1. Can we really get an efficient car industry? (April 20, 1976)
2. Why Govt didn’t throttle car industry (June 18, 1976)
3. Gear change troubles in attitudes to car industry (June 25, 1976)
4. A Bandaid for the car industry sore (July 22, 1977)
1.
A Modest Member of Parliament [Bert Kelly],
“Can we really get an efficient car industry?,”
The Australian Financial Review, April 20, 1976, p. 12.
Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 81-83, as “Motor Cars (2).”
Since 1946, when the Federal Government announced its car manufacturing plans, Eccles has been holding up our car industry as an example of the mess into which we can get if we protect an industry too lavishly.
And when the mess is measured in money terms it does indeed look awful. The tariff-induced costs on a $5,000 car at the retail level works out at about $1,400 a car, and the extra cost for every man employed in making cars is about $4,000 each year.
So we are in a mess.
There was a time when Fred would only have been angry about this if he was about to buy a car, but now the poor sod knows he is not only paying the extra $1,400 on his own car, but he and his fellow exporters are also paying out on all the cars that city slickers buy — cars that the storemen and packers, the wharfies and even members of Parliament buy.
This has made him mad. He now knows that tariff costs are paid for by exporters in the end.
Fred often gives me lectures about getting off my tail and doing something to help my poor constituents by reducing the tariff on cars.
So when the Government announced its 85 per cent car plan, he immediately asked me if it was the right decision, or whether he and his fellow exporters were going to be made to carry their present burden on their bent backs forever.
So Fred and I asked Eccles for his opinion and he, as usual, was eager to oblige. He said that the 85 per cent decision was about the best that we could hope for.
Our previous policy of lavish protecting of everything that moved had encouraged far too many manufacturers to enter the industry with the result that most processes carried out in Australia were fragmented between too many factories, so making it difficult for them to achieve what Eccles calls the economies of scale.
Then he started to give figures to prove his point. I can’t remember most of them, but some stuck in my muddled mind and they burnt with smouldering rage into Fred’s mind also.
We have in Australia three manufacturers for a market of approximately half a million cars, while in the US they have three manufacturers for a market of 11 million.
Further, to operate an efficient panel pressing plant you should have a throughput of 600,000 units a year.
In 1973, we pressed 420,000 units, so clearly all these should have been pressed in one plant, but we did it in five which had been encouraged to start by the previous 95 per cent plan.
So with engines. An efficient engine plant needs to make 350,000 engines a year before it achieves the economies of scale. In 1973 in Australia we made 300,000 engines so they should have been all made in one plant. But we used four.
Eccles says that the effect of this fragmentation is seen when you come to look at the productivity of labour.
In Australia, each man employed in the car industry makes, on average, 5.9 cars a year, while in the Nissan factory in Japan, each man makes 37.2 cars, and Toyota achieves 40.5.
It’s true that our workmen hate making cars and so are bad at it, but Eccles says that this is not the main reason why our performance is so bad. It is mainly because the 95 per cent component plan forced this unwise proliferation of plants.
Eccles added the grim warning that if this is indeed the main cause of our mess, then curing it would inevitably mean that some of the uneconomic plants would have to close down or switch to doing something else.
Everyone knows that this is economic sense, but he is fearful that when the crunch comes and such plants actually start to close, the political pressure to stop the process will take some courage to resist.
“More courage than you’ve got, I’m afraid,” he adds sourly.
So there it is. Eccles thinks that the Government’s 85 per cent car plan does give us hope that we can gradually unmake the car mess.
Fred has promised Eccles that he will do his best to keep me up to the mark to make sure that we don’t back away from the inevitable closing down of the unneeded plants when the time comes.
It is clear that without this solution nothing worthwhile would actually be achieved, and Fred and his fellow exporters would then have to carry their load till they dropped.
And Fred says that this would not be long.
***
2.
A Modest Member of Parliament [Bert Kelly],
“Why Govt didn’t throttle car industry,”
The Australian Financial Review, June 18, 1976, p. 4.
Eccles is bristling with nasty remarks about the latest edition of the Government’s car plans, announced on June 9.
The previous plan appeared on March 30, was to run until December 31, 1984, so as to give the industry firm ground on which to do its planning.
But it only lasted 10 weeks, not eight years.
So there will be plenty of opportunities for Eccles and other mean minded men to poke fun at the Government.
But just to show people that Eccles does not dominate me entirely, I am going to defend at least one part of the Government’s decision, and I hope that the Government doesn’t find itself embarrassed by being defended by so modest a member.
The Government was right not to try to bludgeon the car manufacturers to join some kind of consortium to produce all the four-cylinder engines that they needed.
Or perhaps the Government tried to do so and failed and if that was the case, it is a tribute to the wisdom of the car companies.
The plain fact is, the Government should never tell the industry where it should get its engines.
And far more, it should run a mile before it even contemplates going into partnership with any particular company to produce engines.
And this judgment is not based on any philosophical objection to public enterprise, it’s just because Governments are not any good at making the tough and nasty decisions that are essential if the car industry is to be levered out of the mess it’s in.
I know that to produce engines economically in Australia each engine plant should have a throughput of at least 300,000 engines a year.
I know too, that we have an Australian market for about 600,000 cars.
I presume that imports will take 20 per cent of this, leaving 480,000 cars to be made here.
If these all required four-cylinder engines or if we could, with much cunning, use the same engine line to make four, six and eight cylinder engines, even then Australia would not have a market big enough to sustain two economic engine plants.
So you don’t have to be a genius to realise that it’s a great pity that we are now likely to have four with none of them able to make cheap engines unless they export large numbers.
It looks as if Australia will be lumbered with dear engines while that position lasts.
Why then was I glad that the Government did not take the industry by the throat and tell it where and how to produce its engines?
What would have happened if the Government had done this, had told GM-H that they could have a plant in Victoria while the others would have to make their engines in Adelaide?
In a year or so one of the manufacturers would get in a mess by some downturn of the popularity of its models or something, and then it would come to the Government and say:
You got us into this mess, you told us to produce our engines in Adelaide and we wanted to make them in Melbourne. Now you look after us. It’s all your fault.
Australian Governments are helpless in the face of that kind of pressure.
The reason why the Japanese can boss their industries about is they have a cold-blooded way of letting the “weak ‘uns dee.” But we can’t do that.
We coddle them and care for them so the necessary painful re-adjustments are never made.
Australian Governments are hopeless at being necessarily nasty.
We have too many car and component manufacturers with uneconomic production caused by small throughputs.
The reason for this is that our Government just can’t say no, can’t let the weak ‘uns dee.
Drastic surgery is needed to cut away the unnecessary appendages which make it impossible for the car industry to be healthy, but every time the surgeon sharpens the knife the patient starts to shriek in dreadful anticipation and is then hurriedly ushered out of the operating theatre. But this time the Government hasn’t told the industry how to behave because if it had the industry would have held the Government by the short hairs forever.
The industry cannot this time pin their future failures on any definite directions given to them on this occasion by the Minister.
I give Senator Cotton full marks for his perfect press statements in this regard.
So I am glad that the Government did not tell the industry where to make the engines and even gladder it didn’t join any silly consortium to do so.
But that is about the only facet of the whole awful schmozzle that I find to be glad about. Except that, this time, I have stood up to Eccles, for once.
***
3.
A Modest Member of Parliament [Bert Kelly],
“Gear change troubles in attitudes to car industry,”
The Australian Financial Review, June 25, 1976, p. 4.
Last week I defended one part of the Government’s most recent decision on motor cars, saying that I was glad that it had not succumbed to the temptation to tell the industry where it should make its engines.
If it had done so, when troubles loom in the future the industry would then hold the Government responsible, even if the industry was at fault. But Eccles did not agree with this soft line and was displeased with me for having a mind of my own, however mild and modest.
Since the new plan has been announced, there have been some indications that the industry may be taking some tentative and timid steps to try to rationalise itself. But as soon as the economic laws start to work to push the industry along the prickly and painful path of change, the car and component manufacturers start to whimper and the Government steps in and kisses it better. So the necessary changes are not made.
When the March plan was announced, I then said:
Eccles think that the Government’s 85 per cent car plan gives us hope that we can gradually unmake the car mess. Fred has promised Eccles that he will do his best to keep me up to the mark to make sure that we don’t back away from the inevitable closing down of the unneeded plants when the time comes.
It is clear that, without this solution, nothing worthwhile would actually be achieved and Fred and his fellow-exporters would then have to carry their load until they dropped.
Well, the Government has backed away from its plan of March 30, which, instead of lasting for eight years, only lived for 10 weeks. Senator Cotton and I have a lot in common; I can resist everything except temptation, the Senator has the same problem with pressure.
The Government has backed away from its reversion decision. This is too complicated to explain in this column, but it means that many component manufacturers will not now have to make the painful readjustment which looked to be necessary. But by far the most serious aspect of the minister’s statement of June 9, dealt with the abolition of import quotas on cars.
In March, he said that the industry would have to manage with the very high tariff protection of 45 per cent and that quotas would come off at the end of the year, but, in June, he said that quotas would be continued if careful monitoring showed that they were necessary.
So, during April and May, the industry started to face up to the fact that it really had to put its house in order because it knew that, if it didn’t gets its components as cheaply as possible, the competition from imported cars, even after they had paid the awful 45 per cent tariff impost, would be hurtful to Australian-built cars, and if fewer Australian cars were sold, there would be fewer Australian components also.
But now the minister has made it clear that, if this pressure from imported cars starts to hurt, quotas will be imposed again. So the economic pressure for the necessary rationalisation has practically disappeared.
Fred is furious with me and everyone else. He knows that the $200 million annual subsidy to car industry is paid by exporters in the end. Between March 30 and July 9 he had a pious hope that this heavy burden would one day be lifted, at least a little, but now it looks as if he will have to carry it to his grave, which he says is not far away.
Eccles says that it is interesting to compare the anxious interest of the Government in the cost of protecting the shipbuilding industry and its apparent indifference in the cost of protecting the car industry. Shipbuilding is helped by a $32 million subsidy paid by taxpayers, and everyone rightly worries about the awful burden it imposes on the Budget.
But the car industry is receiving an annual subsidy of $200 million a year, but because it is paid for by exporters and does not appear in the Budget documents, no one seems to give a damn.
So I am under a big black cloud with Fred, who just cannot understand why a Member of Parliament who represents a rural constituency, which depends on exports, does not seem to be able to do anything about the size of this $200 million burden that he is asked to carry.
He knows, too, that if we have to reimpose car quotas because of the uneconomic structure of the car industry, this will make nonsense of our complaints to the Japanese and the Europeans about the barriers they place on our exports of beef. And Fred is in awful trouble with beef just now.
So Fred hates me and I really can’t blame him either. We seem to spend time making resounding statements about the general benefit that follows a freer flow of world trade, and everyone cheers.
But we spend most of our working time erecting trade barriers and abusing other countries for doing the same.
***
4.
A Modest Member of Parliament [Bert Kelly],
“A Bandaid for the car industry sore,”
The Australian Financial Review, July 22, 1977, p. 3.
If at any time you want to get a picture of the monumental mess that a Government can make of an industry, have a look at our car industry.
It’s been in a mess since the early 1960s when the Government of that day was ladling out protection with a long-handled shovel to everything that moved.
The car and car component industry was encouraged to set up far too many plants for economic operation so that now Australia is lumbered with more car manufacturers for a 600,000-car market than has the USA with a market of over 10 million.
The result is that Australian car buyers are forced to pay an extra $4,000 a year for everyone employed in making the kind of cars we don’t want.
In March, 1976, the Government took the car problem by the throat. In a speech in the Senate, the Minister, Senator Cotton, unveiled his new plan which had two main parts.
First, the industry was allowed to use 85 per cent of Australian components instead of the previous 95 per cent. This disadvantaged the car manufacturer at the expense of the component manufacturer.
Second, the import quotas were to be taken off at the end of December, but the tariff duties were to remain at 45 per cent.
Then Senator Cotton made the kind of statement for which we had all been hoping, saying that the new plans were to last until December, 1984.
It was necessary that some assurance be given to all sections of the industry that the Government meant what it said and that necessary changes would have to be made by the industry to adapt to the new plan.
The export sector heaved a small sigh of relief when it heard that the Government was going to stick to its guns and we hoped that the heavy task of supporting the car industry would gradually be lightened.
I ended up a Modest Member article in March, 1977[sic], by saying:
Eccles think that the Government’s 85 per cent car plan gives us hope that we can gradually unmake the car mess.
Fred has promised Eccles that he will do his best to keep me up to the mark to make sure that we don’t back away from the inevitable closing down of the unneeded plants when the time comes.
It is clear that, without this solution, nothing worthwhile would actually be achieved.
But it now looks as if we have had the wool or Cotton wool pulled over our ears Senator Cotton, and then later, the Prime Minister, almost immediately made it clear, that, if too many imported cars managed to surmount the 45 per cent tariff wall which, coupled with the freight protection, surely should be high enough to protect any efficient industry, then they said that quotas would again be imposed.
Changes are once again seen to be desirable so long as they do not actually happen.
Each time change appears likely, the industry leaders, hand in hand with the unions, come whimpering to the Government asking it to put a bandaid over the sore.
This is always done in the name of saving employment but is at the expense of employment in other industries.
When the Government recently announced that it was altering its 1976 policy yet again, that it was reintroducing import quotas, Eccles recalled the way the Prime Minister has been complaining about the wickedness of the EEC for wanting to restrict imports of our steel but now we put quotas on imports of their cars.
And everyone criticised the Japanese for imposing quotas against our beef, but again we stop their cars coming here.
Many of the car importers received the news of the reimposition of quotas with comparative equanimity.
They know that they will have less cars to sell, but they also know that because the supply will be limited they will be able to increase their mark up, so they will be able to make the same amount of money for selling less cars.
They people who will really suffer are the car buyers who are now subsidising the industry at the rate of about $400 million a year.
People wonder why the market for cars is so sick. The main reason is that cars cost too much to buy.
A car which costs $A3,000 in Japan would cost $5,370 in Australia including $270 freight. So it is not surprising that people do not want to buy cars — they cost too much.
And the very day that Volkswagen announced a big drop in their prices, the Government moved in to reimpose quotas.
The Germans from the EEC were about to lower the price of the kind of car I really want, so the Government put a stop to that nonsense.
