The future of Australian Manufacturing

[tazzietiger]

With more job loses in the manufacturing sector making headlines today with the announcement of Boral cutting 700 job. I thought given its an election year also we could have a thread to discuss the issues of government assistance and long-term manufacturing viability in Australia. Now we all know the issues that effects our exporters such as the Australian dollar, IR, taxes and regulation.

With the American economy and European economies on a long-term path to recovery can we afford to keep paying out government assistances to industries until our dollar decreases in value that would allows us to become competitive once again in global markets or has the time now came that we(Australia) just have to accept that most manufacturing can now be done in Asia and imported cheaper and most likely going to stay that way for the next couple of decades.

 

[tandino]

Not much of a future I would have thought.

One of the most visible places that this debate seems to focus on is the auto industry. It gets a significant amount of Government assistance and is in a small way still protected by tariffs and other Government policy.

From the News Ltd papers today. I thought it was bad, but I never realised it was so bad.

Note the production dropped off a cliff from around 2003 onwards. The Dollar was trading between .73 and .78 for the most part between the start of 2004 and the end of 2007.

EDIT: I should note, the above graph is not a totally accurate measure of production of either Holden's plant in Elizabeth or Ford's plant in Broadmeadows, as it does not include cars such as the Holden Cruze or the Ford Territory. Neither of which would account for the significant fall in production since 2003

The Dollar seems to carry the responsibly for the cost of Australian production and the competitiveness of Australian production (I note Paul Howes gave it another crack today) but I think more than anything else Australia is just a costly place to do business in heavy manufacturing.

 

[Admiral Byng]

I can't see it continuing.

The old Australian economy was founded on a few key pillars. Tariff protection, centralised wage fixing, exchange rate controls, regulated banking system and the white Australia policy. In the 1950s and 1960s it worked well enough and produced the illusion of some kind of workers paradise. Since the late 1970s and early 1980s things changed and just about every one of these pillars has been abandoned. It was estimated they cost the economy more in lost opportunity than what they contributed.

Australia has never had a manufacturing industry survive and thrive on it's own two feet. We simply have never had the domestic population to support it, our geography is against us too, as is our system of state government.

 

[tazzietiger]

Not much of a future I would have thought.

One of the most visible places that this debate seems to focus on is the auto industry. It gets a significant amount of Government assistance and is in a small way still protected by tariffs and other Government policy.

From the News Ltd papers today. I thought it was bad, but I never realised it was so bad.

I read a article on car guide earlier that the falcon will cease production in 2016 and the Ford plants will shut down with it after the company ruled out other vehicle manufacturing options. The Commodore also could be replaced with Holden manufacturing a SUV along side the Cruze instead.

The two icons of the Australian car industry – the Ford Falcon and Holden Commodore – are almost certain to be phased out within months of each other at the end of 2016, marking the end of a battle that has lasted more than half a century.

Ford has said for some time the future of the Falcon and its Broadmeadows manufacturing facility are not guaranteed beyond the end of 2016. Overnight at the Detroit motor show, Holden inadvertently confirmed the Commodore’s run is due to come to an end about the same time.

The revelation comes a day after Holden admitted that the jobs of the 320 workers at its Port Melbourne V6 engine plant are in jeopardy beyond the end of 2016 as car buyers around the world shift to four-cylinder cars.

In an interview with Australian journalists the boss of Holden Mike Devereux said: “VF [Commodore] will run through to the end of 2016. We have a current plan to put a second [vehicle type] into the plant before 2017.”

News Limited understands Holden has started plans to build a medium-size, four-cylinder, front-drive car alongside the next generation Holden Cruze from 2017. But given the continuing strong growth in sales of SUVs, which are now the second biggest market in Australia, Holden said it may re-evaluate its position.

Ford has not revealed its plans beyond 2016 however it has all but run out of options. It has already ruled out a small car, an SUV and a ute -- vehicles which would compete in the three biggest market segments in Australia, but come to Ford from factories in Thailand.

Another type of locally made Ford vehicle that could be exported is highly unlikely given the sustained strength of the Australian dollar. Parts suppliers in Australia believe Ford will close its manufacturing operations at the end of 2016 because they have not been asked to quote on future models.

Late last year Ford shut three long-standing factories in the UK and Europe as it matches falling demand there. It also shed thousands of jobs and up to 17 factories in the US after the GFC. In 2012 - a record sales year - Ford Australia produced its lowest annual output since Broadmeadows opened in 1960.


http://www.carsguide.com.au/news-and-reviews/car-news/end_of_road_for_falcon_and_commodore_in_2016/

 

[Dry Rot]

Won't the $10b carbon tax slush fix all this?

Aren't we meant to become a centre of Green manufacturing?

 

[Hard_to_Beat]

I can't see it continuing.

The old Australian economy was founded on a few key pillars. Tariff protection, centralised wage fixing, exchange rate controls, regulated banking system and the white Australia policy. In the 1950s and 1960s it worked well enough and produced the illusion of some kind of workers paradise. Since the late 1970s and early 1980s things changed and just about every one of these pillars has been abandoned. It was estimated they cost the economy more in lost opportunity than what they contributed.

Australia has never had a manufacturing industry survive and thrive on it's own two feet. We simply have never had the domestic population to support it, our geography is against us too, as is our system of state government.

The 1973 Lima Declaration..

....and big lols to Dry Rot for pouncing on the opportunity to turn this in to another envirowhine.

 

[Dry Rot]

....and big lols to Dry Rot for pouncing on the opportunity to turn this in to another envirowhine.

Why? Don't you remember the rhetoric with carbon tax and our green manufacturing future? All those golden opportunities?

We'll be OK.

 

[Scotland]

Holden and Ford operate in one of the most expensive manufacturing markets in the World and produce cars of mediocre quality that the local market doesn't want to buy.

I reckon give them another subsidy, that'll fix the underlying problems.

 

[Hard_to_Beat]

Why? Don't you remember the rhetoric with carbon tax and our green manufacturing future? All those golden opportunities?

We'll be OK.

I need clean air, food and water a hell of a lot more than I need to satisfy theoretical Keynesian equations.

The collapse of the current western economic model is inevitable.

 

[Slax]

The problem with the Australian manufacturing industry is the same problem that exists in the USA, most of the manufacturing jobs are in low value products. In the late 70s early 80s the Fraser & Hawke governments had the opportunity to encourage manufacturers to move into high end products, thus protecting themselves from cheaper imports (Japan at the time, but now India, Indonesia & China), this didn't happen and we are paying the price.

 

[Andre]

Won't the $10b carbon tax slush fix all this?

Aren't we meant to become a centre of Green manufacturing?

Middle clash welfare gets rubbished, but the money pissed up the wall subsidising manufacturing, especially the auto industry, to placate union mates is, IMO, much worse. The money wasted could go to retraining those workers and easing the burden on businesses in general. Of course they wouldn't get paid wages way out of whack with what they produce, but hey, join the rest of us in the (private) workforce who have to justify our wages in the real world.

 

[Upton Sinclair]

An opinion:

But are these handouts bad?

Yes – because they ignore how and why modern economies like Australia are changing.

Manufacturing is only a minor part of the Australian economy. The report shows that services account for around 80% of Australia’s output, manufacturing and mining about 8% each, and the rest, agriculture.

Manufacturing’s share of output has been steadily declining over the past century. And this pattern is observed in all developed economies.

Why has this occurred? Two European researchers, Schettkat and Yocarini reviewed the economics literature on the shift to services about a decade ago.

Their report, which covers studies back to the 1930s, suggests three inter-related reasons:

• As we grow richer, we demand relatively more services (e.g. high quality health care) and relatively less manufactured output;
• Changes in the way business is organised has seen manufacturing employees contracted out and reclassified as service employees, despite them doing the same tasks;
• Productivity has risen faster in non-service sectors so we need fewer employees in manufacturing and agriculture to have the same – or even more – output.

While we can argue about which of these reasons is more or less important, they all lead in the same direction.

The manufacturing sector has shrunk and will continue to shrink relative to the service sector. And this is a good thing.

It means more people in better, safer, more stimulating jobs producing the things that consumers want.

Our obsession with manufacturing is reminiscent of thephysiocrats, a group of 18th century economists who believed that agriculture was the source of all wealth.

While I suspect the National Party may still harbour some physiocrats, it is clear that our current politicians are largely “manuocrats”, people who believe that the source of all our wealth is manufacturing.

Just like the physiocrats of three centuries ago, today’s manuocrats are wrong.

 

[tazzietiger]

An opinion:

Instead of posting articles from other people on their views that we can all look up and read. Why don't you add your own contributions to this thread with your view on the future of the manufacturing. It'll be interesting to hear a view from a green's supporter given the a party advocates the closure of the mining and the manufacturing industry.

 

[Upton Sinclair]

It'll be interesting to hear a view from a green's supporter given the a party advocates the closure of the mining and the manufacturing industry.

LOLOL! Citation, prease

 

[Upton Sinclair]

Since tazzietiger has decided to preface his argument on a blatant lie - it might be instructive to look a little deeper into what the Greens polices ACTUALLY are and not relying on interpretations of said policies that TT has picked up reading the comments section of the Herald Sun:

Manufacturing and Industry Policy

1. Background

In order to achieve an ecologically sustainable industrial base in Victoria and create productive opportunities for future generations, it will be necessary to restructure the manufacturing and energy sectors while recognising the importance of Federal and State macroeconomic, fiscal and other policy settings in shaping business activity. Much of the technology needed for the transition to a low carbon economy already exists and needs investment and support to develop into commercial applications.

Historically, Victoria has attracted a wide range of manufacturing activity. The State is blessed with natural resources such as oil, gas, coal, minerals, forests and arable land over a relatively small area. The population is highly educated, relatively wealthy and quick to adopt new technology. Despite this favourable combination of resources and industrial capability, the overwhelming business trend has been to export resources after only rudimentary processing. The export of minimally transformed goods and commodities has shifted overseas the benefits of employment, research and development and environmental control.

Current government policies are not directed at reversing this trend, although government assistance is provided to industry in various ways. These include preferential government procurement arrangements, financial inducements to attract industry to Victoria, and guidance for local companies tendering for large projects. In addition, the current government provides research and development grants and public investment in new technology (such as $157 million for the Australian Synchrotron).The Victorian Auditor General has been critical of government assistance to industry on the grounds of the limited public information about investment criteria, limited evaluation of effectiveness and poor transparency of reporting.

2. Principles ​

​

The Australian Greens Victoria believe that:​

1. Victoria’s manufacturing sector needs to be ecologically sustainable.
2. Local production of ecologically sustainable products is essential for a robust economy which provides purposeful employment and ownership in Victoria’s creative and productive abilities.
3. Development of sustainable manufacturing industry in Victoria needs public and private sector investment and support, as well as investment in research, development, innovation, education and training at all levels.
4. Industries should pay the full, long term environmental, economic and social cost of water and power provision and waste disposal.

3. Goals​

​

The Australian Greens Victoria will work towards:​

1. A sustainable productive economy where resource-extractive and energy-intensive industries no longer export raw materials, but are transformed to manufacture high quality, long-lasting and recyclable products which will benefit Victorian society in the long term.
2. A productive industrial and social culture where scientific and engineering skills are highly valued and encouraged, creativity and experimentation are facilitated, and employee occupational health and safety is nurtured.

​

​

​

So basically, making MORE out of our resources and creating manufacturing jobs by processing them on-shore. All the while making sure that investments are made into R&D and that industries be held accountable for the environmental impact of their activities. Sounds eminently sensible to me, which other party is advocating creating NEW industries instead of simply protecting old and inefficient industries? What's the Lib-**** policy again; oh, that's right - STOP THE TAX, END THE WASTE. How... mature of them.

But, hey, don't bother letting inconvenient facts get in the way of a good beat up!

 

[tazzietiger]

Historically, Victoria has attracted a wide range of manufacturing activity. The State is blessed with natural resources such as oil, gas, coal, minerals, forests and arable land over a relatively small area.

I agree. Our access to cheap resources gives us a good competitive edge so lets use them instead of burdening business with taxes such as the carbon tax which only increases business with extra costs and we lose our main competitive edge.

Won't the $10b carbon tax slush fix all this?

Aren't we meant to become a centre of Green manufacturing?

We've already missed the boat with manufacturing green products. Even wind turbines for a wind farm here are being imported. Our best hope is to develop the technology locally but manufacture it off-shore to keep the prices down. Which if your goal is to cut emissions instead of saving/creating jobs is the perfect way of doing it. Cheaper the product more people can afford it.

 

[Upton Sinclair]

I agree. Our access to cheap resources gives us a good competitive edge so lets use them instead of burdening business with taxes such as the carbon tax which only increases business with extra costs and we lose our main competitive edge.

Too bad for your narrative that hasn't been an oputcome of the carbon tax... but, again, don't let facts get in your way!

As for various alternative policies, does anyone know if the LOTO has defined where his 2,000,000 new jobs will come from and whether any are in manufacturing or not?

 

[Pessimistic]

Its a bit more complex than that.

Pointedly, I dont see any answers in the keynes v austrian thread, its worse than useless

 

[kickazz]

Holden and Ford operate in one of the most expensive manufacturing markets in the World and produce cars of mediocre quality that the local market doesn't want to buy.

Not really true, the Commodore in particular is still one of the top selling cars in the country. The big difference today is the amount of competetion and thus choice the consumer has. There are about 50 different makes available. With this squeeze, unless the locals can make money from exports it makes things very difficult. Some of the existing bogus FTAs do not help this.

 

[Scotland]

Not really true, the Commodore in particular is still one of the top selling cars in the country. The big difference today is the amount of competetion and thus choice the consumer has. There are about 50 different makes available. With this squeeze, unless the locals can make money from exports it makes things very difficult. Some of the existing bogus FTAs do not help this.

Maybe I phrased it too simply. One third as many Commodores were sold in 2012 than 2002, and sales volumes have been falling each year in that time. 60,000 people who would once buy a Commodore now prefer the Mazda 3 and Nissan Navara etc. The Commodore may still be one of the most popular cars, but it is nowhere near as popular as it was, and that popularity continues to fall. It's no criticism of the quality of the car, but people are moving away from large RWD sedans. When you are a small time producer and your bread and butter is large RWD sedans this does not augur well.

 

[Admiral Byng]

There's a move away from large family sedans to 4WD/SUV type cars. Not very good for the environment of course, but that's the shift. The typical two car family is more likely these days to have one of these and a small hatchback as the second car. The large family sedan falls somewhere in the middle.

I reckon Ford and Holden would be better off making an SUV as their flagship model.

 

[Pessimistic]

Only a few hundred employed building cars ? The undystry as a whole is many times that

Including niche after market products and parts

 

[Pessimistic]

Vehicle market may totally transform within a couple of decades

Local content might actually increase.

Need to focus on maintaining a nimble appropriate sized industry using multi national companies

 

[Herne Hill Hammer]

I remember in the 70s that you had Holden, Ford, Chrysler/Valiant/Mitsubishi, Toyota, Mazda, Datsun/Nissan, Honda and low numbers of imported niche brands.

Look at the range of brands and prices these days.

 

[Scotland]

There's a move away from large family sedans to 4WD/SUV type cars. Not very good for the environment of course, but that's the shift. The typical two car family is more likely these days to have one of these and a small hatchback as the second car. The large family sedan falls somewhere in the middle.

I reckon Ford and Holden would be better off making an SUV as their flagship model.

If you look at the YTD sales there are 3 Aussie built cars in the top 10; Commodore, Cruze and Camry.

Hilux, Navara and Triton are the only three 'SUVs' in the top 10 along with 5 small cars, Commodore and Camry.

If we go for the position of 'OK everyone wants Nissan Navaras now, let's build those instead' it raises two problems given nothing is going to happen without more government funding. One, Nissan, Toyota and Mitsubishi have been building these types of vehicles and know what they're doing, and they have established market share. If Holden/Ford are going to get in on the act, they're going to be playing catch-up locally building models that are already available but not as good/popular or trying to create their own from scratch. By the time the Australian made Ford Ranger is #1 in its class the trend will probably be away from 'SUVs'... Secondly, the local manufacturers are always going to be behind the 8 ball while they are trend-followers. Holden was still making the OHV Buick design V6 into the 2000s, and started making a 4 cylinder small/medium car in 2008. I mean I love my Nintendo 64, but just because it was awesome in 1997 doesn't mean we need it to be produced locally today.

We need to compete on quality/innovation or price. I just can't see us competing on either.