The Australian Car Manufacturing Industry - Essay Example

Name Institution Tutor Date The car manufacturing industry in Australia has for a long time, providing employment to about 5% of manufacturing sector workers (1:5). However, it is a dying industry, a trend that began in February 1992 when Nissan closed down its Australian assembly line, leading to the direct loss of about 2,000 jobs [2:327]. Mitsubishi Motors also shut down in 2008, and Ford Australia followed in 2016 [3:98]. Toyota and GM Holden have also announced their intention to close down their manufacturing plants by early 2018 [4: par.1-3]. Trade unions have often been blamed for the challenges that have led to this apparent total collapse of the industry [5:3]. While there are a number of factors that led to the industry’s decline, union activity was a significant cause. This paper discusses the major causes of the Australian car manufacturing industry’s failure, and argues that union activity was the main factor. Factors behind the Exit of Car Manufacturers The size of the Australian market compromised the viability of the industry. According to [6:par.3], productivity in the country was minimal because they were not able to enjoy economies of scale that usually help to make their operations productive. This is because the Australian market is by its nature rather small. For this reason, most were forced to dwell too much on cost-cutting, as a result of which they had to import production inputs from wherever they felt they were cheaper. Simply moving to those sources therefore later made sense. Minchin [2:330] also believes that unsustainable employee turnover could have caused the lack of productivity. While elsewhere workers relied on employer pension and health insurance plans, in Australia they could depend on state medical care, contributing to lesser worker loyalty that was supported by union interventions, higher turnover and a rationale for shutting down. The elimination of state protectionism led to unfavorable competition. According to [5:3], free market practices adopted in recent decades made it difficult for the manufacturers to survive. Up to the 1970’s, the government had a sustained policy of protectionism. However, this was later abandoned, and instead it opted to provide them with assistance packages, while entering into Free Trade agreements with other countries. This was destructive, as companies became more exposed to the competitive challenges for instance a massive growth in vehicle imports from 31% in 1992 to 81% by 2012. With such competition, companies had to struggle to remain in Australia. Williams [6:3] observes that the agreements hurt companies as they pushed down the price competitiveness. Dowling [4:34-36] also explains that one such agreement was with Thailand as from 2005, where Australia lifted import tariffs for Thailand-made cars, hence importation of about 2 million units including the same brands manufactured in Australia, while Australia was only able to sell 100 units to Thailand. Currency instability reduced Australia’s viability. According to [5:3-5], the Australian dollar has been undergoing considerable fluctuations within the last decade. During the mining boom experienced during the mid-2000s, the Australian dollar’s value in the mining boom escalated from 0.51 against the US dollar to 0.94. When the global financial crisis set in, there was a small drop in its value. However, it regained its upward trend, so that it reached 1.09 in 2011, which was the highest level ever reached since protectionist years in the early 1980’s. This, according to [7:par15], was worsened by the Chinese currency’s internationalization, making it able to fund industrialisation in developing nations therefore further pushing down their minimum wages. [6:par.3] observes that this was worsened by a significant appreciation of the local currency, which confirmed the manufacturers’ inability to compete. [7:par.2] adds that deflation was another significant component as in 2014 for instance, Australian car prices dropped by 2.8%, even while the dollar depreciated by 15%. Relocation as an adaptive strategy contributed to the exit of car manufacturers. [5:10] explains that being multinationals, they significantly relied on parent companies for support in coping. With a continuous reduction of the Australian government’s protection, their headquarters worked towards global standardisation. As from the 1990’s there was the introduction of Globally Consistent Production Systems (GCPSs) by head offices as a way of enhancing performance monitoring and comparing manufacturing plants. When things became difficult, there was a universal pursuit of efficiency through leaving product design and strategy to the headquarters so as to save on marketing and design processes, and cost comparisons were continuously monitored. Basing on these, parent companies observed the challenges in Australia, and pushed for their exit. The Greater Role of Unions Union activity was what caused reduced competitiveness, loss of government support and inability of multinational car manufacturing companies to cope, hence it was the main cause. First, they always pushed for levels of pay that made the industry’s existence unsustainable in the country. [8:par.3-4] explains that Australian unions for long fought to have extremely high rates of pay for members, with labour costs of the industry being double those of Europe, and four times those of Asia. For example, [4:29-32] explains that Australia’s workers could be getting even far more than the four times suggested, as their rates are $6 per hour, amounting to only $12,500 per year as compared to the Australian case where it could never be less than $69,000. Unions made the industry economically and politically costly for the government, and therefore forced its withdrawal of financial support hence its decline. According to [9: par.3-5], the industry was also a burden to the government, which had to withdraw its support hence speeding up its collapse. Through unions, specifically the Australian Manufacturing Workers Union (AMWU), automotive industry employees ended up with benefits and wages that the manufacturers could not afford, and affording this required government subsidy. For instance, GM Holden’s base rate per employee stood at $80,000 annually which is above the $40,000 average for the typical employee of that level, excluding bonuses and overtime that usually pushed the figure up to $100,000. By 2011, GM Holden alone received $2.2 billion of taxpayer funding, implying that taxes were used to give $48,000 annually to each of its workers. This was not easily justifiable, therefore it was no surprise that support was minimal. Union activity prevented the industry from being more innovative hence competitive. According to [2:330], this problem was especially noted by Nissan’s management, which was always worried that unions pushed for restrictive and outdated work practices hence limiting flexibility and teamwork. Bolt [10:1] also observes that union militancy triggered the exit of Toyota, as they insisted on old-fashioned approaches and kept blocking changes through courts instead of negotiating. Phillips [9: par.9-11] explains that the unions had taken over the control of production methods from management. For instance, union agreements were always against the use of outsourcing and robotics without the endorsement of the unions, which was hardly ever given. Casual labour, which could have helped in cutting cost, was also prohibited by the agreements, and contractors had to be picked from lists provided by the unions, and furthermore, any change in processes within the manufacturing plant required the permission of unions. Additionally, a lot of man-hours would typically go to waste because for instance, every union delegate was entitled to a 12-month leave to attend union training, and shift arrangement adjustments tended to be long, tedious, bureaucratic processes. Stubbornness of union leadership even during the industry’s economic crisis speeded up the exit of manufacturers. According to [11: par.22-29], unions were unwilling to compromise on their members’ wages, even when the industry was at its worst point hence collapsing. For example, before Toyota decided on closing down, it put forward a proposal for assembly line workers to vote on a new workplace agreement that it would implement with union members that would help it to cut its costs. GM Holden had reported that it was using an additional $3750 per vehicle unit produced above the amounts in other countries within the region. Toyota on its part paid an extra $2800 per car, yet the unions continued to openly encourage its members to vote ‘No’ to the deal simply because it would imply their having to give up some allowances that they had been getting before. This pushed the company to make its announcement. Conclusion The Australian car manufacturing industry has for many years made a significant contribution to the economy. However, a number of factors within its environment have resulted in its collapse, as the last two major companies intend to leave by early 2018. The factors include the size of the domestic market, excessive employee turnover, reduction of state protection, currency fluctuations, strengthening of the Chinese currency and strategic directives from MNC headquarters. Trade union activity has however emerged as the main factor, through making labour costs unsustainably high, burdening the government to the point that it withdrew its financial support, limiting of innovativeness through union agreements and remaining defiant to company requests for compromise, even when the industry was almost collapsing. Considering that the role played by unions at times created the others, it was therefore the major factor. Reference List [1] J Stanwick., M. Circelli and T. Lu, The End of Car Manufacturing in Australia: What is the Role of Training? Adelaide: NCVER, 2015 [2] T. Minchin, “The Assembly Line and Cars Come First: Labor Relations and the Demise of Nissan Car Manufacturing in Australia,” Labor History, vol. 48, no. 3, pp. 327–346, August 2007. [3] R. Pomfret, International Trade: Theory, Evidence and Policy. London: World Scientific Publishing, 2016 [4] J. Dowling. (2015, Nov. 13). “Who killed the car industry?” (Online). Available: http://www.smh.com.au/business/the-economy/who-killed-the-car-industry-20151112- gkx1c8.html. [5] S. Clibborn, R. Lansbury, and C. 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] A. Williams. (2016, Oct. 21). “Collapse of Australian Car Manufacturing Industry”. (Online). Available: http://www.swinburne.edu.au/news/latest- news/2016/10/collapse-of-australian-car-manufacturing-industry-.php [7] A. Kohler. (2014, Feb 13). “What Really Killed the Auto Industry?” (Online). Available: http://www.abc.net.au/news/2014-02-13/kohler-the-ogre-of-deflation/5256662 [8] R. Dillon. (2013, Dec. 12). “The True Culprits at Holden are the Unions”. (Online). Available: http://www.theaustralian.com.au/opinion/letters/the-true-culprits-at-holden- are-the-unions/news-story/b5b9881bc0431d06d7295dbd53843c01 [9] K. Phillips. (2013, Dec. 15). “Holden: The Car Maker's Australian Exit is a Good thing.” (Online). Available: http://www.smh.com.au/comment/holden-the-car-makers-australian- exit-is-a-good-thing-20131214-2zdvv.html [10] A. Bolt. (2014, Feb 13). “How Toyota Unions Killed their Members' Jobs”. (Online). Available: http://www.heraldsun.com.au/blogs/andrew-bolt/how-toyota-unions-killed- their-members-jobs/news-story/cdedfe1d54436e1f36b75419a02e70e6 [11] S. Maher and P. Akerman. (2013, Dec.11). “Toyota's Warning to Unions on Future”. (Online). Available: http://www.theaustralian.com.au/national-affairs/toyotas-warning-to- unions-on-future/news-story/432edb4fae04430932eaa50a7a84994d Read More

Relocation as an adaptive strategy contributed to the exit of car manufacturers. [5:10] explains that being multinationals, they significantly relied on parent companies for support in coping. With a continuous reduction of the Australian government’s protection, their headquarters worked towards global standardisation. As from the 1990’s there was the introduction of Globally Consistent Production Systems (GCPSs) by head offices as a way of enhancing performance monitoring and comparing manufacturing plants.

When things became difficult, there was a universal pursuit of efficiency through leaving product design and strategy to the headquarters so as to save on marketing and design processes, and cost comparisons were continuously monitored. Basing on these, parent companies observed the challenges in Australia, and pushed for their exit. The Greater Role of Unions Union activity was what caused reduced competitiveness, loss of government support and inability of multinational car manufacturing companies to cope, hence it was the main cause.

First, they always pushed for levels of pay that made the industry’s existence unsustainable in the country. [8:par.3-4] explains that Australian unions for long fought to have extremely high rates of pay for members, with labour costs of the industry being double those of Europe, and four times those of Asia. For example, [4:29-32] explains that Australia’s workers could be getting even far more than the four times suggested, as their rates are $6 per hour, amounting to only $12,500 per year as compared to the Australian case where it could never be less than $69,000.

Unions made the industry economically and politically costly for the government, and therefore forced its withdrawal of financial support hence its decline. According to [9: par.3-5], the industry was also a burden to the government, which had to withdraw its support hence speeding up its collapse. Through unions, specifically the Australian Manufacturing Workers Union (AMWU), automotive industry employees ended up with benefits and wages that the manufacturers could not afford, and affording this required government subsidy.

For instance, GM Holden’s base rate per employee stood at $80,000 annually which is above the $40,000 average for the typical employee of that level, excluding bonuses and overtime that usually pushed the figure up to $100,000. By 2011, GM Holden alone received $2.2 billion of taxpayer funding, implying that taxes were used to give $48,000 annually to each of its workers. This was not easily justifiable, therefore it was no surprise that support was minimal. Union activity prevented the industry from being more innovative hence competitive.

According to [2:330], this problem was especially noted by Nissan’s management, which was always worried that unions pushed for restrictive and outdated work practices hence limiting flexibility and teamwork. Bolt [10:1] also observes that union militancy triggered the exit of Toyota, as they insisted on old-fashioned approaches and kept blocking changes through courts instead of negotiating. Phillips [9: par.9-11] explains that the unions had taken over the control of production methods from management.

For instance, union agreements were always against the use of outsourcing and robotics without the endorsement of the unions, which was hardly ever given. Casual labour, which could have helped in cutting cost, was also prohibited by the agreements, and contractors had to be picked from lists provided by the unions, and furthermore, any change in processes within the manufacturing plant required the permission of unions. Additionally, a lot of man-hours would typically go to waste because for instance, every union delegate was entitled to a 12-month leave to attend union training, and shift arrangement adjustments tended to be long, tedious, bureaucratic processes.

Stubbornness of union leadership even during the industry’s economic crisis speeded up the exit of manufacturers.

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