Collapse of the Car Industry in Australia - Essay Example

COLLAPSE OF THE CAR INDUSTRY IN AUSTRALIA Student’s Name Course Professor’s Name University City Date Collapse of the Car Industry in Australia Car manufacturing industry in Australia is an industry employing above 50,000 workers. The industry has been the source of living for the workers that have been employed there. However, the future of these employees did not promise better positive results as in the year 2014, car manufacturers which include Toyota, Holden and Ford announced their shutdown within nine months of each one of them. The reason for their closure was not that simple because if it was such simple, the industry might have been saved. However, the car industry in Australia has grown so that smaller companies are relying on each other survival. The Federal Government failure to regulate tariffs and currencies, the unions, and the lack of more advanced technology are some of the parties that can be blamed for the reason for the collapse of the car industry in the Australia. The Federal Government The actions of the government of creation of trade policies can determine whether a business is going to remain in the business or it will force out of business. Some trade tariffs and trade agreements were created by the government that might lead to collapse and closure of some entities [5]. Policies that offer protection to the businesses of the state offer assurance to the companies that the trade within the country will be favorable. About the above explanation, it is, therefore, true that then the Federal government has contributed to the collapse of car industries. The government of Australia had the mandate of ensuring that local companies are protected. However, the government allowed some of the trade agreements that allowed free trade between the nations which contributed to the collapse of the industry by lowering tariffs [6]. In brief, successive governments from the two sides of politics contributed to the creation of an economic environment that the country of Australia finds itself, into which defines it as a nation with high wages, a stable currency and also low tariffs in the country. Low Import tariffs Tariff refers to the exercise duty or tax paid for the importation or the exportation of goods or services. When the tariffs are lowered in a nation, cheap commodities from other markets outside the country will penetrate inside at a very easy way. Low tariffs do not have any effects on the price of goods which are imported and therefore the imported commodities get a position to compete with the locally produced products. However, if the tariffs are high and the imports are taxed heavily, their price will shoot high [5]. Consequently, the commodities will not be able to compete with the local products as they will trade at higher prices, making the demand of the local products to raise than that of the exported products. High Exchange Rate of the Australian Dollar The high exchange rate of the Australian dollar has contributed to the collapse of the car industry. The high exchange rate of a country about other currencies means that the products are going to trade at a high cost in other countries. Therefore, this is what happened in the Australian car industry. The level of the exchange rate of the Australian was ranging at $US90c in the year 2013 which is very high and contributed to the collapse of the industry [3]. Consequently, the cost of cars from Australia rose and could not compete with other products like of Aussie whose dollar exchange rate has an average of $US75c. The explanation in the above paragraph relates to what exactly happened with the car industry in the Australia. The Federal government in the Australia lowered the tariffs. The condition that followed was that cheap cars from other markets like China and Japan entered the market and started competing with those produced in the Australia. The demand of locally manufactured cars went down due to the high prices while the demand of the imported cars rose since the price was friendly. The manufacturers were even at some point importing car parts from other markets where they were cheaper to see if the production cost would go down. As the demand falls, the company’s production levels of the Australian made cars fell to 200,000 vehicles which were above 300,000 vehicles in the previous years [3]. Due to this, the company could not afford economies of scale, and therefore production levels had to be lowered, and this was one of the things that led to the collapse of the car industry in Australia. The Labor Union Labor cost is one of the costs that make up production costs. Increase in labor cost results in an increase in the manufacture cost of manufacturing a product. Moreover, when the production cost rises, the result is that the prices of the produced commodities will also rise to higher levels unlike when the production cost was low. Consequently, the demand for the products will fall as a result of their high prices. As the demand falls, the demand for the competitor’s products will rise, and the competitor's companies will sell more to experience the economies of scale. Moreover, the Australian car market has grown so small and cannot experience the economies of scale [1]. Consequently, the company that faces low demand due to high prices will be forced out of the market by the companies whose products are selling at low prices experiencing high demand. The labor union in the Australia forced the increase of the wages of the workers thus leading to the increase of the labor costs in the car manufacturing companies. The Fair Work Commission in the Australia in May 2016 ruled out that minimum wages should be increased such that the minimum paid worker could receive $15.80 on a weekly basis [2]. However, the unions felt that this was not enough for the workers compared to the living standard of the lower-side. About this, the trade union was calling for a $ 30 increase, which is double the amount that was being received [2]. The trade unions were also pushing for safe working conditions for the workers. However, this was not possible and could lead to inflation pay rise, which could lead to job cuts. The car manufacturing companies in the Australia were forced to raise the wages of workers by the trade unions to have the lowest paid worker receive a minimum amount of $ 30 per week. However, this would lead to the increase of the labor cost as explained above. Consequently, the production cost would rise which would lead to an increase of the car prices in the market. However, as the prices go higher, the demand of Australian manufactured cars lower. Moreover, cheaper products from other markets like China, Cambodia, and Bangladesh flocked the markets and competed highly with the cars built in Australia leading to the collapse of the automobile industry [4]. Therefore, trade union contributed to the collapse of the car industry in Australia since they forced the wages to increase forcing the labor cost to rise and in turn, the production cost rose which increased the prices of cars. The high priced cars could not compete with cars from other cheap markets like Japan, and the result was the falling of the car industry in Australia. Lack of Evolving Advanced Technology The modern technology is changing each and every day. The change of technology leads to the innovation of new ways of production, which are making it easier for the manufacture of goods. Also, goods produced as a result of the invention of new technology are more advanced and have a new look and therefore compete effectively with the other commodities. Technology contributes to the production of new commodities which are cheaper due to the lower cost of production. Additionally, advanced technology helps in lowering the cost of production since it helps in the invention of new ways of production which are cheaper. To ensure that production of cars is efficient and effective, the Australia car producing company has to invest in the technology. However, there is a loss in the car production industry in Australia as a result of the wide technology that has been invented by other manufacturers in another market. Therefore, a lot of invention has occurred in the electronics and software in the engines, the robots that are used in the assembly of cars and painting and also the sophisticated machine centers [4]. While compared to other countries, Australia is not such advanced in technology [4]. Therefore, competition from well-developed countries with well-developed technologies will be high. Products from well-advanced technologies flocked the market, lowering the demand for Australian cars. The reason why the cars from the Australian market could not compete well with other cars from countries like China and Japan is that these countries are more advanced in technology and their production is effective and efficient due to advancement in technology [4]. Advancement in technology helps in the production of unique products which can compete with other products in the market. For instance, Japan invented a unique small car which could compete effectively with the small car from Australia. Therefore, unique and cheap products due to advancement in technology of other countries competing with Australia have contributed to the collapse of the automotive industry in Australia. Some factors, therefore, contributed to the fall of the car industry in Australia. The government of the Australia failed in the regulation of the tariffs together with the currency of the country and therefore contributing to the collapse of the car industry. Trade union forced the wages up thus increasing the cost of the cars leading to collapse of the industry while the lack of more advanced technology in the country contributed to the collapse of the industry too. The government had the powers to regulate policies affecting the industry, but it failed. References [1] Collapse of Australian car manufacturing industry | Swinburne news. (2017). Swinburne.edu.au. Retrieved 6 May 2017, from http://www.swinburne.edu.au/news/latest-news/2016/10/collapse-of-australian-car-manufacturing-industry-.php [2] Toscano, N. (2017). Australia's lowest-paid workers will receive $15.80 a week minimum wage rise. The Sydney Morning Herald. Retrieved 6 May 2017, from http://www.smh.com.au/business/workplace-relations/fair-work-commission-rules-australias-lowestpaid-workers-to-receive-1580-a-week-minimum-wage-rise-20160531-gp84tp.html [3] What do we lose if the car industry is allowed to fail? (2017). ABC News. Retrieved 6 May 2017, from http://www.abc.net.au/news/2013-08-14/toner---car-manufacturing-in-australia/4886462 [4]What really killed the auto industry. (2017). ABC News. Retrieved 6 May 2017, from http://www.abc.net.au/news/2014-02-13/kohler-the-ogre-of-deflation/5256662 [5]Why the car industry conked out. (2017). Couriermail.com.au. Retrieved 6 May 2017, from http://www.couriermail.com.au/why-australias-car-manufacturers-toyota-holden-and-ford-all-conked-out/news-story/e58e685cc75d3f68feb40d8d0f0711c7 Read More