Comment from Kim Carr - Auto industry woes

[Brazen]

Hi, interesting comments from Kim Carr. I have made this its own thread as I think we need to participate in this national discussion regarding the auto industry.


http://www.goauto.com.au/mellor/mell...257B48001CBE9B

Global threats to Australian auto industry do not mean we stand down, says Kim Carr
9 April 2013
By KIM CARR (COMMENT)
GIVEN the state of the Australian dollar, further lay-offs in the auto industry are, unfortunately, inevitable.

The industry needs to reshape and buffer itself against the highest dollar since 1983, and very high government subsidies in competing markets.

This does not mean that support for the industry is wasted.

Last week, Holden chose to disclose the funding it has received from government over the past 12 years. And it got the economics club’s pulse racing. Nothing gets them going more than auto investment.

I’ve yet to see the same arguments applied to wheat, or sheep, or resources – sectors which benefit far more from public funding than auto.

Let’s start with the claim that this is money poured on sand – a sop to some nostalgic rev-head dream.

The fact that a country with some of the highest terms of trade in the world can still make export-class cars is phenomenal. We are more than just a mine, and our skills run deep. It is all the more remarkable when we put Australia’s investments in context.

The best available estimate of the cost for Australians is about $US18 per person per annum, less than the cost of a footy ticket. For Germans, it’s $US90; and for Americans, it’s $US96 – based purely on the level of federal government support.

A more accurate figure would take into account the billion-dollar deals done at state level, which ramped up substantially in the aftermath of the global financial crisis.

Our auto tariff is 5 per cent – compared to 10 per cent in the EU, 25 per cent in China, and up to 100 per cent in India. And let’s not be naive about where this game is really played – in the arena of monetary policy.

The Japanese government, for one, makes no bones about it. Prime minister Shinzo Abe declared Japan is pursuing a course of “bold monetary easing”. Cabinet documents confirm that these “aggressive” settings are intended to “facilitate the expansion of Japanese businesses in overseas markets”. Put simply, Japan is driving the price of the yen and exports down.

And the Obama administration is aggressively encouraging auto manufacturers to come back to American shores – they call it “onshoring” – using a range of tariffs, incentives and subsidies far more generous than Australia maintains.

That ought to remind us of the sheer resilience and leanness of local auto firms.

The Labor government is proud of its investment in auto.

That attitude used to be bipartisan. But the Coalition has already pledged to cut support to the industry by $500 million; and has given no commitment beyond 2015. Leaks from Shadow Cabinet confirm the strong pressure for further cuts.

This is a capital-intensive industry. It relies on long-term investments underpinned by a clear and consistent message from the Opposition. If Abbott in opposition has been a threat to Australian cars, in government he could be fatal.

So I come to the final argument – the claim that auto has had its day.

Anyone who has walked into a car plant would know that the auto industry incubates vital skills and develops new infrastructure and technologies. It supplies the workers, the contracts and the innovations on which other manufacturing sectors rely.

Above all, it sustains the jobs that pay the mortgage and put the food on the table.

I defy any economist to tell me these are somehow unworthy concerns.

Today the Labor government is continuing to support vital technology development and product diversification within the sector. Work is being done to better integrate the local industry into global markets and attract new investment.

More can, and I trust will, be done to encourage state governments to buy locally.

This support for the industry continues through to 2018. That, at least, is the future Labor intends.

Australian industry leaders have said that 2013 could be the year Australia decides whether it wants a car industry or not. If Mr Abbott is successful we know what the answer will be.

Editor’s note: Senator Kim Carr was the federal industry and innovation minister from December 2007 to December 2011, and minister for manufacturing from December 2011 to March 2012.

Shadow minister for industry and innovation, Sophie Mirabella, has also been invited to contribute.

My take is if the Coalition forms government this year they need to hear from those who want continuing support for the auto industry.

Here is a page where you can give comment to Tony Abbott. I have contacted him asking for continuing and growing support for the auto industry. I then copied my message and sent it to Sophie Mirrabella. If many of us send a message it would at least give a counterpoint to the chorus of people who shout from the rooftops lamenting government assistance.

http://www.tonyabbott.com.au/ContactTony.aspx

http://www.sophiemirabella.com.au/Co...actSophie.aspx

[Road_Warrior]

'Support' needs to be more comprehensive and intelligent than simply 'throwing money at the problem' hoping it will go away. The ridiculous trade and FTA imbalance needs to be addressed, the Button Car Plan needs to be reviewed finally to ascertain whether it worked and whether the industry has gone too far over the edge, and finally, governments and parties of all persuasions need to put OUR national interest first in terms of our industry and not that of other countries. We have every right to make our own stuff and the people that make our stuff should be proud of the fact they can do this in such a hostile trade environment for local produce.

[Joe5619]

I guess the only good thing about Holden’s discussion about redundancies is it will come right around election time & I think this could become an election issue.

I also get a very very small feeling the tide is very slowing starting to turning from 'negative' feelings around government support for the car industry to 'positive' ones?

[FPV GTHO]

I think they should never have slashed the tariffs as much, but how can they reverse that now? The public will scream if 90% of the market jumps in price. Maybe they can remove the LCT from local sales or other high end taxes.

[mik]

Originally Posted by FPV GTHO

I think they should never have slashed the tariffs as much, but how can they reverse that now? The public will scream if 90% of the market jumps in price. Maybe they can remove the LCT from local sales or other high end taxes.

Very true , australia is going up against country's with an artificially low currency's'.
Basically we are getting the shaft, there has to be a happy medium in trading , we are a long way offf that.

[turbodewd]

If Europe's tariffs are 10%, then ours should be as well.

[MAD]

How much personal income tax, and company tax, did that investment of $2B get them?
Probably more than $2B over the same period of investment.

Most gov investment is then followed by further investment from "head office"

[Road_Warrior]

Originally Posted by MAD

How much personal income tax, and company tax, did that investment of $2B get them?
Probably more than $2B over the same period of investment.

Most gov investment is then followed by further investment from "head office"

Well, in the same 12 year period Holden received $2.1 billion in handouts, Holden spent $34 billion in parts and materials procurement, R&D, capital investment, wages and taxes, and operating expenses.

[Bossxr8]

Kim Carr brings up all the issues and then claims throwing money at the manufacturers is going to help. But in reality it does bugger all towards helping the manufacturers get around these issues, and make them competitive.

When is the government going to stand up and do something, our tariffs should match those of other countries, and maybe Australian made vehicles should be cheaper to register etc. Other countries have incentives to buy locally made cars, so should we.

[Jason[98.EL]]

Originally Posted by Bossxr8

Kim Carr brings up all the issues and then claims throwing money at the manufacturers is going to help. But in reality it does bugger all towards helping the manufacturers get around these issues, and make them competitive.

When is the government going to stand up and do something, our tariffs should match those of other countries, and maybe Australian made vehicles should be cheaper to register etc. Other countries have incentives to buy locally made cars, so should we.

so true something along the lines of say 25% rego discount for new purchases

And then sliding down to 10% in 5% drops each year and only for the original owner.

If you buy it second hand ( even in the first discount stages ) you get 10% off rego for the life of the car the follow up auto places like parts etc. need to be supported as well hence the ongoing discount.

Jason

[mik]

Originally Posted by Bossxr8

Kim Carr brings up all the issues and then claims throwing money at the manufacturers is going to help. But in reality it does bugger all towards helping the manufacturers get around these issues, and make them competitive.

When is the government going to stand up and do something, our tariffs should match those of other countries, and maybe Australian made vehicles should be cheaper to register etc. Other countries have incentives to buy locally made cars, so should we.

i have to say it has always looked to me that our string pullers for decades have been trying to give the industrial advantage to other country`s, after seeing the tube clip on the lima declaration 1975.
it still looks to me BossXR8 nothing has changed.

[MAD]

Originally Posted by Road_Warrior

Well, in the same 12 year period Holden received $2.1 billion in handouts, Holden spent $34 billion in parts and materials procurement, R&D, capital investment, wages and taxes, and operating expenses.

Exactly. The actual tax returns to the government, while not the $34B mentioned, are huge.
Well worth the investment. Let's see you get that return from an ING account...

And the other side of the coin... Imagine all those workers out of a job (7 per auto worker iirc), now all of a sudden the gov has not only lost an income stream, and now also needs to support those now unemployed. Where does that money come from? us. Do they get any return on it? no.

[Bucknaked]

He was our minister of our department until recently.

[jpd80]

would I be out of line suggesting that Australia would be one of Thailand's main markets?
Just thinking how many products come from there, products that seem to sell pretty well here...

[FPV GTHO]

Most of the light commercial market are Thai built, as is Fords small car lineup.

[Road_Warrior]

Originally Posted by jpd80

would I be out of line suggesting that Australia would be one of Thailand's main markets?
Just thinking how many products come from there, products that seem to sell pretty well here...

No you'd be pretty close. In fact I think one of the car media outlets (may have been GoAuto or Drive) did a piece on it and said something like the majority of new car sales - country of origin was Thailand.

[Nikked]

Originally Posted by Road_Warrior

No you'd be pretty close. In fact I think one of the car media outlets (may have been GoAuto or Drive) did a piece on it and said something like the majority of new car sales - country of origin was Thailand.

...the same country that takes advantage of our low/nil tariffs, yet slams our exports with prohibitive taxes.


Free trade maybe, Fare trade its not.

[tezxr8man]

Originally Posted by turbodewd

If Europe's tariffs are 10%, then ours should be as well.

Also if Thailand Has 28% tariff, we should too when it comes to their product, its not rocket science is it, at least have an even footing.

If 90% of the market goes up in price then so be it that means our product is that much more competitive and more attractive

[Road_Warrior]

Originally Posted by tezxr8man

Also if Thailand Has 28% tariff, we should too when it comes to their product, its not rocket science is it, at least have an even footing.

If 90% of the market goes up in price then so be it that means our product is that much more competitive and more attractive

It's 50% for vehicles with an engine capacity over 3 litres.

[ryeman]

An FTA with Thailand mean trade free of tariffs but I think they're getting the best of it.

[Road_Warrior]

Originally Posted by tezxr8man

Also if Thailand Has 28% tariff, we should too when it comes to their product, its not rocket science is it, at least have an even footing.

If 90% of the market goes up in price then so be it that means our product is that much more competitive and more attractive

It's 50% for vehicles with an engine capacity over 3 litres.

[XR Martin]

Originally Posted by FPV GTHO

Most of the light commercial market are Thai built, as is Fords small car lineup.

Most of Honda is too.

[aussie muscle]

Originally Posted by FPV GTHO

I think they should never have slashed the tariffs as much, but how can they reverse that now? The public will scream if 90% of the market jumps in price. Maybe they can remove the LCT from local sales or other high end taxes.

No we can't. We've signed agreements that prevent it. also the World Trade Organization will get involved to remove barriers in Trade.

Removing the LCT for locals would be a good idea. is a $60,000 car really a luxury car?

[Joe5619]

Originally Posted by ryeman

An FTA with Thailand mean trade free of tariffs but I think they're getting the best of it.

When does this FTA end? I.E. When is the next time Australia can agree to fairer terms??

[Joe5619]

Originally Posted by Road_Warrior

No you'd be pretty close. In fact I think one of the car media outlets (may have been GoAuto or Drive) did a piece on it and said something like the majority of new car sales - country of origin was Thailand.

The data is in the Tech area

http://www.fordforums.com.au/vbporta...articleid=1283


Thialand is 16% of new cars sold in 2012..

[XR Martin]

Last year, Imports from Thailand were $8.6billion, exports to Thailand were only $5.7b.
Goods vehicles (utes) and cars were $2.7b of that amount.

[BroadyFord]

According to the link below, Abbott would RETAIN funding for the auto sector past 2015 - a bit of a relief.

Don't know if it will be enough to save Ford but time will tell.

http://www.manmonthly.com.au/news/co...medium=twitter

[Road_Warrior]

A bit of context, by Remy Davison.

http://www.manmonthly.com.au/feature...pensive-compar

Holden’s announcement of job cuts on Monday demonstrates the dual impacts of the strong Australian dollar and import penetration upon the beleaguered domestic automotive industry.

400 jobs will go in Adelaide, with 100 in Victoria cut as well.

A myopic view of the industry is that it is merely about vehicles. However, local manufacturers Toyota, Ford, and Holden are only one part of a much broader automotive components manufacturing industry,

Holden has received $1.8 billion in industry assistance in the last 10 years. That works out at about $8.10 for every Australian man, woman and child, assuming a population of around 22 million.

An informal poll in The Age indicates that as many as 75% of readers are opposed to the maintenance of government subsidies and bail-outs to the industry. It’s clear that any parochialism or sentimental attachment to locally made cars is a relic of the distant past.

Yes, I am fully aware of ERP, the effective rate of protection, which is a complex multiplier based upon the direct and indirect flow-through costs of tariffs and other forms of protection for a given industry sector.

However, as Kim Carr noted recently, the industry, cumulatively, received subsidies amounting to less than $18 per person over the last decade. So it cost you, the long-suffering Australian taxpayer, the princely sum of $1.80 per annum to prevent the collapse of plants like Elizabeth, Fishermans Bend, Altona, Geelong and Broadmeadows.

But the flat-earth policies of the free-trade think tanks, who opine that subsidies should be removed at all costs, invariably have no solutions to the systematic deindustrialisation and large-scale unemployment their prescriptions will inevitably bring. (A solid counter-argument to this perspective is advanced by Kalfa and Gollan here.)

These “free-traders” ignore the deep asymmetries wrought by industrial subsidies that persist throughout the rest of the world economy. They propagate the Ricardian fallacy that whatever cannot be produced efficiently locally should be imported.

Imports, in this case, of subsidised cars.

You. Are. Subsidised.

Think this $18-per-capita car subsidy is too much? Think again.

You — yes, you — subsidise the banks to the tune of $763 per annum, plus all the fees and charges they generously impose upon you. Not quite the chunk of change ($83 billion) the US government affords its banks in subsidies, but still.

And the mining industry doesn’t have clean hands either. They get at least $4 billion per annum. Queensland alone spends $1.4 billion in subsidies.

Let’s be clear about this: virtually every industry in Australia is subsidised, directly or indirectly, via government hand-outs.

We’ll try a little quiz first. Tick any box that applies to you:

Your child care.

Your private (and public) health insurance.

Your wheat. (The Australian Wheat Board runs a single desk that avoids a genuinely free market in wheat export sales. And does deals with the late-lamented Saddam, occasionally.)

Your private schools.

Your universities.

Your accountant.

Your private-sector big law firm, which would require oxygen if starved of government contracts. A Victorian government-commissioned report (by Boston Consulting) notes that, “up until now the provision of legal services has largely been an unsupervised feeding trough for law firms.” (It’s now a supervised feeding trough.)

Your National Broadband Network. (My telecoms engineering friends are still giggling with delight at the mere thought of the NBN and have all ordered new 7-Series BMWs.)

Your first home.

Your nursing home.

Your negative gearing.

Your ABC.

My salary.

Your salary.

Your superannuation tax breaks.

Actors and the arts in general (don’t me get started; I’ll end up sounding like Jack Hibberd).

Corporate welfare.

Don’t kid yourself if you’re in business. Tax breaks infiltrate every part of the scaly Australian subsidy serpent. Virtually every business input is tax deductible. For example, that “company” car you drive around at weekends? The “home office” with a chunk of the domestic mortgage on it as a business expense? If you’re not doing this, then you’re paying far too much tax.

True, sectors like dairy have very low subsidies (the second-lowest in the world). But don’t make the mistake of thinking you didn’t pay for dairy industry rationalisation: you did.

From 1995, under the National Competition Policy (NCP), taxpayers funded billions in rationalisation across a range of industry sectors. One of the objectives of the NCP was to drive Queensland dairy farmers off the land, compensate them with a fistful of dollars, and hand the dairy industry over to Victorian dairy farmers, who then have their teats sucked dry as the supermarkets screw them on milk prices to the point of bankruptcy. Good to see the ACCC doing such a fine job regulating predatory behaviour.

Unless you have no children, live in a cave, avoid Weet-Bix, The Marriage of Figaro, and Dimboola, while consuming only dairy products, You. Are. Subsidised.

No guru. No method.

I am not in any sense defending the poor business decisions by the industry, or the incompetent government policy that has prevailed since John McEwan was Trade and Industry minister. Federal and state governments locked themselves permanently into a system of auto industry subsidies and protection from 1948. Whitlam slashed tariffs across the board, but delivered no industry plan. John Button rationalised the industry, but set Soviet-style production quotas and sought no innovation. Howard, Rudd and Gillard merely trod water.

The reason the industry failed to innovate behind high tariff walls was because it catered virtually exclusively for the domestic market for the first few decades of its existence. Governments were equally to blame as they did not attach conditionality to the complex system of tariffs and subsidies that could have compelled the industry to invest in new technologies or truly innovative products.

In the 1970s, Ralph Sarich’s noteworthy Orbital engine, while lauded, never took off. Sarich nevertheless developed new engine technologies, inking licensing agreements with GM and VW. Sarich ultimately transformed Oribtal into a billion-dollar company on the New York Stock Exchange. Orbital products are now utilised by one of China’s major auto firms.

Except that Sarich didn’t achieve this in Australia. He had to go offshore. No one was interested, even though Sarich was famously parochial. In 1989, the federal government offered him $16.5 million to keep Orbital in Australia. Too little, too late.
Real jobs or McJobs?

Manufacturing provides stable wages and working conditions across a range of industry sectors (some 2009 and 2011 statistics are here and here). It also employs around 1 million workers directly, contributes almost 10% of GDP, and accounts for around one third of exports. Male workers occupy approximately 75% of manufacturing jobs. Manufacturing careers are often long-lived; workers may be employed by, say, Holden or Ford for 20 or 30 years.

But when deindustrialisation hollows out manufacturing and downsizing occurs, the following problems emerge.

First, how do you retrain and redeploy workers aged 40–55 to compete effectively in alternative labour markets? Ageism is rife throughout the Australian jobs market. And retraining – even if it works – takes real time. And time is not on some workers’ sides.

Moreover, any retraining costs invariably fall upon government, meaning taxpayers are forced to shell out in any case. Not to mention the inevitable social security costs associated with the fallout from deindustrialisation.

Second, what industries will replace labour-intensive heavy industry in Geelong, Elizabeth and other manufacturing hubs throughout Australia?

Third, Australian manufacturing employment still dwarfs mining employment, although the gap has narrowed. Mining will not take up the slack, nor is it geared to absorb the existing automotive industry skills base.

Fourth, the auto components industry manufactures parts for imported (as well as local) products. However, they achieve scale economies largely through supplying the downstream car-makers, without which it is unlikely most small and medium auto components firms would be able to derive sufficient revenue streams in the absence of volume production for particular models (Falcon, Commodore, Camry). In other words, they need local volume in order to be serious about export-geared production.

Fifth, it is inefficient to waste the considerable investments, accumulated over decades, in the skills and training regimes embedded in the automotive, materials and production engineering sectors. Dumping this skills base makes no sense; adopting adaptation strategies for an existing industry is the logical path.

The industry’s problems are not entirely of their own making. The high Australian dollar exchange rate; the free-trade agreement with Thailand in 2007; weak world demand, combined with the economics of surplus capacity in the global automotive industry, where there are over 30 million units of surplus production, have all contributed to the downsizing of the industry. Essentially, the industry has become a victim of the law of diminishing returns: despite increased subsidies, jobs in the sector have decreased in rough correlation with outputs. In other words, neither jobs nor the industry will be saved via incremental productivity gains.
Roads to somewhere?

Perhaps we should look to Beijing for guidance. After all, that’s where virtually the entire federal cabinet is currently.

China is looking at subsidizing electric and hybrid cars (while filing a case against the EU in the WTO, designed, cleverly, to stop Europe from subsidizing high-value green technologies, while China plays protectionist catch-up).

The Germans are also looking at electric car subsidies. The Germans also subsidize their car industry to the tune of about $US95 per capita. A far cry from Australia’s $AUD18. Not quite the $US260 the Americans pay per head.

Neither the Chinese nor the Germans are stupid. They know their auto industries are strategically important to their economic present and future. I won’t regurgitate the arguments concerning the security of the industrial base, the skills base and the jobs base, as I canvassed them here in 2012.

Just five years ago, the Holden engine plant at Fishermans Bend, Victora, was scheduled for closure following the cessation of Family II engine production. However, new investment and government assistance ensured the plant’s survival as it was re-geared to produce the HF V6 Alloytec engine. But a lack of local and global demand has also compelled reductions in output at the Fishermans Bend plant, leading to this week’s job cuts.

Australia has first-rate engineers and builds world-quality suspension and braking systems, develops advanced composites and innovative alloy technologies.

Australia also builds second-rate cars. It has a third-rate managerial class and fourth-rate governments.

It has the knowledge and capabilities to develop world-class next-generation electric and hybrid technologies. Even if Australia specialises solely in the export of high value-added components to the global automotive industry, rather than building complete vehicles, this is the preferable road to travel, rather than the gradual unravelling of an entire industry that is one of the central components of the country’s manufacturing base.

Better a small multitude of Ralph Sarichs than a plethora of unwanted cars.

Remy Davison's Chair is funded by the EU Commission.

The Conversation

This article was originally published at The Conversation. Read the original article.

[Joe5619]

Originally Posted by XR6 Martin

Last year, Imports from Thailand were $8.6billion, exports to Thailand were only $5.7b.
Goods vehicles (utes) and cars were $2.7b of that amount.

what do we export to them that is worth 5.7b??

[XR Martin]

Gold, Oil, Copper, Aluminium are the top four exports to Thailand.