Car industry at the crossroads

The Australian car industry is at a crossroads similar to the one it faced 20 years ago when the tariff wall began to fall.

The test will be whether its workplace culture -- particular in the component sector -- is up to the task of taking on the world.

The threats facing the industry are large and numerous.  The recent commodity driven rise in the exchange rate has stripped away a key source of competitiveness.

The world car industry is struggling under huge overcapacity, with a raft of manufacturers facing a near-death experience, including GM, Ford and Mitsubishi.

This is forcing a focus on efficiency like never before.  China is rapidly become the future centre of the car industry, with three out four cars over the next 50 years forecast to be built and sold in China.

On top of this, the local tariff for vehicles and components has been cut to 10 per cent from 15 per cent and is scheduled, subject to a review, to go to 5 per cent by 2008.  The effective tariff rate has been further reduced by free trade agreements with the US and Thailand.

On the positive side the industry did not just survive the reduction in tariffs but came though it smaller but much stronger.

Back in the 1980s the Australian car industry was a cosseted backwater producing poor quality cars at exorbitant cost protected by effective tariffs of more than 100 per cent.

Since then industry has slowly but surely become more world competitive in quality and price, with exports now accounting for 30 per cent of domestic production.

But there is no scope for resting on laurels.  Over the past year, despite near-record sales and levels of local production, more than 1000 jobs have been shed from the local component manufacturers, and some are forecasting that another 2000 could go, mostly in Victoria.

The key problem lies with the workplace culture.  While improvements have been made, the industry is still held back by inflexible work practices, multiplicity of unions, excessive industrial action and a general reluctance to change.

While enterprise-based agreements have been widely adopted, these have done little to improve this culture or add to flexibility.

Proposed changes to IR laws may help, but as the Productivity Commission has made clear, responsibility for better workplace relations lies largely with the industry.

Let's hope they are up to the challenge.  After all, taxpayers are investment billions in the industry in the form of subsidies, and thousands are jobs are at stake.

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