Holden on to a vital sector?

Reports this morning that the engineers’ union at Holden is worried the iconic car giant will stop building its flagship Commodore model could have huge ramifications for Australian manufacturing and the Federal Government.

While sales and production of the Commodore have fallen dramatically over the last decade, the Commodore is perhaps the most important car made in Australia, in that it is the biggest selling locally designed, engineered and built car.

Toyota Australia might make more Camrys than Holden makes Commodores, but that is a car built on a platform designed in Japan and tweaked for local conditions.

If the Commodore was to be dumped and Holden was to move to assembling a “global platform” vehicle imported from its US parent company General Motors, it would create some huge problems for the local manufacturing sector.

Manufacturing in Australia is heavily reliant on the car sector – a great deal of expertise in engineering, product design and development and operations flows down from the car makers into the parts suppliers.

The damage done to small- and medium-sized businesses that work in the automotive supply chain would be enormous.

But a decision to dump the Commodore – and let’s be clear, Holden isn’t commenting right now as it is involved in bargaining agreement negotiations with the engineers’ union – would also create some big problems for the Federal Government, which may be called on to “save” the sector with some sort of assistance package.

It’s always tricky for governments to decide when they should and shouldn’t intervene in business matters, although it could be argued that the Gillard Government has shown a greater willingness to step in and get involved in major industries in recent days.

Aside from the Qantas intervention – which it is hard to argue against, in my opinion – we’ve seen Treasurer Wayne Swan attack NAB for not passing on the full RBA rate cut, Industry Minister Kim Carr attack Coles and Woolworths and call for the ACCC to investigate the pair’s market dominance, and the introduction of the mining tax, which the resources sector hates.

Attacking the banks and the supermarket giants is probably more about political point scoring than anything else, although Swan has taken steps to force more competition in the banking sector and Carr seems to be edging closer to calling an inquiry into the grocery sector.

The mining tax is part of an economic reform measure, while the Qantas intervention was largely about crisis management.

The dumping of the Commodore would probably fit into a different category altogether.

Every year for the last few decades, federal governments have poured hundreds of millions into assisting the car sector, despite its continued decline. But eventually, the Federal Government is going to need to decide whether it wants to save this sector, restructure it or assist it to downsize, as it has basically done with the steel industry “transformation” plan it created earlier this year.

It was Kim Carr who pointed out earlier this year that the Australian economy is going through the biggest “structural change” in living memory.

Managing that change is going to create a series of challenges for this government and successive ones, as they struggle to get the delicate intervention balance right.