General Motors Holden has today warned that the Australian car industry could close earlier than expected if local component, which are critical to the supply chain, are denied access to industry assistance promised by the former Labor Government. From Fairfax’s Drive Magazine:
[Holden’s] managing director Gerry Dorizas delivered the bleak assessment on Tuesday, fearing underlying component suppliers – not car manufacturers – were most vulnerable without the additional $500 million worth of funding originally allocated by the Labor government under the Automotive Transformation Scheme.
“Suppliers have invested based on the ATS to break even. They needed this kind of subsidy and, at this particular time, they’re in dire straits,” Mr Dorizas said.
“This is the reason why we’re actually very focused on the supplier base, because if that happens then nobody will be able produce cars, especially for the parts that are specific to Australia”…
The government initially proposed the cuts when it delivered its controversial budget in May. The Labor Party, Greens, independents and Palmer United Palmer promised to block the ATS cuts in the Senate…
The Federation of Automotive Parts Manufacturers’ chief executive Richard Reilly said the proposed cuts could hit integral parts suppliers earlier than first thought…
The the three local automakers scheduled to close assembly operations by 2017, it would be seem fairly logical for the Government to pull funding from the Automotive Transformation Scheme as part of its Budget savings measures. After all, the industry is a lame duck, so why continue “wasting” taxpayer dollars when there is no long-term future?
However, if the car industry did follow through on its threat and close early, then it could cause the Coalition serious pain when it seeks re-election in mid-2006 (if not earlier).
Modelling by the Productivity Commission (PC) estimated that the closure of Australia’s car industry would cost up to 39,000 jobs, mostly in Victoria and South Australia. The PC’s findings were broadly similar to modelling undertaken late last year by the Allen Consulting Group, using economic analysis from Monash University, which estimated that the closure of the local car industry would cost around 33,000 jobs in Melbourne and around 6,600 jobs in Adelaide by 2018.
More broadly, the most worrying aspect of the car industry’s job losses is that they will likely coincide with the unwinding of the biggest mining investment boom in Australia’s history.
Earlier this year, NAB estimated that 100,000 jobs could be lost over the next 12-18 months as mining investment contracts from 8% of GDP currently to around 4%. However, if history is any guide (see next chart), mining investment will likely fall much further over subsequent years – possibly to around 2% of GDP (if not lower) – which would likely bring with it further job losses just as the car industry shutters.
These are the two employment cliffs facing the Australian economy, and are key reasons why I am so worried about Australia’s labour market.
