Calibrating the car industry job shock

By Leith van Onselen

Fairfax columnists, Jared Lynch and Mark Hawthorne, produced an excellent report over the weekend examining the Australian closure of the Australian car assembly industry, which will commence one year from now and could lead to the loss of 200,000 jobs. From The Canberra Times:

The shift from rhetoric to reality will come frighteningly soon for many observers.

Ford will stop making cars here in exactly one year. Holden and Toyota will go by 2017. A clear picture is emerging in the sector that many businesses… are too busy staying afloat to worry about the rocks ahead…

The Andrews’ Labor government in Victoria – where about 55 per cent of Australia’s automotive workers live – is concerned.

“There is a lack of sufficiently robust and detailed business planning towards transition occurring across the sector,” says the Victorian government’s submission to a Senate inquiry into the automotive industry.

“Industry consultation indicates that many businesses have not started planning for a transition into different sectors or new markets”…

…The Federation of Automotive Products Manufacturers estimates the automotive industry generates 6.5 jobs in associated supply and consumer industries for every one automotive job.

This is where were the job loss estimates from the closures of Ford, Holden and Toyota’s factories become murky because its calculations are based on how far and wide you go in the supply chain.

University of Adelaide researchers, Lance Worrall and John Spoehr​, estimate the closures will trigger a net loss of just under 200,000 jobs, with about $29 billion wiped off Australia’s gross domestic product…

The closure of the car industry is one of the three major employment shocks that will hit Australia by 2017 – the other two being the cratering of mining investment and the downturn of dwelling construction.

Estimates of the employment impacts from the car industry’s closure vary, but are nonetheless alarming.

On the rosy side sits the Productivity Commission (PC) and the Allen Consulting Group (ACG). The PC estimated that the car industry’s closure would cost up to 40,000 jobs, mostly in Victoria and South Australia, whereas ACG’s modelling, which used economic analysis from Monash University, estimated that the closure 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 assume that a high proportion of component manufacturers would move into exports and/or the after-sales parts market, which are already crowded and highly competitive.

On the pessimistic side sits the University of Adelaide researchers, Lance Worrall and John Spoehr​, cited above, who estimate that the car industry’s closure could cost up to 200,000 jobs once employment multipliers are added into the mix.

Irrespective, the impact of the car industry’s closure will be large and represent a king hit to the economy, particularly in South Australia and Victoria.

Manufacturing remains an important source of full-time jobs in both states, accounting for around 12% of total full-time employment in Victoria and 11% in South Australia (see below charts).

ScreenHunter_9807 Oct. 19 07.03 ScreenHunter_9808 Oct. 19 07.05

Therefore, the car industry’s closure will burn deeply in both of these states.

As alluded to above, the timing of the car industry’s closure 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 likely to continue 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.

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