Reasons for the Collapse of the Car Industry in Australia - Case Study Example

Student Name Institution Tutor Date Reasons for the collapse of Car Industry in Australia Introduction By year end 2017, car manufacturers ford, Mitsubishi, Toyota and Holden will have ceased manufacturing in Australia, shifting their assembly to other countries where there is significantly lower cost of production. According to Bayari, several factors have led to this situation including the Australian market being too small therefore, unable to meet the economies of scale (45). To remain afloat, manufacturers have had to use foreign inputs that are cheaper such aslabor and spare parts. The local conditions have been impossible due to a number of factors including lower import tariffs, free trade agreements, good working conditions and higher wages fronted by unions. A stronger Australian dollar and failure by the government to observe international emission standards and trends are also some the contributing factors. It is almost impossible to compete yet labor costs in Australia are four times those of her Asia pacific neighbors. Apart from direct loss of jobs from the motoring industry, which statistically stood at around 73,773 in the year 2009-2010,there are other supporting sectors that are bound to be affected both upstream and downstream, that is, architecture, informationtechnology, scientific research,engineering,accounting,market research,advertising,management,professional photography just to name a few. This paper looks at some of the dominant reasons for the collapse of car industry in Australia with specific interest on the role of unions (Spoeh 45). Barriers of Entry Barriers of entry entail high cost of labor and a strong currency. These have a significant impact on the Australian auto industry. Holden cut 12% of the labor force in 2013 and further announced a pay freeze engagement for three years to the retained workers to sustain the operation of its plant in the southern part of Australia.The move by the unions to push for higher pay for the Australian worker and better working conditions made Australian auto workers generously paid pushing up the cost of production of cars in Australia. Auto industry workers in Australia for instance earned around 4 times higher than their counterparts in the Asia pacific nations (Spoeh 45). In Thailand for example, Holden paid a minimum wage of less than $2 an hour. With those in vehicle assembly receiving a higher pay of $6 per hour or average of $12,500 annually. The strong Australian dollar is less competitive at the export front and in contrast facilitated cheaper imports from rising markets like Thailand and china fueled by globalization. Australian manufacturers ultimately have a disadvantage against imported products. Despite a general rise in car sales, the sale of vehicles made in Australia has dropped significantly by 20% (Bayari 77). Free Trade Agreements Ten years into the signing of the free trade deal with Thailand, Australia is bidding farewell to a whole industry with more than 50,000 jobs. These jobs are shifting to Thailand branded the Asia pacific Detroit, being the second largest motor vehicle source for Australia led by japan and atop SouthKorea. With a low or no tariff to import imports running over the last decade, foreign cars that are much cheaper yet better equipped have flooded Australia. That has effectively eaten up a big chunk of the volumes needed by the local car manufacturers to remain operational. Over 15 years back Holden led the market with its commodore with average sales of 100000 units annually. However for the past 5 years, smaller cars like Toyota corolla and Mazda3, have held the lead with only around 40000 units. ToyotaHiluxUte grabbed top spot last year with a similar figure.No car manufacturer world over can operate selling such lean volumes save for the category of Lamborghini or Ferrari whose supercars are sold at super-high pricing (Spoeh 10). The flooded imports in Australia have made buyers spoilt for choice with variety unrivalled by no other nation in the world apart from china. Australia leads in automotive brands standing at 64, with UK running 42 while USA retails 38. Despite literally being spoilt for choice, the car market in Australia became so lean such that it could not sustain the local manufacturers. Export was not their option either because she has developing neighbors with cheaper labor. Australia has had many free trade agreements but none has matched the one with Thailand signed in 2005 in brutality. Since agreeing to scrap import tariff to Thailand made cars, Australia has purchased close to 2 million cars from the neighbor. On the contrary, Australia has exported a paltry 100 cars to Thailand because the former completely opened her borders while the later skillfully maintained some concealed non-tariff barriers .Thailand ingeniously maintained charging high fees for registration of larger engine cars like those from Holden and Ford. Australia need not export Toyota to Thailand either because Toyota already runs a Camry factory there. Australia is ultimately the only nation around the globe to manufacture vehicles and not run any form of protection for its industry (Policy and Planning Group 2). Poor Government Policy on Car Emissions Car manufacturers globally are over-emphasizing the aspect of carbon emissionsin their vehicle brands consequently improving fuel efficiency and economy this being aimed at environmental conservation. Constant policy lapse and significantly ignoring the need by Australian car manufacturers moving from processing high co2 emitting cars led to Ford closing shop. The closure by Ford brand of vehicles of its’ Geelong plant in Australia puts into focus an aspect of Australian policy that has often been constantly overlooked and that is the government complacence on emissions policy. This is in contradiction to the statement “climate change has no impediment on economic growth” made by former treasurer Joe Hockey. This made Australia lag behind when action on climate change was being embraced globally. Warning signs. The global fuel economy initiative (GFEI) was launched by the global community in 2008 to oversee and enforce significant reduction in greenhouse gases emitted by cars by setting a minimum global target so as to increase fuel efficiencies. Thisencompassed 50%increase in fuel economy in all subsequent light duty cars by 2030.The GFEI even committed to help the Australian government to craft a more acceptable fuel policy. Come the year 2013 global sales for passenger vehicles had to conform to co2 emission standards. This achieved up to an 80% rate accompanied by complimentary economic steps being introduced to boost the standards, consequently pushing the market to choose vehicles that emitted lower co2 (Policy and Planning Group 3). By 2005, the car industry in Australia voluntarily adopted a target of 222g of co2 per kilometer by the year 2010.This however was below the global standards therefore meant Australian vehicles had poor fuel efficiency. This was worsened by the fact that the government never put any pressure on the car industry to improve vehicle fuel efficiency. The industry therefore didn’t manage to achieve the global emission target. The emissions from cars manufactured in Australia averaged 247 g/km in 2010 11% above the voluntary target. The government of Australia made it mandatory for all commonwealth countries’ used vehicles to be acquired from Australia, with the exclusion of using “environmental considerations, e.g. fuel efficiency “as a parameter (Commonwealth of Australia 2015, 10). The government formed a productivity commission review for the industry whose mandate would be to examine global competitiveness, long term sustainability, trade barriers and export.at which point the Australian car industry made public its’ intention to stop manufacturing in Australia. Consequently the commission did not assess the impact the climate policy steps had on the domestic vehicle industry. Industry stakeholders expressed their displeasure with other measures like excise or vehicle taxes which they said would hamper Australia exports. An example was the 36% tax by Ireland on new small passenger vehicles emitting more than 225g co2 per kilometer. This would touch most vehicles made in Australia. Encompassed in the rules of the world trade organization ,governments are free to ban imports which do not meet product standards if they do not bear non-tariff barriers.to achieve this exception, it needs to have a measurable policy for instance CO2 emissions based excise tax applied to all products sold both domestically and imports and bolster the climate change war. After being adopted, these standards regulating emissions as well as supporting economic incentives limited car manufacturers and importers’ ability to sell many vehicles that emitted high co2.to maintain sustainable levels of production, manufacturers have had to sell these high emitting vehicles to nations with low or lacking standards like Australia, making it a dumping grounds. The government of Abbott supported the G20 energy efficiency action plan which entailed improving energy efficiency as well as well as emissions performance of vehicles by raising local standards in the car fuel efficiency and vehicle emissions. In spite of the action plan, norecommendations were made to introduce the emissions standards into the governments’2015 white paper. Subsequent Australian governments, industry players and trade unions have not appreciated the effect of climate action to the financial interests of the Australian car industry. The government is now re-examining standards in fuel efficiency and related measures but the report will be made next year. Consequently this measure comes a bit too late so can’t save the industry .had the government forced the local vehicle industry to comply with the international standards, it would have been beneficial saving the cost of a complete shutdown. To compete favorably the Australian car industry had to choose embracing cleaner technologies to match the standards demanded by importers or altogether abandon exporting vehicles. Lethal Subsidies Recently, Toyota Australia reported 100 redundancies since exports are falling. Australia's auto producing industry is on the precarious edge of collapse. Ford has reported its closure; Holden and Toyota will soon take after without further money endowments from citizens, and arrangements are in progress with the new Government to concede to the sum. Toyota is principally export oriented - to the Arabian Peninsula, which likewise happens to be the main region on the planet without its own vehicle fabricating industry, which means it's the sole region importers get the chance to have a say on price. The only nation with a vehicle producing industry to which you can send out vehicles successfully, and compete on cost, is Australia (Hugh 21). Australian producers' share of the domestic market has tumbled from a fifth to a tenth in five years and exports have declined by more than 50%, which is the reason the business is in a coma, biting the dust. It's incompletely in light of the fact that they don't make enough little cars and SUVs, which are presently the most preferred cars, however it's for the most part a direct result of cost. Australian vehicles are excessively costly, which has been occasioned by the exchange rate being high.Incidentally, it has little effect to exports whether we have an (FTA) or” free trade agreement” with another nation or not, in spite of the fact that it cuts 5% from the autos imported from that nation into Australia (Hugh 24). Australia has a FTA with Thailand. The Ford Territory, which costs amongst $39,990 and $62,740 in Australia, costs around $100,000 in Thailand. The comparable locally manufactured car in Thailand costs $35,000. The principle purpose behind the distinction is an inside extract assess which gets around the FTA. There's likewise a duty discount for first vehicle purchasers that exclusive applies to vehicles made in Thailand. Australia additionally has a FTA with Malaysia, yet Australian makers report they have no expectation of exporting vehicles to Malaysia as a result of unpredictable tax valuations and tax incentives for their local content. Tony Abbott, the prime minister has put a due date of 12 months on arranging a FTA with China, the world's biggest auto market (Barbaro and Spoehr 61). Chinas’ auto demand is hitting 20 million a year. As indicated by the China Association of Automobile Manufacturers, 1,935,800 units were sold in September, of which 1,926,600 were made in China. Thailand and Malaysia have "free trade" with China through the China-Asean FTA, however they not selling large volumes of autos there, either on account of non-duty barriers like the ones Thailand and Malaysia themselves subject on auto imports, or in light of the fact that they are notfairly priced. Whatever the case, Australia will be in a similar situation, twofold, once an Australia-China FTA becomes effective. With deals to rich Arabs declining in the main free market for autos, it is impossible Toyota and Holden will do any great in China, trade barriers notwithstanding. Also, if FTAs are ever made with China, Japan, Korea and India, which are the ones as of now being arranged, then the Australian auto industry will close instantly. Those nations will build deals into Australia with a 5 % price reduction. Toyota and Holden will not compete in those nations (Barbaro and Spoehr 61). Progressive state and governments think Australia require an auto industry since they continue giving the carmakers money, but not exactly enough to stop them bit by bit leaving business. Without domestic auto generation, Australian assembling would need to depend totally on exports, which may be fine aside from Australian expenses are high and different nations have non-tariff and tariff barriers on processed imports. They are glad to purchase our assets duty free, from which to make their own particular makes, yet producers are generally protected. That raises the cost of manufactured items (Commonwealth of Australia 2015, 12). Conclusion It is evident that long term policy and protection especially from the government would have saved the all-important auto industry in Australia. However the common Australian buyer also need s to take a portion of the blame for extensively being too liberal in vehicle tastes, singing buy Australian yet driving imported brands. References C. Bayari. (2012) ‘‘Australian Economy and Neo-liberalism: Manufacturing, Trade and Bilateral Links with Japan in the Post-Keynesian Age’’. Sydney: LIT Verlag Münster. P. Hugh. (2010) ‘‘Pacific Basin Industries in Distress’’. Columbia: Columbia University Press. B. Barbaro, and J. Spoehr. (2017). ‘‘Closing the Motor Vehicle Industry: The Impact in Australia’’ [Online] Available at J Stanwick, M. Circelli, and T. Lu. ‘‘The End of Car Manufacturing in Australia: What is The Role of Training’’? [Online] Available at Commonwealth of Australia (2015). ‘‘Economics References Committee: Future of Australia's automotive industry’’. Canberra: Senate Printing Unit, Parliament House. J. Spoeh, ‘‘Far from the Car – the case for transformational change in response to the closure of the automotive manufacturing industry’’. April 26, 2017 Policy and Planning Group. ‘‘Automotive Industry Environmental Scan’’. [Online] Available at Read More

Free Trade Agreements Ten years into the signing of the free trade deal with Thailand, Australia is bidding farewell to a whole industry with more than 50,000 jobs. These jobs are shifting to Thailand branded the Asia pacific Detroit, being the second largest motor vehicle source for Australia led by japan and atop SouthKorea. With a low or no tariff to import imports running over the last decade, foreign cars that are much cheaper yet better equipped have flooded Australia. That has effectively eaten up a big chunk of the volumes needed by the local car manufacturers to remain operational.

Over 15 years back Holden led the market with its commodore with average sales of 100000 units annually. However for the past 5 years, smaller cars like Toyota corolla and Mazda3, have held the lead with only around 40000 units. ToyotaHiluxUte grabbed top spot last year with a similar figure.No car manufacturer world over can operate selling such lean volumes save for the category of Lamborghini or Ferrari whose supercars are sold at super-high pricing (Spoeh 10). The flooded imports in Australia have made buyers spoilt for choice with variety unrivalled by no other nation in the world apart from china.

Australia leads in automotive brands standing at 64, with UK running 42 while USA retails 38. Despite literally being spoilt for choice, the car market in Australia became so lean such that it could not sustain the local manufacturers. Export was not their option either because she has developing neighbors with cheaper labor. Australia has had many free trade agreements but none has matched the one with Thailand signed in 2005 in brutality. Since agreeing to scrap import tariff to Thailand made cars, Australia has purchased close to 2 million cars from the neighbor.

On the contrary, Australia has exported a paltry 100 cars to Thailand because the former completely opened her borders while the later skillfully maintained some concealed non-tariff barriers .Thailand ingeniously maintained charging high fees for registration of larger engine cars like those from Holden and Ford. Australia need not export Toyota to Thailand either because Toyota already runs a Camry factory there. Australia is ultimately the only nation around the globe to manufacture vehicles and not run any form of protection for its industry (Policy and Planning Group 2).

Poor Government Policy on Car Emissions Car manufacturers globally are over-emphasizing the aspect of carbon emissionsin their vehicle brands consequently improving fuel efficiency and economy this being aimed at environmental conservation. Constant policy lapse and significantly ignoring the need by Australian car manufacturers moving from processing high co2 emitting cars led to Ford closing shop. The closure by Ford brand of vehicles of its’ Geelong plant in Australia puts into focus an aspect of Australian policy that has often been constantly overlooked and that is the government complacence on emissions policy.

This is in contradiction to the statement “climate change has no impediment on economic growth” made by former treasurer Joe Hockey. This made Australia lag behind when action on climate change was being embraced globally. Warning signs. The global fuel economy initiative (GFEI) was launched by the global community in 2008 to oversee and enforce significant reduction in greenhouse gases emitted by cars by setting a minimum global target so as to increase fuel efficiencies. Thisencompassed 50%increase in fuel economy in all subsequent light duty cars by 2030.

The GFEI even committed to help the Australian government to craft a more acceptable fuel policy. Come the year 2013 global sales for passenger vehicles had to conform to co2 emission standards. This achieved up to an 80% rate accompanied by complimentary economic steps being introduced to boost the standards, consequently pushing the market to choose vehicles that emitted lower co2 (Policy and Planning Group 3). By 2005, the car industry in Australia voluntarily adopted a target of 222g of co2 per kilometer by the year 2010.

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