Can Local Automotive Manufacturing be Sustained?

11 Jan 12

The Federal and Victorian Governments along with Ford have announced a $103 million investment package to keep local Ford production till 2016.

Whilst the announcement is pleasing in that it secures 3,500 jobs at Ford's Geelong and Broadmeadows plants, what happens beyond 2016 remains questionable given that the longer term viability of Australian automotive manufacturing has not been addressed by either Government or Ford, and for that matter Holden.

Meetings in Detroit between Manufacturing Minister Kim Carr and South Australia Premier Jay Weatherill are yet to determine the future of Holden's local manufacturing, with General Motors announcing that the closure of Holden's local manufacturing operations was an option being considered. It is reported that the State and Federal Government's are likely to pay a substantial amount to keep Holden's manufacturing base in Australia, but for how long can this be sustained?

Holden's chairman Mike Devereux has stated that "there isn't a country in the world that actually has an auto industry, an integrated auto industry, that can design, build and sell a car from scratch that doesn't have one of two things, either large tariff barriers to entry for imports or government/company co-investment, countries like Russia, India and China have 40-50 per cent import tariffs."

It stands to reason that without tariff protection Australia's automotive manufacturers require Government assistance, particularly as Australian automotive manufacturers, apart from the locally built Holden Cruze, are producing large vehicles that are rapidly loosing their popularity to smaller, more economical imported models.

In the longer term, it is critical that both Holden and Ford secure export markets similar to Toyota, to achieve better economies of scale, however in the face of a high Australian dollar this would seem unlikely. What is most likely key to the longer term future of the local automotive industry (if there is one) is innovation in the models produced, both from a technological point of view and an economical point of view, however this would require further large investment in what is a small market by global standards.

There is no simple answer to the long term viability of the local automotive manufacturing sector, that faces the headwinds of dwindling demand for large cars and increased import competition, particularly in the face of a strong Australian dollar. At present 18 per cent of cars sold in Australia are manufactured in Thailand.

Whilst support for local automotive manufacture is sound given the millions in foreign investment that it attracts and the fact that the industry directly and indirectly is a substantial employer of Australian workers, it is difficult not to draw the conclusion that without a sound long term strategic plan by both the automotive manufacturers and governments, that current measures are short-term band-aids.