Occasional paper no. 20

Transcription

1 Occasional paper no. 20 Car Manufacturing in Australia: What s next? Dr Liz van Acker

2 The Australia and New Zealand School of Government and the State Services Authority of Victoria are collaborating on a partnership to build connections between new thinking, practice and implementation in public administration. The Occasional Paper series is part of the partnership program. About the Australia and New Zealand School of Government ANZSOG is a consortium of governments, universities and business schools from Australia and New Zealand. It represents a bold commitment on behalf of member governments to strengthen the management and policy capacity of their respective public sectors. ANZSOG is a world-class centre that provides tailored learning opportunities for future leaders of the public sector. ANZSOG s purpose is to encourage improved public sector decision making, leadership and policy outcomes for the benefit of the whole society. In doing so, the School also plays a key role in promoting public service as a profession of great social value. ANZSOG has three core activities: executive education courses including an Executive Master of Public Administration degree; a case study program; and a research program These programs aim to deepen knowledge and understanding of government and to disseminate that understanding to the wider community for the benefit of the whole society. Contact us at: Postal Address: Web address: ANZSOG PO Box anzsog@anzsog.edu.au Carlton South phone: Victoria 3052 fax: Australia About the State Services Authority The State Government of Victoria has vested the State Services Authority with functions designed to foster the development of an efficient, integrated and responsive public sector which is highly ethical, accountable and professional in the ways it delivers services to the Victorian community. The key functions of the Authority are to: identify opportunities to improve the delivery and integration of government services and report on service delivery outcomes and standards; promote high standards of integrity and conduct in the public sector; strengthen the professionalism and adaptability of the public sector; and promote high standards of governance, accountability and performance for public entities. The Authority seeks to achieve its charter by working closely and collaboratively with Victorian public sector departments and agencies. Contact us at: Postal Address: Web address: State Services Authority 3 Treasury Place info@ssa.vic.gov.au Melbourne Phone: Victoria 3002 Fax: Australia Published: April 2012 i

3 Series foreword The Australia and New Zealand School of Government and the State Services Authority are collaborating on a partnership that draws together a broad network of policy-makers, practitioners and leading academics. The partnership is designed to build connections between new thinking, research and practice in public policy and public administration. The Occasional Papers explore the challenges and opportunities in public administration. They showcase new ideas and offer new insights into issues facing the public sector. Written by either academics or public servants, the papers bring together the academy with public policy practitioners. We trust that you find the Occasional Papers stimulating and thought provoking. All papers in the series are published on the ANZSOG and SSA websites. Professor Allan Fels AO Dean Australia and New Zealand School of Government Bruce C Hartnett Chair State Services Authority About the author Dr Liz van Acker is a Senior Lecturer, School of Government and International Relations, Centre for Governance and Public Policy, Griffith Business School. She has an Honours degree from the School of Humanities at Griffith University and a PhD from the Department of Government at the University of Queensland. Her research interests include innovation and industry policy, relationship support programs and government policies, gender and politics and service delivery by the third sector. ii

4 Car Manufacturing in Australia: What s next? Author Dr Liz van Acker Griffith University The difficulties of the Australian car manufacturing industry have rekindled debate about its future. Should the federal government continue propping up this declining industry? Should it withdraw all support and assistance for cars? For decades, we have had a hotchpotch of policies and practices in allocating what amounts to public favours, via a blunt instrument that is implicit in traditional protectionist policies and industry assistance. This approach has been ineffective and costly. The more tariffs have been lowered, the more the automotive industry has struggled, despite consistent bailouts. The federal Labor government says it needs to protect Australia s manufacturing capacity. The Opposition does not support an explicit industry policy, arguing for cuts in government subsidies. The Greens are calling for a strategy that protects the environment, demanding that industry policy incorporates environmental and social goals. These different approaches raise questions about how to develop a sustainable industry policy which avoids picking winners or propping up losers. This paper suggests that we need to move beyond debates about whether governments should continue intervening or cease investing in the car industry. The issue is not about whether industry policy should keep ailing industries from going to the wall, but rather the objective should be the pursuit of productivity and longer-term economic investment. Mikler (2009) offers some useful lessons for the Australian car industry, arguing that a green industry policy should be part of an integrated approach to economic growth, employment and environmental sustainability. He argues that developing constructive relations with key firms and industry groups is fundamental to successful policy formations and implementation. Governments should contribute to matters such as technological improvement, firm size, design capacity and workplace relations. But Mikler (2009) emphasises the importance of integrating the numerous players who may either cooperate or resist the development of industry policies: public sector and economic policy bureaucrats, party representatives, policy coalitions and interest groups. It is also important to develop environmental regulations which are based on either a self- or co-regulatory foundation because this is the most effective way to achieve compliance and control environmental externalities. The debate about the need for a robust industry policy has waxed and waned on the political agenda for decades (Conley and van Acker, 2011). Concentrated in Victoria, Queensland and South Australia, the three vehicle producers Holden, Ford and Toyota are part of a global manufacturing chain that forms the global supply chain (Bayari, 2008). While the car industry has declined and struggled to survive, it is still the largest single manufacturing sector in terms of investment levels and the number of people employed (more than 53,000 people directly and 200,000 additional jobs indirectly in the automotive components sector). Debates and policies need to move beyond the interventionist/protectionist role of government. There are three main challenges that policy makers (including staff in their different guises) must confront in examining and improving automotive industry policies: Maintaining employment Improving accountability Developing green cars 3

5 Maintaining employment In the postwar period, the primary purpose of industry policy was to protect Australia from international competition and to provide jobs. Australia has never had a consistent, proactive industry policy focusing on encouraging business innovation. Instead, industry policy has been reactive and generally ad hoc: assistance has by and large been unfocused. The major forms of industry policy were import barriers to encourage manufacturing and restrict international trade. The main mechanisms were tariffs (a tax or duty paid on imports) and non-tariff barriers such as quotas (restricting the quantity of imports) and bounties. Government used incentives such as restricting imported goods and services and tax concession to increase the costs of imports and help local producers to expand manufactured exports. Indeed, protection enabled the manufacturing sector to survive even though firms were small-scale or not in the forefront of technology. By the 1970s, governments recognised the need to move toward freer trade and lower protection, but were reluctant to expose some sectors of industry to global pressures. The car industry and the textiles, clothing and footwear (TCF) industries were the sacred cows that had been cosseted for decades. Behind the tariff walls, they were insular and uncompetitive. They have been the most subsidised sectors of manufacturing and the subject of numerous industry plans. A rationale for more concerted use of industry assistance measures other than traditional tariffs, subsidies and quotas developed in the 1980s. The automotive sector underwent a major rationalization and restructuring with 20 per cent import quotas phased down in 1984 and abolished by Tariffs peaked at 57 per cent in 1984 and were reduced until they reached 15 per cent in 2000 (ABS, 2005). To assist the restructuring process, the government developed a number of industry plans, albeit with little strategic foresight. The objective was to gradually lower protection levels, manage the decline in the number of industry players and improve their global competitiveness. The union movement was appeased because programs included structural adjustment assistance and retraining for displaced employees. Overall, the plans hoped to bolster this ailing sector, while preparing it for further industry restructuring. Many advocates of industry policy opposed this particular policy approach because it continued focusing on lame duck industries (Conley and van Acker, 2011). The threat of job losses has been an important political consideration for policy makers. There were 62,661 workers in the automotive sector in 2001, which was an increase of 15 per cent on the previous year and an average three per cent increase per year since June 1997 (Australian Bureau of Statistics, 2005). One of the major arguments for retaining a car industry in Australia was to support a chain of suppliers that would develop an export focus. However, competition from Asia grew and Australian built cars included an increasing amount of foreign components. By 2005, the Holden Commodore comprised only 54 per cent local components. The component sector lost 3500 jobs, Holden lost 1400 workers, Ford lost 350 workers, and Mitsubishi shut its engine plant, dismissing 1357 workers (Conley, 2009). While these job losses are unfortunate, the government did offer reskilling for retrenched workers. There are many other sectors where workers lose their jobs and receive little government support. Due to the high Australian dollar and increasing production costs, a boost of public money has been necessary to prevent production from folding. Any decline in production of Australian made cars affects workers in plants, particularly in Altona, Broadmeadows, Port Melbourne and Geelong as well as others in South Australia. When factory workers lose their jobs, politicians are concerned that this could lead to losing votes in marginal seats. For example, Federal MP Darren Cheeseman s electorate Corangamite covers the outer areas of Geelong where many Ford Australia factory workers live. At the 2010 election, he won by 771 votes. Not surprisingly, he argued that Geelong s reliance on the 4

6 manufacturing sector meant that the government should provide jobs in the area (Heasley, 2011). He called for an update of car industry policies which established a special development fund for electric cars. In March 2012, the Prime Minister announced a $275 million deal to sustain Holden s operations after the company threatened to close its manufacturing base in Australia. The federal government contributed $215 million, the South Australian government provided $50 million and after some resistance, the Victorian government offered $10 million. In return, Holden agreed to invest more than $1 billion in its manufacturing operations which would continue in Australia until at least 2022 (Owen, 2012). Despite these assurances, there was no guarantee that there would not be any forced redundancies, therefore employment remains vulnerable. Improving accountability Although the car industry has received much public assistance, governments have set few accountability mechanisms in place. The Gillard government has demonstrated a lack of transparency, for example with the recent $275 million deal to Holden, despite its declaration that it was not a hand out but a strategic investment (Prime Minister, 2012). The provision of funding with hardly any strings attached is not new. Car companies have not been answerable for poor production and profitability outcomes. There have been no effective instruments for identifying or correcting failures in the car industry, which has just led to further uncertainty. The solution to problems of low productivity has been to develop and invest more money into more inconsistent strategies. One of the problems with these forms of assistance is that they lead to benign neglect because firms do not have to provide any guarantees for better performance. Throughout the 2000s, the Coalition government (as well as state governments) continued to provide handouts to the car industry, just as the Labor government had during the 1980s and 1990s. In 2002, it announced a 10-year, $4.2 billion package for the car industry (recalculated at $7.3 billion.) The Automotive Competitiveness and Investment Scheme (ACIS) replaced an earlier 5-year $2 billion scheme. The new package for car manufacturers and the components industry would operate from 2005 to 2015, reducing tariffs to 10 per cent in 2005, with a further reduction to 5 per cent in The industry minister Ian McFarlane argued that the package would produce 10 years of certainty for the car industry and suppliers (Conley, 2009). However, within 18 months the sector was requesting extra funding and Mitsubishi announced the closure of its engine plant. As in the past, car companies were not held accountable for their future viability; rather the strategy was to supply assistance and hope that it would be sufficient to sustain company operations (Conley, 2009, 212). Although the Howard government opposed the idea of industry policy, it continued providing assistance and postponed tariff cuts for the vulnerable car industry. Its lack of conditional support did little, however, to strengthen the sector. There are two more issues to consider that are related to accountability. First, those who oppose subsidies raise the question of why car companies are paid millions of dollars through various assistance packages when they make profits for example, Holden made $112 million after tax profit in This profit raises the question of whether it would have been possible without receiving nearly $100 million from the ACIS and $149 million from the green car fund over three years plus $3 million from South Australia (Cadogan, 2011). Second, consumers pay indirectly because industry assistance imposes costs such as taxes and charges or the government reduces spending on other sectors of the economy. Although tariffs provide some price relief to car producers, they also lead to higher input costs for other domestic businesses and higher prices for goods and services (Productivity 5

7 Commission, 2010). The overall lack of accountability suggests the need for clearer criteria and guidelines for funding. Developing Green Cars Governments have been slow to advance industry policies which develop environmentally friendly vehicles. Although some research on hybrid car technologies was conducted in the early 2000s, federal funding was not generous. CSIRO and Holden spent approximately $12 million in developing the lowemissions ECOmmodore hybrid, but the Howard government invested only $2 million into the project, arguing that consumer demand for the car would be low and would not justify a more substantial investment (Beeby, 2008). The federal Labor government has also stated that it will not offer incentives for electric cars, arguing that the future of the car industry lies in developing existing technology across petrol diesel and LPG engines. The goal is to adapt technologies that are already being used (Hawkins, 2010). In 2008, the Rudd Labor government aimed to develop a greener car industry by launching A New Car Plan for a Greener Future. The plan provided $6.2 billion (3.2 billion net new funding) of assistance: a $1.3 billion 10-year Green Car Fund with the aim of generating $5 billion of investment. A $3.4 billion Automotive Transformation Scheme (ATS) would replace ACIS and function from 2011 to 2020 generating $12 billion in new investment in research and development. The plan also provided a $116 million structural adjustment program for the components sector, $80 million to ease the changeover from the ACIS to the ATS, $20 million for suppliers who wished to integrate into the global supply chain, $6.3 million to improve market access, and a $10.5 million expansion of the LPG vehicle scheme. The government upheld the commitment to reduce tariffs to 5 per cent in 2010 (Australian Government, 2008). However, the continuous decrease in tariffs that had protected Japanese foreign investment in Australia from competition was the major reason why Nissan and Mitsubishi Motors Australia Limited shut down manufacturing in Australia. Another reason was the insufficient industry assistance for manufacturing investors (Bayari, 2008, 88). The government separately provided Ford with $11.8 million for further design and engineering as part of an expansion and upgrade of Ford s casting plant in Geelong (Productivity Commission, 2011, 34-35). Nevertheless hundreds of jobs were subsequently lost at Ford as sales declined by 60 per cent between 2003 and 2010 (Cadogan, 2011). The car plan s Green Car Innovation Fund (GCIF) promised $1.3 billion over ten years to help kick-start the production of low-emission and fuel efficient vehicles. The aim was to position the industry closer to green car technology and reduce fuel consumption by at least 20 per cent as well as CO2 emissions. In 2009, grants included $35 million for Toyota Hybrid Camry; $149 million for the Holden small car project and $42 million for Ford Australia s EcoBoost engine. In , grants included $63 million to produce Toyota s four cylinder engine for the Camry and the Hybrid Camry. However, the budget scaled down the GCIF, which was subsequently abolished in January 2011, saving $234 million from uncommitted funds over the forward estimates and $401 million over the life of the scheme. These savings helped to pay for recovery and reconstruction after the 2011 natural disasters (Productivity Commission, 2011). Nonetheless, the government broke its promise to fund green cars, thereby demonstrating a lack of commitment to developing new technology. Conclusion The car industry has had massive government support for several decades, and whether this funding and special attention should continue is debatable. So far, car industry policies have been inadequately devised and poorly monitored. To achieve economic and environmental sustainability, policy makers 6

8 must engage with industry in developing innovative environmental policies. It is important to consider the views from not only policy makers and representatives from business and unions, but also from environmental and consumer groups. Governments cannot continue to pursue seemingly never-ending rescue missions for the car industry. Despite demands for preserving a skilled manufacturing base as well as generous support from various government coffers for many years, car manufacturing has not integrated into the growing regional production structure, nor has it specialised in producing components on a large scale. Effective reform measures involve supporting research and development, productivity improvements and longer-term development through infrastructure, rather than persisting in the provision of ad hoc and largely ineffective assistance to ailing industry sectors. We need a policy agenda that avoids wasteful interventions and the benign neglect of the past. Policy makers should advance a new approach that encourages public and corporate accountability, promotes innovation, offers good jobs and maintains businesses in Australia. Providing more support to the car industry without assurances or guarantees about future viability seems a lost opportunity for improvement, if not futile. Governments and business have also not been accountable, often demonstrating a lack of commitment by reneging on deals, leading to much insecurity about long-term investment decisions and a decline in trust between the various stakeholders. Finally, a comprehensive industry policy should include funding to ensure greener benefits for Australia, including the development of electric cars and energy efficient fuels. If the car industry does not change and encourage a clear vision and strong leadership, it is likely that wasteful publicly funded programs will continue. 7

9 References ABS, Year Book Australia. ABS, Motor Vehicle Census, Australia 31 March. Australian Government, A New Car Plan for a Greener Future. Bayari, C., Japanese auto manufacturers in the Australian market and the government industry assistance spending, The Otemon Journal of Australian Studies, 34, Beeby, R Green car a coodabeen champion, The Canberra Times. 11 June. Cadogen, J New Car Manufacturing in Australia: Is the Ship Sinking?, Car Advice, Conley, T The Vulnerable Country: Australia and the Global economy, University of New South Wales Press, Sydney. Conley, T. and van Acker, E Whatever Happened to Industry Policy in Australia?, Australian Journal of Political Science, 46, 3, Department of Innovation, Industry, Science and Research, Key Automotive Statistics. Dunckley, M Labor s Car Cash riles Keating, Financial Review, 30 March. national/labor_car_cash_riles_keating_ekvjvfhq27q0x0twa25g0m Heasley, A Ford losses prompt call for review of car industry, The Age, April 16. Hawkins, P It s back to the bowser in the race to the future, The Age, April 18. Mikler, J Greening the Car Industry: Varieties of Capitalism and Climate Change, Edward Elgar. Owen, M Ted Baillieu dragged feet on $275m Holden rescue deal, The Australian, March 23. Paterson, M Automobile Politics: Ecology and Cultural Political Economy, Cambridge University Press. Prime Minister, Minister for Industry and Innovation Investing in Automotive Jobs and Skills, 22 March, Canberra. Productivity Commission 2010, Trade & Assistance Review , Annual Report Series, Productivity Commission, Canberra, June. Productivity Commission Trade & Assistance Review , Annual Report Series, Productivity Commission, Canberra, May. 8