Home > Economic policy > After the car industry (revised and updated)

After the car industry (revised and updated)

February 10th, 2014

Quicker than I expected, Toyota has announced that it will be abandoning motor vehicle manufacture in Australia by 2017. That presumably will flow through to components manufactures of all kinds.

The impending end of the car industry constitutes the effective end of large scale manufacturing in Australia, at least as the term is ordinarily understood. The remaining manufacturing sector consists mainly of basic processing of agricultural and mineral products for export, along with food and beverages for the domestic market. Elaborately transformed manufactures, on which such high hopes were pinned in the 1980s and 1990s have been declining for years, and will be confined to niche markets once we stop exporting automotive products.

An immediate policy implication of the end of car production is that it’s time to drop a bunch of policies whose rationale was to support the domestic industry. The most obvious candidate is the FBT concession, just reinstated by the Abbott government. But there’s also the maintenance of some of the worlds weakest fuel efficiency standards, driven by the desire not to tilt the playing field against Falcons and Commodores. More generally, a whole range of pro-car policies will need to be reassessed, given that they increase our dependence on imports and therefore our vulnerability to terms of trade shocks.

The other big policy implication is that there is no longer any reason for Australia to have fuel efficiency standards much weaker than those in the rest of the world. The original rationale was to protect local icons like the Falcon and Commodore. Now that all cars will be important, we should demand that they meet the same standards as in their home markets.

Finally, in political terms, the Abbott government’s toughminded attitude on the end of manufacturing represents a striking contrast with its eagerness to help favored groups like the financial sector (including the salary packaging industry) and primary industry. This produces bizarre contradictions. For example, as Peter Touhey of the Victorian Farmers Federation recently noted, the Coalition government is spending more than $1 billion to upgrade privately owned irrigation infrastructure in the Goulburn valley region, but is then unwilling to come up with $25 million to keep the processing end of the industry open.

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  1. ralph
    February 12th, 2014 at 20:44 | #1

    @hc they don’t have a case to answer. At law they are the bargaining agent. The members could decide to organise a meeting and direct them if they wanted totakenthat course of action.

  2. sunshine
    February 12th, 2014 at 21:00 | #2

    Joe Hockey has been caught lying to blame Toyotas demise on the unions . Abbott lied to try blame SPC on the unions too. I realise the press is compliant and refuses to hold them to account like Labor was but ,given the mileage they got out of calling Gillard a liar and casting themselves as honest, I think it is a risky tactic . I guess it shows the level of desperation to control the news agenda ,their confidence (arrogance) in media support, and, the gold mine they think union bashing is. Its risky for them tho – they dont want to risk getting people thinking too much beyond the headlines on this union issue by over doing it. They want to keep people in the comfortably dumb zone so effectively engineered over the last 30 years. Its like this viscous ‘attack Labor’ mode is all they know and trust. It degrades our polity in the public eye.Tit for Tat Royal Commissions etc.

    My thought bubble to save complex manufacturing abilities in Aust is to make the car people switch to production of gas powered buses and a small cheap diesel or gas car that doesnt change much from year to year (think VW beetle) and could be changed to electric in the future.

    Productivity – were stuffed unless a major tech breakthru like nanotech comes fast .We were placed well to take full advantage of computerisation first -and we did. It may now be over .All the big easy gains have been got.

    Why cant we carry a less than 100% efficient industry anyway ? We can afford 5 Bil for miners , soon to be 40 Bil super tax concessions (60% goes to the top 20% earners), a stupid joint strike fighter dud project , an immoral (and horrendously expensive) war or 2 , 100 million per day defence budget, etc.

  3. David Stein
    February 13th, 2014 at 17:59 | #3

    Hello John – excellent post. It will be particularly interesting to see what happens to these sorts of tariffs and subsidies. They are the sorts of ‘market distortions’ we hear so much about except when they benefit those who, dare I say it, sign the campaign donation cheques.
    One comment on manufacturing – there is still a rather sizeable defence industry manufacturing submarines and ships etc. Loss of the auto sector will no doubt negatively impact the defence industry given it is located in clusters around Adelaide and Melbourne. Farewell to the Australian ‘mittelstand’.

  4. kevin1
    February 13th, 2014 at 18:04 | #4

    @David Stein

    Hi David. The “mittelstand” is an interesting idea, and goes against the dominant economic paradigm in Australia, but needs to be discussed here – if you could give some background, pros and cons, it would be very interesting.

  5. February 14th, 2014 at 11:37 | #5

    David Stein, the major trend in the US and other militaries is the use of modern technology to reduce the size and vulnerability of the logistical tail of armed forces. So it seems to me that a car industry that is focused on doing much the same for cars would be more useful to the defence forces than one that is like the Australian car industry. So if the government or a future government decides to prop up the car industry for reasons of “national interest” then perhaps they should require the industry produce hybrid and electric cars and maybe focus on doing things such as integrating solar power with cars. But I will mention that I am very suspicious of any arguements that are made in “the national interest” as that phrase seems to be code for “against the national interest”. And I think an agricultural drone and robot industry might be more useful to defence than a car industry, but I guess we’re not likely to get that either. The fact is that Australia’s interest rates tend to average higher than in other countries and so while a small firm might develop exiciting new stuff here it will generally be manufactured overseas as the lower cost of money means its cheaper to build the factory outside of Australia. Now Australia could change this by increasing its forced savings rate as that would slowly bring down the cost of money in Australia, but that’s something our current government specifically rejected.

  6. BilB
    February 15th, 2014 at 10:32 | #6

    There is zero prospect for having a future car industry once the current one is disbanded.

    And automotive industry requires a very large component industry to support it. It would prohibitively expensive to rebuild this from scratch once all of the machines are disbursed.

    Also to watch will be Australia’s bus/coach building industry. Once the car windscreen industry shuts down, the automotive paint industry scales back, and other common suppliers evaporate of minimise their Australian operations then other auto industries may become less competitive and fall to international competition too.

    Abbott with his ideological mindset is incapable of understanding the full extent of the damage to Australia’s economy that his little tight budget philosophy will unleash.

  7. February 15th, 2014 at 13:47 | #7

    BilB :
    There is zero prospect for having a future car industry once the current one is disbanded.
    And automotive industry requires a very large component industry to support it. It would prohibitively expensive to rebuild this from scratch once all of the machines are disbursed.
    Also to watch will be Australia’s bus/coach building industry. Once the car windscreen industry shuts down, the automotive paint industry scales back, and other common suppliers evaporate of minimise their Australian operations then other auto industries may become less competitive and fall to international competition too.
    Abbott with his ideological mindset is incapable of understanding the full extent of the damage to Australia’s economy that his little tight budget philosophy will unleash.

    There’s slightly greater than zero prospect of a revived car industry, if you were actually talking about whether it was engineeringly and economically feasible (I won’t go into possible details, but it could work with niche activity and horizontal integration, given the right institutional environment); it’s only zero prospect if you meant politically infeasible, and even then only if no change in the basis comes along to disrupt the bipartisan groupthink – but that’s the way to bet.

    Your penultimate paragraph is accurate; you’re basically bringing out some of the spillover issues that the APC (Australian Productivity Commission) was instructed to consider. Yet the APC explicitly decided not to consider the bus/coach building industry on the grounds that it was not directly connected to the automotive sectors it wanted to focus on. That means that either the APC didn’t even understand what spillovers (externalities) are, including the fact that gains also come back the other way with positive network externalities, or they deliberately decided not to take that sizeable chunk of them into account (they also wilfully decided only to consider time-limited options that would be bound to terminate, even though that was not in the remit – but for externalities, that’s like prescribing a limited supply of insulin to a diabetic on the grounds that it should be enough to cure the diabetes; externalities have to be engineered out, lived with indefinitely, or offset indefinitely, but they practically never just go away). If anyone can see any other way of interpreting the APC’s actions, that does not make them out to be fools or knaves, I’d be pleased to hear it.

    I think that sorts out the charge in your final paragraph. Here we have the government (Hockey in front, Abbott behind) setting up a perfectly sound remit for the APC, even though it sounds like the government had to be reminded of certain things, so those sound tagged on as afterthoughts. But then we have the APC running with the remit, narrowing it unnecessarily and disregarding some things they were told to look into. When it gets back to Abbott, it won’t be him incapable of understanding the full extent of the damage to Australia’s economy that his little tight budget philosophy will unleash, he genuinely will be going according to the best practice and advice he went to the trouble to ask for – only, the consultants are the ones with a little tight budget philosophy, so he will get tricked into his narrowness from the very people he went to for breadth and depth. It really isn’t down to him, it’s just that there really are Pharisee types who won’t go in themselves and bar the way to anybody else. If you know a way to get the constructive attention of either main party grouping, in power or in opposition, I’d be interested to hear it. All I’ve ever got was soothing, with barely suppressed indignation at my ingratitude at not wanting to be fobbed off with soothing instead of practical review of what I was bloody telling them.

  8. BilB
    February 15th, 2014 at 15:13 | #8

    PML,

    It is Engineeringly feasible to build an automotive industry virtually anywhere. What isn’t possible is to build a self sustaining cost effective industry from scratch. The barrier is the immense cost of the tooling, productive machinery, building infrastructure, and most importantly the management and business understanding to make a successful industry. And it is not the motor company’s productive machinery and management expertise that is the major difficulty, it is the component industry that must be in place before one can even contemplate proposing a car plant.

    What Abbott’s mob have achieved here is demolish the entire base structure in fell blow. The industry made it clear that there needed to be a partnership between government, community and industry for the industry to be viable.

    As for the productivity commission, it is as they say of education, those who can do…those who can’t teach. Same thing, those who can Engineer, those who can’t consult. What can you ever hope to achieve from a bunch of egotistical accountants evaluating a tightly managed IP guarding industry? Answer, False understandings. Hand those understandings to a bunch of egotistical ideologically driven politicians charged with driving a tough line? Economic disaster.

    The minimum kickoff cost of a new auto industry? My guess $40 billion. This would have to be available up front and written as it was handed over. That money would be spent on design personnel, tooling, machinery, buildings, and marketing. It would take at least 4 years to go from concept to production line roll off. And there might need to be further contributions from government. Chances of that happening in Australia’s future?….zero.

    The only qualifier is that it is possible to build an auto industry despite the current loss, but that would have to be a vehicle with a million dollar price tag. There is a far greater prospect to build an aircraft industry than it is a car industry revival. But we have proven that we aren’t interested in that either.

  9. Hermit
    February 15th, 2014 at 15:30 | #9

    I think the big car makers have retreated to the bunker to see what the next big thing will be. Candidate vehicle types are the hybrid and the plug in hybrid but neither has swept the market so far. People seem to want compacts and SUVs. At this point the hydrogen fuel cell car is like the rainbow in that the closer we get the further away it seems. I don’t think battlers in the outer suburbs (US exurbs) can afford pure battery cars and they also want more range, say 500 km per charge or whatever form of ‘fill-up’. In the US GM is bringing out a CNG/petrol dual fuel Chevrolet the idea being you run on cheap compressed natural gas when you can fill up otherwise run on petrol which we can be sure will get more expensive.

    You’d think one of these types would dominate within a decade. Those with good jobs will be driving similar looking cars. That’s a decade of the majors not losing money or asking for handouts on subsidiary assembly plants. When the winning design emerges you’d also think it wouldn’t be hard to buy an abandoned factory, hire competent workers and install the radically new tooling. Therefore it’s quite conceivable a new vehicle making industry could arise phoenix-like from the ashes, say by 2025.

    Or we could be like Cuba and keep patching up rustbuckets.

  10. Fran Barlow
    February 15th, 2014 at 17:12 | #10

    I wonder if it would make sense to set up so e sort of battery-for-stationary back up service here on the Eastern seaboard as a pilot scheme, backed by the state. Plainly, there simply aren’t enough vehicles of the PEV type out there at the moment to have a full scale operation, but suppose in theory, the state decided to back up 100% of renewable energy with lithium iron batteries. They could offer these batteries for lease to PEVs on a swap basis.

    Presumably the battery they chose would have to fit all existing e-vehicles eg the iMiev, Leaf, Volt, Prius … presumably some sort of adaptor would be needed to fit them securely in vehicles. The swap stations would be located along the inter-urbans and within urban environments, and sit there sucking power from wind, solar or whatever renewable output was surplus and then selling it off when demand exceeded supply.

    If someone lobbed in and wanted a hot swap they’d be given one and their battery would be taken (for a fee representing the difference in residual power at the peak rate plus a swap charge). There would be the option of course of owners of such vehicles charging their batteries from the grid during the off peak and uploading power to the grid during the peak.

    This could help break the chicken and egg constraint on the rollout of PEVs.

  11. drsusancalvin
    February 15th, 2014 at 17:32 | #11

    #8

    t is the component industry that must be in place before one can even contemplate proposing a car plant.

    I was hoping the rapid development of 3D printing would eliminate the old fashioned style of delivering components to any new iteration of an auto industry. Why not print the whole car!

  12. Fran Barlow
    February 15th, 2014 at 17:38 | #12

    @drsusancalvin

    The materials one can currently use to “print” anything are actually quite limited. It’s also very slow. And of course, building machines that can print accurately things as small as a rubber seal and as large as a fender or bonnet and link these processes would be extraordinarily complex.

  13. drsusancalvin
    February 15th, 2014 at 17:47 | #13

    3D Printed bike frame sounds good, and in this older piece it sounds like the complexities are being handled. I think 3D printing will develop at a faster rate than computing (Moore’s Law) ever did.

  14. Hermit
    February 15th, 2014 at 18:06 | #14

    @Fran Barlow
    Sounds like the ill fated company Better Place, founded in Israel but at one time headed by former Victorian MP Evan Thornley. Google it. Some EV makers (Nissan and Renault if recall) obliged by retaining the suitcase sized batteries as removable cassettes. Only need 20 or so battery swaps to drive from Sydney to Adelaide. The motoring public has given their verdict on this concept… they don’t want it.

  15. Fran Barlow
    February 15th, 2014 at 18:39 | #15

    @Hermit
    Except in this case it doesn’t rely n uptake by vehicle users o be viable

  16. Fran Barlow
    February 15th, 2014 at 18:40 | #16

    And in any case Hermit, nobody was asked, since hardly anyone had a vehicle that could make use of the service.

  17. February 16th, 2014 at 01:11 | #17

    Twenty battery swaps to get from Sydney to Adelaide would mean a range of about 70 kilometers per fresh battery pack which is about half the range of the Nissan Leaf electric car. However, this odd 70 kilometer range car would still be useful to many people as the average Australian car is only driven an around 40 kilometers a day. And since the battery pack is so small at only about 13 kilowatt-hours it would help keep costs down. But it would shine when used for driving around town by people who normally drive less than two hours a day. It wouldn’t be a great car to drive between state capitals in.

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