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Why Australia Wrote the Death Certificate to Car Industry

Manufacturing in high-cost countries such as Australia "is reasonable only when you have an export center," says George Gallers, an automotive analyst with the Evercore ISI. Countries such as the United Kingdom and Germany depend on exports - about 80 percent of cars manufactured in both countries are sold abroad.

In Australia, Holden, a subsidiary of General Motors, closed its last major assembly plant in the country on Friday, ending a century-old industry that is the cornerstone of Australia’s manufacturing sector.

The company is doing nothing new, followed by similar decisions by Ford and Toyota to stop domestic manufacturing, as automakers failed to adjust to lower tariffs on cheaper Asian imports, following the signing of free trade deals that plunged the market With cheap imports. However, problems are not limited to Australia. The latter is one of the advanced economies struggling to compete, as the global automotive manufacturing industry is increasingly shifting to emerging markets such as Mexico, where production costs are lower.

Australian-Car-Brands-LogoHolden’s closure raises questions and sharpens the debate about the long-term viability of production in the richest countries in the world.
“The global shift in production is one of the consequences of FTAs among countries with large differences in labor costs,” says Philip Munoz, a global auto industry analyst at Gato Dynamics.

In North America, automakers are still investing in Mexico, despite threats from US President Donald Trump to automakers that shift their production out of the United States. Audi has begun using Mexico as a center for the world-class production of luxury SUVs with Q5, while BMW is also opening its own factory to produce third-generation cars for the world market there.

Toyota also plans to move its production of Corolla to Mexico, while General Motors is expanding its factories in the country. Ford was planning to produce the next Fox in Mexico, but it turned production into China. Volvo, owned by Geely in China, also uses China as a global export base for S90 sedans. In Europe, there has been a wave of investment by the Jaguar Land Rover, Volkswagen and Mercedes-Benz Daimler companies in Slovakia and Poland in Central and Eastern Europe, where manufacturing costs are much lower than in Germany and the United Kingdom.

Manufacturing in high-cost countries such as Australia “is reasonable only when you have an export center,” says George Gallers, an automotive analyst with the Evercore ISI. Countries such as the United Kingdom and Germany depend on exports – about 80 percent of cars manufactured in both countries are sold abroad.

This focus on exports places the focus on free trade agreements, cited by UK Brexit supporters as a way to open doors to the sale of British cars to countries such as the United States and China.

In Australia – where a free trade agreement with Thailand has seen a cheaper market – and the United States – there is a more negative mood about the benefits of free trade agreements. More than any other agreement, the North American Free Trade Agreement between the United States, Mexico and Canada (NAFTA) highlights the risks of FTAs for developed countries.

The NAFTA Agreement helped the boom in automobile manufacturing in Mexico from a small industry to a global power in two decades. But for the United States, jobs have been depleted to the cheaper South. This pressure on jobs prompted President Trump to call NAFTA the “worst deal in history” and also led to the US withdrawal from the Pacific Partnership – an agreement between 12 countries bordering the ocean, including Japan and the United States. “It’s very important that an FTA is really a success for companies in practice, because, without careful study, the agreement could create significant barriers that have nothing to do with fees,” says Jessica Gladstone, a partner at law firm Clifford Chance in London. Which could lead to a total neutralization of the advantages being negotiated. ”

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Since Canberra signed a free trade agreement with Bangkok in 2005, Australian consumers have bought 2.26 million vehicles imported from Thailand, according to the Federal Automobile Industry of Australia. However, when both Holden and Ford tried to export Australian-made cars to Thailand, they complained that they often faced hidden barriers unrelated to tariffs that made exports unsustainable.

“The Thai FTA was a one-track deal,” said Paul Bastian of the Australian Manufacturing Workers’ Union. “It did not provide an equal field for our car manufacturers.”
Although there is no doubt that the flow of cheap cars has given more people access to cars, a move that has potential benefits for the broader economy, this measure has had a negative impact on the industry, and the decline in car production by half between 2004 And 2012 to about 220 thousand vehicles – from Toyota 100 thousand cars, Holden company 80 thousand cars, and Ford company 40 thousand cars.

The elimination of high tariffs on imports also led to the creation of a local car market, with 67 branded companies selling 350 models in 2014 in a market with annual sales of 1.1 million cars worth A $ 40 billion.

This was more than in the United States, where sales were 17 million units, or China, which achieved sales of 23 million vehicles in the same year.
“The competition is getting stronger,” said Roy Green, a dean at the Business School of Sydney University of Technology, who said that “Thailand is already a big force in Asia and is working to absorb all Australian production for Toyota, and China is a new emerging global power.” He says that for automakers to survive in high-cost economies, they need to include a high level of robotics and operational automation, complete integration with global markets and supply chains, be able to customize products to individual consumers and provide designs World-class. “The increased use of robots may help tip the balance for the benefit of developed countries,” says Dr. Sam Lautrell, a partner at Clifford Chance, a law firm based in Australia. “The automotive industry is one of the most widely used industries in the world,” he says. “Robots perform most of the major steps in the production line.” When robots do business, the process of replacing the cost of wages begins with electricity consumption bills.

This is no comfort to workers at the 900 Holden Adelaide assembly plant, or others in the industrialized world, where active competition for costs has a similar effect. “It’s very rare to lose a whole industry, and the end of the auto industry in Australia is a useful warning to other countries about what might happen if they feel contradictory to the industry,” says Joe Spoiler, director of the Flinders University Industrial Conversion Institute. else”.

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