How to Avoid Collapse of the Australian Automotive Industry - Essay Example

Automotive Industry Student’s Name Institutional Affiliation The collapse of Australian automotive manufacturing industry is looming. Sales and productions have dropped significantly since the onset of economic problems imposing a considerable burden on the manufacturers. The Holden, Toyota, Ford, Mitsubishi and even Nissan have announced that their operations are going to be closed. This could be part of a global financial nosedive. It is shaping an extinction occurrence of Australian jobs and the automotive industry being phased out. This is not just it, most of these companies are closing their operations in Australia and shifting their operations to other expanding markets around the globe especially Asia. According to The Conversation [3] (An Academic rigor, journalist flair) by the end of the year, car manufacturers will have decided to take their productions elsewhere where the cost of production is a bit lower hence they will have considerably left the Australian market. With these reasons businesses that do the supply of automotive components and accessories will be left with a huge gap of around 260 businesses which will not be in operation [4]. Some of the main reasons for the collapse of the car manufacturing industry are: Reduced government assistance to the local manufacturers, Failure of industrial relations and Trade unions to help their members and fight for their rights, The decision by parent companies to strategically take their productions elsewhere in growing markets especially in Asia, Increase in prices of Automotive parts and accessories linked to the 2003-2008 energy crisis, Unstable exchange rates which are tied to the inflation of the Australian dollar against the American dollar and lastly the Australian automotive market is very small that the industry cannot fully utilize its economies of scale. This essay will dwell on the above issues but more especially on the role of trade unions. First, Trade unions and industrial relations and their roles to their members are a big contributor to the collapse of the car industry in Australia. The Australian Manufacturing Workers Union (AMWU) has covered a good number of car workers who are not at the managerial levels among the manufacturers and also the first-tier component suppliers. Consequently, AMWU did put in place bargaining power as their strategy to maintain profits in the industry, particularly when the tariff rates were high and most cars manufactured in Australia were sold locally. This led to a reduction in union membership in most parts of the Australian economy. The Industrial relation Agreement after putting in place high bargaining power in the industry was blamed for producing inefficient products and raising the costs. There were days lost in the recent years accounting for domestic sale decline since tariffs’ reduced and the amount of locally produced vehicles decreased. While Industrial actions continued among some suppliers (Federal Chamber of Automotive Industries, FCAI), AMWU sought better cooperation with employers to ensure their members did not lose jobs. Despite improved industrial relations, cooperation degrees between unions and major manufacturing and suppliers have not been good especially during recent years hence it’s quite evident that trade unions have contributed to the collapse of the automotive industries. Secondly, Reduction in governments’ assistance from the local manufacturers has also led to the collapse of the car manufacturing industry. The Australian government switched contracts in December 2013 [2] hence abandoning the Protectionist Policies (a tariff protection and Industry Assistance policy) [3] they had used in ensuring that the industry developed between the 1970s and early twentieth century. This might have added to the reason for Holden to withdraw and want to abandon its activities. The assistance package put up to help local producers compete in the global market and modernize their production techniques failed to give expected results. However, the government gave support to the local producers by giving those finances to aid in the investment of new technologies and fuel efficient vehicles, but unfortunately, they reduced the grants and reallocated them to the Australian natural disaster at the time of the financial crisis in the world. This made the industry more vulnerable spearheading its collapse hence shortly afterward some parent companies like Toyota opened a new plant in Japan, whereas Nissan quoted that reduction in tariff protection was the main reason to close its Australian operations. Therefore the government also has been part of the reason for the unavoidable collapse of this industry. Next, Decision by parent companies to switch productions to expanding market is also another contributor. Global production structure for local manufacturers has been an issue. Australian producers were aware that they were being watched by managers who were at the plant's headquarters overseas that were making a comparison regarding costs and productions between them and other producers in the world and the context of factors such as inflation and higher tariffs. This made it costly to produce locally hence low sales which made Australia become a non-viable market for parent companies to produce and invest in especially because local consumers no longer had an interest in locally favored large models like falcon and commodore. In addition, Inflation, especially fluctuations in the Australian dollar against the American dollar and further appreciation in the Australian currency especially after the global financial crisis of 2008-2009, led to a relative increase in prices of automotive production in Australia hence decline in the sales of the Australian car products. These fluctuations combined with the drop in tariff rates also resulted in increased fuel costs hence reduced the competitiveness of locally produced cars. Local companies found it hard to compete especially in the global market hence some of them like the Mitsubishi opted to leave the Australian market. This added to the rising oil prices since the 1970s which led to the increase in prices of petrol and diesel which are the dominant form of energy used in the automotive industry. There was increased production and maintenance cost of locally manufactured vehicles hence killing the local industry because most customers preferred cheap and fuel efficient cars that they majorly imported. The figure below roughly indicates the drop in tariff rates for the Australian automotive industry. In addition to the above reasons, the Australian market is very small that the industry cannot fully exploit the use of their economy hence in order to remain relevant they use cheaper foreign production components including cheaper labor. The Australian population is reducing due to increased life expectancy and sustained low fertility hence the industries would rather go for the cheap labor. Also, the domestic market is weakened because of the signing of free trade agreements within the region, and so it is very hard competing with better low-cost markets in some Asian countries where labor costs are only a quarter of that of Australia. Furthermore, the fall of the car industry could severely impact the feasibility of the PSTS industry, the providers of other technical services in other sectors of the economy. Depending on the extent of the sector to sector links the number job losses that will result will vary across industries. In other studies research has found that car producers and manufacturers provide transferable skills leading to extensive knowledge spill over to other industries from the automotive sector [3] In conclusion, the demise of the automotive industry in Australia is because of many interrelated factors. This situation cannot be exempted from the global context where there is an oversupply of cars for sale, and many manufacturers are relocating productions from regions of high to the low cost of economies. Producers are also shifting their operations to better markets in Asia where demand is growing. So what will happen after the closure of this industry is that; Ford will retain its production development center and testing facility after it closes manufacturing operations in 2016 as it meekly quoted. Holden will retain its global design studio after it ceases manufacturing in 2017as it hinted, but they did not mention what will happen to its product engineering work. Toyota is considering reducing the scale of its Australian design base as it stated. However, fear that these companies will move their activities near their manufacturing centers is inevitable. It is, therefore, uncertain to conclude that industrial relations arrangements or reluctance in trade unions are the main factors contributing to the demise of the car industry since there are also other major contributing factors that cannot absolutely be ignored such as volatility in exchange rates and tariffs. The nature of the Australian market in itself, reduced government assistance, deflation and many other factors mention in this essay. Also, the situation cannot be blamed on the global market trends since most producers have shifted their productions to growing markets and hence they have shifted most of the resources and investments to these regions. Meanwhile, as the car manufacturing industries are exiting the Australian market, more investment and improvement into other sectors of technological innovation is necessary. Otherwise, not investing in these areas will greatly affect the remaining industries which are not what is needed in an innovative and lithe economy. Creative marketing strategies should be employed to entice consumers who were otherwise reluctant to purchase or invest in the sector which would include substantial discounts on the automotive products. Also increasing the volume of exports is another suggestion that would be used as a strategy to avoid this collapse. References. [1] The New York Times (08/10/2015).Business [online]. Available: https:/www.nytimes.com/interactive/2015/10/08/.../uaw-auto-union.timeline.html [2] ABC News.(02/10/2014). Available: www.abc.net.au/news/2014-02-10/cowan-protectionism/5257426 [3] "Nissan plant to shed 1,200 jobs". BBC News. 2009-01-08. Archived from the original on 9 January 2009. Retrieved 2017-04-29. [4] Stephen Clibborn et al(2016,February 04).Economic paper[online].Available: online library.wiley.com/10.1111.1759-3441.12127/full [5] Dan La Botz (November 2008). “What’s to Be Done about the Auto Industry?". Monthly Review. Mrzine.monthlyreview.org. Retrieved 2017-04-29. [6] https://en.wikipedia.org/wiki./Automotive_industry_crisis_of_2008-10 [7] Jason Dowling(2015, November 13).”Who killed the car industry?”[Online].Available: www.smh.com.au/business/the-economy/who-killed-the-car-industry-20151112-gkx1c8.html. [8] David Macaray(2008, January 10). “Three big reasons for the decline of labor unions.”[online].Available: www.counterpunch.org/2008/01/10/three-big-reasons-for-the -decline-of-labor-unions/ Read More