (I have the impression that news organisations do not employ analysts to background reporters, and the latter just educate themselves from the internet plus some goss from their mates on the beat.)

    I looked at the range of academic opinion at The Conversation this morning. What I was hoping to find was some clearer indications about where mass employment in high value, high knowledge sectors will come from – a future based on commodified service jobs in tourism, care services, retail and other services is not attractive.

    After wading through the usual verities about niches, innovation, strategic approaches, high labour costs (approx. 16% of production cost I’ve heard so what’s the fuss?), and high expectations – one said governments have ignored a “green” car policy “for decades” – it’s clear most academics don’t have a clue. Sinclair Davidson, without reference to the GMH context, just argues from philosophical principles and refers us to some books on cross country studies, and not all the others are experts: one academic thinks the US parent is GMH and apparently has never heard of the Button plan or the Automotive Industry Authority. Nick Gruen suggested recently selling the local plants to Chinese mfrs, but no sign that Ford has been able to do that.

    The new FTAs with Korea, China, Sing, US, Thailand looks like a huge threat to the components sector. Meanwhile, we lose intellectual capital through a decline in demand and supply of engineering education, affecting defence materiel, construction and the mining industry.

    Despite widespread awareness that most countries subsidise their “strategic” industries, it seems the “lucky” country idea is still dominant here – we accept the increased risk exposure from a narrow economic base because of our faith that something else will turn up.

  14. December 12th, 2013 at 09:25 | #14

    Is it possible that if the car industry goes we will be able to have a proper debate on transport strategy, in that we won’t have any reason to favour cars over trains? We can raise emissions standards to whatever we like, no job losses; congestion charges, fbt provisions – everything is now on the table.

    Once we vote out Abbott, of course. Who’s plotted the probable WA senate vote under the new LNP poll figures?

  15. kevin1
    December 12th, 2013 at 09:33 | #15

    @Paul Norton
    The govt approach doesn’t look like a stuffup to me, but bringing on a decision to lance the boil before pressure for a rescue could develop. To engineer this during a govt-called PC inquiry is not bad process, but contempt for policy process.

    I wish I could draw cartoons (sigh). I would do the GM squared standing on a high ledge with Hockey down below leading the mob in a chant of “Jump, jump” while the other Libs are pushing away the firemen holding the fabled trampoline thing.

  16. David S
    December 12th, 2013 at 09:33 | #16

    Such a shame that we were manufacturing things in a costly manner that people were buying less and less of. Obviously another blunder of the evil regime we find ourselves under. If only we had more unionism and government handouts our dream utopian society would be so much closer to reality. Didn’t the removal of FBT breaks also hurt the local manufacturers of cars? Or doesn’t that quite fit into the argument? Jenny, I thnk you have by far the smartest comments here. Perhaps we can change the discussion towards what can we manufacture in our environment that is ahead of the curve. Surely a far better means to spend our money than supporting an industry that has been in decline for some time.

  17. Jenny
    December 12th, 2013 at 09:41 | #17

    I don’t take issue as such with subsidising particular economic activities or industries to retain or even expand strategic skills. The problem is that the largesse to foreign own car industry did not achieve this. Yes it did, at least arguably, secure assembly line jobs in car plants and components manufacturers, but when we critically focus on skills it overwhelmingly provided deskilled jobs locked largely into mid 20th century technology. Where was the skills development related to Australia ‘s research track record in electronics, electrical engineering and renewable energy.
    I am almost absolutely certain that I will not buy an Australian made car in the future because no plug in hybrid or all electric vehicles are manufactured here. Similarly the solar panels on my roof, although they incorporate technology largely developed by researchers at UNSW, were manufactured in China because there were no Australian made panels at any price.
    Yes Australia is the “lucky country” in Donand Horne’s original ironic formulation destined to suffer the fate of mug punters.

  18. Uncle Milton
    December 12th, 2013 at 10:07 | #18

    It is ironic indeed that a right wing government has run an American multinational – and not just any multinational, but General Motors – out of the country. What happened to the old adage “General Motors, General Electric, these are the generals that matter”?

    The old Left surely must today feel just a little conflicted.

    Let’s be clear about this. The Government didn’t let GMH go because it is hostile to subsidies as such. But it is very hostile to subsidies to heavily unionised industries. There are even some within the Government who think the subsidies went straight to the auto unions and then straight to the Labor Party.

    The salary packaging industry, on the other hand, has zero union penetration. So their subsidies were always going to be safe.

  19. FREDDO
    December 12th, 2013 at 10:59 | #19

    So now these hubristic morons are going to throw a bucket-load of money at Toyota so that we end up with HALF a car industry, when they could have spent a lot less and had a WHOLE car industry.
    As Uncle Milton says, this is all about creating a non-unionised underclass.

  20. iain
    December 12th, 2013 at 11:11 | #20

    In an age where 3D printed cars are soon to be a reality, this shouldn’t surprise.

    The issue is to stay ahead of a manufacturing curve where manual labour is eliminated, and designs are open source.

  21. David Allen
    December 12th, 2013 at 11:57 | #21

    A government with half a plan would look for a local advantage to secure Australia’s future economic health, like say, investing in a ubiquitous gigabit fibre internet to promote industry, reduce health,aged care and education costs and create a river of gold for the bufget bottom line. But no, that would require a government that doesn’t treat everything as a student politics game and as an outlet for their fears, ignorance and greed.

    Well done Autralia, do we have buyers remorse yet? Well suffer in your jocks. You deserve it. After all this is the f*cky country.

  22. Donald Oats
    December 12th, 2013 at 12:03 | #22

    BTW, what was the deal we reached with South Korea? It didn’t just happen to involve car imports on favourable terms, by chance, or am I being a tad too cynical?

  23. john
    December 12th, 2013 at 12:20 | #23

    I am probably naive in regard to this industry but I agree with and in regard to where Jenny said

    “focusing on plug in hybrid vehicles in the short term and moving towards all electric and possibly hydrogen fuel cell technology. Ford and GMH in Australia have consistently demonstrated their utter incapacity to be relevant to this.”

    As it is no longer of any worth to GM
    Would it be possible for Australia to just take over all the factory, equipment etc plus retooling etc and start working on developing as in Jenny”s comments

    Re Tesla Electric Cars
    In USA and Europe they even give buyers of the car free use of solar powered recharging stations
    would be a big call in Australia though at this stage
    lot of roadblocks (excuse the pun) e.g. need to convert to right hand drive

    http://vimeo.com/18614767
    http://vimeo.com/73997252
    http://vimeo.com/50129899
    http://www.teslamotors.com/en_AU/gallery
    http://www.teslamotors.com/en_AU/

    John

  24. Donald Oats
    December 12th, 2013 at 12:23 | #24

    I think I just found the answer to my own question…no, I’m not being too cynical.

    The Libs knew what the impact of the trade deal could be (for the local car manufacturing industry), and then ensured (through their own behaviour) that we would lose Holden. That’s a calculated strategy, not a coincidence.

  25. derrida derider
    December 12th, 2013 at 12:47 | #25

    I agree with the post about the process. If we’re charitably inclined to them (as no-one here is) we might say this is typical new government stuff, but being uncharitable – well, go ahead and call them clowns.

    I agree, too, that the net welfare effects of the protection are small beer these days (though the political economy effects of continued handouts to a favoured sector might be a bit stronger beer). Though of course this also means that the welfare effect of removal of the protection and consequent collapse of the industry are also pretty small beer – this is not the metal trades industry of 1982.

    But really, this industry has been in hospital for the past 40 years, has been in intensive care since the 1990s, and has been brain dead and on life support since the GFC. If we really thought its longrun prosperity was a major national priority (I never did) we would have performed radical surgery long ago – but then that would have been as disruptive and politically unpopular as euthanasing it, and more welfare-reducing in all sorts of ways. 2013 is just the year the life support was turned off, and complaining about the process of that is a bit like complaining about the associated paperwork.

  26. derrida derider
    December 12th, 2013 at 13:05 | #26

    PS – I have never understood the argument that “everyone else subsidises their car industry, so we should too”. Apart from the premise of the argument being simply untrue, those pushing this are just pointing out that we do not even have a competitve advantage in government gullibility.

    Playing off different governments for industry assistance is profitable for the multinationals, not for the people being played.

  27. Troy Prideaux
    December 12th, 2013 at 15:07 | #27

    @john
    IIRC both Ford and GMH experimented with Hybrid vehicles on numerous occasions over the past 5-10 years. Nobody wanted to buy them – sales were terrible. You can’t expect these companies to continually participate in expensive projects that yield terrible results.
    Also, Ford and GMH’s bulk market is/was multi-generational Aussies, not Asian/Subcontinental migrant Aussies (who’ve never been interested in either brand), and your typical multi-generational Aussie’s preference aligns closer to large & powerful petrol guzzling monsters than to environmentally friendly flavours. So, they’ve been faced with unfortunate dilemmas for a while and their current circumstances haven’t materialised through lack of trying or experimentation from my (limited) understanding.

  28. john
    December 12th, 2013 at 16:02 | #28

    Re
    Hybrid vehicles and Nobody wanted to buy them etc
    If thats the case then why are Hybrid vehicles so popular within the taxi industry ??
    Appears to be the case in Qld anyway that most taxis are now Hybrids (Camry)
    John

  29. Donald Oats
    December 12th, 2013 at 20:27 | #29

    In the northern Adelaide suburb of Elizabeth, unemployment runs at 20.3%. That’s right. The closure of the car manufacturing there would have—will have—a major flow-on effect. People who can (just) afford a house in Elizabeth are not likely to be able to afford one in another suburb closer to other work, unfortunately, unless that other work pays well indeed. People who try to sell to move may well find it very difficult, and if the big employer goes, there won’t be much incentive for people to move there. Even so, even without closure of car manufacturing there, the ridiculously high unemployment rate needs to be addressed in some way, and clearly whatever has been tried so far, has effectively failed.

    I’m ambivalent on the decision though: numerous industries have fingered Australian federal and state governments for financial and tax assistance for years, only to pull up stumps and leave when the money tap looked like being turned off. The tragedy for Elizabeth is the concentration of workers in the Elizabeth suburb who worked at Holden. I don’t really know what the answer will be, or indeed if any good resolution is possible, once the car manufacturer leaves. Perhaps manufacturing of some other product—wind turbines would be a particularly ironic one. Who knows. Anyway, I wish good luck to those employees so affected by the announcement.

  30. Pete Moran
    December 12th, 2013 at 21:01 | #30

    A little off topic, but it helps I think to understand why GMH finds themselves in the position they do.

    One needs to understand the culture of the parent company GM. They fought every step of the way against higher US vehicle efficiency standards (called CAFE). Management was (is?) stacked with climate and peak-oil deniers (historically Bob Lutz).

    Add to that the generally selfish and energy-wasteful typical US ‘patriot’ bogan and you have a car company that does not believe they need to participate in delivery of efficient vehicles. They had an electric car, they killed it. They purchased a hybrid system for vehicles in the US but actively marketed/white-anted the Prius with their bogan astroturfers.

    Their production quality systems and the quality of vehicles delivered saw them implode in the US. They were rescued because of the too-big-fail nonsense that was pervasive in the US at the time 2008. It was structural decision and most US consumers were turning away from GM. There was plenty of opposition to saving them – a site called The Truth About Cars covered it all pretty well.

    Even now, in the US, the absolutely massive pickup trucks outsell most family cars. Three of the first four in Nov 2013 are absurd trucks http://wap.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesC (think BIGGER than Landcruiser). Present day GM is light different to the basket case that was rescued, except they were able to wipe of ~$90b in liabilities and start again. Lots of GM retirees lost their pensions over that episode.

    US Holden have spent 15 years marketing to Australian bogans, and actually quitely missed that many of them prefer the Subaru WRX. They have zero credibility to reinvent themselves undoing doing 15 years of “big car, man’s car” bullshit.

    As Barry Humphies said “Isn’t it nice of them (US General Motors) to let us call Holden the ‘Australian’ car”.

  31. Shane
    December 12th, 2013 at 22:18 | #31

    Yep they shoulda rereleased the Torana as a sporty AWD years ago.
    Would have veered the company off in the right direction so to speak.

  32. JohnW
    December 12th, 2013 at 22:32 | #32

    I heard on the news tonight that only about one in eight or nine new cars sold in Australia are locally made. Why? I’ve never bought a new car but the new vehicles on offer from Ford and Holden look good to me. Is it just price? My uncle could have owned any car he wanted, within reason, but only ever bought Holdens and updated every time a new model was released. I bought his commodore when he updated in 2002 and I’ve still got it. What have the imports got that the locally made don’t have?

  33. BilB
    December 13th, 2013 at 03:52 | #33

    I feel a recession coming on. Industry is not getting the post election lift that all of the pro right publications had flag as certain pre election. On the contrary most are, without criticising the government, predicting losses in many quarters.

    Far from there being a dynamic process of new industrial job creation in Australia, there is an undertone of there being no point in attempting to build manufacturing businesses, one should simply get the work done in China or India. So when 50,000 once secure manufacturing employees hit the job seeking market, there is litle hope that there will be a rapid absorption of these people into other areas, and Australia will skip one more step towards American style employment desperation.

  34. Tim Macknay
    December 13th, 2013 at 12:20 | #34

    IIRC both Ford and GMH experimented with Hybrid vehicles on numerous occasions over the past 5-10 years. Nobody wanted to buy them – sales were terrible. You can’t expect these companies to continually participate in expensive projects that yield terrible results.

    What experiments were these? GMH developed a prototype hybrid Commodore in 2000, but it never entered commercial production. The Holden Volt plug-in hybrid has been on the market in Australia for about a year, and sales are slow (unsurprising since the price is much higher than competing models). Ford has never released a hybrid onto the Australian market.

  35. Michael
    December 13th, 2013 at 13:11 | #35

    Troy Prideaux :
    @john
    Also, Ford and GMH’s bulk market is/was multi-generational Aussies, not Asian/Subcontinental migrant Aussies (who’ve never been interested in either brand), and your typical multi-generational Aussie’s preference aligns closer to large & powerful petrol guzzling monsters than to environmentally friendly flavours. So, they’ve been faced with unfortunate dilemmas for a while and their current circumstances haven’t materialised through lack of trying or experimentation from my (limited) understanding.

    I don’t think so. The evidence is that a lot of Australian’s – even ones who you think are the real Aussie’s don’t want to buy big fuel guzzler’s either. A lot of commodore’s and Falcon’s are fleet vehicles the drivers didn’t pay for. When they buy for themselves they often choose smaller cars hence the popularity of vehicle like Toyota Corolla’s. Admittedly a lot stupid people buy SUV’s too, but that’s down mostly to psychological issues.
    Lets get rid of the distortionary subsidies of fuel, big cars and driving in general and see what the market chooses. By your logic iPads don’t exist because there was no demand for them 10 years ago.

  36. Troy Prideaux
    December 13th, 2013 at 13:45 | #36

    @Tim Macknay
    I apologise, they gathered sales interest at motor shows and various events in Australian versions of US models like the Ford Escape, but there was little interest. Yes, Holden experimented with the ECOCommodore IIRC? This was also during a phase when new diesel tech was proving to be more fuel efficient than what hybrids could offer.

  37. Tim Macknay
    December 13th, 2013 at 14:17 | #37

    @Troy Prideaux

    Yes, Holden experimented with the ECOCommodore IIRC? This was also during a phase when new diesel tech was proving to be more fuel efficient than what hybrids could offer.

    Yes. I believe one of Ford’s hybrid models on sale in the US (it might have been the Escape) was discontinued a few years ago because the conventional version of the model was just as efficient, if not more so, and also cheaper. The timing of GMC’s hybrid Commodore was pretty bad, not just because of the improvement in diesel tech but also because fuel prices at the turn of the Century were very low.

    That said, the success of the Prius shows that Australians will buy hybrids in decent numbers if they are priced appropriately and marketed the right way. Of course, whether or not it makes sense to manufacture them in Australia is a different question.

    All the major manufacturers seem to be producing or developing plug-in hybrids and EVs at present, notwithstanding sluggish demand (in Australia, at least). Presumably they foresee greater fuel price hikes in the future.

  38. RussellW
    December 13th, 2013 at 17:48 | #38

    I’m not sure if the Abbott government is technically incompetent, it really probably only represents the interests of the top 20 percent of income earners, so it’s performing quite well so far.

    Contrary to all the neo-liberal propaganda, class war is back on the agenda, Abbott and his accomplices have fired the first salvo.

  39. December 15th, 2013 at 23:38 | #39

    Contrasting the saving of the salary packaging industry with the passive resignation at the demise of GMH’s Australian operations is a really good way of highlighting the values of this government.

    The triumph of people who make a living out of shuffling papers and numbers over people who make things. At least they are looking after the people who are digging up and selling our country.

    Sigh.

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