The Fall of the Car Manufacturing Industry in Australia - Essay Example

FACTORS LEADING TO THE COLLAPSE OF THE AUSTRALIAN CAR MANUFACTURING INDUSTRY Student name: Registration number: Module code: Module title: Tutor: Date of submission: Word count: 1561 Many factors are party to the rise and fall of any empire. The factors may be indwelling or external. More often than not, there is an interaction of several things that lead to either the rise or the fall of a business enterprise. After around a century of operations in Australia, the car manufacturing industry is going down the drain. Ford, a renowned multinational car dealer, closed their doors in late 2016. The main reason Toyota and Holden survived were perhaps, to a great extent, their higher sales volume. However, the two companies will exit the market by the close of the year 2017. This, sadly, marks the end of an empire that has withstood the test of time, shaping the culture of Australians and the economy of Australia as a whole. Nissan, Mitsubishi, Ford, Holden and Toyota have driven the economy of Australia for more than a century. It is sad that the curtain falls on once a promising industry. But what are the reasons? To what extent do internal or external factors play party to the failure that is staring point-blank to Australia’s economy? What is the role of the management in the failure? Are trade unions involved in the mishap? Are employees and their working conditions related to this collapse? This essay seeks to look into the most probable causes of the fall of the car manufacturing industry in Australia, analysing the causes and coming up with conclusions. The paper will pay particular attention to the role of unions. It will draw from journals and other reliable sources of information. According to Barbaro and NIER (2014), the closure of the car manufacturing industry was projected to cost around 200,000 Australians their jobs by the close of the year 2017. The authors argue that the automotive industry accounted for about 2% of Australia’s Gross Domestic Product, GDP. Victoria was projected to face the brunt of the collapse as around 50% of the employees would be from the region. The article further states that the Australian economy would suffer an annual loss of $ 30 billion if the industry closed its doors. The national loss would be evident in the various Australian regions, with Victoria taking the lead, followed by New South Wales, Queensland and South Australia. From the article, it is apparent that the car manufacturing industry is the main route for training personnel and introduction of new technologies in Australia. Closing down would, therefore, mean that there would be an increase in the costs of production, leading to the closure of other industries. Michelle et al. (2015) attribute the failure/closure of the industry to the high costs of operation in Australia. In retrospect, the first automotive company to start operations on Australian soil was General Motors Holden Limited, a saddlery business that later started car manufacturing as a subsidiary of GM in 1931. The continuous appreciation of the Australian Dollar has led to skyrocketing costs of operation. A comparison between Australia's subsidies to manufacturing companies reveals a financial gap between the United States of America and Australia. Many industries are shifting to environments that favour growth and are viable for profitability. Remy (2015) opines that the costs of operation in Australia are quite modest as compared to other developed countries. However, a comparison between other Asian nations and Australia reveal that the costs of operation are four times higher in Australia. A comparison between Europe and Australia shows that Australian car manufacturers run on a stiff budget. Their cost of operation is twice that of European nations. As Holden and Toyota close their Australian doors by the end of this year, they will be looking for places that favour the growth of the industry. Australian automotive employees do not have the best remuneration. Neither is the revenue from exports. Most Australians prefer to import vehicles rather than buy locally. Although there are blame games as to who or what has led to the collapse of the industry, Abbas (2016) believes that the Australian economy and legislative measures are the primary cause of business failure. One of the main reasons, he argues, is that the Australian market base is too small to sustain production. With the weak demand for cars, it is practically impossible to employ economies of scale in Australia. The Australian automotive industry has had to make do with cheaper external inputs, labour and parts inclusive. According to the author, the manufacturing companies have been declining as the mining companies continue to flourish. The market is not reliable, especially so because of the lowering of import tariffs by the government. The signage of Free Trade Agreements (FTAs) has ensured that the automotive industry is floored. Abbas further argues that the appreciation of the Dollar is one of the factors that has led to the collapse of the industry. This is because the exports become expensive and external clients will opt to buy from cheaper companies. The trade unions have put the last nail in the coffin of Australian automotive companies. Despite the hostile business conditions, trade unions demanded higher wages and better working conditions for the employees. Cogan (2013) shows that the role of trade unions in the collapse of the industry is two-fold. One side focused on playing activists for the workers while the other harassed the very workers. Cogan records that the beginning of the end of the Australian automotive collapse began back in 1984 when the Labor government led by Bob Hawke started an initiative to restructure/regulate the car industry. The Button car plan, as it came to be known, aimed at integrating the sector with the ever-increasing worldwide networks of the auto conglomerates. The trade unions endorsed the proposal and campaigned to convince workers to accept pay cuts and working environments so as to improve the international competitiveness of the automotive industry against other countries' employees. Though there were resistances in the sectors, the trade unions managed to suppress the outcry. A particular case is that of the Ford industry where the unions aided the management in victimising and sacking 20 workers. Barely a month later, the company at Broad-Meadows announced 500 job cuts in 1991. Due to the strict measures imposed on workers by the government and the unions, company closures followed. Workers could not continue working under such conditions. Toyota closed its Dandenong and Port Melbourne factories, terminating 700 jobs in 1991. It later opened its Altona factory with strict working conditions, including the first ever 12-hour shift in Australia. Nissan closed their doors in 1992 due to plans orchestrated as part of the Button plan. The Ford factory in Sydney was closed down by the trade unions in 1994 as an “orderly closure. 430 jobs were lost in the process. Clibborn et al. (2016) are of the opinion that in as much as reductions in government assistance, the changes in exchange rates and the decisions by the mother companies to move the companies to higher grounds led to the closure of the industry, the role of trade unions and industrial relations cannot be overlooked. The trade unions, especially in the recent times, pressurised the industries to improve the wages and the working conditions of the employees. What exacerbated the already volatile situation is the reduction of government assistance. While the industry struggled to stand on its feet despite the pitfalls staring at it, the trade unionists exerted more pressure to have workers appreciated more handsomely for their services. A case in point is that of Holden in the year 2012. Despite the fact that the ground on which the financial situation of Holden stood was shaky, workers' activists continued to pressure the company to honour a pay deal they had struck, further submerging the industry into more economic stress. The managing director emphasised the fact that the firm was not economically stable at the moment, while the trade unions demanded the 3% wage increase that the company reluctantly honoured. The parliament questioned the move while the unions hailed it. Holden was to experience a financial crisis later, a move that made them announce their departure from the Australian market. Cogan (2013) has a very clear view on the role played by trade unionists (and not unions), in the collapse of the automotive industry. He opines that three decades of restructuring, since 1984, did more harm than good to the industry. Whereas trade unions in other parts of the world fought for the welfare of the workers, the unions in Australia made them compete to be the worst paid. This led to the demotivation of employees and the consequent resistances. During that period, Nissan, Ford and Mitsubishi have closed down. Toyota and Holden will close down this year, leaving Australia as the second high-income level country to operate without an automotive industry, after Saudi Arabia. Though factors such as change in consumer preferences, lack of support from the Australian government, reduction in trade tariffs, appreciation of the Australian Dollar, little local demand for Australian made cars and increased costs of inputs have played a crucial role in the collapse of the industry, it is trade unions and the leaders that have played the biggest role in the collapse. If it were ill management, there would be exceptions. The Australian government, however, ought to revive the industry and offer subsidies as it drives the economy. Reference List Abbas, V. The collapse of Australian car manufacturing will harm R&D in other sectors: study.Australia. 2016. Accessed on Apr 29, 2017, from http://theconversation.com/collapse-of-australian-car-manufacturing-will-harm-randd-in-other-sectors-study-66984 Barbaro, B., Spoehr, J., & National Institute of Economic and Industry Research, Closing the motor vehicle industry: the impact on Australia, Australian Workplace Innovation and Social Research Centre and NIEIR, University of Adelaide, Adelaide, Australia. 2014. Clibborn, S., Lansbury, R., and Wright, C. Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?. Econ Pap, 35: 2–15. Australia, 2016. doi:10.1111/1759-3441.12127 Cogan, J. The role of Labor and the unions in the assault on car industry workers in Australia. World Socialist website. ICFI. Australia. 2016.Accessed Apr 29, 2017, from https://www.wsws.org/en/articles/2013/12/13/auto-d13.html Remy, D. Factcheck: Do other countries subsidise their car industry than we do? The Conversation. Australia, 2013. Retrieved Apr 29, 2017, from http://theconversation.com/factcheck-do-other-countries-subsidise-their-car-industry-more-than-we-do-16308 Stanwick, J., Michelle, C., and Tham, L. The end of car manufacturing in Australia: what is the role of training? NCVER. Australia, 2015 Retrieved Apr 29, 2017, from http://files.eric.ed.gov/fulltext/ED561217.pdf Read More