Ben Eltham | Why We Love The Car Industry


Australian politicians have always been revheads when it comes to manufacturing policy, no matter how expensive it is. Ben Eltham on Kim Carr’s latest effort to keep us making cars.

We Australians love our cars.

On the level of everyday sociology, there aren’t too many objects as prized and loved as the wheels most of us own to get around in. Despite all the rhetoric about rising petrol prices and inner-city apartment dwellers, theABS statistics tell us that the ownership of passenger vehicles continues to rise. There were 552 passenger vehicles for every 1000 people in 2009, up from 510 vehicles per 1000 people in 1999.

Australians also celebrate the culture of cars. We hold national festivals of automotive culture at events like Bathurst’s Mount Panorama and Canberra’s Summernats.

The pivotal cultural importance of cars, particularly to Australian baby boomers, was recently documented in the ABC’s fine social history, Wide Open Road. For many older Australians, cars really were the freedom machines of suburban lore: the vehicles that enabled their escape from parental supervision, and the scene of their early sex lives.

The suburban aspect of the car’s significance shouldn’t be glossed over either. Australia’s unusually decentralised urban planning means that most of our new housing built since the 1950s has followed a pattern of suburban sprawl. In the vast tracts of cul de sacs and strip malls that ring Australia’s big cities, cars are not just a rite of passage, they are a transport necessity.

All of this helps to explain why car making is such a politically loaded issue in Australia. Quite simply, few politicians want to be seen to be letting the car industry die, whatever the economic cost.

But dying it is. Making cars in high-cost, low-volume Australia is uneconomic on a global scale, and has been for some time. Australians buy around one million new cars a year. Unfortunately for the workers that manufacture cars in Australia, most of those sales are imports. The Mazda3 has eclipsed the venerable Holden Commodore as Australia’s most popular car, highlighting the trend. More generally, the consumer trend toward smaller cars and SUVs has also hurt local car makers, as most of the cars on the market in these classes are assembled overseas.

The hyper-competitive global auto industry is ever the graveyard for governments and investors. Because of the iconic status of car manufacturing and the outsized position it occupies in the minds of politicians and policy makers, auto-manufacturing is the recipient of generous government subsidies and special industry protections almost everywhere in the world.

Australia is no different: the auto industry here has long been the recipient of considerable sums of taxpayers’ cash. And there is still a tariff on imported cars coming into Australia, even it is now only a negligible 5 per cent, down from more than 100 per cent in the years of Australian protectionism, before the Hawke-Keating government began to dismantle Australia’s tariff walls.

That government largesse shows no signs of abating. Industry Minister Kim Carr was at the Detroit Motor Show last week, throwing millions of taxpayer dollars at Ford, in an attempt to convince it to keep making the Falcon in Australia. $34 million was promised, plus an unstated figure from the Victorian government, all for the purposes of keeping the Falcon and the Territory on the production lines. “This funding will also see the Falcon produced at Broadmeadows in Melbourne to at least the end of 2016,” the press release stated.

The problem of how and how much to support the car industry has divided the Opposition. Pro-industry types like Ian Macfarlane are in favour of more support. So apparently is Tony Abbott, who recently declared that “without cars … we are not really a sophisticated economy any more.” Economic dries like Joe Hockey and many backbenchers are against.

The reaction to the news from the commentariat to the new assistance was predictably cynical.

Most economists and analysts groaned at the prospect of yet more money being poured down the bottomless pit of automotive manufacturing subsidies. After all, Mitsubishi extracted hundreds of millions of dollars in state and federal support in the years running up to its decision to close down its Australian operations in 2008. Despite all that cash, it shut up shop anyway, laying off 1700 workers. That was taxpayers’ money rather poorly spent, to say the least, as the Productivity Commission has repeatedly lamented (pdf).

You need not be a rabid libertarian to note the negative economic impacts associated with car industry assistance. Tariffs are a device to transfer wealth from consumers, who pay more, to producers, who receive direct and indirect subsidies. Those subsidies support local jobs in the manufacturing industry, but at a price. The Productivity Commission estimates the total subsidy is something like $23,500 per worker. Yes, you can take issue with modelling and the econometrics and quibble with the numbers and so on. But there’s no doubt that, in the end, we all pay for the pleasure of sustaining a local car industry.

That pleasure is largely psychological. Australia could import 100 per cent of the cars we drive, if we wanted to, just as we currently import 100 per cent of our airliners and computer chips and wind turbines. That’s what New Zealand does. That’s what Switzerland does. Neither country is exactly an innovation backwater or a deskilled rust-belt.

What’s more, with unemployment still around 5 per cent and the mining industry crying out for skilled trades, most of the workers currently employed in the auto industry will be able to find new jobs, especially if they’re prepared to move to Western Australia or Queensland. Some might not even have to move: mining companies are increasingly employing workers on a fly-in, fly-out basis.

All this sounds like a hymn to the efficiency of the open market, and to some extent it is. There is an unavoidably difficult truth to face when we discuss local manufacturing, which is that the high Australian dollar and the small size of our local market makes many aspects of Australian manufacturing uncompetitive. Fairfax’s Ian Verrender outlined the uncomfortable verities last week when he pointed out the obvious: making cars in Australia was never particularly sustainable, and has only been so in the long-term with massive government subsidies. “While we’re at it,” Verrender continued, “let’s be brutally honest. There is no such thing as an Australian car industry. It is an American and Japanese car industry with a couple of plants here.”

Politicians like to say they’re saving local jobs. But they’re also sending money to Detroit and Tokyo.

If Australia can succeed as a manufacturing nation at all, it is almost certainly as a niche producer, exporting high-value, high-innovation products that have a technological edge on their competitors. This has been the case for our successful manufacturing exporters in the biotechnology sector, like Cochlear (whatever you think about their industrial relations policies). It’s not likely to be the case for cars, where the scale of investment required be globally competitive is always going to make it tough in Australia. A more likely candidate for success is, ironically, the field of mining services, where innovators that seek to supply better solutions to the huge local mining sector can take advantage of strong local demand, a highly-skilled workforce, and huge multinational customers desperate to reduce their costs.

The car-making debate also brings up that perennial policy chestnut, the debate about whether governments can “pick winners”. The simple answer is generally no. The slightly more complex answer is yes but the question itself is a bit of a furphy.

Governments pick winners all the time, simply by dent of being governments. Creating the legislative framework for an entire society is nothing more nor less than picking the winners and losers. Think about the myriad of laws and regulations and policies that affect almost every industry. Economic activity cannot occur except inside a system created these laws, and they inevitably benefit some and cost others.

For that matter, the rule of law itself is a massive subsidy to people who own wealth and property, and against those who might like to redistribute it for their own purposes. Governments that pick winners are as common as those that raise taxes, and for much the same reasons. Next time you hear Tim Wilson from the Institute for Public Affairs complain about governments picking winners, you might want to remind yourself that theIPA itself receives a tax exemption as a non-profit institution, and so do its donors.

What about the local industry? It was left to veteran automotive journalist Toby Hagon to make the case for the car markers. “If we took the same cut-the-ropes approach to other industries that many Australians want the government to take with the car makers we’d be devoid of anything useful,” he writes.

Local car makers will soldier on, even if they are steadily losing support in the broader community. There is some hope that if the Aussie dollar falls to 90 or 80 cents to the USdollar, making cars locally might suddenly be competitive again.

As a lone voice for the auto industry, Hagon also made an important subsidiary point, which is that government policy is a crucial aspect of many different industries; the car industry is by no means unique. “Our mining industry would be nothing like it is today,” he wrote. “It receives more in assistance than the car industry despite being the economy’s golden child. Farmers would be walking off the land and private schools would be out of action.”

We rarely hear from the victims of Australia’s economic reforms in the 1980s and 1990s: the low-waged workers whose industries packed up overnight in Victoria and South Australia, many of whom endured years of unemployment and grinding poverty as a result. The debate about economic reform tends to be skewed towards the winners of the reform process: highly skilled, tertiary-educated white collar workers such as economists and journalists, and the business lobby that has a vested interest in the most efficient use of its available capital. When it comes to picking winners, the thrust of the last 30 years of reform has been to create advantages for those who benefit from that reform, at the expense of the workers in the industries that are being propped up.

In the argument about industry subsidies, therefore, no-one is completely pure. And that’s a point worth remembering. We live in a democracy. When our political representatives decide, rightly or wrongly, to support a particular industry, they are almost certainly doing so because they believe it is what their constituents want. This might or might not be wise. It might or might nor be economically “rational”. But, in a democracy, it is certainly legitimate.

First published 16 January 2012 in New Matilda here.

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