Omari Gates
The Australian car manufacturing industry, which supported thousands of jobs, came to an end in 2017. The closure of the industry was a result of various factors, including the decisions of successive governments, a global industry restructuring, and the high cost of labour in Australia compared to other countries. The industry's demise has had a significant impact on the affected communities, with many people facing long-term unemployment. This outcome has also hurt Australian innovation and investment in research and development, which may adversely affect the survival of remaining industries.
| Characteristics | Values |
|---|---|
| Date of closure | Third quarter of 2017 |
| Reasons for closure | High labour costs, reduced government support, appreciation of the Australian dollar, lower import tariffs, free trade agreements, reduced demand, high minimum wage, lack of economies of scale, global industry restructuring |
| Companies exiting | Mitsubishi, Ford, Holden, Toyota, Nissan |
| Number of job losses | 73,772 full-time employees |
| Communities impacted | Northern Adelaide, outer parts of Melbourne, Geelong |
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What You'll Learn
The industry was small and could not achieve economies of scale
The Australian car manufacturing industry was relatively small, with a maximum annual production of around 500,000 cars per year. This is significantly lower than the production capacity of some of the world's largest car manufacturers, such as Hyundai, which can produce up to 1.5 million cars annually at its largest complex.
The small size of the Australian industry meant that it struggled to achieve economies of scale, which is a key factor in reducing the unit cost of cars. Large car producers, such as Toyota, often prefer to produce cars in a few central locations and then export them to other markets, rather than having local factories in different countries. This makes it difficult for smaller markets like Australia to compete, as they cannot offer the same economies of scale.
Additionally, the Australian car industry faced challenges in terms of research and development (R&D). R&D activities in Australia were not of sufficient scale or impact to significantly alter the trajectory of the industry. This lack of investment in innovation further contributed to the industry's inability to achieve economies of scale.
The high cost of labour in Australia also played a role in the industry's decline. With labour costs in some Asian countries being only one-fourth of those in Australia, it became increasingly difficult for the local industry to compete. This was further exacerbated by the lack of flexibility in employment conditions and the high minimum wage in Australia, making it one of the most expensive places in the world to employ labour.
The small size and inability to achieve economies of scale ultimately made the Australian car manufacturing industry uncompetitive in the global market, leading to its eventual closure.
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High labour costs and unfavourable market conditions
The Australian car manufacturing industry has historically been characterised by trade protectionism, with high tariff barriers making Australian-made cars cheaper than imported ones. However, movements towards free trade and reduced government protectionism resulted in imported cars becoming more affordable than locally produced ones. This shift in market dynamics contributed to the decline of the Australian car industry.
Another critical factor in the industry's demise was the high labour costs in Australia compared to other countries. The country has one of the highest minimum wages globally, making it challenging for labour-intensive industries like car manufacturing to remain competitive. Unions demanding higher wages and better working conditions further exacerbated the issue, making it difficult for car manufacturers to control labour expenses.
The appreciation of the Australian dollar also played a role in the industry's closure. A strong currency can make exports more expensive for other countries, reducing demand for Australian-made cars in the global market. Additionally, the lowering of import tariffs and the signing of Free Trade Agreements made it challenging for domestic manufacturers to compete with cheaper foreign imports.
The small size of the Australian market and the inability to fully exploit economies of scale further hindered the industry's viability. Large car manufacturers prefer to centralise production in a few locations to optimise costs, rather than operating local factories in each country they serve. This shift in production strategies by major carmakers like Toyota contributed to the challenges faced by the Australian car manufacturing industry.
The decline of the Australian car industry resulted in significant job losses, with an estimated 73,772 full-time employees in the motor vehicle industry in 2009-2010. The impact of these job losses is expected to be profound and long-lasting, particularly in communities like northern Adelaide, outer Melbourne, and Geelong, which may experience prolonged periods of high unemployment.
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$59.16 $73.95
Lack of investment in R&D and technological innovation
The Australian car manufacturing industry was once vibrant, but it was never very big. At their peak, Holden, Ford, and Toyota were the top manufacturers, with Holden building 165,000 cars in 2004, Ford 155,000 in 1984, and Toyota 148,000 in 2007. However, in recent years, their combined sales have dwindled to a fraction of what they once were, with only 87,000 locally made cars sold in the last year. This lack of demand and inability to achieve large economies of scale contributed to the industry's decline.
The high cost of labour in Australia also played a significant role in the industry's downfall. With labour costs in some Asian countries being a quarter of those in Australia, manufacturers had no choice but to seek cheaper foreign production inputs to remain solvent. This, coupled with the lowering of import tariffs, the signing of Free Trade Agreements, and the appreciation of the Australian dollar, made it extremely challenging for the Australian car manufacturing industry to compete globally.
The absence of investment in Research and Development (R&D) and technological innovation further exacerbated the situation. Valadkhani and Smyth (2016) argued that the demise of the car industry would significantly impact R&D investment and employment nationally. However, R&D activities in Australia lacked the scale and impact needed to alter the industry's trajectory. The industry's peripheral position in global production and its reliance on foreign automakers and government subsidies also contributed to its vulnerability.
The Australian government's decision to cut subsidies to the car industry dealt a further blow. Over the years, the taxpayer had footed the bill, with the government providing around AU$5 billion in industry assistance over the past decade. However, with a focus on balancing budget deficits and complying with international trade agreements, the government progressively reduced these subsidies.
The decline of the Australian car manufacturing industry resulted in significant job losses, with an estimated 73,772 full-time employees in the motor vehicle industry in 2009-2010. The impact on affected communities, particularly in northern Adelaide, Melbourne's outer parts, and the regional city of Geelong, is expected to be profound, with long-term unemployment predicted to persist for decades.
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Reduced government support and protectionism
The decline of the Australian car manufacturing industry can be attributed to several factors, including reduced government support and a shift away from protectionism.
The Australian car industry has long been dependent on government subsidies and protectionist policies, such as high import tariffs, to remain competitive. However, over time, government support for the industry began to wane, with subsidies being gradually reduced to balance budget deficits and comply with international trade agreements. This retreat of government support made it increasingly difficult for Australian car manufacturers to stay afloat.
In addition, the Australian government's move towards free trade and away from protectionism further contributed to the industry's demise. The lowering of import tariffs made it cheaper to import cars from other countries, especially those with lower labour costs, such as some Asian countries. This resulted in imported cars becoming more affordable than locally produced ones, reducing the competitiveness of Australian car manufacturers.
The high cost of labour in Australia also played a significant role. With successive governments increasing minimum wages, Australia became one of the most expensive places in the world to employ labour. This made it challenging for Australian car manufacturers to compete with countries that had significantly lower labour costs.
The combination of reduced government support, the removal of protective tariffs, and the high cost of labour created a perfect storm that ultimately led to the closure of the Australian car manufacturing industry. The industry's decline resulted in significant job losses and impacted communities across Australia, particularly in areas like northern Adelaide, Melbourne, and Geelong, which faced long-term unemployment.
While there were multiple factors contributing to the industry's demise, the reduced government support and the shift away from protectionism played a crucial role in accelerating the closure of Australia's car manufacturing sector.
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Loss of employment and impact on affected communities
The closure of the Australian car manufacturing industry in 2017 brought an end to 70 years of vehicle assembly. The industry's demise was caused by a combination of factors, including the high cost of labour, the appreciation of the Australian dollar, and the lowering of import tariffs. These factors made it difficult for Australian car manufacturers to compete with cheaper foreign producers. As a result, companies like Ford, Holden, and Toyota exited Australian manufacturing, taking their assembly lines overseas.
This had a significant impact on employment, with tens of thousands of direct job losses in the vehicle production sector. The impact was also felt in downstream and upstream industries, particularly the Professional, Scientific, and Technical Services (PSTS) sector, which employed more than a million people. The loss of these jobs had a profound effect on the affected communities, with areas like northern Adelaide, outer Melbourne, and the city of Geelong facing long-term worklessness.
The Australian car industry employed generations of workers, and at its peak supported seven operational factories and 24,000 workers at Holden alone. The industry's decline resulted in a ripple effect of job losses, impacting not just vehicle producers but also the supply chain and related sectors. This included job losses in the research and development sector, which will likely have consequences for innovation in Australia.
The impact of job losses was not limited to those directly employed in the car manufacturing industry. The decline also affected suppliers and businesses dependent on the automotive sector. With factories closing and production winding down, suppliers struggled to find customers, and businesses in factory towns faced an uncertain future. The loss of a major industry also had a broader impact on these communities, potentially affecting their sense of identity and pride associated with being part of Australia's automotive heritage.
While the Australian car manufacturing industry's closure had a significant impact on employment and communities, it is important to recognize that the industry had been in decline for some time. The high cost of labour and doing business in Australia, coupled with the inability to achieve economies of scale, made it challenging for the industry to remain competitive. The government's decision to cut subsidies and move towards free trade further contributed to the industry's challenges, ultimately leading to its closure and the subsequent loss of jobs.
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Frequently asked questions
There are several reasons for the closure of Australia’s car manufacturing industry. Firstly, the Australian market is too small and the industry could not fully exploit economies of scale. Secondly, the lowering of import tariffs and the signing of Free Trade Agreements made it cheaper to import cars than to buy Australian-made ones. Thirdly, the high wages and better work conditions demanded by unions made labour in Australia more expensive than in other countries. Finally, the Australian government cut subsidies to the car industry.
The Australian car manufacturing industry officially closed in the third quarter of 2017, bringing to an end 70 years of vehicle assembly.
Car manufacturers Mitsubishi, Ford, Holden, and Toyota have all exited Australian manufacturing.
The closure of the Australian car manufacturing industry resulted in highly visible redundancies among vehicle producers and a profound loss of employment within the supply chain. Northern Adelaide, the outer parts of Melbourne, and the regional city of Geelong are likely to face long-term worklessness for decades to come.
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