Should Australian Government Provide Money to Car Manufacturers?

Should Australian Government Provide Money to Car Manufacturers?

Due to strong Australian dollar, high production costs, heavy regulations and environmental factors, Australia car manufacturing industry is declining. The three largest automotive manufacturers decided to terminate their manufacturing businesses in Australia. Ford and Toyota will stop manufacturing at around 2016-2017 (Mercer, 2014). Holden, a subsidiary of General Motors will stop making cars in Australia by the end of 2017 (“GM`s Holden”, 2013). This essay will discuss if Australian government should provide money to car industry to prevent automotive manufacturers moving their operations overseas or not, and contemporary situation will be used to illustrate reasons and recommendations.

According to statistics, unemployment rate raised from 5.2% in January 2012 (“Australian bureau”, 2012) to 6% in March 2014 (“Australian bureau”, 2014). Holden, Ford and Toyota are the leading brands in Australia, their market shares account for 38% in Australia (Australian Government Department of Industry, 2012, p.6). Without government support, other car manufacturers may follow to close down or move their productions away from Australia due to high production costs. As a result, over 30,000 automotive industry workers will be affected (“Government”, 2014). Previous research explored that job loss will bring bad influence to social welfare, economy, mental health or even family life. When people lost their work or income, they may adjust their consumption pattern and turn out to get public assistance (Jolley, Newman, Ziersch & Baum, 2011, p.412-414). Thus, government’s burden may increase and tax income may reduce.

Moreover, automotive industry is the original equipment manufacturers (OEMs), hundreds of component suppliers and related businesses like aftermarket and retail sale are involved (Hawker, 2011, p.59-60). If government does not subsidize the industry, car manufacturers may leave and many related parties will be affected as their revenues may shrink. According to Federation of Automotive Products Manufacturers (FAPM) CEO Richard Reilly, it is estimated that “50 to 70 suppliers will be affected by Ford’s leaving decision” (“Ford Australia”, 2013). Car components or plastic parts manufacturers may have difficulty in sustaining their businesses if the industry continues to shrink. In addition, total car export rate increased from 3,424 million in 2009 to 3,654 million in 2013 (“Australian Government”, 2013, p.2). If the government subsidizes the industry, automotive industry, export trade and government income can all be enhanced.

In fact, Australia car industry is under keen competition. There are 67 vehicle brands in Australia (vehicle sales 1,112,032), while 49 brands for Canada (vehicle sales 1,620,221), 51 brands for the USA (vehicle sales 13,040,632) and 53 brands for the UK (vehicle sales 2,249,483) (“Australian Government”, 2013, p.2). Compare with the above countries, Australia has the most brands in market but the lowest car sale rate. And the minimum hourly wages in Australia is AUD$16 (USD$14.8) compare with America USD$7, Canada CAD$10 (USD$9.1) and UK GBP$6 (USD$10.14) (“Organisation”, 2014), it is relatively high. All these show that Australia car industry is under difficult situation. Also, it is hard to measure if the return is worth or not, why doesn’t Australia government subsidize other industries which are more profitable? Henry Ergas, the university of Wollongong economist, said “it wastes taxpayer’s money to spend on industry which cannot survive without subsidies” (Lauder, 2013). It would be a long lasting challenge for government to subsidize the industry.

First, financial support is not enough to prevent car manufacturers moving their operations overseas. Encouraging company open innovation, “the new

imperative for creating and profiting from technology” (Ili, Albers & Miller, 2010, p.246), which is to be more innovative and accept external idea sources to improve Research & Development (R&D) is more important, as “ideas and innovation are difficult to create by single company” (Ili, Albers & Miller, 2010, p.249). Advanced technology and R&D can increase production efficiency and bring new ideas, which is more sustainable than simply providing money to automotive industry.

Second, environmental protection is a global concern nowadays. Australia government can allocate more resources supporting car industry to develop energy efficient and environmentally friendly cars. For example, replace natural fuel with solar PV or batteries to reduce greenhouse gas emission from gasoline vehicles (Thomas, 2009, p.6008-6009). Australia government has once launched the Green Car Innovation Fund (GCIF) in 2009 but stopped the programme in 2011. (“An Australian”, 2014). The government can launch similar funding programmes to support green cars R&D as in the long run green cars can be a new market to save Australia’s falling car industry.

Third, government can encourage company to diversify into new products and markets. Diversification can reduce business risks, realize economics of scale and allocate resources more efficiently (Sugheir, Phan, & Hasan, 2012, p.530-531). “FAPM helps members diversify through targeted trade missions to other vehicle producing nations” (“Ford Australia”, 2013). Global relationships create more investments and trade opportunities to prevent manufacturers moving away.

In conclusion, car manufacturers facing many problems like high production costs, strong competitions, the industry is hard to survive without subsidies. Compare with America (USD$264.82) and Canada (USD$96.39), Australia government per capita assistance to automotive industry is not enough, only USD$17.8, (Davey, 2011, p.7-8). Money support can be one of the solutions. However, in the long-run, Australia government should consider non-monetary solutions to prevent industry moving away.