Details: Parent Category: Economy Category: Markets | Published: 13 December 2013 | Hits: 10778


I drive a Holden. 

It’s my second. The first was a shiny black Commodore.  A V6 Lumina edition.

I have owned well over a dozen cars and driven a lot more, in numerous countries, but these are my first from General Motors.

The new one is a white Calais Sportswagon and it's the best car I've ever owned.

Based on the German Opel, it has traction control conferring impeccable braking and steering and ample power and acceleration even with four adults and luggage.  Add to that: leather seats; climate control; head-up display; voice commands for entertainment, phone and so on; and it's a luxurious ride.

Yet I’m starting to think that I can put an end to any car brand, just by buying one.

Holden finally ceased manufacturing in Australia just after my present model rolled off the production line.




My first Holden replaced a Ford Fairmont, also now a discontinued icon.  Before the Ford I drove a company owned Mitsubishi Magna ‘Executive’, made in South Australia.  Mitsubishi took over from Chrysler but didn’t last long either. 

For a period I owned second hand, Australian assembled, Citroën CXs that were a delight to drive. Citroën had already abandoned assembly Australia by the time I bought them, so I can escape blame for that.

The Citroëns followed a V8 Leyland P76 that, despite its bad reputation, I loved to drive.  

It was the model that put an end to Leyland Australia – formerly the British Motor Corporation, the manufacturer of almost all of my cars that preceded it, except for the locally assembled Renault 10 also gone from Australia.



What sort of country are we if we can’t build cars?

So I’m no stranger to the formulaic wailing that has followed the closure of each successive Australian car manufacturing facility:  What sort of country are we if we can’t build cars?

For a good deal of my working career, delaying inevitable industrial closures was part of my bread and butter.  For decades I worked in the New South Wales (NSW) Government department responsible, variously for: Industrial Development, Regional Development, Business Development, Decentralisation and so on.

One of my first assignments was to assist in preventing the complete cessation of shipbuilding in Newcastle where once quite large ships were built and launched into the harbour, in full view of the city centre.  We managed to keep the dockyard limping along, building ferries for Sydney Harbour, before its inevitable demise.  Soon afterward I was involved in unsuccessfully attempting to save a tile factory in Lithgow where a large Small Arms Factory making rifles for the Army, was also on taxpayer life support.  

Dozens of regional manufacturing closures followed.  Like Australasian Training Aids in Albury not far from BorgWarner, a manufacturer of automotive transmissions, that was also in a lifelong struggle with the grim reaper, before the scythe finally did its work.  At Email, in Orange, it was alarming to notice that taxpayer assistance often exceeded the company’s annual profit. The money went directly from the taxpayer to the shareholder's pockets. The plant was taken-over by Electrolux at the turn of the century and has continued to struggle for survival.  It is to shut its doors, finally, in 2016.

While city businesses were generally allowed to rise and fall without government interference, we got concerned when they had potential electoral impact.  Thus we became particularly distressed by a succession of large NSW automotive plant closures, involving many thousands of workers, including: British Leyland at Zetland in 1974; Holden at Pagewood in 1981; and Ford at Homebush in 1994. 

At one stage the NSW Government bought a fleet of locally built Ford Lasers in an attempt to delay the final closure.  One got vandalised outside my house, a dangerous place for cars.

Because labour productivity is much higher today with automation, automotive workforces have shrunk while the economy at large has more than doubled in size.   The employment impact of each of the NSW automotive closures was thus considerably greater last century than those now foreshadowed in Victoria and South Australia.



Perfidious Nouvelle-Galles du Sud

Why, you might ask, had the Automotive industry largely quit NSW almost a decade before the end of the last century?  Why did it make a strategic withdrawal south, falling back like a defeated prince, to its last strongholds in Victoria and South Australia?  Well, that’s where they had previously expanded from.  And that goes back to Federation, to political support, and to free trade NSW, verses protectionist Victoria and South Australia.  This is a debate that has continued, as an undercurrent to Australian political debate, ever since.  

It was revived this week, during the present hand wringing, by someone from the affected States saying that the Holden closure decision was the outcome of a plot by economic rationalists who are, apparently, universally resident on Sydney’s North Shore.  In short, it's the nefarious plotting of perfidious Nouvelle-Galles du Sud (New South Wales).

So, given our extensive past experience of automotive closures in Nouvelle-Galles du Sud,  what is likely to be the outcome of these closures?

When Holden announced the closure of its huge Pagewood plant in Sydney in the late 70's it was decided that the Unions would track the thousands of soon to be unemployed workers to see how long they would be unemployed.  After a month or two there was hardly anyone from the plant, except those who no longer wanted to continue working, who was still unemployed.  Critics of this less than disastrous conclusion, including colleagues of mine, argued that highly skilled Holden workers had displaced less skilled workers elsewhere so that the unemployment caused was hidden in an indirect 'domino effect' that spread out across the State, well beyond Pagewood. 

For example, a mechanic or body worker at Holden is likely to be more experienced, skilled and better trained than the many, more numerous mechanics and body builders, holding down jobs in automotive repair shops.  They are likely to be hired perhaps in Western Sydney, to replace others less skilled who will be ‘let go’.  So that although the Holden workers are no longer unemployed someone else has lost their job.  And that person may in turn may replace another, even less skilled in a country town, and so on, so that eventually some poor soul drops out, onto the dole queue in Ettamogah.

It was like the observation in the TV show The Games that removing the front row of seats, in the Sydney Olympic Stadium, was not to lose the premium row.  The seat numbering would simply start at the new front row.  Those lost would be from amongst the cheapest seats at the back.



Is there a wider State issue here?

In the second half of the 20th century regional Australia went through significant structural adjustment. Farms depopulated as agricultural productivity increased with new crops, machinery and technologies and economies of scale. Better roads and better cars resulted in larger, more dispersed regional service towns offering lower costs due to economies of scale. Towns with over 30,000 inhabitants are still growing rapidly, while many villages, once servicing a larger on-farm population, who had typically reached them by horse or push-bike, ceased to be viable.  The previous small service centres either turned to cute country tourism or ceased to exist. 

In this century the full impact of electronic communications, including the National Broadband Network, on population distribution and increasing urbanisation is yet to become fully evident.   Some think it may reverse or slow the trend to centralised services with remote working, while others see it accelerating this trend with pockets of specialisation, that requires actual human interaction, evolving.  

This could mean that State boundaries become even more inappropriate than they were in the 19th century when they were laid down, largely due to accidents of history and the British colonial love of lines on a map.  Who, in their right mind, would put a state boundary down a meandering, unstable river bank, that not only moves but splits every river based conurbation in two?  Who would use arbitrary parallels of latitude or longitude, that cut straight across natural ridges and water catchments?  

These already inappropriately chosen boundaries resulted, at Federation in 1901, in what are essentially arbitrary geographical areas, getting equal Senate representation. Thus the smaller states acquired disproportionate political clout at the Federal level.  The principal problem was Tasmania, the smallest state and the only one that has anything resembling logical boundaries.  Its access to a hundred and twelve years of disproportionately high Federal succour has resulted in a population that is simultaneously industrially-averse; boasts the lowest level of educational achievement; and has the highest unemployment rate in the country.

The founding fathers recognised this democratic imbalance and the inappropriate boundaries.  As a potential solution they included the facility to split the larger states into more Tasmania-sized electorates.  A whole chapter, Chapter VI, of the Australian Constitution provides for the establishment or admission of new states (partly aimed at New Zealand, that ultimately declined to join the Federation). Section 122 allows the Parliament to provide for the representation in Parliament of any territory surrendered by the States. Section 123 requires that changing the boundaries of a State requires the consent of the Parliament of that State and approval by referendum in that State.

Thus both Victoria and NSW could be split into smaller States, with Queensland and WA to follow as they grow larger. But given the power relationships set elsewhere in the Constitution and an increase in the number of Senators form each state, this quickly became a political impossibility.  We probably just have to recognise the problem and find ways to live with it.

As a result of its disproportionate influence in Canberra, due an arbitrary 19th century geographical allocation, formulated by someone with a map, pencil and rule in England, South Australia has also become more heavily dependent on the general Australian taxpayer, through: direct borrowings; subsidised business; welfare transfers; and defence spending, than any other state except Tasmania.  Thus it has less capacity to absorb the impact of automotive closures than Victoria, without temporary economic harm.  

Due to labour immobility, there are always temporary local impacts when a significant local employer closes.  Fortunately Australia has one of most mobile labour forces in the world. Workers in South Australia may need to be helped with retraining and/or relocation to a job in another state.  But on the whole, reducing transfer payments to the mendicant states is likely to result in overall productivity improvements, possibly at the expense of population decline.  Then the whole country will be better off.



Can you use a screwdriver?

Just what was this manufacturing industry that we had to preserve at all costs?  What were the special skills, possessed exclusively, by these workers?  And how long are these skills current in today's environment of rapidly changing technology?

For some years, in the 70’s, before working in government, I worked in the steel industry, for the very company that later shut down in Newcastle, and was involved in satisfying the iron and steel requirements of the many automotive industry component manufacturers that then spread across industrial NSW.  I was a regular visitor at many of the plants like Martin Bright Steels; Overall Forge; and British Leyland.

Apart from a few highly skilled design engineers, the majority of automotive workers are familiar only with the machines, processes and components they employ or assemble each day.  They need to be retrained when new equipment, processes or components are introduced.  As in many other manufacturing businesses they need to have the basic technical education, aptitude and experience to be re-trained quickly and economically,  but their current skills are specific to one manufacturing environment and have a ‘use-by date’.

At another point in my career I was involved in aptitude testing many hundreds of would-be industrial and mechanical apprentices.  It was evident that the required high level mechanical and spacial aptitudes were possessed by less than half of the cohort tested.  And because we were testing an already self-selected group, less than one person in five may have the necessary aptitude.  There is a dramatic difference in mechanical aptitude between individuals, that seems to be independent of home environment or other educational achievement.  As a result, some have speculated that mechanical aptitude is genetic, perhaps reinforced environmentally because those possessing these abilities are drawn to making things and, like musicians, the aptitude runs in the family.  Those at the other end of the mechanical aptitude spectrum have difficulty using a screwdriver and probably see no point in owning one.  

This supports the rationalist argument that Holden, together with other subsidised automotive manufacturers and their suppliers, have been effectively sequestering the best workers.  Not by being the most productive or efficient employers but by virtue of government handouts, and market protection, that allow them to unfairly compete for this scarce resource.  They argue that these, above average, workers should be released to find employment where their skills add real economic value, not in activity that is only profitable with a subsidy.



On the road to Damascus

As the years went by I began to doubt the doomsday predictions that accompany the death of each old business, some of which predictions I helped to draft, and to value our economy’s ability to take up new ideas quickly and to quickly abandon those that have had their day. But at some point, like Paul on the road to Damascus, I had an epiphany, realising that our intervention was, in many cases, doing more economic harm than good.

I have spent many long hours debating these issues.  My argument became that we should redirect government support for manufacturing to the area where it demonstrably improves productivity:  to programs that develop skills in, or provide external expertise to, medium sized enterprises that are demonstrating high growth; to foster growth that is reflective of an innovative product or service and/or improved production technology and/or a new market opportunity.  Assistance should not be squandered keeping 'typewriter manufactures' in business or in relocating businesses to a struggling country town where they can only continue to exist on subsidies.

But as we are presently witnessing, politicians like to offer their electorate taxpayer funded presents. And they feel a need to do or, more often, just to say something in mitigation, if a significant business is to be lost.  They often expect to be backed-up with some kind of executive action, usually amounting to a taxpayer handout, to delay a closure.

I could easily list another twenty major manufacturing closures in regional NSW, including iron and steel making in Newcastle, and probably, if I had access to the database, thousands of smaller businesses, where there is a high ‘churn rate’ of start-ups and closures.

I have come to accept that these many closures have not devastated the Australian economy.  Quite the opposite - resources have been redistributed more efficiently.  The economy grew rapidly at the end of the last century as we began to concentrate on the things we do well and to abandon those old industries that once weighed us down. 

History shows that the impact of such a closure is often ultimately beneficial.  The decision to abandon a moribund, unprofitable industry in a growing city can be positive, as productive resources, including land; factory space; and skilled people, are rearranged. 

On my birthday in 1999, Newcastle, that was once the home of Australia's largest steel maker with a peak workforce of almost 12,000, saw the closure of the coke ovens,  blast furnaces, and steelmaking that once defined the city.  In a decade and a half since the closure, Newcastle has blossomed and now has a larger workforce; a larger population; and substantially lower unemployment; than it had in 1999.

But for me, the last step on the road to Damascus was the Victorian Government’s attempts to save a Kodak processing plant at Burnley, in the face of obvious technological change.  It became a symbol of wrong headedness.  How could anyone not see that film was a dying, if not already dead, technology?  That they enlisted Federal support for this farrago was unconscionable.  Australian taxpayers money, that could have been spent on scientific research;  education;  infrastructure; or dozens of better projects that could be real investments in the future, was squandered. 



Economic catastrophe?

One problem in measuring the economic impact of these closures is that the Australian labour force is vastly larger than the workforce of the whole automotive sector.

The Australian labour force is presently comprised of around twelve million workers.  Unemployment fluctuates seasonally, and with many other non-seasonal factors, and currently stands at around seven hundred thousand, so three, or even ten or twenty thousand additional job seekers, staged over five years, will be invisible, completely swamped by normal fluctuations.

The foreign multinationals that manufacture cars in Australia regard the World as their oyster and make rational decisions about where to manufacture to maximise shareholder returns, taking into account temporary changes and perceived long term trends.  The plant and equipment has a finite lifetime and new investment can take place anywhere in the World that maximises returns.

Both Ford and General Motors (Holden) have been quite explicit.  Unless Australia makes it worth their while to keep operating here, by subsidising their inadequate returns with taxpayer money, they are prepared to scrap or relocate their aging manufacturing facilities in Australia.  No doubt they will relocate key human assets, like key members of their design teams, to the US, Europe or Asia and to concentrate their efforts, and remaining Australian workforce, on the sales, distribution and marketing of overseas built cars. But in the event that economic or technological conditions change sufficiently to make manufacturing here profitable, they will promptly move them back again.

Today a medium sized retail shopping mall employs more people than the largest Australian manufacturers.  And many employees in the mining and mining equipment industries; as well as in electronics; and scientific and medical equipment manufacturing; are on average both more skilled and better paid than automotive workers.

So manufacturing will never disappear entirely.  Many businesses enjoy the protection of distance and transport costs or market proximity or a high service component or proprietary technology or local inputs.  Many medium sized, home grown, Australian firms are world leaders in their field   Australia exports mining and medical and other scientific equipment to the World.  Unlike foreign multinationals, these businesses have their roots here and are motivated by lifestyle, family and business relationships, and dare we mention it, patriotism, in addition to purely commercial considerations.

And you never know, there may even come a time when technology advance makes ‘cars to order’ from boutique manufacturers feasible.  Then we may find an economic justification for local automotive manufacturing and see a revival of the industry.  But it will quite a different beast to the one presently consuming taxpayer and car buyer’s money. Money that can be spent better elsewhere. 

The factors that make manufacturing viable are well understood.  To read my earlier paper on this subject click on: The growing controversy around manufacturing in Australia   


But I have a personal problem.

I am an industrial patriot at heart so I have always supported the Australian automotive industry through my past purchases.  But now, with both Ford and Holden gone, what am I to buy in future?  

Given that a purchase by me seems to be the kiss of death, are there any other iconic brands you would like to see disappear from these fair shores?  Toyota perhaps? 




Richard McKie