The End of an Icon—Australian Automobile Manufacturing

By Ian Hodge, (www.biblicallandmarks.com), 22/12/2013.
A business announcement on December 11, 2013, let people know that General Motors in Australia was following the pattern set by Ford Australia earlier the same year. Get out of automobile manufacturing in Australia. Chrysler ended its manufacturing operations in Australia in 2008.

Since 1948, the name of Holden—later to become General Motors Holden (GMH)—was the name associated with the Australian auto industry. It was the Australian industry, for all the other manufacturers—Ford and Chrysler—were foreigners. And in the vast outback, it was the Holden ‘ute’ (i.e. utility) that would be seen in droves outside the local pubs on a Friday afternoon as farmers and their hands lined the bars for a cold beer and a time to swap yarns.

The departure of Ford and General Motors as manufacturersleaves Toyota as the remaining auto manufacturer in Australia, but now the guesses are on: how much longer will Toyota continue to manufacture?  I estimate not long.  For one thing, many of their existing suppliers also supply GM and Ford, and once they go their manufacturing quantities decline. Many will need to raise prices in order to survive, and that only puts more pressure on Toyota for the inevitable decision.

It has taken decades for the truth to become obvious to a generation of Australians who were not alive when the problem began.  The problem?  Government interference in the market place.

But how could that be?  Does not government interfere in the market only to make the market stronger?

Unfortunately, no.  Government interferes in the market to support one group of people over against another group.  In commenting on the rise of the modern nation state, historian Joseph Strayer made the observation,

[T]he purpose of the political game was not to create a new government, but rather to get control of some part of the existing government and use that control for selfish purposes. … The basic structure of government had to be preserved in order to generate the revenues sought by the upper classes.”[2]

In the cause of automobile manufacturing, someone thought there should be an Australian auto manufacturing industry.  So in 1917, then Prime Minister Billy Hughes announced a prohibition on the import of automobile bodies.[3]

But who would be the ultimate beneficiary of any laws supporting local manufacture over against imported vehicles? The business owners of the Australian manufacturing plants would be the major beneficiary—and the government.

What about the workers employed?  Are they not also a beneficiary?  It is true that they obtained jobs, but what would they have done if those jobs were not available?  Answer: work someplace else.

And were not the consumers beneficiaries?  No, because they now had to buy vehicles at government-inflated prices in order to support the local auto makers who apparently needed the legislation because they could not compete in an open marketplace.

So there was a problem.  It’s called competition.

Competition from foreign auto manufacturers who could make automobiles cheaper than Australians could make their own.  So the tariff protections went into place, driving up the price of automobiles for Australian vehicle owners.

But, since the 1960′s when Datsun motor vehicles arrived in Australia, cheap, nasty, but at least they got you places, the message was clear.  Competition was alive and well in the worldwide auto market.

It took another 25 years before the Japanese imports gained a reputation for reliability that made their Australian counterparts look feeble.  This occurred in spite of government attempts at one time to hide the deficiencies by insisting General Motors, Ford and Chrysler joint-manufacture with a Japanese automobile manufacturer.  Not surprisingly, this did not last long, since the arrangement suited neither the consumers nor the manufacturers.  The consumers wanted genuine choice, and the manufacturers wanted to meet consumer demands without the baggage of joint-enterprise.

The consumers won.  Strangely, though, consumers won with the aid of government which, in the 1980s, began lowering tariffs to try to encourage Australian car makers to be more competitive with the rest of the world. That strategy failed, and the obituary of Australian auto manufacturing is ready to be written.

What was also driving the market was Korean auto manufacturers.  Japanese makers got into the Australian market by undercutting the established players in the game.  Now Korean manufacturers do to the Japanese what the Japanese auto makers had done to the rest of the world: undercut prices.

The result?  Cheaper cars again.  And by 2013, Hyundai is one of the leading suppliers of vehicles in Australia.  Toyota maybe the vehicle of favor by cab owners/drivers.  But Mazda, VW and Hyundai are all challenging Toyota and General Motors for top place in sales.

So protective tariffs are introduced to prop up an inefficient industry, and despite all the propping up, the market still declared “not good enough.”  And it has been quality that allowed foreign importers to get a foot in the door, despite protection for the Australian manufacturers.  When it all boiled down, Australians preferred better quality Japanese, Korean and even European vehicles than those made at home.

Decades of bad economic decisions have come to an end.  With costs more than double that of their foreign counterparts, the Australian manufacturers cannot compete with foreign quality vehicles.  A similar circumstance happened in the USA and almost brought General Motors and Chrysler undone.  Ford in the USA refused government funding, so it did not become a part of Obama Motors.  But in Australia, Ford was quite happy to accept government handouts to keep afloat, estimated to be around $1 billion in the last decade alone.[4]

So bad policy eventually led to more bad policy—subsidizing failing companies. Over $5 billion had been promised to the auto industry by the year 2020.  Yet they still failed.  Why?

When God created the world he implanted into the universe the ‘laws’ by which it should operate.  There include laws of logic, laws of science, laws of economics, laws of politics, and moral laws.  When economic decisions are made for political purposes, there becomes a cross-discipline confusion that causes dysfunction in both areas.

The Australian auto industry debacle is evidence of that confusion.  The calls continue for government to ‘do something.’  But there’s really nothing it can do.  Except get out of trying to control economic laws. It can’t be done, not by government, anyway.  God has already beaten them to it, so the best they can do is recognize God’s prior law and learn to govern according to those laws.

And now, despite the tariff protection and the Australian government pouring billions of dollars into the Big Three manufacturers (GM, Ford, Chrysler), the program has failed.

Which is just further evidence that economics rules—not politics.  Even the workers in the auto plants know that, which is why when they spend their pay packet they look for the cheapest goods, not those that have a higher price tag because of tariff protection.

Will the demise of all auto manufacturing in Australia mean that tariff protection will be lifted?  No, because the other major beneficiaries in tariff protection are all the employees on the government payroll whose salaries and wages and decisions are covered by the money collected as part of the protection scheme.

And if you think government workers will voluntarily step out of their job in order for taxes to be lowered or eliminated, then I have a bridge across Sydney Harbour that I would love to sell you.  Price is negotiable and you can use PayPal for the initial downpayment.

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