Car Manufacturing Rich History In Australiaâ€Myassignmnenthelp.Com

Question: Discuss About The Car Manufacturing Rich History In Australia? Answer: Introduction Car manufacturing has a rich history in Australia which has hosted car manufacturing companies for over a century. Infact, the world renowned car manufacturer (Dowling, 2015) Toyota had the first foreign manufacturing facility based in Australia which besides catering to the domestic demand also was exported to other countries. However, with the announcement of withdrawal of support by the government couple of years back, the car industry is about to come to a sad demise. The government would withdraw all support from the car manufacturing industry by February 2018 in wake of which the various manufacturers would close their plants citing economic infeasibility (Dowling, 2017). In this backdrop, the objective of this report is to highlight the government policy with regards to car manufacturing and whether the policy decision taken by the government is correct or not in wake of economic rationale. Discussion Even though the car manufacturing industry traces a long history in Australia but the same would not have been possible without state support. This state support over the years has been extended through protectionism so as to discriminate against the imports and also through various incentives. Infact, it is estimated that over the last decade only, a total sum of $ 5 billion has been extended as state support to car manufacturing industries (Dowling, 2015). Also, it is noteworthy that that the government policy since long has been of managed decline which was never aimed at making the industry sustainable but rather ensuring that the state support be withdrawn in a gradual manner so that the impact on the economy is minimised (Conley, 2014). The main reason for providing support is the employment which is provided both directly and indirectly. The indirect employment is also significant considering the auto ancillaries which are in business so as to provide various parts to the car manufacturing facilities based in Australia. The contribution of car manufacturing to employment in various states of Australia as a percentage of all manufacturing jobs is apparent from the following graph (Jericho, 2014). The pivotal question which arises is why the state support is needed for the Australian car manufacturers to survive. The explanation for this lies in the production costs associated with cars which renders them non-competitive with regards to other car manufacturers. In the cost of production, the particularly concerning cost is labour cost which for car manufacturing tends to be significant (Dowling, 2015). Being a developed country with limited supply of skilled manpower and strict wage laws, the wages paid to the workers in Australia are significantly higher as compared to the low cost destinations found in Asia for car manufacturing. Further, in the recent times, the government has completed removed the import tariffs on cars which has made imported cars more competitive despite the transportation cost. Till now the state was providing support though reluctantly to this ailing industry (Dowling, 2017). Now since the plug has been pulled by the state government, the critical question arises as to whether the industry can sustain through any reforms or policy change. In this regards, it is noteworthy that for production of any good, the factors of production play a vital role. With regards to Australia, it is apparent that the factors of production which Australia has abundant supply of is capital and technology but not labour. This is in sharp contract with Asian developing nations which have vast availability of labour which is semi-skilled and owing to the high unemployment and labour supply, the prevailing wages are quite low which lowers the overall cost of production in these nations. Further, these countries also provide huge markets on accounting of local consumption and hence various foreign manufacturers are locating their manufacturing plants in these locations so as to serve the domestic demand and also cater to exports at a lower cost (KPMG, 2014). It is apparent that Australia by virtue of the factor or resource endowments is more suited for service industry and primary industry (such as agriculture and mining). As a result, it would not be possible for Australian car manufacturing companies to compete with these Asian manufacturing hubs in terms of cost. But, there is an alternative model which is practiced by western car manufacturers based out of Europe that have concentrated on luxury cars only and outsourced the production of mass vehicles if any to low cost destinations (KPMG, 2014). Since the core competency of these developed nations lie in technology, high skilled manpower and capital, hence these have leveraged the available resources to manufacture luxury cars. Similar endeavour could be focused by Australia also having the same set of resources but still on account of the geographical factors, this plan is not feasible in Australia. The European car manufacturers tend to have a significant sized market based at hom e and neighbouring developed countries of Western Europe. However, Australia does not have that privilege with the only neighbouring country of New Zealand and therefore the collective demand from these two nations would not justify setting up a production unit for luxury cars (Williams, 2016). Conclusion Based on the above discussion, it would be appropriate to conclude that the car manufacturing industry in Australia had to close down as it was unsustainable from the beginning. Neither can the Australian manufacturers compete in terms of cost nor can they venture into high end cars due to lack of demand. As a result, it does not make sense to sustain an industry which is not competitive in the modern world when imports are becoming increasingly prevalent. The move by the government is prudent especially considering the fiscal deficit in face of the slowdown from China. Further, the government also needs to deploy the public money in a prudent manner rather than supporting an ailing industry without any sustainable future. References Conley, T.(2014). Managed decline to rapid demise: Abbotts car industrygamble, The Conservation, [Online] Available at https://theconversation.com/managed-decline-to-rapid-demise-abbotts-car-industry-gamble-23124 [Accessed August 25, 2017] Dowling, J. (2015), Who killed the car industry?, The Sydney Morning Herald, [Online] Available at https://www.smh.com.au/business/the-economy/who-killed-the-car-industry-20151112-gkx1c8.html [Accessed August 25, 2017] Dowling, J. (2017), Why Australian car manufacturing died and what it means for our motoring future, Adelaide Now, [Online] Available at https://www.adelaidenow.com.au/technology/why-australian-car-manufacturing-died-and-what-it-means-for-our-motoring-future/news-story/0428dc235d1b44639459959f5a3bbf9b [Accessed August 25, 2017] Jericho, G. (2014). Car industry exit: manufacturing is declining but it is still a vital cog, The Guardian, [Online] Available at https://www.theguardian.com/business/grogonomics/2014/feb/13/car-industry-exit-manufacturing-declining-but-still-vital [Accessed August 25, 2017] KPMG (2014), The UK Automotive Industry and the EU, KPMG Website, [Online] Available at https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Automotive/uk-automotive-industry-and-the-eu.pdf [Accessed August 25, 2017] Williams, A. (2016), Collapse of Australian car manufacturing industry, Swinburne Website, Retrieved on August 25, 2017 from https://www.swinburne.edu.au/news/latest-news/2016/10/collapse-of-australian-car-manufacturing-industry-.php [Accessed August 25, 2017]