October 22nd 2016


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COVER STORY Bill Shorten imposes his political will on the nation

UKRAINE Russia responsible for MH17 crash: investigation

EDITORIAL Learning the lessons of SA power meltdown

THE ECONOMY Warnings call for new economic policies

CULTURE WARS Shame, pride and the AFL's arrogant posturing

OBITUARY Shimon Peres: last of Israel's elder statesmen

REGIONAL AFFAIRS Shifts in Australia-Indonesia relations

EUTHANASIA Paul Kelly makes the case against euthanasia

MANUFACTURING Australia's once and future car industry

MUSIC The dolorous tale of the disappearing tail

CINEMA In praise of professionalism: Sully

BOOK REVIEWS ASIO in the spotlight: official history vols I & II

LETTERS

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MANUFACTURING
Australia's once and future car industry




News Weekly, October 22, 2016

 

 

WHAT HAPPENED TO THE CAR INDUSTRY?

by Ian Porter, with cartoons by Mark Knight and John Spooner

Scribe, Melbourne, 2016

Paperback: 128 pages

ISBN: 9781925321500

AUD$24.99

Reviewed by Jeffry Babb 

 

 

Always back the horse named self-interest, son. It’ll be the only one trying.

Jack “The Big Fella” Lang,
Premier of NSW, 1925–27, 1930–32

 

Tattooed on the heart of every crusading editor are the immortal words of C.P. Scott, editor and owner of the Manchester Guardian, Edwardian England’s foremost organ of progressive liberal opinion. Scott said: “Comment is free but the facts are sacred.”

What Happened to the Car Industry (Ian Porter, Scribe, Melbourne, 2016) is opinionated, but bearing C.P. Scott’s aphorism in mind, it is truthful. An author is entitled to be obstreperous. As far as can be determined, the facts are correct. The last of the remaining “Big Three” carmakers will cease local production in 2017.

General Motors Holden, Ford and Toyota were the holdouts in a history of failed enterprises. Toyota might possibly have carried on, as it was said to be profitable; but by itself it lacked the critical mass to keep its suppliers and parts makers solvent.

But that need not be the end of the automotive industry. As will be shown, although the withdrawal of the foreign-owned giants will not be reversed, opportunities do exist for Australia in the transport industry.

The reason for the demise of the Australian car industry is because of what it isn’t – that is, Australian. Look no further than Jack Lang’s quote. ALP Prime Minister Ben Chifley promoted foreign ownership of the emerging Australian car manufacturing industry because the American car giants knew how to make cars. The car industry was a means of turning an agricultural economy like Australia into an economy where manufacturing played a significant part, thus freeing Australia from the boom-and-bust cycles of agricultural commodities.

The car industry kick-started high-level manufacturing in Australia. The car industry created whole new categories of industrial products.

The Australian car industry was born with tariffs as its nursemaid. The tariff regime dated back to World War I, when foreign-exchange reserves were running low. Tariffs were intended to deter imports and encourage local production of car bodies. Later, tariffs were extended to car chassis and other parts.

In 1925, Ford built a plant at Geelong , a provincial city about an hour’s drive south-west of Melbourne. General Motors took over Holden Motor Body Builders in 1931 and Chrysler took over another Adelaide body builder, T.J. Richards and Sons, in 1936. The first real Aussie car, an entire car manufactured with the encouragement of the Chifley government and intended for high-volume manufacturing, was the 48-215 model Holden.

By the 1970s, at least nine different brands of cars were being made in Australia, from Mercedes Benz models to British Leyland’s P76, an ugly duckling that failed to fire the motoring public’s imagination. The mid 1970s saw the end of Vanguard, Rambler and Triumph assembly. Chrysler sold out to Mitsubishi in 1981. That left five manufacturers, until Nissan halted production in 1992.

The Australian industry was, for most of its history, which really only began after World War II, dominated by the big six-cylinder sedans. Holden had its Kingswood and Commodores, Ford had its Falcon, and Chrysler had to do something bigger and better, so it released its Hemi-6 engine, powering the Valiant Charger muscle car.

Holden and Ford did battle on Mount Panorama in the Bathurst 500. The racecars, which were intended to be production models identical to those on the showroom floor, boasted one the fastest Australian production cars of all time, the GTHO Falcon. Just about every man in Australia watched Bathurst on the television with his mates, lubricating the experience with many beers, probably Victoria Bitter.

At the turn of the last century, the Big Three manufacturers badly misjudged the market. They staked their futures on designing and building big six-cylinder models, but by then the public wasn’t buying them. American-owned manufacturers had never built popular small cars successfully in any volume. Now, the Japanese and Korean manufacturers,. which specialised in compact cars, took the lead.

Detailing the twists and turns of the tariff regime is time consuming and not very enlightening. The long, slow death of the foreign car manufacturers began in 1973 when ALP Prime Minister Gough Whitlam, as one of his first acts in office, cut tariffs across the board by 25 per cent. Tariffs under Prime Minister Malcolm Fraser and Treasurer Philip Lynch rose again and were probably the highest of all time, with a combination of a base tariff of 57.5 per cent plus quotas and a penalty tariff.

As they say, “you can lead a horse to water but you can’t make it drink”. It didn’t matter how much you penalised car buyers for buying something you didn’t want them to buy, they still went ahead and did it. Simple, sturdy cars like Mini Minors were popular – they got people from A to B, were cheap to run and inexpensive to buy.

But the industry never abandoned its reliance on tariffs. ALP Minister for Industry and Commerce John Button’s famous “car plan” for the local car industry forced rationalisation and modernisation at the barrel of a gun. Kim Carr, Minister for Innovation, Industry, Science and Research in the Rudd-Gillard era, also did his best to rescue the industry.

The social licence that kept Chrysler, Ford and GM Holden in business for many years was expiring. It is wrong to blame the “government” for their decision to cease manufacturing in Australia. Ford and GM Holden weren’t building the cars that people wanted to drive; no amount of government intervention would have prevented that.

Sadly, Toyota was left out on a limb; it couldn’t survive as the only manufacturer in Australia. It was well known that the big six cars weren’t selling to private buyers. The big sixes were mainly being sold to fleet buyers and salesmen. In any event, those companies will still be selling cars in Australia, they just won’t be manufacturing here.

Porter puts up a good argument for government assistance for the car industry. Kim Carr’s attempt to impose an industry policy on the car industry hit on inconvenient snag – it is hard to impose an industry policy on multinational corporations that are answerable, intimately, to shareholders who want to maximise profits and minimise tax. As Porter says, Australia accounts for only around 1 per cent of world auto sales. Australia didn’t fit in to the multinationals’ game plan.

If we are going to have a viable car industry – and we can – it must be one that can live without tariffs. And we can’t sustain an industry producing tens of thousands of cars by ourselves.

Several models exist that we could apply to the Australian car industry. Probably the best is a variation on the Mondragon cooperative model in Spain’s Basque region.

Mondragon was founded by  Catholic priest Father Jose Maria Arizmendiarrieta to work in harmony with Catholic social teaching. Mondragon is a federation of worker cooperatives, with four main areas of activity – retail, industry, finance and knowledge – employing some 75,000 workers. Mondragon is Spain’s 10th largest company by turnover.

The cooperative operates as an integrated supplier to major automotive manufacturers, including designing and manufacturing complete assemblies. Australia could build on its design expertise to plug into the global car manufacturing industry. As Porter points out, Australia is one of the small number of countries capable of designing and building vehicles from the ground up. Such an enterprise would require some seed money.

The hazards of an industry outgrowing its home market have been demonstrated by the troubles of Sweden’s two major carmakers, Volvo and Saab. Sweden is a small country, with about a third of the population of Australia. When the international car market collapsed during the global financial crisis, both Saab and Volvo sought larger partners to rescue them. It didn’t work. Showing the advantages of sticking to their knitting, Volvo and Scania remain specialist heavy truck makers. They are thriving. Size isn’t necessarily a bar to success in the automotive industry.

Closer to home, the Bushmaster protected mobility vehicle is built in Bendigo, north of Melbourne. The Bushmaster has been highly effective in operation in Afghanistan and other theatres where improvised explosive devices, ballistic rounds and mines can wreak havoc on soft targets. The Bushmaster has saved dozens of lives.

The Bushmaster was designed, developed and manufactured in Australia. It’s our only indigenous armoured vehicle. The Bushmaster is produced by Thales Australia, an offshoot of the French defence giant. The Australian Defence Force placed a billion-dollar order with Thales Australia recently for 1,100 “baby Bushmasters”.

One could not discuss specialist car production without mentioning Italian manufacturers like Maserati and Lamborghini. These cars are super luxury, in sports and style. Maserati and Lamborghini are craftsman-built and buyers must wait in line to take delivery of these precious objects. Yet even these luxurious cars do not always fly. The DeLorean, featured in the Back to the Future films, and built in a suburb of Belfast, was never a commercial success.

Porter’s account of the demise of the Big Three carmakers is not entirely persuasive. The industry always relied on tariff protection. True, if Minister for Trade “Black Jack” McEwen was handing out “protection all round”, things might have been different.

In the end, the government (of both varieties) ran out of patience; and so did the multinational carmakers, for which their Australian factories were branch operations far, far away from Detroit. The carmakers were caught with the wrong models for the market.

As for Kim Carr’s socialist “plan”, you can’t force anyone to buy something he doesn’t want, unless you live in North Korea.

Australia lost its car industry due to commercial misjudgement. The carmakers were producing big cars that the public no longer wanted. But the government could not dictate commercial policy to the carmakers. John Button tried and failed.

But we still have design and engineering capabilities that are valued internationally. The car industry isn’t entirely lost; it’s just different.


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