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.
John Quiggin 
Freudian car-centricity?
“imported”?
and on a more serious note:
I would agree with “should” but I’m afraid “will need” is optimistic.
Austerity on speed – here we come!
If you don’t mind JQ, and to get the discussion going, I will repeat my comments on this from Monday Message Board of a week ago.
OH WHAT A (SICKENING) FEELING
Some spontaneous impressions – I may recant on some of this, but today is a significant day.
Edward Holden started making motor carriages in SA in 1930s(?) and SPC has been around for 100 years – does their passing not need to be closely examined? History counts for nothing?
The CEO of Toyota said it was a close decision but Govt offered nothing on “principle”. But what principle? When you put out a piece of cheese to catch a mouse, do you resent losing the cheese? Abbott cries crocodile tears “devastating for me” (ha ha) but offers nothing, I guess that’s a “personal responsibility” issue for him and Hockey – it’s the workers’ fault.
Toyota has a big (40%?) export profile, and sells cars that Australians want to buy, but this doesn’t matter to policy. What else do they have to do to get support?
Absolutely no ideas from Govt or econ dries about the future for these and component workers, apparently economic religion says the market will provide. Yeah, right, we know what it will provide – most will be unemployed or underemployed for the rest of their lives, or jobs in low wage, low skill services.
No-one gets on the front foot – just wait for “the market” to provide the future. It seems we want to be victims, not leaders.
The first condition ofa higher productivity economy is to have the workers at work. You know it won’t happen – for the rest of their lives, 1/3 unemployed, 1/3 underemployed is what the accas tell us. They have had the plug pulled on them – Hockey baited and taunted GMH to close down – they wanted it to happen (less union dues to ALP). Sabotage from the highest level.
And smash unions – have a RC, include Gillard/AWU, and smear all honest union reps, because the BOSS is ALWAYS RIGHT! (the fusion of orthodox economics and right wing politics is apparent).
“The people in power are there because they know what they’re doing, or they have more knowledge than us.”
Maybe getting the Salvos to hand out food parcels is the solution, now that they will have time on their hands – charity rather than work.
Does the end of the “age of entitlement” means we are not entitled to expect solutions and initatives from govt?
If we agree that public and private partnership in the economy is the way to go
* because statist and privatised productive sectors are not a priori effective or an operating principle, and
* therefore “partnership” is desirable
What does “‘partnership” mean, in practice?
If hostile foreign agents were given 5 months to wreck the Australian economy I doubt they could have done better than this stupid government. Industry, telecoms, foreign relations, climate. ffs.
interesting that both countries that had failed car industries recently (usa and oz) seemed to have low efficiency standards and tried to cater to an ever shrinking market of petrol heads
You assume this government has a rationale for its policies?
It’s claimed that we are the only one of nineteen OECD countries which don’t have an automotive industry now. Why?
Kevin1, we have the Dutch Disease: http://en.wikipedia.org/wiki/Dutch_disease
Which is (in our case at least) where exploiting natural resources results in a decline in manufacturing. We could have not exploited our natural resources so much, but we didn’t.
@Ronald Brak
Ronald, this is not a new observation, dating from the late 60s, but currency movements are contingent on foreign currency values as well as domestic activity. The ceteris paribus assumption means we have to decide how much of the change in valuation is driven by resources, and I don’t know the answer.
But. as “over-valuation” of the AUD is due partially to its safe haven status, why doesn’t the RBA try to separate underlying market valuations (mainly trade) from these financial market influences? What is your view as to reasons why Warwick McKibbin’s proposal to sell large tranches of AUD to foreign central banks, offmarket, was not done?
Am glad I read something thoughtful on this and think that Ronald Braks comment is not totally unintelligent.
Nonetheless, am not entirely convinced the brutal demolition of the sector by the Abbott government is a mere house-cleaning prior to a brave new”New” technology driven society.
Yes! “Not totally unintelligent!” Ha ha! In your face everyone who said I was totally unintelligent! This quote is riding the certeris parrotbus right into my curriculum vitae!
Just so long as it is not a “dead” parrotbus, Ronald.
I doubt that the blame for the diminution of the manufacturing sector can be sheeted home to any political party, as Treasury points out it has been going on for quite some time.
The AWU has a case to answer here. Not even giving workers the chance to trade-off conditions for more secure employment. Probably would not have changed Toyota’s decision – high exchange rate etc – but a disastrous example of trade union stupidity.
Tragic for everybody that loses their job. Some are saying 30,000 will do so once knock on effects are considered. But given the national number of unemployed sat at 722,000 in December there are a lot of other people also worthy of concern. Rather than policy changes to prop up one sector or another we ought to be looking to remove generic impediments to business and employment. Like payroll taxes, unfair dismissal rules, minimum wages and awards. And stop taking money from growing businesses to prop up dying businesses.
It could just be the result of a decade and a half of declining productivity growth. Can’t say I’ve seen this discussed at any great length around the traps. Manufacturing is being swept away by attrition. If it keeps up, expect more than just cars to follow.
On this issue of reforms that logically follow from this news:-
Retweeted Adam Creighton (@Adam_Creighton):
Toyota’s decision means luxury car tax, tariffs on foreign cars and, especially, bizarre $12,000 tax on private car importation can go
@graham
+1
It would be wonderful if enterprising companies could buy up these factories and some of the equipment and use them for manufacturing renewable energy infrastructure (solar panels and all their adjunct technology, wind turbines, et cetera). Maybe with a research component as well. Now before you jump on me, yes I know the car factories are tooled up to make cars and they can’t just start churning out something different. But the readymade buildings, car parks, toilets and rec rooms, reusable equipment and skilled mechanics and metal and electrical tradespeople…
Well I can dream can’t I…
@TerjeP
It is a myth that payroll taxes decrease employment. They are just a GST by another name. Not everything that is intuitively obvious in economics is true.
No, it isn’t a myth, it’s perfectly accurate. It’s just that it looks the same as a G.S.T. if you start with the assumption that the only thing that matters is the incidence of the tax (who ultimately bears the burden, after it is passed along), and not the impact of the tax (who first bears the burden, before it is passed along). So you get economic modellers who won’t believe their lying eyes (empirical observation) but instead build in that faulty assumption because it usually works, for most purposes, and then they come back all “parrot with beautiful plumage” on you without noticing that they are only considering Payroll Tax’s flow on effects via aggregate demand and the like, and that they are completely abstracting out any effects at the point of impact itself (because they are convinced there can’t be any, so they never look).
On the other hand, when Professor Kim Swales of the University of Strathclyde and his colleagues (in the UK) modelled it to see the effects of a Negative Payroll Tax (see http://www.faxfn.org/feedback/03_jobs/jobs_tax.htm#23feb98a), they did look at those localised effects – and their modelling indicated that that would actually help unemployment. So an ordinary, positive, Payroll Tax would harm employment.
Not all assumptions that seem intuitively obvious to economists are true.
@kevin1
That might be a positive to come out of the pig-headedness of the Abbott Government.
Just as the financial credibility of the US has been endangered by the Tea Party crazies in the Republican Party rendering their political system dysfunctional, so too the financial credibility of Australia could be endangered by the Abbott Government.
But if that endangers our safe haven status, that could lower our dollar, helping our exports?
” The coalition is spending.. 1 $billion to upgrade privately owned.. infrastructure in the Goulburn Valley, but unwilling to come up with 25 million to keep the processing end of the industry open”- Quiggin.
Terje, the reason for corporate failure comes from accounting tricks, artificial bottom lines and the offshoring of monies required for local infrastructure, not measures designed to have irresponsible companies abide by basic OHT, environmental etc concerns.
I take exception to you faux “concern” for thousands of workers and their families, but your usual and peculiar lack of empathy for your fellows follows the old and predictable path.
IIRC Productivity (however that’s officially measured) has gone up & down. the problem (as I see it) is the component suppliers to these car plants are really geared up for high productivity ie. producing lots of parts for a low unit cost. Other manufactures were able to also utilise these resources to also produce components for low cost as that’s what such companies are specifically geared for. Unfortunately, in most cases, there’s not enough work from the non automotive sector to keep these component makers viable, so other manufactures will be increasingly likely to be forced offshore to get anything made at a viable cost as what’s left is niche (high cost) manufacturing specially geared for low volume runs that aren’t viable to import. It’s like a vicious snowball unfortunately. Manufacturing becomes increasingly geared to niche(low volume) manufacturing and costs continue to snowball out of control.
@ paul walter
Never mind him, he’s an IT boffin ruminating on economics. As is virtually always the case when laypeople wade in to a field in which they have no expertise, they provide simple, logical, and utterly wrong solutions.
I agree with Terje that various car tariffs can go now. But as JQ said, so can various car tax deductions, and an arcane set of Australian Design Rules. Why should driving a leased BMW to work be tax deductible yet a season rail ticket is not?
As for the car regulations, we should simply adopt the rules of (say) UK, which will automatically bring us better fuel regulations and (probably) cheaper imports too, since fewer modifications will be needed. Not to mention no more parallel crash testing of new models here, despite their already passing Japanese or European tests.
Where I have reservations is the technological “alternative”. What alternative? Our investment in technological research and education is abysmal and declining in real terms. A lack of consistent long-term policy and tax rules make high tech investment risky. We continue to create good ideas, that are then lost overseas for lack of investment. It is not due to a lack of “entepreneurs”. It is due to a financial and taxation system that is slow, rewards reinvestment in old industries, is strangled by bureaucracy and run by technological ludites.
Engineering enrolments here are tiny, and our courses costly and mediocrly resourced. Many of our brightest graduates leave for the USA. Meanwhile some actually debate whether we need an NBN, despite internet speeds here that are inferior to Portugal. We need the NBN just to catch up with our competitors, not to lead.
So I will not miss our car industry, which was over-hyped. But I see little better to replace it.
@Uncle Milton
Could you expand on this please? It seems intuitively obvious to me.
You’re probably not going to get much jobs out of manufacturing anyways, since IIRC the actual number of manufacturing jobs is going down worldwide (Dani Rodrik over at Project Syndicate talks about this). You could decide that you want Manufacturing output and production, but you need to go into that with the more realistic expectation that it’s probably not going to lead to many jobs, although it might give you a better R & D/tech base and promote robotics in your country.
He’s almost certainly barking up the wrong tree, buying into some simplistic crap that’s been going around for a while and that governments bring out like the Monty Python dead parrot sketch whenever people try to get governments to look at the harm Payroll Tax does; it works perfectly as an excuse not to bloody look at what the people are pointing at. That dismissive twaddle points out (accurately) that a Payroll Tax and a G.S.T. have the same ultimate burden after they have been passed on (incidence), deduces (accurately) that that means that their effects on aggregate demand and such like are the same (beautiful plumage!), and then concludes (inaccurately) that that means their effects on employment are the same because employers’ demand for workers is only (an assumption) affected by consumers’ demand for employers’ output. That last assumption is an “other things being equal thing” that is actually false whenever they aren’t equal, and doctrinaire types never, ever look into whether other features of a Payroll Tax might affect those things – but, as it turns out, the first burden of a Payroll Tax before it has been passed on (impact) does affect those things, even though most of any tax’s consequences really are only affected by that particular tax’s incidence, most of the time (which is what led the analysis into the simplifying assumption that that was all that mattered). The assumption was only ever accurate enough for Payroll Tax in practice in conditions like those of Australia in the 1950s and ’60s, when hiring pressures were up against the full employment stops anyway and no harm could be done by low levels of Payroll Tax; I wouldn’t be surprised if its apologists today weren’t drawing on secondary sources that can be traced back to original work done then, which was a perfectly sound working approximation then. I gave more details with a link about proper modelling in my own rebuttal of Uncle Milton, but as that got hung up in moderation for a while I won’t risk that again by repeating it now.
@JamesH
There is no employment effect because a payroll tax, paid by businesses, is a tax on (labour) inputs that ultimately are passed forward into higher prices, or backwards into lower (than they would otherwise be) wages. The real (prices adjusted) wage that businesses pay doesn’t change, and so neither does employment.
In practice, the story is a bit more messy, because small businesses are exempt from paying payroll tax, but essentially this is what happens. You can tell complex stories about payroll taxes distorting the size distribution of firms and perhaps then employment in aggregate but it is all small potatoes as these things go.
@Socrates “Why should driving a leased BMW to work be tax deductible yet a season rail ticket is not?”
The counter argument would be that public transport should be at cost, not subsidised.
There are some that argue that the cost of roads exceeds the cost of public transport. The cost of a tax deduction on leased vehicles to revenue must be considerable but politically a hot potato.
It’s unfortunate that my reply to JamesH was held up in moderation, I think for length, so you didn’t have a chance to see it before you wrote that. Briefly, everything up to “and so neither does employment” is 100% accurate and sound, but that conclusion does not follow because those things are not the only effects of a Payroll Tax that make a difference. Closer inspection would show that there are also material effects at Payroll Tax’s initial point of impact, that reduce employers’ willingness to hire; the ultimate stuff is not all that is going on. It’s a long story, but my earlier comments cover more – if they get out of moderation.
It seems clear to me that almost from the moment the dollar was floated and a plan to reduce tariffs came in, it was clear that there was no long term future for car manufacture in this country. We haven’t been blindsided by this — we could be sure that this day would eventually come from at least the mid-1980s.
If that was a problem for people they should then have acknowledged it expressly and either
a) expressly decided to protect the car manufacturing industry no matter what and done whatever it took to achieve that
or
b) decided to give it the protection it needed until the current workforce in the 1980s had reached on average 65 years of age
or
c) said plainly that there would be no more subsidy or protection then and immediately used what funds were needed to begin retraining those made redundant, including giving them stipends to live on.
and/or
d) developed a business model for ETMs that could make substantial use of the skillsets of people in the car industry and that would be at worst commercially marginal and funded that instead. Both sides of politics would have had to sign onto that deal. I can well imagine that at the time, the Libs would have found begging off pretty hard.
You need ‘biodiversity’ within a community in terms of the skills on offer. There is an intrinsic benefit to preserving manufacturing capacity.
@Troy Prideaux
Thanks Troy, I wasn’t really looking specifically at the motor industry. Just theorising that it may just be a victim of long term declining productivity growth in general. My assumption being that as our competitors invest and take up new technology and practices at a faster rate than we do it would only be a matter of time before our local industries are squeezed with the least productive and lower margin ones the first to go. I’d certainly interested to know whether the continuance of this long term trend is a looming problem or nothing to worry about.
Who are the biggest fools? Our Liberal leaders, or the people who believe their deception?
Abbott says the jobs won’t be going until 2017, so everyone should relax. However, a few days ago, about 300 workers from Ford’s Broadmeadows and Geelong plants were sacked from mid year, rather than when the company pulls out of Australia in October 2016. If customers start switching to Toyota competitors in response, same can happen here.
So far as new jobs, Premier Napthine’s Media Release says “In addition to the $320 million on new stores, Coles will spend an extra $40 million to refurbish existing stores across Victoria….This is fantastic investment in Victoria, a great boost for jobs in Victoria and a significant show of confidence in the Victorian economy,” Dr Napthine said.
So these are part of the Coles-Woollies- independents retail war, basically a zero sum game where jobs are created and lost elsewhere, unless the retail spend increases (hardly likely in the current environment, with job losses.) $40 mill for shopfitters, but no other job expansion. Another lie.
No plan, no support, no truth.
Kevin1, you wrote: “It’s claimed that we are the only one of nineteen OECD countries which don’t have an automotive industry now.” I find that sentence hard to grip on, but there are 34 OECD countries and only the United States, Japan, Germany, South Korea, Mexico, Canada, Spain, France, UK, Czech Republic, Turkey, Slovakia, Italy, Poland, Portugul, Austria, Slovenia, and the Netherlands have the ability to produce vehicles in significant quantities making for 18 out of 34 OECD nations with car manufacturing industries which is just a bit more than half.
I take exception to your completely presumptuous and arrogant attitude. So I suppose we are even.
The world has considerable over capacity in car manufacturing at the moment. In these situations it makes sense for the “weakest links” to shut down. Anyone here think that Australia is a strong link ready to produce the hybrid, electric, and self driving cars of the future? Over the last 10 years I haven’t seen much evidence that it is. And it might be good to get out of the car industry now and avoid the rush later. It may not be many years before our taxis are all self driving and that’s going to reduce costs and make it much easier to not own a car and so private car sales are probably going to plummet at that point. Self driving cars will crash less often reducing the need for replacements and electric motors also last a lot longer than internal combustion engines which will further reduce demand for new car stock. So I don’t think there is much point in defending the Australian car industry. If it doesn’t die now it will probably just get killed later on. Using this opportunity to reduce the amount of oil Australia burns may be the best thing we can do in this situation.
Lots of us were touting essentially this option. In 2007 I even organised a protest at APEC calling for an immediate unilateral removal of protection rather than the ongoing drip feed reductions we have had. We have spent an inordinate amount of taxpayers and consumers money protecting jobs that were never likely to remain viable outside of a protectionist bubble.
Well yes we could preserve jobs by lowering wages when adding a payroll tax. And we could create jobs by lowering wages instead of lowering the payroll tax. But it seems more favourable to workers to let them keep current wage levels and have reduced unemployment risk by simply reducing the payroll tax and keeping wages unchanged.
@Ronald Brak
Fair enough, I took someone else’s word that there were 19 OECD countries which seems true up to 1994, when central European and emerging nations were admitted. It is an industry of significant international restructuring in more recent times.
@rog
Rog, the question of subsidies is a different and complex matter to the equity of tax treatment of individual choices. I am not a PT zealot; it works best on medium to high density areas. However overall Kenworthy, Richardson and others have shown that cities that invest in more public transport, combined with sensible policies on urban sprawl, spend less overall on transport (public plus private $ combined) than those that focus on roads. Govts have become so obsessed with balancing their bottom line in recent decades, that they have lost sight of overall economic impacts.
Further to Ronald Brak at 37, most of the OECD countries that are richest per capita do not make cars. Norway, Denmark, Switzerland, Singapore and Luxembourg all do not make cars, only some high tech components that are the most profitable bits in two cases.
@Socrates
Norway, Denmark, Switzerland and Singapore all make other stuff. The correct analysis is to look for OECD countries that don’t make cars or anything else, except perhaps chocolates. Apparently it’s worth subsidising chocolates but not anything else.
Just yesterday the prime minister was holding up New Zealand as an object of emulation because they’ve reduced their public debt. Somehow he neglected to mention the GDP per capita figures for the two economies.
@rog
I’m sympathetic to this claim (though I would ring-fence those on low incomes (say, under 50k p.a) from having to pay fares, for a variety of reasons. These people, especially the unemployed, often try evading fares, and rack up huge fines, which can’t be collected so their licences if they have them are cancelled and there’s a whole pernicious knock-on effect that really helps nobody. They should get a card that would allow them to travel free, IMO. The marginal cost of carrying them is trifling.
That said, the argument is more complex than it might seem. Owners of residential property within walking distance of a railway station or rapid bus service are undoubtedkly advantaged by their proximity to a service. It’s not unreasonable for them to contribute to the cost of the service, since they are the beneficiaries of a stronger housing market. (Disclosure: I would have to pay a contribution under this model) One of the costs of not having public transport is the damage from motor vehicles to urban infrastructure — not just the roads but the residences near them, the public buildings and so forth. Getting cars off the roads directly and indirectly reduces damage. It also leads to better air quality and lower repiratory disease, which is also a public cost. Then there’s the cost of injuries resulting from collisions. People are far less likely to suffer serious injuries on public transport. And then there’s global warming of course.
So one can argue that shifting transport from private motor vehicle to public transport saves the community money and this saving should go into the ledger when considering the actual cost of public transport that needs to be recovered from passengers.
Now for mine, public transport in Sydney is not all that costly — certainly not for someone on average AFTWE, and I doubt cutting the cost would make much difference to the usage — it’s nearly at capacity during the peak. I’d sooner more was spent augmenting the service so that more people could use it more often, especially during the peak and shoulder times.
IMO private ownership of heavy long range cars such as Holdens and Falcons will have disappeared by 2030. Reasons being lack of reasonably priced oil and declining per capita real incomes. I don’t see how battlers will be able to avoid full size EVs or hydrogen fuel cell cars, the latter currently priced around $0.5m if you can find a filling station. I’d envisage a shopping trip to get a trolley load of groceries being done via online rosters in company with other people. The shopping vehicle might be something like a mini-bus and trailer using gas fuel or petrol that comes off your ration card not theirs.
I wonder if Toyota, Ford and General Motors think this as well but aren’t saying. Shortly someone will say that EVs are on the cusp of greatness. Funny I didn’t see any on the roads today.
Afford not avoid.
@Fran Barlow Oh dear.. that would mean the awful process of people having to (lift a lazy finger to ) ADAPT!!
It was very gratifying to see that someone at least grasps the difficulties facing people from a low socio economic subculture, btw; I sometimes wonder what has happened to compassion in these threads.
@paul walter people adapt just fine. A century ago cars were hated things, road hogs, child-killers. Nowadays if you say that you’re crazy. People had to adapt to cars. You just have to have a self-interested reason to market a change to people, and patience, and they’ll love you. (nb: people won’t love you if you’re marketing a change to people for reasons that look “holier than thou”. Largely because you won’t do as good a job because your interests aren’t aligned with your actions, and most people are about as see-through as freshly-washed window pane.)