Home Business The death of local assembly production in Australia

The death of local assembly production in Australia

by drbyos

The only surprise about the cessation of the Holden brand in Australia was his surprise.

This was the final nail in an already empty coffin, given that local assembly production ended more than two years ago.

In 2017, when Holden stopped manufacturing cars in Australia, but pledged to maintain the brand with the local design and engineering structures, I wondered how long it could last.

Now we know it.

In reality there was no commercial justification for a global company based in the United States that continued to invest in the shift of imported cars to right-hand drive for 3% of the 1% of the world automotive market.

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Holden’s dominant local market share was truly a thing of the past, regardless of what was renamed under its name.

The enormous nostalgia for the loss of an iconic Australian brand is perfectly understandable.

But the naivety shown by successive governments in dealing with the owners of this brand is not. Especially when that meant accepting commitments allegedly made in good faith in exchange for billions of dollars in taxpayers’ money.

We remind ourselves of the three factors that have condemned Australian car assembly.

RATE PROTECTION

The first factor was the removal of tariff protection. Domestic automotive production has grown behind the high tariffs for over half a century, but like many other production areas it has not kept pace with the rest of the world.

It was hoped that the removal of tariffs in the 1980s and the industry’s exposure to international competition would transform it for the better.

Alongside the tariff reform there were “industrial plans” to manage the transition, in particular by focusing on export markets where economies of scale could be achieved. At the same time, workers received training and financial support to move from companies that could not survive in this harsher environment to those they could.

This success has been uneven but, with substantial government subsidies and a number of manufacturers withdrawing from the local market, the Australian auto industry has continued to be viable. However, as local producers introduced new models of investment dripping from their global parents, they lost the market share of imports. This could not be compensated for by an increase in exports as global parents themselves limited Australia’s role in growing markets abroad.

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DOLLAR INCREASE

The second factor that influenced domestic auto production, and indeed Australian production more widely, was the rise in the value of the Australian dollar associated with the boom in mines since the early 2000s.

Local producers have found it more difficult, if not impossible, to compete with imports. In 2016, the number of manufacturing jobs had dropped to less than 684,000, down from over 903,000 in 2011 (and a peak of 1.35 million in the early 1970s). The “death of production” became a popular title.

Some manufacturing industries were subsequently restored but not in the same form as in the past. Large mass production plants have been increasingly replaced by medium-small producers who pursue “smart specialization” in global markets and value chains. This global trend has involved many companies in the high-end auto parts industry in Australia, but less so in the automotive assembly industry.

FLAWED BUSINESS MODEL

This brings us to the third and decisive factor in the decline in automotive production in Australia: an imperfect business model.

An industry designed for success in a protected internal market had to innovate and expand radically in a highly competitive global market once protection was removed. This simply didn’t happen.

In retrospect, we can sympathize with governments that don’t want to unplug from an important sector that employs many thousands of workers. Not many countries can support an integrated automotive manufacturing industry. Most don’t even try.

Those who succeed do so because they can control their own fate, including investing in future technologies, skills and market development. The only part of the Australian auto industry that could control its fate was the automotive parts sector, which was competitive in the world.

Which brings us to the inevitable counterfactual. What if instead of directing public support to global auto giants who weren’t going to transform the local assembly, governments would focus on accelerating the growth of the automotive components sector?

The problem in Australia has not been the use of public funds to support production, but rather to prioritize what might have worked in the past over what we know will be required in the future. Like electric vehicles.

It is worth taking the opportunity to reflect on the fact that this observation applies as much to other challenges, such as climate change, as to the automotive industry.

This article originally appeared on The Conversation and was reproduced with permission

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