General Motors Holden (GMH) has delivered a simple message to the new Coalition Government: commit to subsidising the Australian car industry within two months or we will follow Ford in ceasing production in Australia. From the AFR:
Holden had promised it would keep its Adelaide manufacturing operations until 2022 under a $275 million “co-investment” negotiated by the Gillard and South Australian Labor governments that would see it develop two new vehicles after 2015.
But the US-owned company now argues the circumstances have changed and the new Coalition government has yet to commit to any specific arrangements for the industry beyond 2015 other than to promise a Productivity Commission review into car industry subsidies.
If Holden is to stay until 2022 under the deal with Labor, it needs to begin preparations straight after Christmas.
If it has no firm commitment from the Coalition within a couple of months, it will follow Ford Australia and announce it is leaving.
If Holden pulls the pin on local operations, chances are that Toyota will follow suit, ending car production in Australia. While Ford and Holden’s exit could boost boost demand for Toyota’s locally produced Camry and its derivatives, more importantly it would make Australia’s car component makers unviable due to lack of scale, likely killing-off all local automotive-related production and threatening around 50,000 manufacturing jobs nationally.
While Tony Abbott talked tough on car assistance in the lead-up to the Federal Election, chances are that he will follow his predecessors and support the industry now that he is Prime Minister. Like it or not, the car industry is still too big to be euthanized, particularly as Australia’s job market is likely to come under intense pressure as the mining investment boom unwinds. It’s a classic catch-22 situation for the new Government.
As noted earlier this year by Paul Wallbank:
Over capacity has been the curse of the automobile industry for decades as governments have propped out producers around the world.
KPMG’s 2012 Global Automotive Survey forecast the global industry would be 20 to 30 percent over capacity in 2016.
This doesn’t seem to worry industry executives or their government supporters, as KPMG reported: “Alarmingly, most auto executives still seem to regard the risk of overcapacity and excess production as a necessary evil to remain competitive. As the rapid growth of recent years eventually slows down, manufacturers that fail to address overcapacity could face some tough decisions”…
Many governments though are still in denial as they continue to subsidise motor manufacturers in an effort to copy the industry model that worked for the US Midwest during the 1950s.
Therefore, assuming the Government does agree to continue subsidising the local car industry, keeping it going for a few more years, we are very likely to return to this position down the track, with the taxpayer again being called upon for support. And the Government will once again play hard ball for a while, before capitulating for risk of being seen to have caused the loss of many thousands of jobs.
