The Australian Automotive Industry Economics Essay

It all began in 1897 where Harry A. Tarrant of Melbourne produced the first petrol powered car in Australia. This manufacturing by Harry A. Tarrant opened up the gates in the Automobile industry for Australia and in 1903 the Australian Motoring Association was formed to protect the rights and interests of motorists across Australia. However at this stage in time the automobile industry was still relatively tamed as it was expensive to produce cars and it wasn’t until American Henry Ford established a revolutionary production assembly line which was able to produce cars cheaper and more efficiently so that now the average household could purchase a car.

As the U.S and other nations began to see Australia as a potential market due to the large geographical size and dependence on transport, a flood of cars was imported into Australia. In 1917 there were 15,000 cars imported, this consisted of 10,000 Ford model T, 2,300 Dodges, 1500 Buicks and 1200 others (Technology in Australia 1788 – 1988, n.d.).

The Australian government saw huge potential for job creation and skill retention in the automotive industry and therefore because of the large influx of imported cars the Australian government imposed customs duty and tariffs on imported cars to encourage local manufacturing. In 1924 records show that there were 102 different types of cars of which 40% originated from United Kingdom, 10% Europe and 50% from North America. In 1920-21 there was one vehicle to every fifty people but by 1929-30 there was one vehicle between 11 people (Technology in Australia 1788 – 1988, n.d.).

The success of the government’s policy of imposing a tax was shown through the production of cars in Australia which went from a few thousand in 1918 to around 90,000 in 1926-27. This was due to firms starting their own production plants such as GM-Holden and Ford.

Ford Australia was established in Geelong 1925. This was one of the first and major car production plants in Australia and focused on producing the iconic Ford Model T. Many Australian farming communities were sceptical at first using cars for work duties as they did not cope well with the rough terrain and farm lifestyle.

Therefore in 1934 Ford Geelong produced the world’s first utility vehicle. This design was monumental for the automotive industry and also the economy as the utility vehicle began to be heavily exported to overseas nations. Short years later in 1926-27 more companies decided to invest in Australia such as GM-Holden, Chrysler, Volkswagen and the British Motor Corporation which they all installed presses and began manufacturing.

Soon came the Second World War and  vehicle manufacturers were forced by the government to produce a range of defence needs, from sea grenades, landing craft, aircraft back up fuel tanks, to armoured attacking vehicles. This had a negative impact onto not only the automobile industry but the economy as well. Post war the Australian automobile industry invited motor companies to manufacture in Australia at a high level of local content (90%) in return for quota and tariff protection (Technology in Australia 1788 – 1988, n.d.). To retain the skills of people developed in the war and to increase jobs.

Through negotiations with GM Holden and Holden Australia the first ‘Australian’ Holden was manufactured in 1948. Holden Australia now had a permit to mass produce in its home nation and quickly set up large assembly lines. The Holden car had a major impact onto the Automotive Industry as it set its prices a lot lower than its competitors forcing competitors to produce efficient and better cars for the consumer, but also Holden was widely accepted around the world and this increased the exports dramatically in the Australian Automobile Industry.

From then on the Automobile industry boomed in Australia due to the rapidly rising population and incomes. New registrations of passenger vehicles averaged at 74,000 in 1950 increasing to 160,000 in 1955-7 and 302,000 in 1962-64 (Technology in Australia 1788 – 1988, n.d.).

Assistance provided by the Australian Government for the automotive industry

Over the years, the Australian Government has protected the Australian Automobile Industry in many ways such as minimum level of local content requirement, import quotas and tariffs on foreign vehicles (Australian Bureau of Statistics 2005). This help to build up the local automobile manufacturing industry over the year as limits competition from external forces. However, these over protection has failed in helping the industry grow healthily as it is ineffective in making the industry competitive against the foreign market which is large and strong. Therefore, the assistances provided by the Australian government have slowly been decreased to help the local industry adapt to the competitiveness of the global market. Import quotas were cut down to 20% in 1984 and completely terminated in 1988. Tariffs which used to be as high as 57% in 1984 were also slowly decreased by 2.5% per annum starting 1990 until it reached 15% in 2000. The tariffs rate continues to drop from 15% to 10% in 2005 then to 5% in 2010 (Australian Bureau of Statistics 2005). Currently, the tariffs rate maintains at 5% and there are also 0% tariffs on automobile imports from certain country like Thailand due to the Free Trade Agreement (Nuguid 2012).

Imposing high trade barriers for foreign manufacturer has provided the local automobile industry with comfortable protections which makes it uncompetitive in the global market as they rely too much on the government. That is the reason why the government has slowly been cutting down the quotas and tariffs to keep the local automotive manufacturer remain competitive and at the same time, attracting foreign investments. Despite that, the government stills provide assistant to the local manufacturer in one way or the other (such as budgetary assistance), to give them an upper hand in the market and providing them space to grow strong for the global market.

One of the newest assistance given by the government is the implementation of “A New Car Plan for a Greener Future” plan (Government initiatives and assistance n.d.). The objective of this plan to help the Australian car industry in the research and development sector to produce low carbon emitting vehicles which will also fortify the local supply chain and increase foreign investments. The Australian Government had prepared to invest a total of $5.4 billion dollar in this plan.

Other than that, there also exists some indirect assistance for the local automotive industry such as government purchasing preferences and prohibitive tariff on second-hand vehicles (Current assistance to the industry n.d.).

The reason Australia should produce its own automobiles

Australia definitely should produce its own automobiles because the industry has helped improve the country’s economy, maintain an optimum employment rate, and boost technology and innovation improvements (Australian Automotive Industry n.d.).

The Australian Automobile industry has a great impact unto the country’s economy has it enable the government to gain more income through taxation unto these automobiles such as tariffs duty, stamp duty, luxury car tax etc. It also helps to convert other commodities such steel and electronics into value-added products and export them to the world. In 2011, $3.3 billion were generated from the export of motor vehicle ($1.7 billion) and automotive components ($1.6 billion) throughout the world (About the Automotive Industry n.d.).

With over 100,000 businesses over the various sector of manufacturing, logistics, retailing and servicing, the industry provide employment to about 400,000 people in the nation (Australian Automotive Industry n.d.) with 55,000 people, in the manufacturing sector alone (About the Automotive Industry n.d.). The skills needed in automobile industry has helped produced sophisticated workforce out of the Australian workers through education and training. As a lot of researches are needed to make improvement in the vehicles, intensive efforts has been put forward which at the same time benefits the whole economy as the innovation produced help improve other sector of the country such as heavy engineering, aerospace and marine (About the Automotive Industry n.d.). The research and development done has helped Australian maintain as an innovative country.

The reason Australia should not produce its own automobiles

Australia’s automobile industry has forever been under protecting from the Australian government, this is the reason why it still exists today. For this reason is why Australia should not produce its own automobiles. This assistance which the government gives to this industry could be distributed elsewhere within the Australian economy. Through the ‘A New Car Plan for a Greener Future’ scheme (Government initiatives and assistance n.d.) the government will be laying out $5.4 billion dollars’ worth of assistance. This plan was initiated in 2011, with great anticipation, now a year later Ford has come out to announce it will cut down its workforce and production as the firm tries to cope with the pressures of declining large-car sales and rising Australian Dollar (Davidson 2012). Ford stated that this was due to an accumulation of 40 years of automotive policy failures (Davidson 2012). This statement expresses how it has not just been the recent times of hardship which has resulted in these cuts, but many years of poor policy choices. Ford being one of the biggest manufacturers in the automotive industry in Australia, the result of them relocating there factories would be detrimental to the industry and possibly the end for it. The fact that Ford has cut jobs and production, even after the governments push to boost the industry with the ‘New Car Plan for a Greener Future’ shows that it is not viable for Australia to continue to inject the industry with such plans as these (worth $5.4 billion dollars), when it is not bringing beneficial outcomes (Current assistance to the industry n.d.). This money could be used for sectors of the economy which are truly needed so that our country can become more productive. Education could benefit greatly from these funds, also helping us export this service which we are among the best at doing. Also earlier in the year Toyota cut 350 jobs from their Altona plant, this is another example of the problems our car industry is facing (Drill & Winslow 2012). The purpose of incentives and subsides is to keep businesses ultimately up and running, and not cut down in size or production. Though this is what we are continuing to see, meaning something is not right with these policies which continue to change and protect the industry. As The Economist, noted in 2011, that there is a surplus production of 30 million cars over the world (Danger Ahead 2011). From the 30 million units, it is unbelievable that Australia only builds as few as 250,000 vehicles per annum. During its peak years during the past decades, producing a maximum of 400,000 vehicles it still does not make Australia a “mass market manufacturer” in global terms. Only a manufacturer that builds over 500,000 vehicles per annum can be defined as a “mass market” car maker (Danger Ahead 2011).

Conclusion

Even though the Australian automotive industry may cost the Australia government a lot to maintain, it is crucial for our economy to survive and progress. Davidson (2012) said that, ‘In fact no country has ever become a developed industrial economy without an auto industry. Not even Switzerland. From Belgium, to the Netherlands, to China, the employment, skills and export potentialities associated with car production are enormous.’ This fact expresses the importance of maintaining this industry, also the jobs it creates indirectly linked with car manufacturing, such as logistics, and administration. The government should revise their plan and come up with a more strategic solution that will maintain this industry’s competitiveness and advantages while at the same time, does not deter foreign investors which also benefits the country.