The Government-Business Relationship in the Australian Car Industry - Case Study Example

The Government-Business Relationship in Australian Car industry Student’s Name Instructor’s Name Subject Details Due Date Introduction In an industry like car manufacturing, the relationship between the government and business involves policies, tax regulations, and financial support. The car industry is characterized by various business needs that mostly require immediate intervention from the government. A stable basis for the operation of this industry is established when relevant legal policies and frameworks are formulated. In the pursuit of step changes, car manufacturing executives lobby the government to influence the nature of its operation. In this industry, the Australian government is responsible for formulating consumer protective legislation and the promotion of free competition and trading (Productivity Commission 2014). Regulations will govern the kind of interaction among customers, suppliers of raw materials and the government. This paper examines the government-business relationship in the car industry taking into account international and domestic contexts. Discussion The Australian car manufacturing industry is a collection of about 100,000 businesses under the management of the Australian Motor Industry Federation (AMIF) that has employed over 320,000. The industry is estimated to generate a turnover of $208 billion from car sales, car collision repair, used car sales, parts recycling and tire and fuel retailing (Productivity Commission 2014). Currently, the industry is struggling to adjust accordingly to meet the requirements and specifications of the global market. These requirements have been instigated by globalization effects, rapid technological advances, changing skill requirements, changing consumer demands and environmental protection policies (Hair & Lukas, 2014). The government-business relationship in this industry is revealed in these reformations. As such, there are significant aspects that are governmental, and some are unitary. But according to Rimmer et al. (2014), the government is affiliated with the car industry because it is a business that can generate income and employment opportunities. Since Australia is a capitalist society, profit is the main aim of the car manufacturing industry. As at 2014, the industry suffered a loss of AUD $1.5 billion (Productivity Commission 2014). This created huge debts in this sector that never met the supply-demand law. In this situation, the government intervened to create a free market economy by regulating car sells to prevent losing the company to overseas. The government has also been struggling to revive the industry as popular companies such as Toyota, Ford and Holden have threatened severally to exit the industry and conduct their businesses overseas. The companies have cited changing consumer preferences, high competitive domestic market and a high cost of manufacturing (Dunning, 2014). Regarding this, the government is a key provider and controller in this industry. Some of the efforts that the government has been making include the enactment of various programs like the Automotive Transformation Scheme (Dunning, 2014). In enacting the ATS, the government was focused on a kind of legislation that would easily encourage innovations and competitive investments in the car industry. It is approximated that this program will generate both capped and uncapped assistance with an estimation of over $2.5 billion and $337 million respectively (Productivity Commission 2014). ATS would foster the government's efforts to offer specialized training to automotive workers. The program would also guarantee labor adjustment to ensure that only quality car products that meet customer demands are produced. The ATS would serve to ensure that the supply chain is correctly managed and controlled so as to retain manufacturing capability in Australia. This strategy was widely accepted by the Growth Fund, which had recognized the efforts the government was making towards the resumption of the car industry. It would be easier to counter car manufacturing issues like excess factory capacity, expensive labor supply and global pressure with the intervention of the government. More often than not, the urgency of the intervention depends on the actual problem that has occurred in the supply system. Majorly, the government supports the car industry financially to help companies to manage bankruptcy. For instance, it is the role of the government to help car manufacturing plants to shift to low-carbon cars by creating industrial policies that are geared towards the establishment of free markets. Over the years, the Australian government has insisted on the establishment of a free car industry by use of natural resources (Carroll & Buchholtz, 2014). The current world economy requires such adjustments to changes that would otherwise shut the whole system. Poor industrial relations between the car manufacturing plants and the government would pull the two apart and result in a misunderstanding of the car manufacturing objectives (McAdams et al. 2015). It is the role of the government to support and contribute to the development of products that are genuine and up to the proven pedigree. As a result, carmakers are barred from cutting back on investments that would otherwise establish a thriving car manufacturing industry. In such a business industry, the government is a key regulator of exports and imports. By these terms, it means the imported and exported car parts, materials and car models. The government should conduct discussions with the industry to ensure that cash subsidies from taxpayers are regulated accordingly, and those price competitions for both imports and exports are equally controlled. For instance, the Toyota Australia had earlier on announced 100 redundancies before its brink of collapse in 2014 (Productivity Commission 2014). A popular trend that has been registered in this business is the reduction of the local market share attached to Australian car manufacturers. The industry is dying because of the reason that the reduction of the local market share has instigated the downfall of cars and car parts by almost half. The government has enacted tax regulations that command expensive rates due to high exchange rates. Trade agreements that are supposed to be formulated and discussed with other countries have not been initiated thus leading to a five percent cut of the car and car parts imports to the country. According to Rahman et al. (2015), the local content tax incentives and arbitrary customs valuations have both contributed to the absence of free trade agreements. For instance, the Australian and Thailand governments have formulated a free trade agreement, but it isn't working because of the internal excise tax (Cavusgil et al. 2014).Though there is some financial support from the government, the Australian car industry has not managed to measure on the global scale. Obviously, successful federal and state governments have options of only cash support without taking into consideration the aspects such as tax that shape any business industry. The Australian car manufacturing industry would heavily rely on exports if it lacked local car production plants (Bergek et al. 2014). There are tariff and non-tariff barriers that govern the operations of manufactured imports and exports. Regarding this, manufacturers will be protected thus raising the productivity of the car industry. The car industry and the government are supposed to join hands and use existing resources in building an effective partnership. The government takes this role as a formulator and implementer of relevant of relevant public policies that are geared towards managing the industry effectively and efficiently (Thoms & Holden, 2016). It is the role of the government to qualify and quantify the actual contributions of the Australian car industry to the economic and social wellbeing of the country. The government identifies inefficiencies, uncoordinated policy responses and potential duplications in the industry and formulate proper mitigation strategies. Sector restructuring and action generation are also the areas in which the government and the industry intersect. The Australian government has the mandate to define the new structure of the car industry to fit in the current market world (Beer, 2015). Additionally, the government is expected to identify long-term policy framework that defines investments and industry regulations for the common benefit. Whether the Government decision was wrong or right The Australian government's decision of denying to support the car industry financially was a right thing to do. It would have been more expensive to taxpayers to prop up the car industry. For instance, despite the fact that the government has been channeling over $1.8 billion as financial assistance to Holden in the last ten years, the company is still not able to operate effectively (Productivity Commission 2014). As much as there were economic implications, this decision was awesome to the general public. When such industries are facing strong economic problems, they need economies of scale to help them out of their woes rather than financial help. Even when financial help was to be generated from the government, the industry would not have survived since car makers had gone beyond the current business model by relying heavily on foreign parts to cut down the costs. The car makers would have found it difficult to interact freely in the existing supply chain. Conclusion Car manufacturing companies like Holden and Toyota would not have been saved since the rest of the industry was foreign dominated. Regarding this support, the taxpayer would have lost more than $1.5 billion to revive the manufacturing operations (Rahman et al. 2015). But as per Carroll & Buchholtz (2014), to effectively prop up the car industry, it required an amount of more than $1 billion. This amount does not include hidden costs that various programs would have consumed. Significantly though, when the factors of the number of workers and employees in different car manufacturing companies and the amount of revenue the industry generated yearly would relatively meet the resumption cost. Therefore, the government should unite efforts with various car industry stakeholders and investors to start repairing and retraining employees. References Beer, A. (2015). Structural adjustment programs and regional development in Australia. Local Economy, 30(1), 21-40. Bergek, A., Berggren, C., & KITE Research Group (2014). The impact of environmental policy instruments on innovation: A review of energy and automotive industry studies. Ecological Economics, 106, 112-123. Carroll, A., & Buchholtz, A. (2014). Business and Society: Ethics, Sustainability, and stakeholder management. Nelson Education. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia. Dunning, J. H. (2014). 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