Holden's future on a knife edge
As doubt hangs over Holden's future in Australia, Victorian manufacturing minister David Hodgett has echoed the calls of his SA counterparts for the federal government to save the auto industry.PT2M42S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2z384 620 349 December 10, 2013
- Federal politics: full coverage
- The Pulse: Politics Live with Judith Ireland
- Holden: no decision on future in Australia
Victoria is in for tough times ahead. So is Australia. Facing an unprofitable car industry that needs more money to survive, the Abbott government has chosen to let it close.
First, it reneged on $500 million pledged by the Labor government as ''co-investment'' for the billions carmakers have invested to build new models here. Labor had already cut this from $500 million a year to $400 million. Now the Coalition plans to give just $200 million a year up to 2016.
1946 Prototype: The first Holden rolled off the production line in Melbourne on October 1, 1948.
Ministers could argue that we've lost our long fight to make car manufacturing viable and it's time to end industry support. But if that's their view, they should pull the plug on supporting future models, not reneging on agreements that led firms to invest billions.
Second, Tony Abbott last week ruled out new money for the industry, saying: ''There's not going to be any extra money over and above the generous support that taxpayers have been giving the motor industry for a long time'' (which he has just halved).
That ends the pretence that no decision on future support will be made until after the Productivity Commission delivers its support in March. Abbott has made his decision. Holden knows it, has decided to leave, but for its own reasons, won't tell us yet.
These are big stakes. In 2011-12, the industry employed more than 45,000 people, and produced $5.4 billion of net output: $2.2 billion from making cars, and $3.2 billion from making parts and components. Its reach through the economy is huge, with thousands of suppliers.
A study by Allen Consulting Group estimates in Melbourne alone, its closure could cost 33,000 jobs, and cut the nation's output by $7.3 billion a year. The numbers are speculative, but clearly, this will be a huge economic shock.
It will put Victoria under severe pressure as the mining boom will be winding down, governments, business and consumers remain debt-averse - and, on current plans, the state government will slash infrastructure spending by half.
Some will say this shows the car makers can't be trusted. Abbott said recently: ''They're very good at using taxpayers' money but … not that good at maintaining production and jobs despite the use of taxpayers' money.'' That's dumb. Car makers must make profits to survive. They invest where they believe they can make profits. If their assumptions turn out wrong - a currency becomes overvalued, or a new government welshes on promised support - they become unprofitable, and must go where they can make a profit.
Holden, like Qantas, is a victim of the high dollar. In 2002, the Australian dollar averaged 54 US cents. For businesses in the global market, such as car makers, Australia was almost as competitive as South Korea.
But by 2012, Australia's dollar had risen 91 per cent, to average $US1.035. In global markets, that made it 91 per cent more expensive to produce goods and services here.
It is not the only reason the car industry is in trouble, but it is the main reason. It is not the only reason Qantas is in trouble, but it is a big reason. Australia's currency has risen more than that of any other developed country. Our economic culture allowed our currency to escalate so high as to make our producers uncompetitive, and neither the government nor the Reserve Bank did anything about it. An anonymous minister tells us the next generation of Holdens will be built in South Korea, and shipped here duty-free under the new free trade agreement. That makes sense: former Holden chief Mike Devereux told us a Commodore could be produced for $3750 less there than here. Korea takes manufacturing seriously.
Their economics is a practical toolkit, not a theology. While our dollar soared 91 per cent, the Koreans let the won edge up just 6 per cent. While Australia's cost base more than doubled between 2002 and 2012, Korea's cost base held its ground. Is it any wonder that by 2012, manufacturing production had almost doubled in Korea, yet was back to 2002 levels in Australia?
Cheap imports cut local manufacturers' market share from 25 per cent in 2005 to 10 per cent. Falling sales mean rising unit costs for suppliers. In hindsight, Ford's decision in May to end manufacturing in 2016, and the Coalition's decision to slash support, were the funeral bells for the industry. Toyota and most component makers will follow.
But while the case for pulling the plug on industry support after 2016 is compelling, I urge Abbott and Joe Hockey to think again. First, car programs cost $400 million a year, nothing like the $3 billion a year for diesel fuel rebates to mining companies, or the $5 billion to subsidise negative gearing. The budgetary cost of losing this industry will dwarf the cost of keeping it.
Second, if the car industry sinks along with mining investment, that will create huge risks for the economy. Hockey has barely put a foot wrong in his three months as Treasurer, but this mistake could be a whopper. It could shred his pledge to keep Australia out of recession.
■ This is my final column for The Age, the last of 10,000 articles I have written since I started in 1971. It has been a wonderful career for me, and, I hope, worthwhile for you. I am about to turn 65, and will take a break to complete a biography of Sir Rupert (Dick) Hamer, get the cataracts out of my eyes, and travel. I will not be retiring. I apologise to all who have written to me over the years without getting a reply, I am sorry: I learnt much from your thoughts, and I hope you understand.
I have so many people to thank, but the most important are my colleagues who have made The Age such an enjoyable place to work. We have been a team, sharing and caring, practising the values we believe in, and trying to give readers a clear path through the spin to the facts.
Fairfax now has the motto: Independent. Always. My motto is that I don't care who runs the country, but I care passionately about how it's run. Our job is to sort the truth from the spin, to help readers through the complexity of issues.
It's a great cause. Long may The Age and Fairfax pursue it. Thanks for having me.
Tim Colebatch was economics editor of The Age.