While Holden’s Australian management refuse to confirm it, it is widely believed General Motors in Detroit has last month signed off on a global restructure that includes the closure of Australia’s manufacturing plants in Adelaide and Port Melbourne. The high Australian dollar and labour costs contributed to the decision.
It is expected Holden will pull out of Australia in 2016, the same year Ford will shut down in Victoria. This will see 1,700 jobs lost at Holden’s Elizabeth assembly plant and 300 at Holden’s Fisherman Bends/Port Melbourne engine plant. Ford will shed 650 jobs at Broadmeadows and 510 at Geelong.
This will put extreme pressure on component manufacturers (6,000 jobs in Adelaide/18,000 in Victoria) and Toyota’s Altona plant (2,200 Jobs), inevitably leading to the complete closure of Australia’s automotive manufacturing sector after more than 90 years. Toyota management has confirmed it will make a decision on Altona’s future in early 2014.
Last month, the Organisation for Economic Co-operation and Development (OECD) released a report suggesting Australia’s high labour costs (and house prices) were a potential financial vulnerability. The report showed Australia’s relative unit labour costs had surged 54.1 per cent since 2000, while Germany fell 14.6 per cent, U.K. fell 20.4 per cent and the U.S.A. declined 25.9 per cent.
Much of appreciation comes from the “strength” of the Australian Dollar as the result of the mining boom but has the consequence of making our other exports more expensive and leading to the eventual shut-down of the manufacturing industry. Such was the case when the Netherlands discovered a large gas field in 1959, resulting in the term “Dutch Disease.”
Professor Ross Garnaut explains in his latest book, Dog Days: Australia after the boom, “No developed country has experienced as large a sustained appreciation in its real exchange rate as Australia has through the China resources boom – not even the Netherlands during the development of the North Sea gas and the fabled ‘Dutch Disease’. In turn, this means that no developed country has ever successfully worked through such a fall in the real exchange rate and associated contraction of incomes.”
Rising unemployment will have severe implications for Australia’s overheated property market, Australia’s other potential vulnerability according to the OECD.
» House prices, labour costs leave economy vulnerable: OECD – The Australian Financial Review, 20th November 2013.
» Toyota future decided by June next year – CarsGuide, 21st November 2013.
» Detroit decides: Holden will close – The Australian, 7th December 2013.
» High wages stall Holden engine – The Australian, 10th December 2013.
I’ve just been reading about strong manufacturing and service sector growth here in UK and Ireland.
The same graphs show australia falling way behind on these core economies….
Slides 5 and 6
http://www.slideshare.net/Ramseconomics/20131209-pmi-slidepacknov2013
Sell off all that’s still ours underground (Australia didn’t own much of it), sell off all those farms that are still ours, sell all that’s made of bricks and concrete (and way overpriced) to overseas buyers. Sell the lot.
Australia is having a massive closing down sale.
As someone from a small business multi-generation background, we have zero ill feelings about Holden closing. FFS, the government gives them $48,000 per employee.
What do small business owners get? We get lip service that we are the ‘heart/engine room’ of the economy. Yet we collect 10% gst on everything we are ABLE to sell, then we still have to pay all the other fees and charges, then if there is anything left over, we pay income tax on that.
It’s clear to me, the propping up an ENTIRE sector just so you can say “we have skills” is disgustingly bad economics.
Oh, but the unionist’s will say that no car is built without government support. Ok, that may be a fact, but tell me this, what do these following countries have in common?
Japan
Spain
England
France
Italy
USA
These countries (I suspect there are others) that support their automotive manufacturing sector…….and all of them, have trashed economies, all in serious recession, or running massive deficits.
It’s one of the first lessons any business owner will incur, if someone else can do something BETTER & CHEAPER than you can, then you out-source it.
Do you see small clothing retailers stitching up garments? No, it’s cheaper to be done off shore.
Do you see small computer retailers building computers and laptops in their stores? No, it’s cheaper done off shore.
Do you see building suppliers casting and making components here in their warehouses? No, it’s cheaper done off shore.
Seriously, the only reason that the union’s push so hard to keep the automotive sector is that it is their last source of bulk memberships and path to the gravy train for the officials.
I ask, if these guys who are batting for Holden to stay in manufacture are so serious about Australia needing an automotive manufacturing base, then have they themselves committed to Holden?
Have they:
Bought 1 single share in GM (GM just got out of bankruptcy, it was the buy of a lifetime)
Do they themselves OWN a commodore or cruze? Not have a leased one in the drive way as most Holden employees do, but actually put down the $32,000+ it cost for any new commodore version.
I bet (my Iced Coffee) that they haven’t. I have family that work at Holden, so I know what the culture is like there: It is disgusting: And I quote “we can’t wait for Holden to close, and we’re going to make sure we get more than what Mitsubishi workers did”
It’s a sick, sick joke that tax payers continually prop up the sector.
Before the Aussie economy ever thrives again there has to be some massive shifts in the structure of it. We have a once in a generation opportunity to rebuild the Aussie economy while there is still enough of a base economy that will provide a slimmed down well fare system. If the governments fail to plug the holes in this sinking ship then we will become Detroit, spain, latvia, etc. etc where well fare systems collapse, personal wealth evaporates and the capital simply moves elsewhere leaving nothing but misery.
“Life wasn’t meant to be easy” & “The recession we had to have” I’m far from a Keating fan, but these lines apply today as ever.
As a country we need to take the pain now, and recover so our kids have prosperity, or we will simply try to protect what we already have: & and honestly, other than debt it’s not much is it?
update…
http://www.afr.com/p/business/companies/holden_to_stop_australian_manufacturing_YssJkVla22m14tQHn5bYkM
Qantas-going. Holden-gone. Ford -gone. .Debt ceiling – gone. Toyota-almost gone. Mines closing down.
Turn on the television and the economy is booming because bank shares and house prices are up.
He’ll knows what’s driving them but it sure ain’t fundamentals.
@ Matty
You forgot Germany, South Korea, Thailand and China.
Disregarding wage costs, all of the above produce vehicles that consumers actually want to buy.
Hi Guys,
Michael Francis @5
Have you herd of the Plunge Protection Team.
Get some gold silver
Prepper
Just another multi- national on welfare trying to blackmail governments while producing sub standard products that nobody wants. Every dollar wasted on these companies is a dollar less for real Australian businesses and start ups that create real jobs and profits.
@average bloke:
Lets work through that list:
Germany: Germany operates in a glass bubble called the eurozone. Germany will fight to extreme lengths to preserve the eurozone (to the point of bailing other countries out: very unpopular within Germany). Why do they want to preserve the eurozone? Simple, it artificially keeps their effective exchange rate low, meaning their exports are cheaper than in reality. If left to stand on it’s own, Germany would most likely be suffering Dutch disease itself.
South Korea: Maybe the exception, the only company that Toyota (the greatest manufacturer in the world) is concerned about is the Hyundai group, but they also have a very different approach, so much so that they even invested in their own steel plants. But that said, I’m sure that exhaust fitters at Hyundai in Korea are not on AU$75k a year, plus insurances, plus lease perks, plus holidays etc. etc.
Thailand: Thailand has an effectively low exchange rate due to continual political instability, no welfare systems, low wages etc. etc. Do we aspire to be like Thailand? The Vagas of Sex Addicts? No thanks.
China: Serious? You want to talk about China’s automotive sector being an example of how things should be done? Where do I start? Banned substances, asbestos etc? Low wages? Currency manipulation? Again, do we aspire to be like China? No thanks.
The reason that Aussie manufacturers have always built bigger vehicles is that the actual cost in the production of a small car and a large car are very similar. For example, the estimated price difference in assembly and materials for a Patrol and a Pulsar is 10% but the retail price difference is over 100% ie. pulsar $20K, patrol $40K. So given that the commodore is unprofitable as a big car, can you imagine the loss upon an item that may cost only 10%less to manufacture, but be retailed in competition to the $20K cars?
There are many factors involved in why Commodores aren’t selling but the argument that ‘we need to build cars that Australian’s want’ just doesn’t work as the economics are wrong at this point in time: Australian’s want small economical, reliable cars (Mazda 3 is the best selling car) the facts are: we just can’t build a car that’s competitive in the scale of vehicles that would sell. Ask any business owner, if your loosing money on an item, then what happens if you substitute the item for an item with similar input costs but lower retail price: What’s the result? Even more lost money: Building small 4 cylinder cars just would not work in Australia, the finances are plain wrong:
Don’t forget GM, FORD and Toyota are all multibillion dollar businesses with the best management that money can buy, if it was as simple as building a different model then they would have done it.
Looking at the bigger picture, all over the world we are seeing the end times of airlines, cars and large ships. why – the increasing cost of oil as it becomes more and more difficult and costly to recover/refine/distribute.
The point at which oil requires more energy to recover than it possesses is known as “peak oil” and we have passed this point already. For stats and details of this most important event, see
http://damnthematrix.wordpress.com/2013/01/18/more-on-the-energy-cliff/
and
http://theaimn.com/2013/12/11/automobile-deathwatch/
It is inevitable that ‘volume’ car manufacturing would end in Australia at some point. Only subsidies and import taxes have kept it going as long as it has in face of global over capacity and the movement car production to lower labour cost economies.
The UK has moved from volume car manufacturing and now earns far more from specialist high end automotive engineering and design services than it ever did via volume car manufacturing. The UK still produces lots of volume cars via multinational facilities – probably more than it did when it had British Leyland.
Governments are here always trying to avoid anything happening on their watch. From a national strategic perspective Australia should have been looking at alternatives to volume car manufacturing ages ago. This could have included support for new industries where Australia could generate tradable advantage.
Many economists – a minority I might add, were warning about effects of ‘Dutch Disease’ ages ago and the idiocy of having the Dollar so highly valued. We will soon have a serious economic crisis as a consequence.