Collapse of Car Manufacturing Industry in Australia - Essay Example

COLLAPSE OF CAR MANUFACTURING INDUSTRY IN AUSTRALIA Name Institution Course Tutor Date COLLAPSE OF CAR MANUFACTURING INDUSTRY IN AUSTRALIA The car manufacturing industry in Australia came to being almost 100 years ago. It was a major contributor to Australian economy with over 400,000 workers employed, directly and indirectly over a range of sectors. The industry brought an annual turnover of over $160 billion since it was a source of revenue to the government through various taxation tariffs. Therefore it had shaped Australia’s economy and people’s lifestyle (Federal chamber of automotive industries). However, the decision of three multinational automotives manufacturers to cease its production in Australia, led to collapse of a local car manufacturing industry. A number of factors led them make such a move that affected the industry at large. First, the domestic market is not big enough for them to enjoy economies of scale. The Australian manufacturer’s i.e. Ford, General motors’-Hodden, Toyota and Mitsubishi had an annual production ranging between 300,000-350,000 in 1990s. In 2000, the four plants had an average of total daily output of 453 units. This in comparison with the average daily output of other major automotive , 1280 units by Europe, 1299 units by Japan, and 1104 units by US in North America, puts the Australian manufacturer’s at a disadvantage [1]. The latter can be able to enjoy economies of scale. Secondly, the reduction in import tariffs and the signing of free trade agreement by the government resulted to more import sales over locally made vehicles due to increased global competition. The sales of locally made vehicles reduced in 1993 from 63% to 41 % in 2000 [1]. Even though the exports increased from around 25,000 in 1994, to over 100,000 in 2000, when the government abolished tariffs to promote locally made vehicles, the value of imports still outnumbered the value of exports [1]. This made some of the manufacturers investing in Australia not survives and had no other choice but to change their plant from Australia to oversee countries. Thirdly, the cost of production in Australia is very high compared to other countries like Asia. Higher wages and better working conditions demanded by unions made labor in Australia become very expensive [4]. As a result the labor union is largely to be blamed for the collapse of car manufacturing industry in Australia, as it makes it expensive to make a car locally. The industry finds it very hard to compete with other countries, like some of the Asian countries incurring only one fourth of Australians labor costs. According to a representation by Gordon, Michael and Dan, the law of Australia demands that irrespective of the employment contract, the new employee must be provided with a copy of federal government fair work information statement that summarizes; NES, modern awards, enterprise agreement, employee rights on termination of employment. The employer is also supposed to ensure car workers safety by providing a safe working condition. In Australia, the employer does not have the right to change employee’s terms and conditions whatsoever. The car workers are supposed to work for a maximum of 38 hours per week, with extra hours paid as overtime. The presentation also included that the workers are entitled for four weeks paid annual leave every year cumulatively which is paid upon termination of employment. They are also entitled to paid public holidays. Full time car workers are also entitled for ten days personal paid leave or if they are care givers. A minimum wage of car workers is usually set according to job classification. The labor unions make work place agreements less flexible and that is the reason, labor being a factor of production, remains high in Australia compared to other countries. The other reason for decline in car production in Australia is the decision by manufacturer’s to shift from producing small cars to larger and more capital intensive products. In 1993, 48,364 small cars were produced by Australian manufacturers. Due to import competition in 2000, the manufacturers reduced production of small cars and increased production of medium and large cars by 45 per cent in the same duration. This shift recorded a decline in daily production of vehicles to a more profitable venture that is threatened by increase in oil prices that would make demand for small vehicles higher than large and medium ones [2]. Record shows that between1993 to 2000, the sales of small cars almost doubled, sales of medium cars almost halved and that of large cars increased from 157,413 to 198,766. Even if this was the case, the total output declined after reaching a peak of around 217,000units. With Australian manufacturer’s shifting from producing small cars to large cars, it appears they are concentrating on the shrinking part of the domestic market. The domestic market seems to have a higher demand for small cars than of medium and large cars. That is the reason, the Australian manufacturers has increased fourfold its production for exports between1993 to 2000. Since there has been a shift in domestic demand away from large cars, the Australian manufacturers was forced to come up with a more export focused strategy which leaves local producers in difficulties [1]. The other reason why the car manufacturing industry collapsed is because, of low productivity. Although it had improved productivity in the early 1990’s, it spends a lot of time to produce a unit compared to its more advanced competitors. Statics shows that while it spends more than forty five hours to produce one vehicle, another plant, which happens to be its competitor, spends less than 16 hours to produce a vehicle. Due to its small size in plants and production, it becomes hard to improve productivity [1]. Training and skill development is another factor that led to collapse of car manufacturing industry in Australia. In 1980’s, a Vehicle Industry Certificate had been introduced as part of Australian awards. This was to increase skills formation that was very vital. It was to help workers in career growth as it linked one’s skills that they possessed with the pay rank. It was supposed to offer car workers with trainings that would enable them gain skills that would be recognized even when they shift from working from one company to another [3]. Over the time, the Australia decreased the number of training hours for production workers from four hundred and twelve hours in 1993 to eighty four hours in 2000. The competitors, on the other hand, increased their number of training hours or remained the same. This made the Australian manufacturers become less competitive in the market [1]. Low proportion of workers in quality workers, could have also led to the collapse of car manufacturing industry. There was a notable decline in the number of workers who were in the quality circles in Australia, while a hundred percent of employees in Japan countries belong to quality circle. This meant that Australian skilled workers played a very little role in quality inspection and appeared last. This therefore, makes the Australia production to be less compared to other major automotive plants in North America [1]. The other reason that contributed for the collapse of car manufacturing industry is the appreciation of Australian dollar. This made Australia a high cost country making the locally produced goods very expensive. As a result, the profits for local exporters become low and therefore it becomes hard to compete against imports [5]. Appreciation of Australian dollar also makes investing in Australia become very expensive compared to other countries. - A report from a newsletter publication. This makes it makes it not have a competitive advantage. Newsletter publication also revealed that tariffs and non tariffs barriers imposed in other countries made exports very difficult. First, it made Australia vehicles appear very expensive in other countries. This reduced exports sales, hence reduced profits and it becomes very difficult for local producers as they could not rely on domestic demand which was low due to massive imports. In conclusion, it is clear that a number of factors led to the collapse of a car manufacturing industry in Australia, an industry that had contributed much to the economy of the country. Cost of production in Australia, being high compared to other countries, is a major blow to the local industry. Trade unions have bargained for heavy pays for industry workers, making labor in Australia very high. The move by the government of abolishing import tariffs literally killed the local industry as it made imports cheaper compared to locally produced vehicles. Though the government has tried to put measure to retaliate the situation, it has not been successful. References [1] Bamber, Greg, D. Lansbury, Russell, F. Wright, Christopher, Baird, Marian , Labor and Employment Relations Association Series: Proceedings of the 58th Annual Meeting,2006 [2] Gordon Williams, Michael Tehan and Dan Williams Minter Ellison http://www.minterellison.com/Files/Publication/5905a011-babb-4336-8b14-df752b3e7436/Presentation/PublicationAttachment [3] Heather Ridout, Chief Executive Australian Industry Group http://pdf.aigroup.asn.au/publications/industry_magazine/auto_industry_newsletter.pdf [4] Professor Abbas Valadkhani, Swinburne University of Technology, news Friday 21 October 2016. [5] Stephen, Clibborn, Rusell D. Lansbury, and Chris F. Wright Economic papers VOL, NO.1, MARCH 2016, 2-15 Read More