Ian Porter, a manufacturing analyst and a former business editor of The Age, has produced an worrying analysis of the potential impacts from the car assembly industry’s closure, which could ultimately result in up to 200,000 job losses:
Even though Ford is not scheduled to close its operation until 2016 and General Motors and Toyota in 2017, the chickens have started to come home to roost already.
The normal cycle in the car industry is three years for upgrades and six years for a complete new model. As neither of these are happening at the three local factories, designers and engineers are already being laid off…
But that’s the tip. The iceberg is still to come.
When all the car factories close, that will add about 12,500 people to the dole queue. Most of the parts suppliers will also close their plants, adding a further 33,000 people.
However, when you apply the six-to-one multiplier effect endorsed by the 2008 Bracks report on the car industry and the assistance provided… there will be between 150,000 and 200,000 people out of an automotive-related job.
The Department of Industry reckons there are around 930,000 people employed in manufacturing around the country. So if 200,000 automotive workers lose their jobs, that will represent more than 21 per cent of the entire manufacturing workforce…
It is going to be a body blow, not just to unemployment levels and welfare payments, but also to manufacturing output due to the loss of $29 billion in local value-adding. In addition, the trade deficit will expand because a further 150,000 vehicles will have to be imported to meet demand – and Australia will also lose the benefit of Toyota’s annual export of 90,000 vehicles to the Middle East.
Add to that the elimination of the car industry’s capital expenditures, which were running at a reduced $1 billion a year after the Global Financial Crisis…
Estimates of the employment impacts from the car industry’s closure vary.
Modelling by the Productivity Commission (PC) estimated that the closure of Australia’s car industry would cost up to 40,000 jobs, mostly in Victoria and South Australia. The PC’s findings were broadly similar to modelling undertaken in late 2013 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.
However, both studies were arguably overly optimistic, given they assumed that a high proportion of component manufacturers will move into exports and/or the after-sales parts market, which are already crowded and highly competitive. The PC also assumed that two thirds of the expected 40,000 retrenched auto workers will find another job – an assumption that seems fanciful given the lack of other manufacturing industries in Australia, the sheer size of the employment shock, and the overall weak labour market.
Irrespective, the impact of the car industry’s closure is likely to be large and could represent a king hit to the economy, particularly in South Australia and Victoria.
The timing is also particularly poor, since these job losses are set to coincide with the unwinding of the biggest mining investment boom in Australia’s history (and the loss of tens-of-thousands of mining-related jobs), along with the unwinding of the record dwelling construction boom.
With commodity prices sinking, and the Australian dollar following suit, Australia also faces the unfortunate prospect of importing Holdens, Toyotas and Fords at higher prices than could have been built locally given more favourable exchange rates. It also means that the Australian economy will not experience as bigger uplift, and rebalance as fast away from mining-led growth, as the Australian dollar devalues.
unconventionaleconomist@hotmail.com
