The extinction of Australian manufacturing


Here is the what today’s capex data says about the prospects for Australian manufacturing:


The red dot and line is the investment prospect for 2014/15 and it includes an uplift from a decent realisation ratio. It is at 1992 depths of the recession levels and that’s in unadjusted dollar terms. In real terms it is far lower.

I know I poke the media quite a bit for ineptitude, but the silence around this is staggering.

Houses and Holes
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  1. They simply don’t care. They’re all totally convinced we don’t need a manufacturing sector, even the more sensible commentators.

    • No one wants manufacturing to die but realities of competitive globalisation and open economies are becoming apparent.

      This presents a challenge (and an honesty) most seem reluctant to address.

      • competitive globalisation and open economies are becoming apparent

        That’s ludicrous, China have peg, Malaysia have a peg. What you are effectively suggesting is the ultimate Ricardian fate where because of isolation, small population, and access to worldwide markets we really can’t do anything competitively except you’re favourite — and even that , look at Roy Hill how long will be that be competitive @WTI USD150?

      • lets have another apparent reality from the global economy……

        The reality is that we know that mining will pay for us on average about once every thirty years, maybe for 3 years if we are lucky.

        We have just had our once in a century mining boom, and you are an apologist for structuring our economy around mining and little else.

        There has got to be something else. Services is invariably a fly by night proposition, tourism likewise, agriculture would be a goer, but may not be enough……..ultimately some form of technology/manufacturing/R&D has to come to the party. Delaying recognition of that behind febrile assertions about global market realities just delays us doing something about it – which ultimately I assume is what you are on about (because that may impose some higher costs on the mining lobby and their Australian operations – this will certainly occur at some point but I assume you are on about contributing to delaying that until the better parts of the boom are well past).

        On the upside I would note that I cant recall you having descended into real estate spruiking. Keep up the good work.

    • Do not worry! We just need to re-double our effort to accelerate the rate at which we flip real estates to each other. The rest will take care of itself.

      It’s all good.

  2. reusachtigeMEMBER

    HnH, seriously? No one cares, we’ve got houses and burgers to flip! Get with the program (like, no offence).

  3. You want a response from the current people in charge?
    Can I have some of the drugs you had this morning, got any spare? my home-brew beer doesn’t seem strong enough nowadays.

    They want all manufacturing to die.

  4. ‘It is at 1992 depths of the recession levels and that’s in unadjusted dollar terms. In real terms it is far lower.’

    That should have been BOLD CAPS. Holy cow. Potentially 60% lower in real terms?

    • Yes, but at the moment it is different to the 1992 recession. Back then the housing bubble from a couple of years earlier had popped. But the housing bubble of the late 80s was different to now. In the cheaper areas prices barely moved. It was the more expensive suburbs that were in bubble territory but even then, the bubble was nowhere near as big (in relative terms) as it is now.

      Back then many people lost their jobs, businesses and homes. But now, as people are losing their jobs, there are more immigrants and foreign investors to take their place in the housing market, and they’re the ones the government cares about. We didn’t have unrestricted foreign investment back then. Half of all apartments in a block had to be sold to Australians. Strict rules were in place. Now it is a free-for-all so while property prices are still booming, it’s easy to overlook the increasing joblessness. Of course, we are in the early days. Many of the jobs being lost will still be going for another couple of years. Th depths of this recession-to-come won’t impact here until there are a lot more people without an actual job to go to.

  5. Of our ‘manufacturing’ how much is producing for housing?
    I don’t have a clue and i wonder if anyone does? My reason for asking is that if much of it is centred around ‘housing’ and even infrastructure, that is bassed solely on an expanding population through immigration, then we really have a bigger problem than even we here imagine.

    • Certainly some.

      Near me there’s Olex (housing and infrastructure!), CSR and Dulux, and you could make a case for GUD having exposure via Sunbeam.

      Of course, those that don’t have exposure to often have exposure to mining, including those mentioned above.

      • Stat
        Maybe I’ve gone down this particular racbbit warren one step too far. I was thinking in terms of manufacturing being for either export or import replacement purposes. As such manufacturing for mining is at least for production although given the precipice so often outlined by HnH one would have to worry about the future. Import replacement has a place and is competitive (sort of!)
        However manufacturing say roof trusses or roof tiles for houses is simply manufacturing that is able to tap into the overall cost srtucture of the economy? It’s nearly a non-tradable. Is that all we have left outside of some food processing?

        As I say maybe I’m lost in the convolutions! Just thinkin!

    • Not much. All white and brown goods with a few exceptions will be imported along with much of the furniture. The housing sector is a big non productive black hole. You observation is correct.

      • interested party

        “The housing sector is a big non productive black hole.”
        But the underlying issue( read truth) is that the game( housing/re) has been very profitable for quite a while for many, and they are likely caught up in the euphoria of the easy money so cannot/will not see or accept any alternative outcome other than continuation.
        Sometime in the not too distant future one camp is going to be proven correct. Housing and the economy will crash……..or the game continues as is.
        Are we circling the drain, or is this a buy the dip?

    • I think you’re onto something Flawse.

      I’ve worked in Defence, Auto, Housing & privale related manufacturing – high volume & jobbing work.

      If my experiences count for anything……. Defence is close to dead – a lot of it offshored, Auto same or coming soon. Housing I’d proffer has slowed significantly & they’ll import where they can, & private engineering, if it’s not attached to a larger firm or local govt contract requiring services & equipment are doing it very tough & are as good as dead too – if not already.

      Many building types are moaning that their game has been way too quiet since the GFC to make the living they once were & finally getting around to the reno’s that they once scorned…….. (roughly 50% reduction in house builds where I live)

      The number of people the last few months particularly having a swipe about the cost of manufacturing & jobbing work has been noticeably higher (Coincident with MSM bashing us?) When I retort with the reality of manufacturing types leaving to pump petrol & stack shelves for a significant payrise they just go quiet, it’s about the only thing I’ve found that gets their attention for a microsecond!

      I’d really like to see a break up of some stats too……..

      • When I retort with the reality of manufacturing types leaving to pump petrol & stack shelves for a significant payrise they just go quiet

        Yes, I always found it remarkable when I was in manufacturing how easy people seemed to find locating better jobs with more money. Made me wonder why anyone stayed at all.

      • For me – Passion! I’ve proved good at it & it’s all I know, it’s ‘in my bones’!

        Some of us are better at getting the best out of machines rather than out of demanding erratic humans too……….. & feel too old to retrain.

        In saying that if our latest venture doesn’t work out, I don’t see any alternative but to hang up my boots on it too! Pretty punch drunk as it stands!

  6. This is the inevitable outcome of globalization. Expecting our media to take note and to actually make a difference is ignoring reality…….what the hell can they do about it? What you should be noting is the lack of forward thinking by our elected leaders when we took it upon ourselves to walk the globalization path. This was foreseeable. Capital and labour will be utilized where the most benefit is derived, and we are a high cost country…so.. we will naturally be gutted. How to fix the problem? Close the borders and manufacture what we need here in Aust. Never going to happen, so we just have to suck it up.

    • Good point about it being profitable. Vested interests rule along with short term perspective. Its only good until its not and that may happen more quickly than people imagine.

      I have an insight into what countries like South Korea, Germany, etc, do re. technology planning. We just ponce around with something called ‘innovation’ hoping something comes along. While we do that they have out positioned us.

    • +1 IP

      and I would add – a wilful disregard, on the part of all levels of politics and across the entire party spectrum, for the consequences flowing from ‘policies’ adopted……….we have become a lazy, complacent nation with an overweening sense of entitlement to the ‘good life’ that in our arrogance we think we have earned

      that these attitudes persist in the face of overwhelming evidence of the need for drastic re-evaluation of policies and expectations is truly depressing

      for myself – I took my investible funds to the US where my assessment is I can make very good returns, despite all the many criticisms I can and do make of their systems

  7. Sooner or later Australian’s will realize that a vibrant economy requires more than just Houses, Holes and Latte’s. Not sure there will be anyone around, at the time, with the skill set to make a difference, so @#$% it lets put that one in the too-hard basket and get on with what we know.

    • interested party

      Mate, if the penny hasn’t dropped by now then the masses will never get it. Less jobs and workers = more couch sitters and reality TV = an increasing free shit army…..where it ends???

      • The penny hasn’t dropped. Wanton denial is being fervently massaged at every possible turn & we’re not moving, or allowed to move to the next stage.

  8. either we have to operate low skilled high cost labour jobs locally and support them somehow which doesn’t seem sustainable or we need to import low cost labour and move local jobs higher up the productivity curve. If we do the latter Australian manufacturing will be world class but have we got the guts/vision??

    • No sign of that emerging. Our glorious leaders seem to be embracing the US model so a that few percent get wealthy while everyone else is impoverished.

      I don’t think they have the capacity to grasp the sort of technology planning that countries like South Korea, Germany, etc, do.

  9. I dont believe its a case of ‘not caring’, more a case of giving up.
    The jobs going presently in manufacturing are the low-skilled, build-to-print-widget jobs, & maintenance jobs that we haven’t a chance of retaining in this global environment.
    The unspoken belief is we simply cant compete against the likes of our Chinese competitors. And we cant, not at our present productivity levels. Hell, even if the AUDUSD did crater to, say, 0.50, we’d STILL be uncompetitive.

    As an aside, the highly-skilled, engineering & design jobs in both Ford & GMH are largely retained (No mention of that in the media, just doesnt fit the narrative, I guess).

    So, if we really do want the ‘widget’ jobs, productivity has to lift in a massive way, along with a fall in the AUD. But, do we want the widget-making jobs?

      • Ah yea, have you looked at the (small) number of engineers graduating from Aussie universities. Now for a real shock check into their nationalities.

        I’ll let you in on another secret, most Engineering and Industrial design for that matter, is done in support of Manufacturing, no manufacturing equals no support. Creating / realizing marvelous new ideas and products is really a tiny niche sector, especially compared with Engineering effort expended to enable the globally efficient production of any product.

      • Can we have an economy where everyone is an engineer or designer?

        Within a couple of decades, there’s sure as hell not going to be any jobs involving manual labour (at least not for people).

        And probably not long after that, most of the “engineering” jobs will be gone as well.

        The robotics revolution is going to roll over society like a tidal wave, and if you ain’t already on the high ground, your chances of survival are grim.

      • Within a couple of decades, there’s sure as hell not going to be any jobs involving manual labour (at least not for people).

        The robotics revolution is going to roll over society like a tidal wave, and if you ain’t already on the high ground, your chances of survival are grim.

        But where does that lead to?

        If there are no workers to buy the output, what is the point of factories?

        A re-emergence of Luddites?

      • But where does that lead to?

        A handful of people living in complete luxury and the rest in bare survival ?

        If there are no workers to buy the output, what is the point of factories?

        Nothing ?

        Making weapons so the masses have something to do fighting each other ?

    • F7 Can I ask what productivity means to you?

      Every place I’ve ever worked has been on an eternal productivity drive to lower inputs, find the most efficient, streamlined cost effective way of doing things while maintaining quality, & mostly we still can’t compete. The workers are just as cost conscious as the bosses & look to streamline too, they know their jobs & any potential pay rise (dangled, very rarely delivered) is up to them!

      I’ve worked OS & can say that on a technical level we are as good as the old world countries from a production perspective, & a lot of them are under siege as well. Perhaps with the exception of some big players who have an advantage of scale, branding, location or niche, & Germany who hasn’t played the housing ponzi game!!

      So where can we improve? It’s a genuine preponderance for the whole country, not a throw away line!

      If we really want the ‘widget jobs’ the whole country probably needs a reset which some on MB might cheer on! Or do we revisit tariffs, subsidies & other subtle protection rackets that other countries employ?

    • F7,

      Design capability left after manufacturing departs will be a rump. Toyota would be the first to explain the importance of locating designers near to production to ensure they understand how what they design will be made.
      They would also stress that the most important design in their organisation is how their manufacturing process is designed – the industrial engineering that goes into that is their most important asset, and their industrial engineering function is vitally important to their organisation (along with the supply chain). That expertise leaves Oz with the last Toyota export.

  10. So we are effectively off on a grand experiment to see if a modern western society can prosper without a significant manufacturing sector?

    • Jimbo above points to that on a capex front.

      Anecdotally I might have thought it to be much worse! All I can say is it’s becoming harder & harder to find services & suppliers to even help us get our work done & we’re now forced to look outside Oz too!

      Not uncommon to order something 1500klm away with a 6 week lead time allowing for transport. It’s also getting to the stage where everyone knows everyone else in the ever shrinking room – they are forced to network more just to get their thing done.

  11. rob barrattMEMBER

    I hear the unions at Qantas are now going to strike. As if Toyota wasn’t bad enough. I do wonder if there is some kind of discontinuity in the mindset here. Some refusal to understand cause and effect. When you see a person struggling in the water, hand them a brick.
    I’m no longer sure we’re in step with the rest of the planet when it comes to work.