Can Australia's car manufacturing industry be viable?

Australia's car manufacturing industry is a textbook example of long-term government welfare gone awry. In 1970, Australia had a thriving car industry, which manufactured 475,000 cars. The locally made brands included Mini, Leyland, Valiant, Chrysler, Nissan, Renault, and Volkswagen – as well as Holden, Ford and Toyota.

In the 1980s tariffs were cut, ultimately from 57 per cent to five per cent. (Or zero, in the case of our free-trade agreement with Thailand.) Fast-forward to 2011 – just 224,000 cars were made here, and the number of brands shrunk to just three (Holden, Ford and Toyota). Today, local car making is at its lowest level since 1957. We buy more cars from Japan, South Korea and Thailand than cars built in our own backyard.

In the past 12 years, the Australian taxpayer has contributed about $4 billion to the Australian car industry. Holden has received the lion's share – about $2.18 billion, while Ford and Toyota have each received about half that amount.

The terms and conditions that go hand-in-hand with these grants are not publicly oxygenated. Car manufacturers claim they are commercially confidential – in other words, were they public, competitors, they say, might take unfair advantage. The taxpayer remains in the dark about what guarantees – if any – are contingent upon ongoing government support.

Certainly the manufacturing jobs themselves are not guaranteed. In the early 2000s, Holden employed roughly 7000 workers in its manufacturing workforce. Today, that number is more like 1700, and there is no guarantee of ongoing employment beyond 2016. Job cut announcements have routinely followed government funding commitments in recent years. (As I write this, media speculation is rife that Holden will announce its withdrawal from Australian manufacturing in coming days – most probably withdrawing from local production alongside Ford in 2016, or in 2017.)

Despite considerable taxpayer support, Ford announced on May 28 this year that it would wind up its local manufacturing operations by 2016. (Ironically this announcement was made on the same day Holden launched the VF Commodore.) In the past decade, Falcon sales fell from a high 54,629 in 2003 to just 14,036 in 2012 – a massive drop of 74 per cent. (Falcon's sales peak was 81,366 in 1995.)

Three months after the announcement of the decision to withdraw from manufacturing in Australia, Ford threw a two-hour party at Fox Studios in Sydney at a cost of $4 million. Its sole objective was to talk up the future to VIPs and attending media.

Holden Commodore sales are also suffering a steep decline. A total of 88,478 Commodores rolled off the lot in 2003. By 2012, however, Commodore sales had dropped 66 per cent to 30,532. Commodore sales peaked in 1998, at 94,642 units.

The Holden Cruze, a hastily adapted Commodore 'Mini-me' first built at the former Daewoo plant in South Korea (which is now called GM Korea) is now manufactured alongside the Commodore at Holden's manufacturing plant in Elizabeth in South Australia. The Cruze has been plagued by product safety recalls and quality problems, and although it is a direct competitor to the likes of the Toyota Corolla and Mazda3 (two of Australia's most popular cars) the imported pair manage to outsell the Cruze, each by a factor of three-for-two.

Despite significant, multi-thousand-dollar price cuts across Commodore and Cruze, and also a 0.9 per cent sub-vented finance offer this year, sales of locally made Holdens continue to fall. Shaun McGowan from www.carloans.com.au says enquiry rates have fallen in line with sales – despite incentives. "We expected to see a blip in enquiry rates in line with lower pricing and other incentives," he says. "It made almost no difference, at least that we could see." Cruze sales have fallen almost 16 per cent this year, and Commodore sales are down by 11 per cent.

The key question is: is taxpayer funding of the Australian car industry a mechanism that turns the beneficiaries into a lazy and quasi-protected species, or is it a smart way to maintain engineering skills onshore, and significantly boost the economy?

Proponents of funding say the real cost is 'just' $18 per head, per annum – compared with the USA ($96 per head), and Germany ($90 per head). This, though true, ignores the simple truth that without car manufacturing the German economy would collapse, and America's would take a massive hit. Australia's would not. Canada, France and the UK all subsidise their car industries much more heavily, per capita, than we do.