What Caused Australia’s Auto Industry To Crash?

 

Do you remember your first car? I remember mine. It was an emerald green Mitsubishi Lancer, which I received as an 18th birthday present from my dad. I still carry the key with me! It served me well, right up until it got slammed between two cars as I was picking my little brother up from school (not my fault).

Owning a car, and also being able to drive one, is the sign of distinction and maturity in the eyes of teenagers everywhere. It’s what separates the kids from the adults, and the boys from the men.

Cars have done more than just help young guys look cool and pick up chicks. They’ve also had a great impact on population distribution and demographic placement. Cars have allowed our cities to grow in size. People no longer need to cram into over-crowded city centres and live in some inner city shoe box. Thanks to the automobile, people are now able to have that proverbial house with a picket fence and backyard. They are able to live outside of the crowded city and cover a longer journey to work.

Cars are also cultural icons, (I would own James Bond’s Aston Martin if I could own any car), status symbols, and an absolute necessity to many people. I can say for a fact I would be out of a job if I had no car.

One of the all time greatest contributions of the car, and the great auto industry that Mr Ford founded, are the many jobs they have created… Well, at least the many jobs they had created in the past… The auto industry is another one of those “endangered species” in the world of employment.

The Godfather of the Auto Industry…

At its most humble beginnings, cars were a grand luxury good that essentially only very wealthy individuals could afford. The average Joe had never even driven a car, much less owned one. But all of that would soon change when a brilliant American lad, Henry Ford, invested his free time and money into building his own version of the car. One that could be mass produced cheaply, and that the middle class could afford.

His first car, the “Quadricycle,”was basic at best. It essentially looked like two bikes stuck to either side of a box. But with the Quadricycle, Ford had proven his idea was viable, and so quit his job at the Edison Illuminating Company. (yes, that Edison) Then, with the support of a series of rich patrons, he began working towards his dream. The result of all his hard work was the “Model T” car, which was cheap to produce, cheap to repair, but most importantly, cheap to BUY. A mere 12 years after the Model T first rolled off the production line, most Americans had learned to drive Ford’s Model T.

Ford’s most brilliant achievement was the workplace he created. Up until Henry Ford came onto the scene, workplace conditions were poor, and high staff turnover rates were common. So when Ford raised the pay of his workers from $2.34 per day, to $5 per day, he created for himself a much more stable and loyal workforce. Nobody wanted to leave.

The move also turned out to be quite profitable. With severely reduced staff turnover, the cost of constantly training new staff had likewise been reduced. Other companies in the area were forced to raise their employee wages (or risk losing their employees to Ford), which allowed more people to buy cars, and improved the local economy in general.

Ford was also responsible for the 5 day, 40 hour work week. It was a trade-off with his employees: Work harder and be more productive between Monday to Friday, and you will get more leisure time. And of course, more leisure time meant more time to buy things and be a good consumer.

I do greatly admire Ford, but let’s not forget he was the staunchest of capitalists. All his actions and business dealings, no matter how noble they may have seemed on the surface, were all motivated by the goal of creating more consumers, and creating more goods to be consumed. He even held a very unfavourable view of war, simply because he considered it an expensive waste. However, he stood head and shoulders above his peers in the business world, because he understood that employees and consumers are human. If he, as a capitalist, wanted more productive employees and more happy and eager consumers, he needed to work with, and treat them, like humans.

Henry Ford made a remarkable impact on the world, and made as many enemies as he did friends. He passed away on the 7th April, 1947… So what happened after his death? Did we honour his memory and keep his legacy alive? I’m sure Ford would be spinning in his grave to see the state of the auto industry today, and to hear that one of his factories in Geelong, Australia had been given the boot.

The Auto Industry in Australia…

Australia once held the distinction of being one of only 13 countries in the world capable of building a car entirely from scratch. That was thanks to the Ford Company, Toyota, Mitsubishi, our own home grown brand “Holden,” and many other large and small manufacturers of parts and assembly plants.

In the 70s, Australia ranked 10th in the world for total new car manufacturer output. We were at around half a million cars annually. However, just last year, in 2016, this number was a mere 155,000. The auto industry had been in trouble and declining for quite some time. Mitsubishi had closed its Adelaide production line. Australian consumers were buying too many imported cars, and we were not exporting nearly as many cars as we should have been.

Holden laid off 500 of its employees in 2014 (in 2004, Holden employed 700 people) despite a $2 billion grant from the government to keep these jobs alive. So when the auto industry came around asking the government for even more money (on top of the very generous contributions the Federal Government had already committed to the industry), serious questions were being raised. ‘What are we paying these people for? We keep giving them money, but we are not getting any return.’

Having our own $320 billion debt to pay, Prime Minister, Tony Abbott declared, “There’s not going to be any extra money over and above the generous support the taxpayers have been giving the motor industry for a long time.” Then on the floor of parliament, Treasurer Joe Hockey directed a very harsh message to the industry: “Either you’re here, or you’re not,”

A combination of large egos, large declines in sales, and large amounts of tax payer money being lost, was a recipe for disaster. General Motors (the parent company of Holden) decided they weren’t going to take this tone of voice from the Australians, and a mere 24 hours after Treasurer Hockey’s tough words, GM said that they would cease production in Australia. But what hurt the most was when Holden itself said, “If we are not welcome, we’ll go to a place where we are”.

So far, we have lost:

Mitsubishi in 2004, Ford in 2016, and both Toyota and Holden are scheduled to cease production this year, 2017.

On the Factory Floor…

So whilst governments and big business execs were battling it out, what was happening to all of those employees? University of South Australia Professor, Andrew Beer (probably the most Australian name ever), closely studied the employees of Mitsubishi after they closed their doors in 2004. What he found was that two years after its closure, only one third of former Mitsubishi employees had found full time employment. One third of employees were still out of work. The last third were underemployed– working only part time or casual hours; not enough to get by. So the verdict on the complete collapse of the Australian auto industry? There are very, very difficult times ahead…

Although the four car producers above had “only” employed several thousand workers, their very presence had also created many out-of-house jobs, such as tyre making. So when we consider the employees of the car manufacturers, plus all of the out-of-house businesses that will be affected, it is estimated as many as 200,000 jobs will be lost, and $29 billion AUD of economic output will be wiped out. Those are not small numbers, considering Australia is a nation of only 23,000,000. If we assume that Professor Beers’ numbers remain consistent on a larger scale, we are looking at as many as 67,000 long term unemployed (12 months or more), and another 67,000 underemployed.

On the one hand, my heart breaks for the workers and their families. Losing your job, your income, your security, your means of providing for your children… I hate seeing people go through this! But on the other hand, I can completely sympathise with the government. Our government is giving away money they don’t even have so jobs may be saved… only to see people getting laid off anyway.

Could this disaster have been avoided? The high Australian dollar certainly didn’t make exporting our products any easier. In this situation, there were a number of factors beyond our control, but one thing that cannot be overlooked was corporate leaders being corporate leaders.

There was absolutely no excuse for terminating so many employees when ample funds had been provided to prevent exactly that. An alternative solution (and one that had been suggested) was for the government to purchase large shares of these companies. Maybe if egos and tough words had not been involved, we might have prevented this mess? Meanwhile, the corporate leaders wont lose their jobs. Politicians will continue running this country. Cars will still be for sale one way or another… Once again, as always, it’s the little guy who is hurt the most.

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Harrison Stamoudis is a freelance writer from Melbourne, Australia. After a lifetime of being praised for his intellect and being told “you can do anything you want”, he was doomed to grow up without guidance and direction (it’s difficult to pick a door when they are all open for you). Aimlessly wandered from one job to the next, he struggled to pick a path and stick to it. Harrison often had to work multiple jobs just to make ends meet and the work history list on his resume is a little longer than he cares to mention. Harrison is currently in the process of completing higher education (for a third time) so that he may make his next major career change, this time civil engineering.