Australia Car Manufacturing Industry - Essay Example

Causes of collapse of Australian Car Manufacturing Industry Name Professor Date Australian Car Manufacturing Industry The Australian automobile industry holds a long history starting from 1897 when it first manufactured its first vehicle [1]. By the year 2000, the Australia car manufacturing industry had gained momentum with many players joining and offering employment to several Australians. Despite the signs of growth in the past years, the Australian car manufacturing industry has since collapsed. Attempts to make the industry thrive have failed and even the remaining manufacturers such as General Motors Holden, Toyota and Ford have since announced their exit by the end of 2017 [2]. While some market analysts argued that it was the trade unions, which caused the demise of this industry, others think otherwise. Therefore, drawing from various journal articles and other literature, this essay will discuss the dominant reasons for the collapse of this industry, paying particular attention to the role of unions. The Australia car manufacturing industry has been an important sector of the economy since its inception. The industry has been employing thousands of people as engineers, accountants and financial officers, loaders, technicians, sales workers, quality control officers and business development managers. Australian Bureau of Statistics indicated that in 2015, this industry was valued at $8 billion and employing over one million people equivalent to nearly 8.5 percent of the total workforce [3]. Furthermore, the sector remains the major contributor to GDP in Australia. The argument is attributed to the fact that Australia Car manufacturing is a great tax payer thus helping in the growth of the economy [3]. During the early years of the industry formation, the domestic industry had shown an increase in demand for locally made vehicles. The high demand led the local company Holden General Motors increase its production and product portfolios. However, in 2014, Australian Workplace and Productivity Agency stated that, in the recent past, vehicle manufacturing in Australia has declined tremendously due demand for foreign cars [4]. Competition is based on quality and fuel consumption efficiency. Research shows that most of Australians now have swapped patriotism for affordable, broader choice and desirable cars and import from developed markets like Japan, the US, the UK and Germany. In fact, a report by productivity commission in 2014 claimed that the share of gross domestic product from manufacturing dropped from 13.1 percent in 1980 to 5.6 percent in 2013 [4]. Therefore, the decision of GM Holden, Toyota and Ford to exit operations in Australian market followed a series of decline in their profit way back from the mid-2000s. Trade unions have been blamed for the collapse of the industry. A trade union is defined as an organised group of workers within a trade or profession that is created to further and protect their interests and rights. Such rights and interest include better working conditions, better protection against the dismissals, high morale and motivation and better insurance among others. Vehicle manufacturing sector in Australia had been unionised since its inception [5]. Studies show that Vehicle Division of Australian Manufacturing Workers Union has nearly a full coverage to non-managerial staffs in the manufacturing companies including the coverage for the majority of first tier suppliers. The market research report claims that the AMWU implemented substantial bargaining power within the Australian car manufacturing sector, especially at the time when tariff protection was high and the majority of cars sold locally were produced in Australia, and even in the post-protectionist period [5]. The demand for more wages and allowances when the profits are declining have been cited a cause for the collapse of the car manufacturing industry in Australia. For example, in 2002, the Industry Minister in Howard government criticised the unions as being the greatest sole threat to the existence of the Australian manufacturing industry [5]. The statement came to pass when the last remaining companies announced exit in 2017. The logic is when one pays higher wages; the cost of operation goes higher than profits hence making the company even borrow money to pay for salaries. As such, the company operates in debt, which cannot be sustainable. The industry players claim that the current minimum wage, which stands at AUD17.70 per hour is too high considering that the car manufacturing industry profits have been declining. The Car Manufacturing sector in Australia is small and it cannot wholly take advantage of economies of scale [3]. Therefore, to stay in business, the companies have to utilise cheaper production inputs such as parts and labour. This is not realistic due to collective bargaining for high wages and high minimum wage. Similarly, unions had pushed for better working conditions. The better working condition includes the occupational safety, less working hours, sick leaves, unpaid leaves and more holidays. Workers are not totally to blame for demanding better working condition. Studies show that good occupational health is an ideal practice for ensuring better conditions of work. Occupational health involves every aspect of safety and health in place of work and has a great emphasis on primary hazards prevention [9]. Working conditions have a major impact on the motivation level of employees. A company which does not put much emphasis on working conditions of the workers exposes them to risks such as diseases and injuries. As a result, the situation leads to low level of motivation. Most players in the Australian car manufacturing industry have been accused of bad working condition a situation which has resulted in industrial strikes [10]. There has been a push by the union leaders for the company to purchase more protective gears, to increase the number of training on health and safety and reduce the number of working hours. However, push for the better working condition is not realistic, particularly when profits are failing. In fact, improving health and safety, more training, and less working involves the use of money; a process which would plunge the company to more losses. However, despite union issues such as pressure for higher wages and better working condition being a direct cause of the collapse of the car manufacturing industry, other indirect issues related to union challenges also contributed towards the demise of this Australian industry. Some of these issues include currency fluctuations and tariff protection. The high exchange of the Australian dollar is another factor which has hindered Australia automobile competitive on the global market. The present historically higher value of the exchange rate of the Australian dollar has put the sector under more competitive pressures, from its cheap imports and its impacts on the export competitiveness [6]. Such situation has hampered endeavours to improve scale concerns by means of expanded manufacturing for exports. For instance, such circumstance had resulted in affordable imports while undercutting the competitiveness of exported cars from Australia market. Exports remained a major element in the government's initiative to propel the levels of local manufacturing and to ensure plants remain open. Concurrently, Australia automobile manufacturing industry has been caught up in currency wars with its trading partners such as China, Japan, the US and Europe [5]. These partners have been printing loads of money in an attempting of stimulating their economies. The currency fluctuations led to declining profit making it hard for the company to fully implement collective bargaining. Despite the drop in profits as a result of more imported cars, unions have been putting pressure on the companies to increase wages [8]. Labour wars have been affecting the performance of the market players making them opt out. Tariff and government assistance is greatly linked to the demise of Australia car manufacturing sector. Tariffs and government assistance are also issues that indirectly affect the union. The establishment of Automotive manufacturing in Australia can be traced in the early 1990s when “Protectionist settlement” was created and in which domestic industry players were protected from foreign companies through tariffs [5]. However, opening the market to foreign investors by entering into agreements with other countries and removal of tariff protectionism puts pressure on the industry. In 2014, Workplace Express asserted that several foreign car manufacturing companies started exporting their cars to Australia lowering the cost of buying cars and making varieties available to the locals [7]. As a result, this negatively impacted on the profits of domestic manufacturers. Struggling to compete with superior brands and cheaper imports, some players responded by laying-off some workers. One of such companies is Mitsubishi which laid-off its workers and closed its operations in 2008 [5]. Such situations put union at loggerheads with companies as the union leaders demanded compensation for sacked employees. Therefore, the struggle between union and companies led to the demise of the sector. In conclusion, it is evident that existence of Australia car manufacturing industry has supported many people, including not just individual employees but also other firms such as market research, computer systems design, accounting companies firms, law, advertising and consultancy firms. Therefore, its collapse has greatly affected the Australian economy. However, the reason for the collapse of this industry cannot be ignored as it can happen to other sectors too. The paper has learnt that Australian car manufacturing industry collapsed due to pressure from the union. The demand for high wages and better working condition while the profits were falling did put a strained relationship between employees and the management. Other related issues which contributed to the industry collapse include tariffs and the high dollar. Therefore, this paper concludes government should not ignore such issues as they remain a threat to the existence of other industries. References [1] P. Commission, “Australia’s Automotive Manufacturing Industry”. Commonwealth of Australia, Melbourne, 2014. [2] J. Dowling, “Why Australia’s car manufacturers — Toyota, Holden and Ford — all conked out”, The Courier Mail, para 15, February 14, 2014. [Online]. Available: http://www. The Courier Mail.com.au. [Accessed April. 24, 2017]. [3] A. Valadkhani, “Collapse of Australian car manufacturing industry”, Swinburne University of Technology, October 21, 2016. [Online]. Available: http://www. SwinburneUniversityofTechnology.edu.com. [Accessed April. 24, 2017]. [4] Productivity Commission, Automotive Manufacturing Industry. Productivity Commission Inquiry Report, 2014. [Online]. Available: http://www.pc.gov.au/inquiries/completed/automotive/report/automotive.pdf. [Accessed: April. 24, 2017]. [5] S. Clibborn, R.D. Lansbury, and C.F. Wright, “Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?” Economic Papers, vol.35, no.1, pp.2–15, March 2016. [6] G. Hoy, “Cries for help as high Aussie dollar set to stay”, 15th May 2013. [Online]. Available: http://www.abc.net.au/news/2013-04-23/high-aussie-dollar-730/4647220. [Accessed April. 24, 2017]. [7] Workplace Express, “Thousands of Toyota Workers to Lose Jobs, as Local Car Manufacturing Ends”. Workplace Express. February 2014. [8] B. Potter, “Unions ‘Preying’ on Auto Sector: Ai Group”, Australian Financial Review, December 2013. [9] M. Quinlan, P. Bohle, and F. Lamm, Managing occupational health and safety: A Multidisciplinary approach 3rd Ed. Palgrave Macmillan, 2010. [10] C.F. Wright, C.F. Clibborn, S. and R.D. Lansbury, “Becoming an Endangered Species? The Future Viability of Australian Automotive Manufacturing”, International Journal of Automotive Technology and Management, vol.11, pp.172–88, April 2011. Read More