Car sector battle shows Australia is at a crossroads

We have heard the car industry once again lament that it cannot survive without subsidisation. This is despite more than $3 billion being provided in subsidies in the last few years, and into the future, along with other associated subsidies from both the federal and state governments.

Prime Minister Julia Gillard has promised to provide Ford and GMH sufficient funds to sustain their production in Australian into 2016.  We have heard no promises from GMH or Ford as to what they will deliver to Australia.

While Australia funds overseas companies to produce cars here, Australia is leading in negotiating fair trade agreements with China, the Gulf Co-operation Council, India, Japan, Korea, Malaysia, Indonesia and other pacific-country agreements. Clearly our federal government doesn’t understand the concept of irony.

It is true that many countries subsidise their car industries. But does that make it right or sensible for Australia? No. It is neither right nor sensible, for the reasons listed below.

Although much is said by both sides of government, at federal and state levels, what is unmistakable and notoriously well-known is:

1. Australia’s labour costs in the motor vehicle industry are significantly above its competitors’.
2. The labour conditions of those employed in the car industry are both inflexible and prescriptive, compared to competitors’ conditions; and
3. There is a shortage of skilled labour.

At a macro level, there are other problems:

• The high Australian dollar impedes exports (which is unlikely to improve given the current economic data coming out of America and the problems with the Euro throughout Europe);
• Australia is a small market domestically with an extraordinary number of models produced and a significant change in demand (the Falcon has dramatically fallen out of favour with Australian motorists);
• The adoption by car companies of global platforms for models. This simply means that components can be produced at significantly cheaper rates in countries such as Thailand. Australia will not be able to compete;
• Just-in-time contracts employed by car manufacturers in Australia effectively pulverise the local componentry industry and diminish its capacity to invest in capital, diversity and transformation; and
• The enterprise agreements extracted by the AMWU have high redundancy caps, which means the already enfeebled car componentry business has no capacity to restructure, and as a result, carries an aged and injured workforce (with all the associated costs, proactivity and quality issues that arise).

The question is not if the car industry fails – the question is when the car industry fails in Australia. 

Australian unions are alert to it as they have changed their direction in pushing for enterprise agreements in the car sales and service industry (an area previously neglected).  There is no doubt that this move by the unions reflects the changes to the local content in cars such as the Holden Cruze – less than half the parts of the locally-built Cruze will be sourced locally. Therefore, we move to the when? 

Clearly, long-line manufacturing in areas such as the car industry is not sustainable given the economies of scale of our competitors. There have already been significant job losses in the car industry and it will continue at the same dramatic pace, whether it is in the actual manufacturing of cars or the componentry area. There will be an exponential loss of jobs in those businesses that support the car industry over the next three to four years.

State and federal governments and the opposition have their heads buried deep in the sand! It is not a matter of funding a failed enterprise or industry at the taxpayers’ expense; it is a willingness to address fundamental issues that are about to destroy Australia’s manufacturing industry. Those issues are:

1. Inflexible and excessive labour costs.

2. The government’s opposition and unwillingness to import skilled labour to reduce the mining industry’s corralling of skilled labour, the associated unrealistic inflation of skilled labour’s rates and meeting Australia’s industry demand for this labour. The continued desire to roll out education to grow the numbers of skilled workers in Australia simply ignores the immediate need to dramatically increase the number of skilled workers so that the wage cost in mining is reduced and there is a flow of skilled labour back towards the manufacturing sector.

3. Change in the manufacturing paradigm from unsustainable long-line to specialised short-line production (a clever process where we can compete internationally – despite the dollar). Government investment in transformation and diversification in car manufacturing to specialised, short-line production will help bullet-proof the car componentry sector from its inevitable failure.

Australia is at a crossroads. It has permitted the mining boom to bloat the wages of skilled labour because it is politically difficult to deliver sufficient overseas skilled labour to cure the problem. It has embraced mining and simply forgotten the centrality of a sustainable manufacturing industry in Australia. It has permitted wages and conditions of production workers and skilled workers to become excessive, prescriptive and inflexible because it is politically difficult to have the fight. It has sponsored overseas companies to keep manufacturing cars in Australia for job creation, to support a defence capability and to appear a modern economy. In reality, it has delivered higher taxation, a deeply vulnerable industry on the verge of collapse with a strategy that promises more of the same.

Why? To avoid the difficult decisions involved with transforming the manufacturing sector in Australia.

The real problem is not a funding issue; it is lack of leadership.