Dominant Reasons Contributed to the Collapse of Automotive Industry - Essay Example

essay Student’s Name: Course Code: Tutor’s Name: Date of Submission Introduction In the 20th century, Australia marked a tremendous growth in the automotive industry through plants from international manufacturers opening in Australia (Valadkhani 2016). These included Ford motor company of Australia in 1948 by Holden, Mitsubishi, and Toyota among others (Taylor 2014). Recently these car manufacturers have been exiting Australia causing joblessness to thousands of Australians ranging from suppliers to engineers as well as other professionals in the sector. According to Valadkhani (2016) the exit can be traced back in 1992 when Nissan left the market. Mitsubishi exited in 2008 and Ford, Toyota as well as Holden are expected to exit by 2017 Kohler (2013). Before the collapse, the sector had employed 8.5 per cent of Australian total workforce which amounts to more than a million workers (Taylor 2014). The reasons of the collapsed industry have been attributed to the small market in the country, unions as well as high wages, lack of feasibility among other reasons. This essay will analyze some of the dominant reasons that have contributed to the collapse of this industry. Holden, Ford and Toyota car manufacturers have been the last to exit the Australian car manufacturers industry. Their exit may have occurred as a result of high labor costs which increased the cost of production and this would have contributed to low profitability translating to reduced competitiveness with other global car manufacturers (Clibborn, Lansbury and Wright 2016). The many workers in the car manufacturing industry demanded pay rise which led to industrial actions by unions. Kohler (2014) argues that the workers unions have been constantly fighting for better working condition as well as pay rise for their workers. The car manufacturers had a chain of suppliers for the raw material the raw materials they require. These local suppliers also had worker with their unions also demanding better working conditions as well as better payment for their services (Dowling 2014). These union’s demands as well as their workers contributed significantly to the collapse of the industry. However this scenario is not new in Australia as well as other markets in the world meaning there was other underlying factors contributing to the closure or collapse of these industries (Clibborn, Lansbury and Wright 2016). In 2013, the price of vehicles reduced by 2.8% (Dowling 2014). This was a move to try to attract more customers but it translated to reduction in the revenue received by the car manufacturers. Reduction in revenue would mean that the manufacturers would not be in a position to continue paying their workforce making their closure inevitable (Kohler 2014). At the same year there was a depreciation of the dollar by 15 per cent (Clibborn, Lansbury, and Wright 2016). This was viewed by some economists as not the major cause of the closure. The free trade agreements evident in Australia are also associated with indirect removal of car manufacturing industries in the country. This has been seen as lack of building where they sell like in Japan and America. In 2013 for example, Toyota manufactured 106, 300 vehicles in Australia far more than the vehicles that were manufactured by the same company in North America (Clibborn, Lansbury, and Wright 2016). 66 per cent of these vehicles manufactured in Australia were exported (Dowling 2014). However the country imported 185,458 units which were meant to meet the local demand in the same year (Dowling 2014). This shows that there is no enough reason to manufacture cars if importation can serve the purpose cheaply. This has resulted to the companies closing their manufacturing in Australia. According to Clibborn, Lansbury, and Wright (2016) there have been one sided free trade agreements in Australia which have affected the car manufacturing industry negatively of late. These agreements usually conform to the new liberal philosophy which is global. In 1st January 2005 for example, Australia entered to an agreement with Thailand (Dowling 2014). It was fully implemented on the same day by the Australia Prime Minister John Howard. The agreement allowed Thailand to sell their subsidized vehicles in Australia with minimum restrictions. At the same time, Thailand did not remove their restrictions on Australian vehicles to be sold in their market (Clibborn, Lansbury, and Wright 2016). This would lead to a deficit in balance of payment for Australia which would further result to continued exit by car manufacturers in the market. In that year the top selling vehicles in Australia included Toyota Corolla, which sold 43, 498 units in Australia. Mazda sold 42,082 units and Toyota Hilux sold 39,931 units (Valadkhani 2016). All these came from Thailand despite Australia having its own brands from local manufacturers. This shows that the free trade agreement has contributed significantly to the collapse of Australian car manufacturers (Valadkhani 2016). Additionally, in the same year, local manufacturers such as Holden Commodore sold 27, 766 units in Australia. Toyota Camry another locally manufactured brand sold 24,860 units (Dowling 2014). These figures support the fact that cars from Thailand were far much ahead of local manufacturers and this was a major factor for the closure of local car manufacturing industries. Foreign inputs or raw materials for the car manufacturing industries in Australia have been more expensive than in other neighboring countries in Asia as well as Japan. It is not possible to disassociate the automotive industry with their source of input. This is a major reason why the industry shifted operations in areas where they can access cheap in puts hence the closure in Australia (Dowling 2014). This is evident in those car manufacturers in Australia such as Toyota is in the process of closing its manufacture in Australia by the end of 2017 (Valadkhani 2016). Mitsubishi had closed its operations in Australia about nine years ago that is in year 2008 and Holden is still in the process. Some of these manufacturers such as Toyota cited the reason for their exit as the increasing value of the Australian dollar (Taylor 2014). This has made it possible for imports from other countries to be cheaper than locally manufactured ones. The diminishing government subsidies in the industry can also be seen to play a significant part in the closure of car manufacturing in Australia. This has contributed to the lost economies of scale and the increased cost of production that has made the Australian automotive industry bit less competitive than the firms outside the country (Kohler 2014). Clibborn, Lansbury and Wright (2016) say that there has been internationalization of some countries’ currency such as China’s Renminbi. The funding of other developing countries such as Bangladesh, Vietnam and Columbia for them to industrialize in a cheaper manner has made the world major markets to flood with cheap products. This has trickled down to affect the car manufacturing industry in Australia (Kohler 2014). These developing countries have opted to buy their goods from countries where their prices are cheap leaving Australia and its manufactured cars. The Australian local market has also been too small to be served by the car manufacturers. This has contributed significantly to the down fall of the car manufacturing industry (Valadkhani 2016). After their manufacture, the companies, including Holden, Ford and Toyota offers their products at high prices to the local buyers who make a very small segment of the target market (Clibborn, Lansbury, and Wright 2016). This makes them to shift their operations to places where they can get ready market from the locals. Other than the major car manufacturing companies in Australia, there have been other companies who have left the industry earlier due to their own reasons. Companies such as Volkswagen Australia and Renault Australia were major players in the Australia motor vehicle market but they are no longer operating in the country (Clibborn, Lansbury, and Wright 2016). The management of these companies has given reasons for their exit which tend to be the same. This has resulted to a considerable number of workers losing their jobs making it important for the government to look into the issues and put some measures in place to revive the sector (Valadkhani 2016) Conclusion In conclusion, major vehicle manufacturers have closed their operation and some are still in the process of closing down in Australia. This has led to massive loss of employment to engineers as well as other workers in the sector. The sector incorporates other manufacturers and suppliers who make sure that the industry runs smoothly. There have been several reasons for the companies such as Holden, Ford, and Toyota as well Nissan and Mitsubishi to leave the market. Wage increase together with union activities have contributed as they fight for better payment as well as better working conditions. The increased one way trade agreements have also played a significant role of discouraging exports while encouraging imports of automotive making the industry to collapse. Other companies have attributed their exit to the increased value of Australian dollar as well as reduced subsidies by the government which has brought about reduced economies of scale and therefore closure. This calls the Australian government to put in place some measures that will prevent the industry and save the jobs that are bound to be lost. . References Clibborn, S., Lansbury, R.D. and Wright, C. F., 2016, February 4, Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?, Economics papers, Vol. 35, No, 1, PP. 2-15. Dowling, J. 2014, Feb 14,why australia’s car manufacturers – Toyota, Holden and Ford – all conked out, Courier mail, retrieved from http://www.couriermail.com.au/why-australias-car-manufacturers-toyota-holden-and-for Kohler, A. 2014, Feb 13, what killed the auto industry, ABC News, retrieved from http://www.abc.net.au/news/2014-02-13/kohler-the-ogre-of-deflation/5256662 Taylor, C., 2014, February 17, What killed vehicle manufacturing in Australia? The aim network, Retrieved from https://theaimn.com/what-really-killed-vehicle-manufacturing-i Valadkhani, A. 2016, October 21, Collapse of Australian car manufacturing industry, retrieved from http://www.swinburne.edu.au/news/latest-news/2016/10/collapse-of-australian-car- Read More