What I said about car manufacturing in 2008

Update: My initial take of the Toyota announcement has been posted at The Conversation.

***********************
From The Age:

THE final report of the Bracks review into Australia’s automotive industry is not nearly as bad as it could have been.

It recommends that the 10% tariff be reduced to 5% in 2010. While that is the existing policy setting, it was widely feared Bracks would backslide on trade liberalisation. That is a plus of the report — yet he could have gone the whole way and recommended eliminating tariffs altogether.

Going by the underlying logic of the report, however, Bracks would never advocate a unilateral abolition of tariffs, despite the fact that he clearly recognises that tariffs increase prices paid by consumers.

Yet, the report has little to say about Australian consumers.

It talks about changing consumer preferences and how free trade agreements can enhance consumer welfare, but the interests of motor vehicle manufacturers and workers dominate.

We are rightly told that free trade agreements are good for the economy and consumers. But the report points out that free trade agreements also adversely affect producers.

That, however, is the whole point of free trade — consumers get better quality products at lower prices. Like so many others, the Bracks report views free trade purely as an opportunity for Australian producers to export goods, not as an opportunity for consumers to import cheaper goods. Cheaper imports expand domestic consumption, and ultimately provide cheaper inputs into subsequent exports.

It is a delicious irony that Bracks calls on state governments to harmonise and reduce stamp duty, registration fees and compulsory third-party insurance fees. His own government did little in this area. Nevertheless, this is good policy. Rather than use these fees and changes as revenue sources they should be used to price transport use correctly.

This document, at heart, is an old-style “winner-picking” industry policy. The most important point to note is that industry profitability is falling, and component manufacturers have reduced profit margins. Meanwhile, productions costs are rising. The market is sending a clear signal that motor vehicle manufacturing is something that should happen overseas. To make matters worse, the Bracks report also shows a big switch in consumer preferences to smaller cars. These are not the types of cars that Australian manufacturers tend to make.

The Bracks solution to all this is to throw more money at the problem. Doubling the Green Car Innovation Fund, as he proposes, is problematic. The Government seems to be struggling to spend the money already allocated to this fund. Replacing the existing industry grant scheme with another hardly seems worthwhile. Other solutions involve “automotive ambassadors” and talk-shops. The various governments around Australia already spend far too much money promoting exports and the like.

For all the Government’s rhetoric about encouraging an innovation economy, simply throwing money at research and development does not guarantee useful innovation. Instead the Government should concentrate on providing an environment in which the private sector can choose how best to allocate resources. That environment would be one of lower tariffs and lower government taxes, fees and charges — policies Bracks does advocate.

Bracks notes that the automotive market is very competitive and that this country’s economy is very open to that market. This is all true. There is an oversupply globally of automotive manufacturing capacity. We should allow market forces to determine outcomes in that market. Rather than propping up an industry that may not survive, the Australian Government should prepare for industry consolidation and company exits.

The biggest losers from an activist industry policy are the workers in these industries. The automotive industry employs 64,000 people — these people are investing their human capital and their careers in that industry. Flexible labour markets and a growing economy are the best mechanisms to ensure that these people are not left behind when industry policy fails — as it always does.

Despite being an old-style industry policy, this report lacks a silver bullet to “save” the automotive industry.

This will have been the most sympathetic review the automotive industry has had in more than 20 years, yet it proposes more of the same — more government largesse, more platitudes about the importance of the industry, but not much substance.

In short, many of the recommendations are spin — appearing to be doing something, but not providing objective, verifiable deliverables. The report contains no plan to ensure the long-term viability of the industry. Ironically, that is its great strength.

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41 Responses to What I said about car manufacturing in 2008

  1. Habib

    Toyota’s about to bail, ADRs are being phased out, emission testing only but no parallel imports. Almost a complete win, but I’ve got to wait another 3 years for my NSX-R. Bracks always was a pillock.

  2. A H

    Parallel imports with zero duty and regulation should be allowed at once. No need to wait until 2017.

    Self regulation will adequately determine safety standards. Whatever departments regulate vehicle standards can be now safely disbanded.

  3. Pyrmonter

    On a small point: SD, wash you mouth out (or clean your keyboard):

    We are rightly told that free trade agreements are good for the economy and consumers.

    Since when are diversionary bilateral trade agreements cloaked with the euphemism “free trade” necessarily good for consumers. Free Trade is good for consumers; the carbuncles on commercial policy that these agreements are need not be so.

  4. .

    Our FTAs have been show to be trade creating.

    Trade diversion and creation are technically quite a difficult concept.

    I suspect the talk convinces the public that FTAs are only trade diversionary because that is all they hear about, and somehow as non specialists will conclude that free trade makes you poorer.

    This is why I don’t like FTAs – also because the benefits of trade liberalisation are largely dynamic and internal. The best, most utility and welfare enhancing policy is immediate and unilateral free trade and investment.

  5. Pyrmonter

    @ Dot – FTAs might be welfare improving, but are they as good as unilateral Free Trade?

  6. Infidel Tiger

    Parallel imports with zero duty and regulation should be allowed at once. No need to wait until 2017.

    Damn straight.

    Abbott is too much of a softcock and the MTA will be all over him to cave.

  7. .

    Didn’t I just say…

    Of course they are not, but I repeat myself…

  8. H B Bear

    Toyota is gone. Himey’s report can now go straight in the bin where it always belonged and the bureaucrats start dismantling the tangle of taxes, duties and regulations that has cost every Australian thousands of dollars every time they changed their car.

  9. blogstrop

    Who’s going to tell it straight?
    That unionisation of the manufacturing work force has made manufacturing unprofitable.
    Quarry and Farm it is.
    Message ends.

  10. Robbo

    What surprised me at the time was the decision to put Steve Bracks in charge of that review into vehicle manufacturing in Australia and to then expect something sensible. Most people who have ever had something to do with that bloke understand that there is not much going on between his ears. He was blessed to have John Brumby in his Cabinet because without him the Government would have been a total shambles. Bracks was incapable and incompetent and that is the reason why the automotive industry report was nothing more than a bad copy of what had been produced by earlier reviews.

  11. Matt

    “The car industry has died under the Abbott Government. It’s a disgrace,” Shorten told ABC.

    Stay classy, Bill.

  12. Stephen of Glasshouse

    We, organised labour, kicked the shit out of the industry with award rorting, feather bedding and ideological taxation; It was 99% rooted when we left, but , “The car industry has died under the Abbott Government. It’s a disgrace,” Shorten told ABC.

    It’s all about context

  13. Infidel Tiger

    I see that moron Napthine hopped straight on a plane to Canberra with his begging bowl again.

    Tone will no doubt be only too happy to oblige.

  14. samuel j

    Sinclair on the PC:

    But the point is well made – what is the Productivity Commission’s value add? At the expense of annoying Judith and Steve and the several people I know who are current or former employees of that organisation I think the answer, on average, is zero.

    The Brack’s report – just one report – cost twice as much as a PC review would have cost. So let’s get things in perspective. The PC should have been used for the automotive review, not Steve Bracks.

  15. Baldrick

    Opposition Leader Bill Shorten says the closure is an “unmitigated disaster. The car industry has died under the Abbott government – it’s a disgrace,” he said.

    Toyota Australia president and chief executive officer Max Yasuda blamed the “unfavourable Australian dollar”, high costs of manufacturing and low economies of scale.

  16. Alan Moran

    My recent Cat piece on Toyota and the notorious Mord Bromberg’s place in its downfall,
    “The Australian reported, ‘Late yesterday, Toyota Australia’s cost-cutting strategy received a serious setback when a Federal Court judge blocked the company from holding a meeting of employees today to consider changes to their workplace agreement, ruling that the carmaker had breached the “no extra claims” provision of the workplace agreement covering employees.

    ‘Toyota Australia president and chief executive Max Yasuda said he was disappointed with the outcome, and the company was considering its options, including an appeal.’

    The federal judge concerned, Mordecai Bromberg has a solid ALP past but lost his one attempt at ALP pre-selection in 2001. Doubtless his ALP credentials proved invaluable when he, like many other Labor Party simpaticos, got appointed as a judge in the Federal Court by the Rudd/Gillard governments.

    Judge Bromberg has proven to be extremely activist and inventive in his legal interpretations. He was behind the disgraceful interpretation of section 18 of the Racial Discrimination Act, concluding that Andrew Bolt was a racist following the latter accurately describing some individuals who see themselves as aboriginal as “fair skinned”.

    He was also one of three judges who determined that a Canberra public servant who sustained injuries during sexual intercourse with a colleague in a motel should be compensated.

    Now he has ruled in favour of the same unions whose actions have been instrumental in destroying Ford and Holden as local manufacturers to prevent Toyota workers deciding for themselves whether to will agree to work practices that will allow the productivity improvements and cost savings that will enable it to remain manufacturing in Australia. On past record the workers are more likely than not to vote for their own demise if the alternative is inferior conditions. But the union leadership was clearly unsure of the outcome and, fortunately or not, they came before a well-disposed judge.

  17. Bruce of Newcastle

    The art of the parasite is to extract the blood without killing the host.

    Shorten and his colleagues have forgotten how to do this.

  18. Alfonso

    Excellent , now how do we get cars into Australia without being touched up by monopoly wholesalers and govt duties not yet revealed? Can’t let those parallel imports in….who knows what connected Merc dealership might go belly up.

  19. egg_

    Alfonso
    #1184789, posted on February 10, 2014 at 8:04 pm

    +1
    They’re dreaming.

  20. Robert O.

    If we cannot make cars profitably or can fruit, then what can we do?

  21. gabrianga

    Just who was that lady who was giving the Professional Mourner the cold shoulder on 7.30?

    “Wee Willie’s” fluster and bluster seemed to be falling on deaf ears for a change.

  22. Paul

    Shorten somehow blaming this on Abbott. He’s beyond even Gillard levels of disgusting.

  23. Tom

    I wonder how many of the loyal unionists in the car industry understand their glorious EBA which was such a euphoric victory 2-3 years ago destroyed their families’ livehood? Poor buggers. Tough lesson to learn.

  24. Bear Necessities

    For a lot of Toyota workers, the closing of Production is convenient. 3 years notice with generous redundancies, why would you want to change the workplace agreement? If you are in your early to mid Fifties then you get paid for the next 3 years, get redundancy, then super when you are nearly 60.

    Good work if you can get it!

  25. entropy

    The redundancy is good,but no one will buy hem, so not many wukkers will stay for three years.

  26. I am the Walrus, koo koo k'choo

    If we cannot make cars profitably or can fruit, then what can we do?

    Activities that produce income, rather than eating the nation’s wealth.

  27. MACK1

    The PM was spot on – the nature of a prosperous dynamic wealth-generating economy is that jobs will always come and go. Typically 470,000 people are terminated each and every year in Australia. This is NORMAL and healthy. The problem is journalists who refuse to ever make this point, so people can understand and plan their lives accordingly, and also understand that the unions and Bill Shorten are talking dangerous BS.

  28. Andrew

    Gee, where does The Conversation get such ‘experts’?

    Remy Davison, Jean Monnet Chair in Politics and Economics at Monash University

    If Toyota, the largest and the most efficient automotive producer in the world, cannot survive without industry assistance packages, it demonstrates how vulnerable car producers are if governments fail to support them.

    Phillip Toner, Honorary Senior Research Fellow Department of Political Economy at University of Sydney:

    As I have argued consistently there is no sound economic argument to withdraw the modest government support from what was a high productivity industry that was at the centre of Australia’s (ever diminishing) engineering and applied science base.

    It marks the burial of the key element of Chifley’s post-war reconstruction, the renunciation of an assertive role for the state in national economic developmen

    Unbelievable

  29. Infidel Tiger

    It marks the burial of the key element of Chifley’s post-war reconstruction, the renunciation of an assertive role for the state in national economic development

    Bloody hell! I hope so.

  30. .

    If Toyota, the largest and the most efficient automotive producer in the world, cannot survive without industry assistance packages, it demonstrates how vulnerable car producers are if governments fail to support them.

    No, it means how inefficient “packages” are.

    As I have argued consistently there is no sound economic argument to withdraw the modest government support from what was a high productivity industry that was at the centre of Australia’s (ever diminishing) engineering and applied science base.

    Old mate you’ve fabricated a steaming load of codswallop consistently.

  31. Econocrat

    Tariffs to zero, abolish the luxury car tax.

  32. candy

    I liked what Daniel Andrews NSW opposition leader said, that the Victorian government just stood by and did nothing and let it unfold into the mess it is now.
    Because that’s true, the South Australian and the Gillard government have done the same. Blind, perhaps willfully blind to the problems. They should have been more responsible.
    And now Abbott/Hockey have to pick up the pieces.

  33. Tel

    The Brack’s report – just one report – cost twice as much as a PC review would have cost. So let’s get things in perspective. The PC should have been used for the automotive review, not Steve Bracks.

    There’s the value add: gives a useless result cheaper. Gosh we cling to small comforts.

  34. Tel

    If we cannot make cars profitably or can fruit, then what can we do?

    Imagine an industry… now draw a picket line across the front gate… does the industry come to a halt? If yes then we can’t do it, if no then we can.

  35. Myrddin Seren

    Remy Davison, Jean Monnet Chair in Politics and Economics at Monash University

    Why the hell would an Australian university chair be endowed in the name of Monnet, godfather of the EU ?

    And given Monnet’s well known penchant for centrally-controlled, technocratic rule immune to democratic processes – what is the department teaching it’s students ?

  36. entropy

    I wonder what kind of car monnet drives? French if he is a slave to the cliche.

  37. Combine_Dave

    Parallel imports with zero duty and regulation should be allowed at once. No need to wait until 2017.

    Damn straight.

    Abbott is too much of a softcock and the MTA will be all over him to cave.

    I just received a letter from the relevant LNP Minister stating that not only are they not going to do this but that they are also going to offer huge $ assistance packages to affected workers from Holden (apparently the idiot was 100% certain that Toyota would retain production in Australia despite the large costs of operating here).

    Maybe one day manufacturing will return to Australia once all our crazy unions are gone. But I doubt it. The left’s strangehold on our insitutions is frankly too strong for commonsense to ever be regained. Australia is set securely on the EU/USA path to social democratic ruin. As demonstrated by the ongoing failures (with some laudable exceptions) of the LNP to roll back the damaging reforms of the Liars Party.

  38. Robbo

    @ Candy just when did Daniel Andrews become Opposition leader in NSW? I must have missed that big news.

  39. candy

    Oh, Victorian opposition leader, picky picky picky!

  40. Up The Workers!

    So 20,000 or more Australians employed at Toyota and various supply companies, are about to lose their livelihoods. Many, if not most of those would have been conned into paying extortionate union “dues” to various A.L.P.- associated stand-over merchants and con artists, for the “protection” of their jobs.

    If you paid a lot of money to a mechanic to fix your car, and he botched it, you would damned sure want a refund.

    Why should unions be any different?

    All 20,000 being made redundant, should DEMAND a 100% refund of money fraudulently extorted over the last 5 years or so, by unions on the grounds of ‘protecting’ the employment of the victim. Toyota, like Holden, Ford and Mitsubishi before them, are closing down largely BECAUSE of the greed and stupidity of corrupt unions and corrupt A.L.P. embezzlers.

    If the law gives you a legal right to a refund in circumstances where promised benefits were not delivered, you need to “use it or lose it!”

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