Counting the cost of killing Australia’s car industry

Counting the cost of killing Australia’s car industry, by Joshua Dowling.

AUSTRALIA is about to discover what happens when you wipe out 50,000 jobs in 12 months, now that car manufacturing has reached a dead end. …

The Federal Government argued that the car industry needed to survive without millions of dollars from the public purse.

The car industry argued no country on the planet has an automotive manufacturing base without government assistance, tax incentives, import tariffs or all of the above.

The direct job losses at Australia’s final three car manufacturers — Holden, Toyota and Ford — is about 5000.

But the real number is closer to 50,000 once employees at more than 120 key suppliers are taken into account, from companies that make dashboards, wheels and windscreens to the hundreds of truck drivers who transport these parts, and the cars once they’re built. …

The car industry wanted $300 million a year in government assistance — shared across 120 “tier one” manufacturers and suppliers — to keep their factories running. In return each manufacturer would invest three dollars for every one taxpayer dollar.

Compare this to the astronomical amount of taxpayer funds being pledged to build navy ships and submarines: $90 billion over the next 30 years, or $30 billion over each of the next three decades. …. Being generous with government forecasts, that means taxpayers are going to spend $30 billion over the next 10 years to keep 15,000 people in job.

Suddenly what the car industry was asking for looks reasonable: $3 billion over 10 years to keep 50,000 people employed. …

Neighbouring developing countries are desperate to have a car industry, to build their economies and develop a middle class society.

In countries such as Thailand — now our second biggest source of motor vehicles after Japan and ahead of South Korea — automotive workers get an average of $6 an hour, a fraction of what their counterparts earned in Australia. …

The Federal Government rakes in $500 million from Luxury Car Tax each year. It could have given local manufacturers and suppliers $300 million and still had change.

The Australian car industry is also a victim of the resource curse. The Australian dollar flies high in value when resources are in increased demand. It reached US$1.10 per AUD a few years ago when Chinese demand for iron ore was very high — which was when the decision to close the Australian car industry was made.

All countries with significant resource exports have trouble keeping manufacturing industries, because of the swings in currency value driven by “the commodity cycle.” Famously the Dutch lost some industry when their currency soared due to exports of gas from North Sea in the 1960s and 70s — hence it’s called the Dutch disease.

But this is also an artificial problem due to currency and banking. What if the world still had a single currency? That used to be the case in recent centuries — when currencies were just certificates for gold — which is when economic theories about free trade were concocted. Often overlooked today is that each national currency is also a commodity, subject to supply and demand that causes its relative value to fluctuate.

hat-tip Stephen Neil