Negative Effects of the Australian Automotive Industry - Essay Example

Automotive Industry Student’s Name Institutional Affiliation The automotive industry in Australia is on the verge of closing. Following the announcement of the remaining manufacturing companies such as Toyota, Ford, and GM Holden to close in 2016 and 2017, it is evident that the automotive industry is being phased out in the Australian market following their decline over the past years. This is a setback to the Australian economy since it is a contributor to the Australian gross domestic product. The decline of the automobile industry in Australia has also led to unemployment to many engineers who are trained in different disciplines resulting in low income and frustrations among this professionals. Also, this will affect the suppliers of the raw materials to these manufacturing companies leaving them with no local market for their goods. Collapse of these sector has been fueled by demise of tariff protection, fluctuation of Australian dollar against the US (United State) dollar [4], increased imports in Australia, change of customers’ preference, strategic decisions by parent companies based on market trends, the role of trade unions and industrial relations and increase in fuel prices as a result of energy crisis in 2003- 2008. This essay will focus on these factors. To begin with, the role of trade unions to its members and industrial relations contributed largely to the collapse of automotive manufacturing company. Formation of trade unions was accelerated by economic crises in Australia. These crises were as a result of inflation and uncoordinated systems of bargaining which lead to unemployment. One of the unions in the automotive industry is the vehicle division of Australian manufacturing workers Union (AMWU) which covers largely non-managerial workers and first-tier component suppliers. Over the past decade, trade unions have bargained for improved working conditions, high-quality goods, better industrial relations and liaison between the trade unions and employers. Nevertheless, these achievements have not convinced the automotive manufacturer to stay in the Australian market. This is because some of the companies such as Toyota have faced unfavorable relations with the management of these union. This is attributed to choosing forced redundancies rather than the embraced method of redundancies when the company was facing a decrease in the level of output. This policy of selective redundancy caused a bitter relationship between Toyota and the union since it seemed to affect some elected officials of the union in the plant. After a hard time of negotiations between the company and the union over its renewal of enterprise bargaining agreement, it followed Toyota’s announcement of exiting the manufacturing industry by the end of 2017. Therefore, it is evident that trade unions have contributed to the collapse of the automotive manufacturing company. Additionally, the demise of tariff protection has led to increased competition for locally made vehicles with the cheaply imported ones. In the 1900s, Australian manufactures were protected from international competition through tariffs. Many detractors of the protection scheme argued that it caused inefficiencies in the industry, high cost with Australian manufacturers lacking the drive to produce high-quality commodities and investing in new technology. In 1970’s, Whitlam labor government reduced the tariffs by twenty-five percent weakening the manufacturer's protection. In 1984, there was the introduction of the passenger motor vehicle (PMV) whose aim was to reduce vehicle manufactures, improved the efficiency of those who remained and reduction of tariffs [3].The Labor governments which came after the Whitlam’s continued to lower the tariffs in the automobile industry up to a point Australia was the third among the countries with the lowest tariffs [3] as shown in Table 1. As the government continued to reduce the tariffs, it exposed the local manufacturers directly to international competition. However, the government supported the local manufacturers by giving them finances to invest in new technologies and production of fuel-efficient vehicles. These grants were reduced and reallocated to Australian natural disaster during the time when the world was facing financial crisis acting as another setback. Despite the government and parent company’s assistance to rescue the declining local automotive industry, it saw Mitsubishi exit Australian manufacturing industry in 2008 [3]. Despite the reduction of tariff reduced the inefficiencies that were in 1980’s, it made the industry more vulnerable spearheading its collapse. Due to persistence reduction of tariffs other companies such as Toyota Ford and GM Holder are facing a great challenge to withstand the competition in the Australian industry hence decline of the industry. Increase in the Australian dollar against the US dollar is another factor that has contributed to the decline of automotive industry in Australia. During the global financial crisis in 2008-2009, Australian dollar increased to its highest level since 1980’s leading to decline in the sale of the locally produced vehicle. Also, this inflation led to increase in fuel cost leading to the reduced competitiveness of locally produced cars [3]. As a result, there was a reduction in profits accrued from exports. Local companies experienced challenges in overcoming this impact hence some of them such as Mitsubishi left the Australian industry during this period. Furthermore, increased dependence of branch companies to their parent companies has led to the relocation of branch companies to other countries depending due to the low cost of production and market trends. The introduction of globally consistent systems in Australian companies in 1990's enabled their headquarters to monitor their manufacturing performance more easily. Also, headquarters of these companies were able to compare the cost and pricing per vehicle basis all over the word more easily. Taking into consideration of other factors such as Australian currency fluctuation leading to increase in the cost of production, it made Australia less favorable for manufacturing. This made the global leadership of GM Holden decide to close Australian assembling plant. They announced the closure through their chairman and the managing director, Mike Devereaux [3].This is an evidence of how global parent companies have contributed to the decline of the automotive industry in Australia. Table 1. Applied tariff rates in selected countries, 2013 Also, changing consumer's preference is making people shift the demand from the large vehicle to small cars. This preference changes with customer’s expectation. With the introduction of passenger motor vehicles (PMV), many Australian manufacturers shifted into the production of larger passenger vehicles. Due to increase in fuel cost, most of the consumers currently prefer small and more efficient vehicles. Again, the shift can be attributed to the introduction of many IT application which has made entertainment to move to a different level. As a result, low profits are realized by these local manufacturers since consumers opt for more efficient imported cars. This contributes to the decline of the local industry. Oil shocks since 1970’s have led to increase in the prices of petrol and diesel which are the major form of energy used in automotive industry. Related to this is energy crisis that was experienced between 2003-2008.As a result, this has led to increase in production and maintenance cost of the locally manufactured vehicle. This makes most of the parent companies decide to close the branch plants in Australia and to invest their new technologies in countries with cheaper production cost. Also, with the continued reduction of tariffs, importation of vehicles in Australia has increased. This is killing the local market for locally manufactured vehicles since consumer since they prefer cheap and fuel efficient imported vehicles. Fuel inefficient vehicles, have has reduced global competitiveness of the Australian manufactured vehicles leading to collapse of the oversea market as shown in figure 1. This is contributing to the decline of the market due to the decrease in returns. Fig 1. Vehicles manufactured in Australia and the Trade Weighted Index rates Source: [3] Like any other developed country, Australia's population is aging due to increased life expectancy and sustained low fertility. Therefore, the market is small and local industries cannot exploit their economies of scale. As a result, they have to go for cheaper labor and components. Also, domestic market in Australia has become poor due to the signing of free trade agreements within the region. As a result, it becomes very difficult for these companies to compete with their Asian competitors since in some countries the cost of labor is a quarter the value in Australia. In conclusion, the collapse of automotive industry in Australia cannot be attributed to one factor. The factors explained in this essay have worked together since most of them are interrelated causing the downfall. Again, this situation cannot be placed outside the global market trends since many of the manufacturers have shifted their resources and investments in the first growing market areas such as Asian countries. According to the Australian Bureau of Statistics, Collapsing of the motor vehicle in Australia is expected to affect thousands of employees who work in the sector in case it is completely closed [1]. Loss of these jobs will be determined by the relationship of the job to the industry. Again, this will affect the industries which spearhead research in disciplines such as engineering, accounting, law, scientific research, market research and advertising. This means that these industries will not provide technical support, transferable skills and training to small part suppliers. Leading telecommunication companies such as Sprint and Apple are investing a lot of money in the internet of things to improve the automotive industry. The government of Australia can initiate research in this field through grants to revive this industry [2]. REFERENCES [1]"Collapse of Australian car manufacturing industry | Swinburne News," Swinburne.edu.au, 2017. [Online]. Available: http://www.swinburne.edu.au/news/latest-news/2016/10/collapse-of-australian-car-manufacturing-industry-.php. [Accessed: 01- May- 2017]. [2]B. Banerjee, "Can IoT revive the automotive industry in Australia? - Manufacturers' Monthly", Manufacturers' Monthly, 2017. [Online]. Available: http://www.manmonthly.com.au/features/can-iot-revive-the-automotive-industry-in-australia/. [Accessed: 01- May- 2017]. [3]S. Clibborn, R. Lansbury, and C. Wright, "Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?", Economic Papers: A journal of applied economics and policy, vol. 35, no. 1, pp. 2-15, 2016. [4]RMIT Industry Engagement Strategy, "Industry Scan: Automotive Industry," Policy and Planning Group, pp. 2-6, 2011. [5]D. Mackay, "THE IMPACT OF ELECTRONIC DATA INTERCHANGE ON THE AUSTRALIAN AUTOMOTIVE INDUSTRY," Deakin University Australia, pp. 19-27, 1996. [6]Senate Economics References Committee, "Future of Australia's automotive industry," Senate Printing Unit, Canberra, pp.7-11, 2015. Read More