Car Industry in Australia: Government Support of Holden
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Assignment 1 Due Date:
Tuesday April 8th, 2013
The Car Industry in Australia
On 11 December 2013, the iconic Australian automobile manufacturer, Holden, announced that it would stop production of Holden vehicles in Australia by 2017. For many years prior to this decision Holden was the recipient of financial support from the government. In recent years Holden’s sales figures and profitability in the Australian market has also been negatively impacted.
What prompted the Australian government to offer support to Holden in the first place? From an economic and social perspective was this support justifiable? In this essay you are required to analyse the effect of the government protection offered to Holden on the Australian automobile industry and Australian economy. You will need to assess the impact of government protection of Holden on Australian consumers, taxpayers, international competitors and any other stakeholders that you consider to be important.
What has prompted Holden to cease production of Holden cars in Australia? You may wish to consider factors such as market preferences, production and other operating costs, size of the market and the regulatory environment such as labour laws. Would this decision have been made earlier if Holden was not the recipient of government protection?
Your answer needs to be structured as an academic essay which means that it must have a formal introduction, a logical and coherent essay body that shows evidence of research and analysis without being overly descriptive, and a brief conclusion. You will need to demonstrate evidence of research by citing peer reviewed sources in a well formatted reference list. You are required to use Harvard Date style in text citations for your essay.
The text matching software, URKUND, will be utilised to check all submitted assignments for plagiarism.
There is a Productivity Commission report on the automotive industry which provides a useful starting point for this assignment; Australia’s Automotive Manufacturing Industry
Conlon intro and origins
In Australia, Federation assisted to accelerate growth and development of the manufacturing industry. The removal of customs barriers between states and the introduction of tariffs on imported goods collectively enabled industry to grow sharply increasing its employee base from 190,000 328,000 within 10 years from 1903 (ABSa, 2014). By the time World War II erupted the manufacturing industry within Australia had sufficiently established itself, with Government support, and was well positioned to meet the demands required of a war-time era, even after having sustained the impact of the 1930’s depression. Post World War II, the Australian Government exercised greater influence in the economy, and developed policies that targeted macroeconomic issues such as full employment, economic growth and development.
What prompted the Australian government to offer support to Holden in the first place?
The Australian Government first started providing assistance to the motor vehicle industry during the first world to spur growth in the local industrial sector while preserving foreign exchange relationships (Capling, 1992).
The first step involved the outright ban of imported car bodies by the Hughes Government.
Immediately after the war quantitative restrictions were lifted and exchanged for a two-fold increase on the import tariffs of car bodies and panels, together with the introduction of import duties on assembled chassis.
As a result the barriers to market entry were significantly reduced, and through the tariff structure local market production was given a competitive advantage to foreign rivals given its ability to produce substitute products at a lower cost of supply. As such, this provided an incentive for foreign industry players to invest locally to spur further growth in the Australian economy.
This incentive paid dividends. In 1926, a local Melbourne company, Holden Motor Body Builders, began supplying car bodies to the General Motors Company (GM) of the United States whom opened a chassis assembly plant in the vicinity. GM’s Australian investment followed in the foot-steps of the Ford Motor Company (Ford) of Canada (a wholly owned subsidiary of its US parent) whom only a year earlier had established a body-building plant in Geelong, Melbourne together with chassis assembly plants across Adelaide, Brisbane, Perth Sydney and Geelong. GM also established assembly plants in direct geographical competition with Ford across all major Australian capital cities within a few short years.
While GM and Ford assembly plants become important local employers, the absence of a requirement for a skilled workforce or locally produced components triggered the Lyons Government to introduce a range of measures aimed at establishing a local car manufacturing industry. The Government’s policy was:
“The measures included increased tariffs on imported engines and chassis, bounties on local engine production, import quotas on North American chassis, and duty free admission of imports of capital equipment and parts.”
Ironically, in 1938 the tariff board, having recently expressed reservation over the economic viability of the Government’s policy, cautioned the Government on pursuing a local car manufacturing industry,. Stating at that point of time it was “unwise” (Capling, 1992 p198). Un-phased the Government proceeded with its policy objective and by 1940 awarded sole rights and government assistance to Australian Consolidated Industries (ACI) to produce an Australian made vehicle.
At the close of the second World War, The Government envisaged an expanded local automotive industry as a means to trigger post war reconstruction. Following a tendering process, the Government accepted a proposal from GM-Holden to produce a six-cylinder vehicle using 90% locally produced components in exchange for Government assistance.
In November 1948 the first Holden produced under the terms of this agreement. Then Prime Minister Ben Chifley whom was filmed opening the door to the new vehicle signifying the Government’s commitment to foster and protect the continued development of the local car industry. January 1949 signified commencement of volume production of the first Holden, while competitors also sought to leverage Government assistance by increasing the number of Australian produced components in their vehicles.
From 1952, the Government introduced import licensing which significantly reduced imported assembled car bodies and chassis by up to 50% in monetary terms. As a result foreign manufacturers establish local assembly operations in order to bypass the licensing restriction. Nonetheless the desired effect was achieved with demand for locally manufactured components and spare parts significantly increasing with the Australian content of locally made vehicles reaching 77 per cent by 1957/58. However, when import restrictions were lifted in 1960 the industry again faced stiff competition. To combat this, the Menzies Government implemented local content requirements: high-volume manufacturers were required to acquire 95 per cent of vehicle components locally while low-volume manufacturers were duty-free restrictions that required the volume of duty free component imports to level of local that of the lvel poroduced locally From an economic and social perspective was this support justifiable Following the War, the Government targeted initiated a number of macro stabilisation policies focused on stabilising the ewas focused on stabilising the eco analyse the effect of the government protection offered to Holden on the Australian automobile industry and Australian economy assess the impact of government protection of Holden on Australian consumers, taxpayers, international competitors and any other stakeholders that you consider to be important.
What has prompted Holden to cease production of Holden cars in Australia? You may wish to consider factors such as market preferences, production and other operating costs, size of the market and the regulatory environment such as labour laws.
Would this decision have been made earlier if Holden was not the recipient of government protection?
Capling, M.A. & Galligan, B. 1992, Beyond the protective state: the political economy of Australia's manufacturing industry policy, Cambridge University Press, New York; Cambridge [England].
Conlon, R.M. 1995, "Automotive industry policy in Australia: origins, impact and prospects", Economic papers, vol. 14, no. 3, pp. 49-68.
Bracks, S. 2008, Review of Australia’s Automotive Industry, Commonwealth of Australia, July 2008.
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