The Australian Car Manufacturing Industry - Report Example

What Could Be the Dominant Reasons for the Collapse of the Car Manufacturing Industry in Australia? Name Institution Tutor Introduction The Australian car manufacturing industry has, for a long-time; made an enormous contribution in terms of the economic development of the nation. The industry, for instance, employs in excess of one million individuals or about 8.5 percent of the overall Australian workforce1. More recently, however, the industry has collapsed. Not long ago car manufacturing companies including Mitsubishi, Ford, Nissan and Toyota have had a significant manufacturing presence within the country. Given this, not only have many blame games been witnessed, but also numerous attempts to ensure the industry stay alive. Nevertheless, all these have failed. Some market analysts believe that unions have significantly contributed to the downfall of the industry. Alternatively, other analysts think otherwise. In light of this, this particular essay intends to examine the dominant reasons for the demise of the Australian car manufacturing industry, with particular attention to the role of unions. As highlighted by Clibborn, Lansbury and Wright (2016), there is no doubt that one of the dominant reasons for the demise of the Australian car manufacturing industry is the significant role of trade unions and industrial relations2. According to Clibborn, Lansbury and Wright (2016), the Australian car manufacturing industry has been exceedingly unionized ever since its initiation3. In addition to this, the important role of determining wages as well as the employees’ working conditions by way of the arbitration system has given trade unions the capability to push for increased wages. The Vehicle Division of Australian Manufacturing Workers Union, simply known as AMWU, for instance, has nearly a complete coverage of not only the non-managerial employees among the car manufacturing firms, but also covers the large component suppliers. Given this, the union has wielded substantial bargaining power within the industry, a factor that explains why the Australian automotive industry employees are paid more generously as compared to other nations. According to Dowling (2017), for instance, the lowest wage in the Southeast Asian nation of Thailand is below $2 per hour, with automobile assembly line employees earning about $12,500 annually, which is nowhere close to the standard Australian automobile manufacturing employee wage of $69,000 a year4. Clibborn, Lansbury and Wright (2016) articulate that these particular industrial relations agreements have been a major reason for the termination of the Australian car manufacturing industry5. Indeed, not only have they been condemned for rising costs by respective manufacturing firms, but have also been criticized for producing inefficiencies with the firms. In fact, Clibborn, Lansbury and Wright (2016) mention that during the year 2002, the industry minister during Howard’s government accused the automotive trade unions as being the greatest danger to the future of the Australian manufacturing sector6. Alternatively, despite the level of cooperation between the major car manufacturing firms and the trade unions, which included agreements on a various labour as well as cost-saving initiatives, the mutual industrial relations have been insufficient to induce the companies to continue their operations in Australia7. Toyota which was viewed as the most likely firm to survive owing to its long status as a major leader in terms of domestic sales, for instance, closed due to a bitter disagreement with AMWU owing to the automotive firm’s policy of discriminatory redundancies that seemed to target various elected trade union officials within the firm8. In a nutshell, it can thus be argued that one of the dominant reasons for the demise of the Australian car manufacturing industry is the significant role of trade unions and industrial relations. Aside from the trade union and Australian industrial relations dominant contribution to the demise of the Australian car manufacturing industry, I think the fluctuation of the Australian currency also had a role in the demise of the automotive industry. The value or worth of Australian dollar vis-à-vis the United States of America dollar rose by nearly twofold from 0.51 Australian dollars to 0.94 Australian dollars throughout the mining boom witnessed during the mid-2000s9.Following a temporary fall in the year 2008 to the year 2009 due to the financial crisis, the Australian dollar rose sharply to reach high of 1.09 in the year 2011 (the highest level witnessed since the 1980s) before steadily dropping, as shown in figure 1.0. According to Clibborn, Lansbury and Wright (2016), despite the Australian car manufacturing industry enjoying about 10 years of profitability from the year 1993 to the year 2003, the fluctuating currencies has been a significant factor that has undermined the global competitiveness of the domestically produced cars10. Confronted with these particular challenges or trials, the performance of these automotive manufacturing firms in terms of profit-making clearly worsened. Whereas the value or the worth of the country’s currency weakened from the year 2013 in a manner that was projected to promote the competitive status of the auto manufacturers, they significantly struggled to deal with the impact that were brought by the previous shocks that were triggered by the rising dollar 11. Clibborn, Lansbury and Wright (2016) add that according to a prominent industry minister within the government of former Australian Prime Minister, Kevin Rudd, the continued fluctuation of the Australian dollar after the financial crisis made it increasingly challenging for the government to fulfil policy objectives for helping local car manufacturers to enhance export capacity12. Given the above, it is clear that currency fluctuations formed another significant factor that contributed to the declining sales of domestically manufactured vehicles, thus resulting in the demise of the automotive industry. Figure 1.0.Value of the Australian Dollar as Compared to the US Dollar, Year 2000 to Year 2015 Another significant factor that also contributed to the demise of the Australian automotive industry was the low economies of scale. According to Buddelmeyer, Jensen and Webster (2009), whenever a significant amount of units of a service or product can be obtained on a superior scale, but with smaller input expenditure, economies of scale are argued to be realized13. Given this, as a firm grows and its production units rise, the firm often has a better chance of lowering its cost.However, Wright, Clibborn and Lansbury (2011) argue that this has not been the case with the local car manufacturers in Australia14. The Australian government has often embraced the local content policy within its car industry. This policy which was introduced in 1948 has not only resulted in market fragmentation, but has also led to increased expenditures and prices, with the policy effectively cartelizing the entire industry. In light of this, and as Clibborn, Lansbury and Wright (2016) highlight, it had become more costly to manufacture cars locally, making Australia a less favourable market for parent firms to produce cars15. An automotive manufacturing firm like Toyota, for instance, presented clear proof of the cost disadvantage of making a number of components within Australia in comparison with manufacturing costs of similar components in the Asian nation of Japan. According to Urata, Chin and Narjoko (2012), the firm’s evidence revealed a significant cost disadvantage range of approximately 50% to more than 500%.16.Alternatively, other car manufacturing companies such as Mitsubishi and Ford also presented similar proofs that revealed a considerable range of expenditure differences, though not as high as those presented by Toyota. Worse more, most of these big companies have been compelled to close their operations in order to match the production output with the declining customer demand for cars. Finally, another important factor that contributed to the demise of the Australian automotive industry was the transforming global business strategies by multinational car manufacturing companies, which gave rise to not only shifting production but also the shifting of other company activities outside Australia 17.Indeed, while the policy of the Australian government was to ensure the local industry was significantly export-oriented, the policy centred more on enhancing the performance of the local suppliers rather than the performance of the manufacturers. According to Clibborn, Lansbury and Wright (2016), this particular focus weakened the global competitiveness of the car industry18. In the end, it became more costly to make cars locally, a factor that made Australia a less favourable market for parent firms to produce cars, particularly with auto consumer preferences drifting away from the traditionally favoured models, including the Commodore. In total, the global leadership of the parent companies of the major car manufacturers in Australia felt that it did not make long-standing business sense for them to continue assembling vehicles in the Australia nation while the reality is that they were not realizing the economies of scale. Conclusion From the above analysis, it is clear that there are a number of interrelated factors that led to the fall of the car manufacturing industry within Australia. Other than the significant role of trade unions and industrial relations, the demise of the car manufacturing industry within Australia was also caused by the persistent fluctuation of the Australian currency as well as the low economies of scale. Consequently, it is thus difficult to acknowledge the argument that the trade unions and industrial relations were the dominant contributing factor to the fall of the car manufacturing industry in Australia, given the fact that the trade union relations with car manufacturing firms made no considerable difference in as far as the final verdict of the parent in United States to terminate production in Australia. Overall, it can be argued that the fall of the car manufacturing industry in the Australian nation is not only complex, but also intertwined. Indeed, a convergence of various factors resulted in the death of the industry, thus no single factor can be held responsible for the outcome. Work Cited A. Valadkhani.Collapse of Australian Car Manufacturing will Harm R&D in Other Sectors: Study. The Conversation C.F.Wright, S.Clibborn and R.D.Lansbury.Becoming an Endangered Species? The Future Viability of Australian Automotive Manufacturing, International Journal of Automotive Technology and Management, Vol.11, Iss.2, Pp.172-188, 2011 H.Buddelmeyer, P.H.Jensen and E.Webster. Innovation and the Determinants of Company Survival, Oxford Economic Paper, Vol.62, Iss.2, Pp.261-285 I.Porter.What Happened to the Car Industry? Brunswick, Victoria: Scribe Publications Pty Limited, 2016 J.Dowling.Why Australian Car Manufacturing Died — and what it means For Our Motoring Future. The Advertiser, 2017 J.Felipe.Development and Modern Industrial Policy in Practice: Issues and Country Experiences. Cheltenham: Edward Elgar Publishing, 2015 J.Massola.Australian Manufacturing Workers Union at 'war' with Toyota: Joe Hockey. The Sydney Morning Herald, 2014 J.P.Womack, D.T.Jones and D.Roos.The Machine That Changed the World. New York: Simon and Schuster, 2008 S.Clibborn, S.D.Lansbury and D.Wright. “Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?” A journal of Applied Economics and Policy, Vol.35, Iss.1, Pp.2-15, 2016 S.Urata, H.Chin and D.Narjoko.Economic Consequences of Globalization: Evidence from East Asia. London: Routledge, 2012 Read More

In a nutshell, it can thus be argued that one of the dominant reasons for the demise of the Australian car manufacturing industry is the significant role of trade unions and industrial relations. Aside from the trade union and Australian industrial relations dominant contribution to the demise of the Australian car manufacturing industry, I think the fluctuation of the Australian currency also had a role in the demise of the automotive industry. The value or worth of Australian dollar vis-à-vis the United States of America dollar rose by nearly twofold from 0.

51 Australian dollars to 0.94 Australian dollars throughout the mining boom witnessed during the mid-2000s9.Following a temporary fall in the year 2008 to the year 2009 due to the financial crisis, the Australian dollar rose sharply to reach high of 1.09 in the year 2011 (the highest level witnessed since the 1980s) before steadily dropping, as shown in figure 1.0. According to Clibborn, Lansbury and Wright (2016), despite the Australian car manufacturing industry enjoying about 10 years of profitability from the year 1993 to the year 2003, the fluctuating currencies has been a significant factor that has undermined the global competitiveness of the domestically produced cars10.

Confronted with these particular challenges or trials, the performance of these automotive manufacturing firms in terms of profit-making clearly worsened. Whereas the value or the worth of the country’s currency weakened from the year 2013 in a manner that was projected to promote the competitive status of the auto manufacturers, they significantly struggled to deal with the impact that were brought by the previous shocks that were triggered by the rising dollar 11. Clibborn, Lansbury and Wright (2016) add that according to a prominent industry minister within the government of former Australian Prime Minister, Kevin Rudd, the continued fluctuation of the Australian dollar after the financial crisis made it increasingly challenging for the government to fulfil policy objectives for helping local car manufacturers to enhance export capacity12.

Given the above, it is clear that currency fluctuations formed another significant factor that contributed to the declining sales of domestically manufactured vehicles, thus resulting in the demise of the automotive industry. Figure 1.0.Value of the Australian Dollar as Compared to the US Dollar, Year 2000 to Year 2015 Another significant factor that also contributed to the demise of the Australian automotive industry was the low economies of scale. According to Buddelmeyer, Jensen and Webster (2009), whenever a significant amount of units of a service or product can be obtained on a superior scale, but with smaller input expenditure, economies of scale are argued to be realized13.

Given this, as a firm grows and its production units rise, the firm often has a better chance of lowering its cost.However, Wright, Clibborn and Lansbury (2011) argue that this has not been the case with the local car manufacturers in Australia14. The Australian government has often embraced the local content policy within its car industry. This policy which was introduced in 1948 has not only resulted in market fragmentation, but has also led to increased expenditures and prices, with the policy effectively cartelizing the entire industry.

In light of this, and as Clibborn, Lansbury and Wright (2016) highlight, it had become more costly to manufacture cars locally, making Australia a less favourable market for parent firms to produce cars15. An automotive manufacturing firm like Toyota, for instance, presented clear proof of the cost disadvantage of making a number of components within Australia in comparison with manufacturing costs of similar components in the Asian nation of Japan. According to Urata, Chin and Narjoko (2012), the firm’s evidence revealed a significant cost disadvantage range of approximately 50% to more than 500%.16.Alternatively, other car manufacturing companies such as Mitsubishi and Ford also presented similar proofs that revealed a considerable range of expenditure differences, though not as high as those presented by Toyota.

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