Australia is at risk of heavy economic impact should its automotive manufacturing industry disappear, warns new research. Economic analysis from Monash University’s centre of Policy Studies and research by the Allen Consulting Group outlines the direct repercussions in numerous areas, including jobs and GRP (gross regional product), if the country’s automotive manufacturers pull out. The Federal Chamber of Automotive Industries (FCAI) commissioned the report, which it intends to use as a basis for its funding request to the government.
The country’s automotive production industry directly employs around 50,000 people, with Ford, Holden and Toyota accounting for 17,000 of these. However, local players have been struggling to remain competitive, in part from high labour costs. Holden’s Managing Director has said previously that the country is the most expensive place to build cars right now.
The industry is currently seeking government support in order to maintain operations and remain competitive. Ford has already announced that it plans to stop all production operations in the country by 2016. Holden has shed jobs and workers have accepted a pay freeze. Toyota is preparing to lay off 100 people at its Altona manufacturing facility in Victoria and is currently in talks with its local union workers regarding a new labour agreement geared at improving flexibility and profitability.
Automotive manufacturing in the country receives around AUS$500m (US$475m) in government funding each year. In September, Australian Prime Minister Tony Abbott issued the following warning: “There will continue to be a high level of assistance to the motor industry, but we expect the motor industry in return for that high level of assistance to provide us with a reasonable indication of how it is going to increase volumes, particularly export volumes. I accept that government has a role in bringing this about but I also think the industry has a role in bringing this about.”
The results of an investigation by the Productivity Commission into the future of the country’s automotive industry are expected in December, with a recommendation on whether or not to allocate any more resources to the industry. The FCAI is keen to emphasise that with the necessary support, the local automotive industry can be salvaged and that its loss would yield wide-spread consequences.0
Key findings
The FCAI-commissioned study found that the Australian automotive manufacturing industry boosts the economy by AUS$21.5bn (based on an economic welfare net present value calculation). It concludes that the government assistance to the industry is about AUS$18 per person, which it deems “a very low figure by international standards.” The figure for the UK is about AUS$30 per person. The AUS$21.5bn return equates to AUS$934 per person.
“When you compare the level of assistance provided by the government, which is less than $500m a year, the benefit for the economy is extremely large so this is very conservative modelling,” said FCAI head Tony Weber.
If all automotive manufacturing capacity were to disappear, the country’s GDP would shrink by AUS$7.3bn by 2018. As Australia’s automotive industry is foreign owned, its collapse would result in the loss of billions in foreign direct investment. OEM head offices would instead direct investment to other automotive manufacturing countries, not to other industries in Australia.
The economies of Adelaide and Melbourne, regions with substantial automotive manufacturing investment, would be particularly hard hit from the industry’s collapse, with GRP expected to contract by up to 1.4% and employment to fall by 1.5%. Adelaide would lose an estimated 6,600 jobs, with 33,000 to go in Melbourne.
The report concluded that if barriers to export were removed and the Australian industry could return to 2008 levels of exports (when 160,000 vehicles were exported), Australia’s consumer welfare would increase by AUS$7.1bn over time.
The loss of local production would also yield additional “spill-over effects” on advanced manufacturing and R&D, “which can’t be modelled, but are recognised by chief executives of companies like Boeing, Rio Tinto and Coca-Cola Amatil. These include technology transfers through R&D, and innovation; lean management techniques and applications; and advanced labour skills and manufacturing techniques.”
By highlighting the automotive industry’s contribution to the national and regional economies, the FCAI hopes to convince the government that continued investment is not only desirable, but essential to maintain current economic performance.
“This report shows the value of automotive manufacturing to Australia. It details the benefits to Australia as a whole—to the economy, communities, the supply chain and other industries. The FCAI will be using this report as a basis for our submission to the Productivity Commission’s review of the automotive sector,” Weber said. “I want to be clear: financial support for the industry is an investment in Australia and this investment needs to be long-term.”
Megan Lampinen
