November 18th 2017

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Articles from this issue:

COVER STORY Full audit can end dual-citizenship fiasco

CANBERRA OBSERVED High Court high handed to 'foreigners' in Parliament

MANUFACTURING Auto industry loss result of government policy failure

AGENDA FOR AUSTRALIA Financing infrastructure for development and jobs

FOREIGN AFFAIRS Behind the indictments of ex-Trump campaigners

AUSTRALIAN HISTORY Beersheba charge enabled a pivotal victory

ECONOMICS China intends to party like it's 1949 ... again

ENVIRONMENT Core of climate science is in the real-world data

U.S. HISTORY Why Americans stick to their guns

MUSIC New styles: Dipping into the melting pot

CINEMA Loving Vincent: A mystery in oils

BOOK REVIEW Just what is the conservative idea?


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Auto industry loss result of government policy failure

by Craig Milne

News Weekly, November 18, 2017

The closure of Holden’s Elizabeth plant on October 20, 2017, ended automotive mass production in Australia for the foreseeable future. This date marks one of the blackest days in the nation’s industrial history and the flow-on effects of this closure will entail the loss of up to 50,000 jobs and the businesses that provided them.

Governments will offer the usual assistance and adjustment packages that have punctuated the stages of Australian de-industrialisation, delivered with the standard diversions about retraining, innovation, new opportunities and the like that politicians and bureaucrats talk about. These will come to nothing, as in every previous instance of industrial destruction visited on the nation by the governing class.

Australians buy about 1,200,000 new motor vehicles a year, a market large enough, on conventional production technologies, to support one or two internationally competitive manufacturers. Australians who care for the nation’s technical and economic prospects are entitled to ask, given that we had an industry, how it came to be lost.

Australia entered the automotive age with great promise. The first locally produced cars appeared in the 1890s and the best of the early Australian manufacturers, Harley Tarrant, built complete cars of exceptional technical quality and craftsmanship, the equal of anything produced in Europe at the time.

Although early attempts at producing motorcars in large numbers, like Frederick Gordon’s Australian Six project, failed, automotive body building had been successfully established by the early 1920s. In 1927, its best year as an Australian firm, Holden Motor Body Builders (HMBB), founded in Adelaide in 1855 by a leather worker from Staffordshire, employed 3100 workers and efficiently produced 46,952 high-quality car bodies. It was then the largest automotive body building business outside of North America.

In the normal course of events, HMBB could have gone on to produce complete motor vehicles, but the company had fallen on hard times during the Great Depression. It was purchased by its principal customer, General Motors, in 1931. Ford had already established an assembly plant in Geelong in 1925.

The major productivity problem standing in the way of complete vehicle mass production in Australia was the absence of any local interchangeable parts manufacturing facility. This capability issue was not resolved until well into the 1930s, by which time, to the detriment of any aspiring Australian producers, Ford and General Motors had secured the dominant positions in the local industry.

American dominance was not just an Australian problem; it was a feature of the global industry at that time. Americans produced cars on a scale of operations that dwarfed those of everybody else. Governments in Europe and Japan, mindful of the strategic importance of automotive manufacturing, forced American companies to the margins of their domestic markets by establishing and assisting national firms to drive their industries forward.

Australia should have gone the same way. Instead, successive Australian governments bungled the opportunity. A fatal error was made at the end of World War II when General Motors was given the task of bringing automotive mass production to Australia. This mistake doomed the Australian automotive industry to under-performance from the beginning.

Foreign ownership and control of the Australian industry was the major factor contributing to its poor performance. It stymied the development of any independent marketing strategy for exploiting domestic and export opportunities. It narrowed the scope of local production by the practice of filling out product ranges with imports. It distorted local product and process-development pathways through principal agent conflicts, and it frustrated the best attempts by Australian managers to develop the products and market opportunities that the industry needed for its growth and natural development.

Despite the fatal flaw in its founding constitution, Australian automotive manufacturing thrived for a while. In 1957 the Australian industry produced more than four times the number of cars made in Japan that year and accounted for 2.4 per cent of global car production.

Although tariffs had not been an initial industry requirement, the arrival of the Japanese, protected by a suite of mercantilist policies, changed the dynamics of the market. Australian producers came to depend on tariffs and quotas for their survival and the subsequent push for trade liberalisation sounded the death knell of the industry.

The foreign owners now had little interest in maintaining local manufacturing operations. By 2012 Australia’s share of world output was down by 90 per cent, to just 0.25 per cent, and between 2000 and 2012 Australia slumped from 19th to 29th place in world automotive production.

Treasurer Joe Hockey’s foolish ultimatum, that Holden either accept the bribe on offer or go, gave General Motors the pretext to leave that it had wanted for years. Toyota (the best producer) would have stayed on but the American company’s decision undercut the viability of its supplier base.

We did not need to lose this industry. Had Australian governments followed similar policies to the Europeans, Japanese or Koreans, we could easily have had a world-famous brand by now, producing a million or more annual units, employing 250,000 people, adding 1.5–2 per cent to gross domestic product, and supporting a technically advanced manufacturing sector.

The politicians and bureaucrats, through their sloth and ineptitude, have imposed a humiliating loss of national capability on us. Shame on them.

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