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Death of an Auto Industry

March 11, 2014 in Economics

By David Howden

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It’s not just the auto industries of Canada and the United States that are plodding along towards a slow demise. The auto industry in Australia will soon be a piece of history, according to Iain Marlow writing for The Globe and Mail.

With the pullout of General Motors’ owned  Holden by 2017, Australia will be the only other G20 country (along with Saudi Arabia) to not have a major auto industry, “and all the economic activity and middle class jobs that come with it.”

The apparent problem is the Australian government’s lack of desire to provide deep subsidies. Without this lifeline, auto factories will disappear as manufacturers move production to lower cost countries. Australia’s auto industry has been in sharp decline since 1984, the year that industry minister John Button introduced his reform plan for the automotive sector called “the Motor Industry Development Plan.” At the time the auto sector was protected by high tariffs – 57.5% in 1978 – as well as import quotas and local content requirements.

Today, 30 years on from the reduction of these tariffs and quotas, the auto industry in Australia faces intense foreign competition. It costs GM about $2,000 more per car to build in Australia than elsewhere. To complicate matters, with a population of only 23 million people the Australian market is too small for the economies of scale that can occur in industry with large amounts of output. Ford Australia chief Bob Graziano has defended the withdrawal from the Australian market, stating “The business case simply did not stack up… Our costs are double that of Europe and nearly four times Ford in Asia.”

The auto union, for its part, has been heavily lobbying the government for subsidies to regain “competiveness.” As it is clear these are not forthcoming, it has switched tactics to focus on having the government pay the cost of retraining and fostering new industries for the dislodged auto workers.

As with any subsidy, tariff or quota, there are winners and losers. The auto industry in Australia has gained from these policies while every single Australian has lost in the sense that not only have they been forced to finance an uncompetitive industry, they have also had their access to cheaper foreign-made cars reduced. Indeed, as Australian Treasurer Joe Hockey laments “Australians effectively determined the future of the Australian motor vehicle manufacturing industry by not buying Australian-made cars.”

In short, Australians …read more

Source: MISES INSTITUTE

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