Car industry: what Australia could learn from state support around the world
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| The US was the most successful, and most ambitious, example of intervention with the managed bankruptcies of General Motors and Chrysler which were supported financially by the government. Photograph: Stan Honda/AFP/Getty Images |
Car manufacturing is a proud pillar of the western world's industrial history, but the hollowing out of Detroit
as a city and an economic force is just the most shocking example of a
decline that has afflicted automotive superpowers such as the US, the
UK, France and now Australia, where Toyota
will close all of its factories by 2017. But in recent years some of
those countries have at least stopped the rot. And government
intervention has been key in rebuffing the global pressures – cheaper
labour elsewhere, deteriorating consumer confidence, excess factory
capacity – that have seen car plants shut all over the world since the
credit crunch exposed an over-expanded and over-leveraged industry.
The US was the most successful, and most ambitious, example of intervention with the managed bankruptcies of General Motors and Chrysler which were supported financially by the government. "Despite being seen as a free market, the US had an industrial policy to rescue those car manufacturers and get them to shift to new low-carbon vehicles," said David Bailey, professor of industrial strategy at Aston University business school. Without government intervention, the US car industry would not have survived on its current scale, he said.
In an unsentimental, Thatcherite view of the world, two of Detroit's biggest companies would have been allowed to go to the wall – they weren't fleet-footed enough for a global car market that had seen the likes of Toyota enter GM and Chrysler's backyard. But the Bush and Obama administrations took the view that the collapse of two-thirds of the Detroit triumvirate – Ford came through relatively unscathed – would have ramifications that stretched far beyond Motor City, with hundreds of thousands of jobs at risk in the supply chain.
State support has also played a crucial role in the UK and Bailey credits the UK's "more intelligent industrial policy" since the financial crisis in keeping car manufacturing in the country. He estimates that a state-sponsored programme to diversify the manufacturing base, into medical technology and car parts, helped to save 10-12,000 jobs in the West Midlands following the closure of MG Rover. By contrast, the Australian government, he says, has tended to fall back on the natural resources boom, rather than use a limited period of state support to adjust to changes in the world economy.
In the UK, government support was key in the saving of the Vauxhall plant at Ellesmere Port on the Wirral in 2012, when business secretary Vince Cable and the Unite trade union thrashed out a deal with GM that kept the 50-year old plant open. This flexibility on the part of unions, underpinned by support from a government that understands the importance of car manufacturing albeit without the financial firepower to back it with a radical financial intervention, has persuaded Japanese manufacturers such as Nissan and Honda to stay in the UK. A spokesman for the Society of Motor Manufacturers and Traders said the British industry had learned from poor industrial relations that characterised the 1970s, citing better links between carmakers and unions, as well as the government, as one of the reasons why British car manufacturing is thriving.
The UK's heritage brands also help. As a hub for making luxury vehicles including the Mini, Bentley, Jaguar and Land Rover, Britain has also benefited from China and the emerging world's appetite for luxury cars. Indian-owned Jaguar Land Rover flirted with a bailout during the credit crunch but has added thousands of British jobs since as demand for vehicles like the Evoque took off globally.
"We can do everything here and we have got a proven pedigree in developing what markets want all over the world," said the SMMT spokesman, citing the fact that 50% of vehicles produced in the UK are exported outside Europe. The SMMT expects that the UK will soon overtake France as Europe's third largest car market, behind Germany and Spain.
In France, state support has been forthcoming too, but has until recently served to prop up factories that need trimming back. European car manufacturing remains predicated on a pre-2008 world and the French establishment's reluctant acceptance of the closure of Peugeot's Aulnay plant outside Paris was a sign that governments can no longer support the status quo. Carmakers have to get leaner without cutting back on investment in new, greener models. German car makers still dominate in the luxury market because they are underpinned by decades of government support for manufacturing as a broad sector covering products from white goods to factory machinery to cars, while a state-level banking system has helped maintain a thriving culture of small-to-medium sized suppliers, or mittelstand. Maintaining a car industry is a marathon, not a sprint. Something a sporting nation like Australia would appreciate.
The US was the most successful, and most ambitious, example of intervention with the managed bankruptcies of General Motors and Chrysler which were supported financially by the government. "Despite being seen as a free market, the US had an industrial policy to rescue those car manufacturers and get them to shift to new low-carbon vehicles," said David Bailey, professor of industrial strategy at Aston University business school. Without government intervention, the US car industry would not have survived on its current scale, he said.
In an unsentimental, Thatcherite view of the world, two of Detroit's biggest companies would have been allowed to go to the wall – they weren't fleet-footed enough for a global car market that had seen the likes of Toyota enter GM and Chrysler's backyard. But the Bush and Obama administrations took the view that the collapse of two-thirds of the Detroit triumvirate – Ford came through relatively unscathed – would have ramifications that stretched far beyond Motor City, with hundreds of thousands of jobs at risk in the supply chain.
State support has also played a crucial role in the UK and Bailey credits the UK's "more intelligent industrial policy" since the financial crisis in keeping car manufacturing in the country. He estimates that a state-sponsored programme to diversify the manufacturing base, into medical technology and car parts, helped to save 10-12,000 jobs in the West Midlands following the closure of MG Rover. By contrast, the Australian government, he says, has tended to fall back on the natural resources boom, rather than use a limited period of state support to adjust to changes in the world economy.
In the UK, government support was key in the saving of the Vauxhall plant at Ellesmere Port on the Wirral in 2012, when business secretary Vince Cable and the Unite trade union thrashed out a deal with GM that kept the 50-year old plant open. This flexibility on the part of unions, underpinned by support from a government that understands the importance of car manufacturing albeit without the financial firepower to back it with a radical financial intervention, has persuaded Japanese manufacturers such as Nissan and Honda to stay in the UK. A spokesman for the Society of Motor Manufacturers and Traders said the British industry had learned from poor industrial relations that characterised the 1970s, citing better links between carmakers and unions, as well as the government, as one of the reasons why British car manufacturing is thriving.
The UK's heritage brands also help. As a hub for making luxury vehicles including the Mini, Bentley, Jaguar and Land Rover, Britain has also benefited from China and the emerging world's appetite for luxury cars. Indian-owned Jaguar Land Rover flirted with a bailout during the credit crunch but has added thousands of British jobs since as demand for vehicles like the Evoque took off globally.
"We can do everything here and we have got a proven pedigree in developing what markets want all over the world," said the SMMT spokesman, citing the fact that 50% of vehicles produced in the UK are exported outside Europe. The SMMT expects that the UK will soon overtake France as Europe's third largest car market, behind Germany and Spain.
In France, state support has been forthcoming too, but has until recently served to prop up factories that need trimming back. European car manufacturing remains predicated on a pre-2008 world and the French establishment's reluctant acceptance of the closure of Peugeot's Aulnay plant outside Paris was a sign that governments can no longer support the status quo. Carmakers have to get leaner without cutting back on investment in new, greener models. German car makers still dominate in the luxury market because they are underpinned by decades of government support for manufacturing as a broad sector covering products from white goods to factory machinery to cars, while a state-level banking system has helped maintain a thriving culture of small-to-medium sized suppliers, or mittelstand. Maintaining a car industry is a marathon, not a sprint. Something a sporting nation like Australia would appreciate.
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