We have been discussing the decline in the Australian automotive sector and the significant changes ahead for the industry in 2016/2017. This article looks at the industry in South Australia in particular.
Australia has had a lot to be proud of with its domestic car industry. Only 13 countries in the world have the capability to build a car from scratch and for 90 years Australia has been one of them. Now with a wave of job cuts and shutdowns, the South Australian auto industry decline could be signaling and end to all of that.
Recently Holden announced that it would be cutting around 400 jobs as part of scrapping their Holden Cruze model. These job cuts are the next step in the plan formed by General Motors Holden to completely stop car production in Australia by the end of 2017. That decision was announced during an eight-month period in 2013 during which Ford and Toyota also announced that they would cease domestic car production here.
Beyond the direct job losses, the knock-on effects are starting to make some people very nervous. Industries such as steel, glass, and auto parts manufacturers are also going to hit by the collapse of domestic car production. A report from researchers at the University of Adelaide claims that the factory closures will lead to almost 200,000 job losses across the country, and will eliminate $29 billion from Australia’s GDP.
At a Senate inquiry in March, chief executive Len Piro of the South Australian Automotive Transformation Taskforce warned that of the 33 tier-one auto parts suppliers in Australia, only 20% will still be around after 2017. The best case scenario, he said, would be that only 11,000 of the 33,000 people employed in those companies will lose their jobs.
Arguments over what level of additional assistance, if any, should be provided are raging between government, industry organizations, and labor groups. Criticism of the ATS is also reaching a fevered pitch.
Started in 2011, the Automotive Transformation Scheme, was designed to provide cash payments for investment and production to companies under four categories:
- motor vehicle producers (MVPs)
- automotive component producers (ACPs)
- automotive machine tool and automotive tooling producers (AMTPs), and
- automotive service providers (ASPs).
The scheme made $2.5 billion in assistance available over that period, with around $300 million remaining.
It has been a relatively substantial burden on the Australian taxpayer. The Australian Productivity Commission has estimated that going back to 1997, over $30 billion in subsidies have been paid out to the local car industry, all of that only to result in that industry likely coming to an end.
Overall it is a complex economic issue, and assigning blame is difficult. The companies making the decision to stop domestic production are understandably the target of lots of anger and disappointment, especially after taking government handouts for so long.
Another way to look at it, however, is from the decisions of Australian consumers. The number of purchases of domestically produced vehicles is a distant fourth after imports from Japan, Thailand, and Korea. Does that represent a failure on the part of consumers to support local industries, or is it a reflection of the car companies not being able to make cars that people want to buy?
An announcement from Holden in February that they wanted to “de-bogan” their brand suggests that it is the latter. They have seen their sales plummet in recent years, with the number of people saying that they intend to buy a Holden dropping from 14% to 7%. The announcement has come as part of a realization that their vehicles do not appeal to increasingly large segments of Australia’s growing multicultural society.
The one positive note is that some economic life will likely remain among the tertiary and spare suppliers. Ford has retained 63 of its vendors who produce components for their Falcon and Territory models, and Nissan keeps some at its casting plant in Melbourne.
The South Australian auto industry decline is a signal of hard years to come for many people and organizations. Once Australia loses its car industry that can span design to production it will be exceedingly difficult to ever get that back. The choices being made by government and industry leaders today will determine whether or not the country will transition to a more effective economy, or stay wounded from the loss for many years to come.