The Australian Automotive Industry - Essay Example

THE DECLINE OF THE AUSTRALIAN AUTOMOTIVE INDUSTRY University name City Country Introduction Three automotive firms in the automotive industry: GM Holden, Ford and Toyota made a decision to shut down their tasks in the Australian automotive industry because of reduced operations in the local market. There have been varied attempts to keep the industry alive but to no avail. Besides, there have been a lot of blame games regarding what caused the downfall with unions as a reason taking the biggest blame. However, there were various reasons that contributed to the decline in the industry, but unions actually contributed a great deal to the closure. This essay, therefore, aims at establishing the factors that contributed to the closure of the firms in the Australian automotive industry, with special emphasis on unions. The fall of Australian Automotive industry Ford, Toyota and GM Holden companies decided to shut down their business and quit the Australian automotive industry following a decline in profits dating back to mid-2000s [3]. Additionally, there was also a justification not to maintain the Australian plants in the Australian automotive industry because of an increase in the proportion of imports in the domestic market whose proportion increased from 31% in the year 1992 to 81% in the year 2012. In fact, as the share of these motor companies in the domestic market reduced, local manufacturer shifted their reliance to fleet sales but still faced difficulties [1]. Additionally, the government of Australia switched an important major vehicle contract to BMW, from GM Holden in the year 2013 [1]. There are three main aspects which can clearly describe the decline of the automotive industry’s performance. Firstly, the Australian government completely abandoned the protectionists’ policies that it had used to keenly and protectively develop the in dusty between the early part of the 20th century and 1970s [4]. In as much as there was short-term evidence of success, the form of support packages brought after the era of protectionist aimed at helping the local producer to compete and modernise their approaches, particularly production approaches, did not bring about any improvements in terms of performance. Secondly, the competitiveness of local and export markets was seriously eroded by fluctuations in the Australian dollar. In fact, the Australian dollar sharply increased in the 2000s because of the mining boom and further increase after the 2008/2009 world financial crisis [3]. Therefore, the fluctuations in the Australian dollar relatively elevated the price of vehicle production in Australia negatively affecting both local and export markets. Thirdly, the tactical choices that parent companies made led in a greater way the complications faced by local makers, especially in trying to establish their presence in export markets. Additionally, industrial relations like unions together with the above-mentioned forces contributed a great deal to the collapse of the Australia’s automotive industry [4]. Protectionist policies Automotive manufacturing in Australia can be drawn back to the 1990s when the protectionist settlement was formed. In this era, the government, through the use of tariffs protected the local manufacturers from international competitors [2]. Additionally, the arbitration system of settling wages and conditions for workers granted trade unions a chance and an opportunity to press high wage rates, high enough that manufacturing employers could not be able to pay, neither could they even absorb. Increased domestic prices because of the lack of protection in form of tariffs made consumers opt for purchase imported products which were adequately priced [2]. In fact, the critics of industry protection argue that the abandonment of tariffs led to increased inefficiencies and increased cost which consequently led to local makers losing the encouragement to produce products of great quality, besides also losing the incentive to invest in new technology. Therefore, the removal of protectionism in the form of tariffs by the government exposed the local manufacturers to international competition, which the industry previously was protected from. In fact, it is indicated that the automotive industry was a “case study in protectionism” [4]. The legacy of the policy of protectionism arrangements, coupled with the lack of the Australian government oversight into the decisions made by companies in the automotive industry consequently shielded automotive manufacturers and trade unions from concerns related to performance, consequently making the automotive industry uncompetitive [5]. A number of automotive manufacturers closed and several people loosed their jobs because a number of manufacturers could not achieve economies of scale, consequently making them unable to produce high-quality goods compared to inexpensive and high-quality vehicles from Japan as well as from other big markets that were quickly industrialising [2]. Currency fluctuations During the mid-2000s, the period of the mining boom, The Australian dollar value appreciated against the US dollar by almost double from $0.51 to $0.94 [6]. Similarly, after the 2008/2009 financial crisis in the year 2011, the Australian dollar sharply appreciated against the US dollar to reach a high of $1.09 [6]. The value of $1.09 is the highest one reached since the 1980s, the time when the government through tariffs shielded Australian manufacturers from international competition. However, after the abandonment of government protectionism, the Australia dollar against the US dollar began to decline. The fluctuation in the Australian currency was, therefore, another factor that contributed to reduced sales of locally manufactured vehicles [4]. The appreciation of the Australian dollar against the US dollar as from the mid-2000s onwards, coupled with rising prices of fuel undermined the competitiveness of locally manufactured vehicles as evidenced by declining sales of local vehicles during the period [7]. Similarly, in as much as the Australian dollar’s value declined in the year 2013, and was thought to benefit the competitiveness of the local manufacturers, it happened that the manufacturers struggled to seriously overcome the challenges that had been caused by the dollar that had previously increased. Because of increased production costs, it was hard for local manufacturing firms to break-even, plunging into big losses [5]. Similarly, unions negotiated for high salary increments that could not be met by the local automotive manufacturers.Therefore, owing to these encounters, the income margins of local makers deteriorated and finally led to the closure of local automotive manufacturing firms and consequent laying off of employees. Industrial relations - Unions The Australian automotive industry is one of the industries that have been highly unionised ever since its start. In Australia, the Vehicle Division of Australian Manufacturing Workers Union (AMWU) covers of manufacturing workers, besides also covering suppliers [4]. AMWU exercised and exerted a lot of bargaining power in the automotive industry, especially within the period of high tariff protection, a lot of locally manufactured cars being sold in Australia. There was a decline in the number of members of the union in many areas of the economy and therefore these industrial relations have been seen to have contributed to increase in production costs and increased production inefficiencies. For example, in the year 2002, automotive unions were accused by the industry minister of the Howard government of being the danger to the prospect of the Australian manufacturing business. Nevertheless, in comparison, the industrial engagements predominantly in the automotive industry turn out to be highly fruitful the last two decades preceding to its total cessation [4]. Despite of improved industrial relations, the extent of collaboration between automotive manufacturers and the union and other constituent suppliers, has significantly differed over the recent past [4]. For instance, the case of Toyota and GM Holden is a clear demonstration of the fact that the different vehicle manufacturer took different style to industrial relations all together. GM Holden decided to collaborate with AMWU together with the Australian government so as to make adjustments to decreasing local sales; mostly during the period of post 2008/2009 financial crisis and also to minimize the effect of decreased production that would have on the entire workforce in the industry [4]. Nevertheless, this did not avert its closure of operations in Australia. On the other hand, the relationship that existed between Toyota and the unions was much less favorable and in most instances, the company was seen to be provoking the union by opting and adopting involuntary dismissals other than using the Union’s proposal of voluntary redundancy whenever there was a production reduction [4]. The management of Toyota confessed that the decision to bring to an end manufacturing operations in Australia was triggered by external factors like reduced export markets, reduced economies of scale, and unfavourable Australian dollar, and issues related to industrial relations. However, irrespective of the industrial relation strategies adapted by the two companies, neither corporative (the one adopted by GM Holden), nor adversarial (the one adopted by Toyota) could save the companies from their ultimate closure and consequent exit from the Australian automotive industry [3]. Conclusion The Australian automotive industry was one of the industries enjoying full company protectionism in the form of tariffs. It is evident from the essay that a number of factors contributed to the closure of firms in the Australian automotive industry, consequently leading to the decline of the industry. However, of the three major factors: Elimination of protectionism, fluctuations in currency and industrial relations-unions, unions contributed a great deal to the closure because in having a hand in every factor mentioned. Therefore, in conclusion, there is a substantive argument to conclude that unions played a key role in the closure of the firms in the Australian automotive industry. References [1]M. Kenny, ""Claims Holden’s Lost Government Vehicle Contract Was Part of a ‘Vendetta", The Sydney Morning Herald, 2013. [Online]. Available: http://www.smh.com.au. [Accessed: 30- Apr- 2017]. [2]R. Conlan and J. Perkins, "Wheels and Deals: The Automotive Industry in Twentieth-Century Australia", Aldershot Ashgate, 2001. Pp. x, 180, vol. 62, no. 2, pp. 608-609, 2017. [3]F. Chris, C. Stephen and D. Russell, "Becoming an endangered species? The future viability of Australian automotive manufacturing: International Journal of Automotive Technology and Management: Vol 11, No 2", Inderscienceonline.com, 2011. [Online]. Available: http://www.inderscienceonline.com/doi/abs/10.1504/IJATM.2011.039543?journalCode=ijatm. [Accessed: 30- Apr- 2017]. [4]F. CHRIS and. RUSSELL D, "TRADE UNIONS AND ECONOMIC REFORM IN AUSTRALIA, 1983–2013", World Scientific Publishing Company, 2017. [Online]. Available: http://www.worldscientific.com/doi/abs/10.1142/S0217590814500337? Journal Code=ser. [Accessed: 30- Apr- 2017]. [5]R. Lansbury, C. Wright and M. Baird, "Decentralized Bargaining in a Globalizing Industry", Relations industrielles, vol. 61, no. 1, p. 70, 2006. [6]T. Cusbert and T. Rohling, "Currency Demand during the Global Financial Crisis: Evidence from Australia", SSRN Electronic Journal. [7]S. Bracks, "Review of Australia’s Automotive Industry: Final Report", 2008. [Online]. Available: https://industry.gov.au/industry/IndustrySectors/automotive/Documents/ReviewofAustraliasAutomotiveIndustry.pdf. [Accessed: 30- Apr- 2017]. Read More

The legacy of the policy of protectionism arrangements, coupled with the lack of the Australian government oversight into the decisions made by companies in the automotive industry consequently shielded automotive manufacturers and trade unions from concerns related to performance, making the automotive industry uncompetitive [5]. Several automotive manufacturers closed and several people loosed their jobs because several manufacturers could not achieve economies of scale, consequently making them unable to produce high-quality goods compared to inexpensive and high-quality vehicles from Japan as well as from other big markets that were quickly industrializing [2].

During the mid-2000s, the period of the mining boom, The Australian dollar value appreciated against the US dollar by almost double from $0.51 to $0.94 [6].  Similarly, after the 2008/2009 financial crisis in the year 2011, the Australian dollar sharply appreciated against the US dollar to reach a high of $1.09 [6]. The value of $1.09 is the highest one reached since the 1980s, the time when the government through tariffs shielded Australian manufacturers from international competition. However, after the abandonment of government protectionism, the Australian dollar against the US dollar began to decline. The fluctuation in the Australian currency was, therefore, another factor that contributed to reduced sales of locally manufactured vehicles [4]. The appreciation of the Australian dollar against the US dollar from the mid-2000s onwards, coupled with rising prices of fuel undermined the competitiveness of locally manufactured vehicles as evidenced by declining sales of local vehicles during the period [7].  Similarly, in as much as the Australian dollar’s value declined in the year 2013,  and was thought to benefit the competitiveness of the local manufacturers, it happened that the manufacturers struggled to seriously overcome the challenges that had been caused by the dollar that had previously increased.  Because of increased production costs, it was hard for local manufacturing firms to break even, plunging into big losses [5]. Similarly, unions negotiated for high salary increments that could not be met by the local automotive manufacturers. Therefore, owing to these encounters, the income margins of local makers deteriorated and finally led to the closure of local automotive manufacturing firms and consequent laying off of employees.

Industrial relations - Unions

The Australian automotive industry is one of the industries that have been highly unionized ever since its start.  In Australia, the Vehicle Division of the Australian Manufacturing Workers Union (AMWU) covers manufacturing workers, besides also covering suppliers [4]. AMWU exercised and exerted a lot of bargaining power in the automotive industry, especially within the period of high tariff protection, a lot of locally manufactured cars being sold in Australia.  There was a decline in the number of members of the union in many areas of the economy and therefore these industrial relations have been seen to have contributed to increasing in production costs and increased production inefficiencies.  For example, in the year 2002, automotive unions were accused by the industry minister of the Howard government of being a danger to the prospect of the Australian manufacturing business. Nevertheless, in comparison, the industrial engagements predominantly in the automotive industry turn out to be highly fruitful the last two decades preceding its total cessation [4].

Despite improved industrial relations, the extent of collaboration between automotive manufacturers and the union, and other constituent suppliers has significantly differed over the recent past [4]. For instance, the case of Toyota and GM Holden is a clear demonstration of the fact that the different vehicle manufacturers took different styles to industrial relations altogether. 

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