The idea the Australian automotive industry can remain competitive on the global stage, while being propped up by trade barriers and subsidies, cannot be sustained.
Until the 1980s, the evolution of the industry effectively was governed by a compact among domestic manufacturers, trade unions and government. The consumer was excluded.
Manufacturers of vehicles and parts wanted to establish and maintain a production presence in Australia, but a highly regulated labour market meant their production costs were high.
The unions wanted an automotive industry to boost their membership rates, but didn't want to forgo labour regulations that incidentally made local car making uncompetitive against cheaper imports.
Successive federal governments smoothed over the deal for a local industry through an elaborate regimen of trade barriers, including import quotas, tariffs on imported vehicles and explicit local content requirements.
State governments from Thomas Playford onwards played their part in the corporatist deal by providing cheap land and tax incentives. What emerged was an uncompetitive Australian automotive industry weighed down by high production costs. Consumers made their preferences felt as the share of sales of imported vehicles steadily increased, despite the deliberate price penalty of a tariff rate on imports that peaked at 54 per cent in the early 1980s.
Ironically, it took a Labor government federally to recognise the car-making compact needed to be shredded.
Import quotas for the industry were abolished by 1988 and tariff rates were reduced by 2.5 percentage points each year from 1990 to 15 per cent in 2000, with further reductions to 5 per cent today.
The economic proposition that the elimination, or thereabouts, of trade barriers would lead to a smaller manufacturing base more responsive to market conditions largely has been borne out by the evidence. The number of manufacturers narrowed to GM Holden, Toyota and Ford, while employment in vehicle and parts manufacturing fell by 38 per cent from 1990 to 2000, with more cuts in recent years.
What we also have seen is an Australian automotive industry increasingly export-oriented, with substantial markets in the Middle East and elsewhere.
Its remaining labour force has become more productive over time. Having largely conceded on the tariff debate, manufacturers, unions and the Government now see heavy subsidies as the best way to achieve the political ambition of a country that makes things.
The Productivity Commission says vehicle and parts manufacturers received about $721 million in outlays and tax concessions in 2009-10 -- an implicit transfer from poor taxpayers to rich company owners equivalent to more than $12,000 a job.
The Australian automotive industry has progressed on the road to improved competitiveness, but can realise full potential only once all remaining obstacles of corporate welfare are removed.
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