The Bracks Review’s final report was released last Friday. The headline recommendations - in essence, tariff cuts to continue, but direct government handouts to also continue in expanded form until 2020 - have been covered extensively elsewhere. But there’s a hell of a lot to chew on in the other 190-odd pages of the document. Much of the report does a pretty good job of undermining the economic case for continued support, in fact; there’s extensive global overcapacity in the industry, China and India are moving up the value chain, and making cars in developed countries is a very unprofitable enterprise at the moment. Furthermore, the modelling for every single free trade agreement we’ve either a) signed, or b) is in the offing, indicates that Australia’s overall economy benefits, but the car industry won’t. So, if the car industry is all important, why are we so keen on signing FTAs that undermine it? But one of the most fascinating sections discusses the impact of climate change on the automotive industry. There is an enormous gap between what the science and the global politics are saying, and how much impact on the sector this is judged likely to have.
As has been said any number of times here on LP, the government’s election promise of 60% emissions cuts by 2050 has been left behind by events; the science is calling for steeper cuts, and any global deal is going to involve Australia making disproportionate cuts because of its enormous per-capita emissions. Absent cheap, environmentally benign carbon air capture and sequestration technology, this will necessarily involve the virtual decarbonization of Australia’s transport sector, and probably over the period of a couple of decades. Thankfully, this looks like it may actually be achievable, through technologies like the plug-in hybrid, the first production example of which will be the Chevrolet Volt.
But the review report’s treatment of the issue is incredibly casual. There’s no quantitative analysis of the effect of an ETS on fuel prices - a dead-easy calculation, and a fundamental part of predicting the likely effects of the ETS on the transport sector. Furthermore, the effects of the the more stringent emissions trajectories implied in the Garnaut Review are not even considered. Heck, they don’t even accurately describe the Chevy Volt itself; the review describes it as an electric car that may, at some point in its model life, be fitted with a range-extending petrol motor. 30 seconds of Googling would have told them that’s completely wrong - the Volt has been described from the ground up as a plug-in hybrid, designed to run about 60 kilometres on a full battery charge, then switch to a petrol motor. The nightmare scenario for the car industry - that they can’t develop affordable low-carbon cars, and hence there’s a switch to alternative means of transport - hasn’t even been mentioned. And there’s a thought that “by 2050″, the near-complete decarbonization of vehicular transport might be feasible, whether this is soon enough or not.
In some ways, this doesn’t matter very much; Green Car fund or no Green Car fund, Australia’s contribution to developing low-carbon personal transport will be a tiny fraction of the global effort, and the cost pressures of an ETS (and, possibly, peak oil) will drive a transition whether Kim Carr’s department is expecting it or not. But it’s further evidence that large parts of the bureaucracy and government still haven’t grasped what Australia will have to do in a carbon-constrained world.
It’s unfortunate that the rent-seekers in Australia’s car industry will continue to suck at the public tit.
However, it is vital from a military perspective for Australia to have some equivalent of the car industry - without manufacturing industry of some sort we are quite vulnerable.
“However, it is vital from a military perspective for Australia to have some equivalent of the car industry”
Just in case we want to throw some Fairlanes into the field of battle.
Excellent commentary Robert, of a kind nowhere to be seen in the MSM that informs most Australians, let alone in the Bracks Report. There is a huge disconnect visible everywhere you turn, from earnest discussions about how to save our gas-guzzling car industry, to cheap and tacky FTAs that give a low carbon future SFA attention, chopping down our forests while providing aid to save other forests overseas, growing irrigated rice and cotton in the desert while a major continental river system dies, and on it goes…
That’s a discussion that we’ve had before on some of the
warpornmilitary procurement threads (incidentally, it’s about time for another one of those, notably on the Collins Class replacement).The evidence for such is less compelling than you might assume.
Really it doesn’t matter though. This sort of stuff doesn’t amount to all that much and doesn’t set too many precedents - it will swiftly be overtaken by events and the tide of a carbon free future will swamp this stuff.
Good to see a few conservation groups putting in submissions.
I remain deeply (irrationally?) sceptical of the neo-classical economists view that manufacturing jobs just don’t matter and we can all move entirely to a service based economy, that plus digging stuff up. I still feel we need to make stuff, and that this is somehow more tangible, foundational, real and reliable than just having us all as financial consultants.
I know that’s not the current orthodoxy.
Wilful, Kevin Rudd publicly agrees with you.
I suppose my own skepticism of the idea that the car industry is vital is that we’ve let dozens of other manufacturing industries die - whitegoods, computers, agricultural machinery, and so on - and the world hasn’t caved in. What’s so special about cars, aside from national mythology?
Just had a thought - we’ve only got on street parking - how are we going to deal with plug in cars? Wont work.
As to manufacturing - well there’s nothing so special about them, but there’s something special about manufacturing generally.
OK as I’ve already noted I’m sure I’m irrational.
The tale of the CSIRO’s work with GM to produce a hybrid commodore is perhaps an example of how a lack of local manufacturers can hamper our ability to tackle climate change.
Instead of an Australian government being able to bang heads together at the CSIRO and the head office of an Australian owned and operated car maker, we now have to sit and wait for global production capacities to build to the point where we might see a few Volts here some time in the next decade. A Chevrolet Volt by the way has a range of 40 miles, where as the EV1 had a range of 60 miles back in the mid 90s. But that’s OK because GM are going to stick a combustion engine in the Volt to recharge your batteries when they go flat, half way through your trip.
A lack of Australian manufacturing concerns has hamstrung our ability to tackle climate change.
I agree (irrationally?) with Wilful.
Though I fail to see exactly what is irrational about the concept that an island in the middle of nowhere may want to retain some measure of capacity to tkae care of it’s own needs rather than being completely dependent on production that takes place on the other side of the planet.
The sky did not fall when communism came to Russia either - that took time but it eventually happened. Expanding further than just the auto industry, just how far should we divest ourselves of any and all protection for our remaining industries? After all, it could be argued that subsidies, industry grants, quarrantine regulations etc are only protectionism just like tariffs (the US has often accused us of protecting our agricultural sector with strict import qaurrantine regulations - while simeltaneously propping it’s own farmers up with subsidies).
So, soon we’ll be paying 50% less tariff when we buy an imported car (a purchase we may only make every 10 years or so) - but the government will now tax you whether you buy a car or not in order to give large grants to the industry to keep it alive. Did we really gain anything here?
I am not happy about the shrinking back of our economic diversity, we are putting more and more of our eggs in a smaller and smaller number of baskets. Many service sector jobs such as IT can’t be all that secure - how much cheaper is it to do this work in Mumbai and send it here with the push of a button? That leaves us with digging up rocks as our comparative advantage, but this boom WILL go bust again one day - anyone notice the recent fall in commodity prices?
We seem determined to put ourselves into a commodity producer trap.
I agree with you about the motor industry specifically, Robert. After all, it’s a smaller step to a tank from a tractor than a car. (Although cars to aircraft is another matter … )
It doesn’t matter too much what manufacturing industry we have, as long as we have something.
Yes, it is irrational to think that the only “real” goods are tangible and that a nation can’t be both rich and secure without producing them. It’s an extension of the physiocrat view of the world.
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For the physiocrats (18th century French economists), the only “real” production is food as that is what limits human numbers. Hence manufacturing and services were both overhead - essential to provide tools for the real producers, but a cost to be minimised. Note the NFF has never got beyond this view.
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The classical economists from Ricardo on contended that manufacturing was “real” too because it produced tangible things. The most influential exponent of this view was Marx - in fact it is implicit in theories of labour value (as the value of a good is there related to its cost in human labour, not its utility to humans). It’s the reason the communist states measured “Gross Physical Product” rather than “Gross National Product”, and (literally) placed no value on consumer services.
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It took the marginalists - ie neoclassicists - to understand that in a market the value of a thing is the price someone is willing to pay for it. If I pay my bank $10 in account fees I must have got just as valuable a thing for it as if I’d bought food or widgets (else I would have spent the $10 on food or widgets instead). If the Japanese were so keen on our banks that we could charge them enough bank fees to cover the cost of making them build cars for us, then that would be just as “real” a way of getting cars as making them ourselves. As it happens they prefer our wheat, iron ore, coal, hospitality, etc.
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The key is always to remember that the end of an economic system is to consumption, not production. We only bother producing in order to consume, not the other way around.
Back on topic the Bracks report is terrific, but not in the way its members think. I’d much rather have the industry propped up by blatant business welfare rather than tariffs and hidden non-tariff barriers (such as the banning of secondhand car imports, peculiar ADRs, etc).
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That way the Dept of Finance will be gunning for it every Budget. When a Minister is presented with the choice of giving welfare to these multinational firms or to Aussies who really need the money then we might get some rational decisions made.
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After that the car industry will have to build cars that Australians actually want, at a price they want. And it will be obvious that they might manage that with one, just possibly two, manufacturers but never with three.
There was a time when the world wanted Japanese cars about as much as they wanted Australian bank fees. But the Japanese weren’t happy with having cornered the market in Samurai swords and Geisha dolls.
The financial sector was also nice enough to cream 4 billion dollars in fees off the superannuation market last financial year, despite uniformly abysmal returns. But that’s not corporate welfare of course, that’s the market.
“Note the NFF has never got beyond this view.”
LOLZ.
Rick Farley was a bit more nuanced, but that’s a pretty fair summary.
Whoops, that should have been 2.4 billion @ 14
“After that the car idustry will have to build cars that Australians actually want, at a price they want”
See, that’s the part I find strange - an industry that has been operating here for 40 odd years and knows the local market better than anyone else simply refuses to make the cars that it KNOWS people want to buy….apparently. They could significantly increase their market share and profitibility, yet they just choose not to…..apparently.
Are we to take it that our manufacturers are clever enough to know how to make make big cars but too dumb to know how to make smaller, more fuel efficient (and possibly somewhat cheaper to build) cars that the public demand?
Or could it be that tariffs have come down so far already that they simply consider it unviable to try and compete with small cars that cost foreign manufacturers less to export to Australia and have a higher turnover?
Incidently, some of those manufacuring nations maintain auto tariffs of 30%+. They have also been some of the fastest growing manufacturing economies in the world in the world, despite a moderate tariff wall. Or perhaps it is because of it - they would have been unlikely to have gotten very far as they began to tread on toes in powerful developed economies without some form of protection for fledgling industries.
The cars Australians want have changed substantially over the last decade, away from the cars the manufacturers build here; you have to keep in mind that it takes around four or five years to design a new model, and once put into production it’s expected to last about seven or eight with minor revisions.
The trouble the Australian makers have is that the whole niche they found to keep in business - large, relatively cheap sedans - is relatively unique; nobody else except the USA (whose large sedans are mostly crud) and the Middle Eastern countries buy them in quantity. That’s how the car makers could remain (mostly) profitable churning out boutique quantities of cars by world standards.
The thing is, the Australian market has shifted towards cars that the rest of the world produces - four-wheel-drives, small to medium cars, and to some extent “prestige” cars (BMW sells ridiculously large numbers of its smaller cars here). As the Bracks report says, to be competitive in the small-to-medium segment, you need to churn out 300-400,000 cars per year from your plant.
Ford is going to begin assembling a small car - the Focus - out at Broadmeadows in a couple of years time. We’ll get to test DD’s hypothesis to some extent.
If Chifley had been a real visionary when it came to the car industry, Australia’s own car would have been the equivalent of a Mercedes, Porsche, or Land Rover, not a Holden. We might have been able to compete globally in niche markets.
Boy From Flynn, I can see the case for protection for infant export industries in an infant economy, though being very hard to get rid of (the protection creates its own lobby) they carry heavy costs long after your economy has ceased to be an infant; look at the Japanese economy in the last 20 years and ask yourself why reform there is so difficult.
But you can’t credibly argue that for the Oz car industry - it’s been an “infant industry” since 1948!
PDAA, don’t get me onto the iniquities of superannuation - I’ll bore you shitless on it if you let me, as I did to people on this thread. Suffice to say it’s anything but a free or efficient market.
Fair enough, DD. the mention of Banks was a bit of a rag to a red bull, so to speak.
Watching and reading all of these financial gurus talking about welfare for the manufacturing sector while the financial institutions they work for cream billions a year off a compulsory super scheme, seems a little hypocritical to me. The subsidies that the car makers will receive in the next 10-15 years will be about what the financial institutions will make in one year from managing our super. I’d rather that the government just paid them 2.4 billion straight up to manage our money.
Heh - good observation PDAA. Free market gurus of course, do not consider hypocracy a sin. Observe the collapse of DOHA from the very lopsided demands placed on developing nations by economic powers such as the US.
DD, I wasn’t saying that our auto industry was still in it’s infancy, that was a seperate point.
I am merely arguing the case for some measure of protection for valuable local industries where reducing tariffs and other protective measures to zero leaves them hopelessly outgunned by competing economies of scale with access to very cheap labour and an exchange rate that favours their wares over ours.
All we are doing is perpetually increasing our reliance on offshore production. Jobs in the service industries may be a good thing, but they cannot replace what we have lost. By that I mean that we are no less dependent on say, farm machinery today then when we manufactured a reasonable proportion of our own. The biggest change is that we have simply become completely dependent on producers on the other side of the world for these very important pieces of equipment.
Cont’ later
Ah, BoyfromFlynn, now we get to the nub of the matter. “All we are doing is perpetually increasing our reliance on offshore production” - yes indeed, which we pay for with our own production on which others rely. It’s called trade, and not merely theory but the whole of human economic history says that its the way individuals and countries get rich. The most damaging economic effect of WW1, for example, was its destruction of world trade; Keynes wrote a famous little book on that.
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BTW, in the long run trade is also associated with tolerance and intellectual curiosity too. Was trading Athens or autarkic Sparta the more enlightened society?
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I’d suggest that an industry which is “hopelessly outgunned by competing economies of scale with access to very cheap labour [err, Japan’s or Germany’s?] and an exchange rate that favours their wares over ours” we’re better off without. You get rich by doing things that conditions make you good at, not that they make you lousy at.
Of course, part (not all) of the reason imported manufactured goods are cheaper than locally made stuff is the artificially low cost of transport.
“The most damaging economic effect of WW1, for example, was the destruction of world trade”
See that! Now you’re starting to catch on. But back to that later.
First you said that the most damaging economic effect of WW1 was the destruction of world trade, but straight after that you said: “in the long run, trade is also associated with tollerance and intellectual curiosity too”.
Going on what you’re saying, the world reached a high point in TOLLERANCE and intellectual curiosity in (and because of) the last free trade period - and then trading partener turned on trading partener in one of the bloodiest wars in modern history. So much for trade leading to tollerance and intellectual curiosity. Why did you make two such contradictory statements back to back?
I am not opposed to trade of course - just to allowing the destruction of valuable local industries that provide large numbers of skilled jobs for the sake of ever cheaper consumer goods. The more of these we let die, the more we come to rely on recieving a good price for exporting ever larger volumes of rocks - forever.
I was here in this resource town the last time the value of our rocks collapsed and it wasn’t pretty. If all of our needs are imported and paid for by a very small number of export industries, then we are treading thin ice.
cont later
Gaaaah! I just heard some bloke from Holden this morning on RN avoiding answering Fran Kelly’s pointed questions about govt subsidy and tarrifs and so forth. Robert, I take back everything I said about Australia needing a car industry (although I still believe we need some sort of manufacturing capability, for strategic reasons).
Fuck ‘em! They don’t deserve to stay in business.
I didn’t hear it David, would you be so kind as to fill me in?
I am pleased to see that you are aware of concepts such as strategic reasons (including economic strategy).
So many points to argue here.
The argument that our manufacturers make crap cars is, well….crap. My car is one of the last of it’s kind to have been made here. It is an EXCELLENT car - 10 years running, including 4 trips halfway round Australia and back without a SINGLE hiccup - not even a minor one. It’s one single problem is that it could do with being a little bit more fuel efficient.
Shouldn’t it be obvious that you can be very good at something and still get the hell kicked out of you in a no-holds-barred contest. What result would you get from putting the Olympic wrestling gold medalist in a cage with an adult male gorilla? Would the wrestler now be regarded as crap at wrestling because he got killed by a monster?
I don’t know - I suppose after a long period of prosperity and peace (relatively speaking) people have difficulty coming to grips with concepts such as long term security and the need for some self-reliance capabilities.
Here. I don’t remember too much of the detail (it just made me too cross), but there was a lot of special pleading about the car industry doing cutting-edge research (which isn’t true, particularly in Australia) and an obvious feeling of entitlement to as much govt largesse as they could grab with both hands.
As to the stragtegic need for manufacturing industry, I spent 26 years (some of it part time) as a soldier, so it kind of colours my thinking. I hope we never need it for war, but considering our isolation from the rest of the world, we could be in a world of hurt without manufacturing capability.
Bugger. %s/stragtegic/strategic/g
Boy from Flynn -
Where’s the contradiction here? I didn’t say that the sole determinant of tolerance, etc is trade. Norman Angell was absolutely right in 1911 to argue that no rational people would permit a large-scale war because of its trade-destructive effects, but clearly naive to assume rationality in people. It’s just that, in the big picture, trading states tend to be tolerant and autarkic ones not (making money from people with foreign ways tends to do that). And you have to say that European history from 1914 to 1945 is a pretty good illustration.
Most people don’t realise that world trade, as a proportion of world output, reached a zenith in the belle époque just prior to WW1 which was not approached again until the 1980s. It’s no coincidence that the Long Boom (1946-1972) “coincided” with a massive recovery in trade.
Yep, if you make a motza selling rocks you suddenly get poorer when people want fewer rocks (though that’s not so different from cars - have you noticed the US carmakers’ troubles when people wanted fewer gas guzzlers?). But if you’re sensible you’ve still got some of the motza you made when the price was high (Norway’s oil fund is the best example of such sense), and you’re now free to sell other things. But do you really believe that, when this commodity cycle cools, those “other things” foreigners want will be our cars?
Heh, nice try at covering your retreat there DD. Oh no, of course you didn’t say that. However, you did say: “trade is associated with tollerance and intellectual curiosity”. You were inferring that trade creates these things, to which I say “Bollocks!”. Tell that to millions of WW1 victims. Taking up a rifle and shooting your close trading partener in the face does not strike me as tollerant or intellectually curious. And why are you wanking on about Europe from 1914 to 1945? They slaughtered one another at the zenith of their close economic integration - they only embraced protectionism AFTER they had gone to war as free trading parteners. Free trade and intimate economic integration had absolutely no effect at preventing “the war to end all wars”.
I guess that argument assumes that a Buddist society with limited trade is less tollerant than a highly capitalistic one. You know, a benign, peacefull trading state like the US.
Trade is a utilarian matter - nothing more.
I’m so glad we’ll be free to sell other things when the boom winds down. Now exactly what other things would those be - we don’t make things anymore, because it was cheaper to import them, remember?