The Australian Car Manufacturing Industry - Case Study Example

The industrial policy in Australia has undergone major transformation in the last 30 years. The Australian economy has reduced tariffs in different industries from 35 percent to 5 percent and includes the motor vehicle industry. The prime reason for moving in that direction is that it will help the Australian economy to meet with the free trade agreement provided by Asia-Pacific Economic Cooperation (APEC). Reducing barriers have impacted the domestic industry adversely which is seen in the case of car manufacturing industry. This paper will look at examining whether reducing the financial support to the Australian car manufacturing industry was a wise move as it has impacted the industry adversely and has made it difficult for the industry to become sustainable. The Australian car manufacturing industry was being heavily subsidised by the government. Looking at the size of the economy and seeing the manner in which an industry is supported it was witnessed that the assistance is very low on the basis of assistance per capita. Since, the Australian economy is small in size as compared to other industries based on population so looking the same based on vehicles sold is important. It was seen that the assistance given falls under the category of mid ranking and is the highest in the world. This shows that the assistance which the Australian economy provides to the car manufacturing industry is the highest in the world. To ensure that they abide with the needs of free trade agreement it is important to reduce the support which the car industry is getting through financial support. Apart from it the number of vehicles which are sold in Australia is very low. It is imperative that a minimum of 200,000 to 300,000 cars are manufactured to make the care industry viable. Instead the number of vehicles which was manufactured in Australia per year was 45,000 which is very low (Cowan, 2014). This makes the industry to be unsustainable and the industry requires support. But it is viable to support an industry which has a production of less than 25 percent? The government decision to reduce the protectionism and reducing the financial support is correct as sustaining an industry which is on the downward movement is correct. This is supported by the fact that both Ford & Toyota states that they were stopping production in Australia not because of the government decision to not provide assistance but on the fact that the Australian car manufacturing industry didn’t seem viable and would continue to a loss making unit. This substantiates the fact that supporting an industry which has little or no chance of becoming sustainable by itself is correct. There was hardly any evidence supporting the fact that the car manufacturing industry would become sustainable in the future so removing financial support was a wise decision. In addition to it the cost associated with manufacturing cars in Australia was high compared to other parts of the world. Ford has estimated that manufacturing a car in Australia was twice as expensive as compared to Europe and four times more expensive as compared to Asia. This was on the backdrop of high cost of labour and high component part cost. Since, the ancillary industry in Australia is not competitive and there are few players supplying the different products so the overall cost for the business has increased. This is a difficult situation as the cost is continuously increasing which would either reduce the profits or increase the price of cars. Both of the decisions would be fatal and would not provide the expected returns (Bailey, Bentley, Chapain. deRutyer, Hall & Mahdon, 2006). This thereby makes it difficult for the industry to be sustainable as cost would further increase in the future. This strengthens the fact that withdrawing the financial support which the government provided to the car manufacturing industry was correct. Since, the industry was witnessing high cost which was making it difficult for the business to become sustainable even from different areas so reducing the financial support was correct. Reducing the tariff barriers also helped the Australian economy to deal with the external world in a better way. Studies have shown that reducing the trade barriers have helped to increase the family income by nearly $4000 per year. This is on the backdrop that opening up the economies has helped the economy to take advantage of the competition which trading with countries provide. This would help to transform the industry and would provide an opportunity for the Australian economy to grow. Reducing barriers has also helped the industry to become competitive and has provided an opportunity to use the different resources wisely. Since, the decision of reducing financial support to the car manufacturing industry has helped the economy of a whole so it seems like a wise decision. It shows that the process has helped the Australian economy to transform the manner in which the economy works which would thereby help to reap richer rewards in the future. The process of removing financial support has helped to reduce the cost of procuring a new car. People are finding it easy to purchase a new car at a even low price then they used to pay before. This is a good sign as the decision has helped the people to be better off as the products are available at a cheaper price. This can be further improved by loosening importation on the sale of second hand cars. This will further give a boost to the car industry and would provide an opportunity where more and more people would look towards purchasing a car (Abrams and Parsons, 2009). This will thereby help to improve the overall economy. The process signifies the fact that removing financial support is a wise decision as it will increase the overall sale of cars and provide more revenue to the government. This will thereby help the economy to be able to garner better results in the future and would support the entire economy over a longer period of time. So, the decision to remove the financial support seems correct and would help the economy. Apart from providing financial assistance to the car industry the Australian government had supported the industry in other ways as well. The government had provided different assistance with regard to the availability of other ancillary units so that the entire production can be carried out easily. This is another manner where the government had looked at supporting the car industry. This shows that the government had taken different steps in supporting the car industry but since the gains which was supported was limited so withdrawing the financial support is appropriate. The support which the government was providing to the car industry was for decades and even after such a long time the industry didn’t become sustainable by itself. Given the huge time to the car industry shows that the government supported the industry but even after such a long period of time the industry didn’t become sustainable by itself. Supporting the industry further would mean that other industry would look towards the car industry with suspicion so withdrawing the financial support is a correct decision. Despite the fact that the government has looked towards removing financial support it has also impacted the economy. Removing the financial assistance means that the industry would be shut down which would lead towards unemployment. People employed in the automobile industry would be unemployed and will have to look for new avenues. The different ancillary units which were carrying on their business based on the car manufacturers would be shut down leading to a rise in unemployment. Apart from it other people associated with the car industry would find it difficult to sustain a living. This would have a negative impact on the entire economy and is an area which the government needs to consider before taking any decision. This could have an adverse and negative impact on the future of the economy and could lead towards impacting the life of people. The government needs to weigh the gains and loss from removing the financial assistance and based on it need to take decision so that the economy is not affected. Looking at the cost and benefits associated with the financial assistance which the car industry was garnering it is seen that removing the financial assistance would garner more benefits. Since, the cost is high as compared to the benefits so removing the financial assistance would be a better option. This paper thereby evaluates the different reasons for supporting or not supporting the financial assistance. It is seen that removing the financial support from the car industry would fetch better rewards over a longer period of time as the cost associated is higher than the benefits. This would help the economy over a longer period of time as it would benefit the other industries as well and help the economy to work on the policy of free trade. The process would reduce protectionism and would thereby help to transform the entire economy to work on a global scale. References Abrams, B. and Parsons, G. (2009). Is CARS a Clunkers?, The Economist’s voice, August. Bailey, D., Bentley, G., Chapain. C., deRutyer, A., Hall, S. & Mahdon, M. (2006). Dealing with plant closures and redundancies: key lessons from MG Rover, Birmingham Business School, briefing note, viewed 18 April 2017, Read More