The Government-Business Relationship in the Car Manufacturing Industry in Australia - Case Study Example

Government-Business Relationship Name Course Instructor Date The Government-Business Relationship in the Car Manufacturing Industry in Australia It is of importance to understand the car industry in Australia, why it is struggling and the consequences of its failure. This essay will focus on analysing the government- business relationship in the car manufacturing industry in Australia and as well, it will argue that it was not right for the government to no longer provide financial support to the struggling industry. It begins with a general understanding of the car industry in Australia and then it explains the relationship between the government and the car industry in Australia. The essay later explains why it was not right for the government to stop providing financial support and finally a conclusion is given on the way forward for the car industry. The car industry in Australia has relied on financial programs by the government since its beginning. However, the government of Australia has made the decision not to provide financial support to the car manufacturing industry in order to make the industry to get new customers as well as to diversify their operations (Automotive Manufacturing in Austria, 2016). Because of the government’s decision to stop offering financial assistance to the car industry, Australia car industry is threatening to come to an end after 90 years of existence (AUSTRALIA AUTOS REPORT, 2013). The automotive manufacturing industry in Australia consists of the production of motorcycles, trucks and passengers cars. It was created in the 20th century when the international manufacturers opened Australian plants (Automotive Manufacturing in Austria, 2016)s. According to Moore (2007), cars can be defined as vehicles with four wheels at least and about eight seats or less in addition to driver’s seat which is used to transport passengers. The Car manufacturing sector is considered the largest sector of Austria’s automotive manufacturing industry and it accounts for 47.6% of the total volume of the industry (Automotive Manufacturing in Austria, 2016).. The car manufacturing industry in Austria is faced with volatile conditions because of the limiting number of production plants in Austria which most of the times operates through contracts. It is expected that the industry will continue fluctuating through to 2020. Toyota, Ford and Holden are stopping the local production of their cars (Zubrzycki, 2013). Because the government has withdrawn its support of the industry, the producers of motor vehicles have cited a highly fragmented and competitive domestic market, a changing preference for the consumer and a higher cost for manufacturing as the causes for stopping local production of vehicles in the country (Cassin, 2014). So what is the role of the government to the car manufacturing industry in Australia? Firstly, the government assistance towards the auto manufacturing industry just as to other industries in Australia is both specific and general in its nature. Such assistance is provided through self-interest claims and much lobbying. In addition to this, when selective assistance is provided to the car manufacturing industry, such assistance is never without a cost whether directly or indirectly (Klier, 2015). Secondly, according to Cassin (2014), the government of Australia in assessing whether to provide assistance to the automotive manufacturing industry of Australia, relies on whether there is some type of market failure or not. If there is some type of market failure in the business, the government would therefore decide if intervening would generate some net benefits to the overall community. If so, assistance is then accorded. In addition, quite a number of participants determine rationales used by the government in assisting the Australian car manufacturing industry. The first one is the spill over benefits. This refers to the benefits flowing from the car manufacturing industry to the supply chain, to other manufacturing industries and down to the community in general. They are normally referred as positive spill overs and they include automotive company research and development resulting in new skills, techniques, knowledge and products as well as the transferring of skills by employees to other industries. When there is evidence of spill overs, then the government come in to assist the car manufacturing industry (International Business 2014). In addition to this, Klier (2015) argues that the government of Australia also offers assistance when the car manufacturing industry is transitioning or adjusting to certain pressures of restructuring. Again when the automotive manufacturing industry is developing an alternative vehicle or coming up with a new technology or exploring a new niche market, the government comes in to support the business. The government gives a total direct funding of 500 million dollars to the car manufacturing industry business in Australia. This translates to Australian economy being 21.5 billion dollars larger. This is what is implied as linkages and multipliers, this means that for every small help accorded to the business, the government stands to gain in strengthening its economy. According to Crandal (2008), estimation was made that for every dollar that the government gives to the automotive manufacturing business, it generates 18 dollars of the local economic activity in Australia. In the same manner, Toyota also reported that for every dollar the government gives, it receives about 20 dollars in return. Therefore in conclusion, the government- business relationship in the car manufacturing industry in Australia is that of a mutual benefit from each other. There is an orthodox argument that states that the auto industry in Australia should not be salvaged because it is less productive in comparison to other industries (Singh, 2014). The argument is that in Australia, productivity would be improved if capital as well as labour is reallocated to other manufacturing industries. However, this argument is untrue because judging from how productivity is normally measured, that is in terms of the value-added per worker, and then it means the Australian auto industry is productivity above average in terms of its productivity. Data from ABS indicates that the Car industry in Austria production is over 100,000 dollars per worker, this is in comparison compared to about 85,000 dollars across Australian economy. This clearly shows that the government withdrawing its support to the car manufacturing industry should definitely not to be supported (Klier, 2015). The government did not make the right decision in withdrawing financial support to the struggling industry of car manufacturing in Australia.firstly, The government gave a reason as to why it was withdrawing it’s funding and that is to make the industry to get new customers as well as to diversify their operations, this reason is not seen as justifiable at all because there is no link between government offering financial assistance and the industry not being able to diversify their operations. Secondly, the essay argues out that the government withdrawing its support has led to the car manufacturing industry being under a huge pressure from its imports. The industry is now suffering a big decline in its market share and in the amount of cars the auto industry is producing. Several years ago for instance, the annual production of vehicles in Australia was about 300,000 this has gone down to about 200,000 annual production of motor vehicle. Indeed a substantial reduction. Due to the reduced production, the profitability and the competitiveness of the auto industry is also generally reduced as the benefit from the economies of scale is then not fully realised (Cooney, 2010). Moreover, it was not right for the government to stop providing financial support to the struggling industry because this will also significantly impact on the economy of Australia specifically within Geelong, the southeast of Adelaide; the north, the west and the northwest of Melbourne. Most of the regions like Dandenong , southeast of Melbourne and the Playford , north of Adelaide have previously been experiencing a high level of social disadvantage and unemployment and social disadvantage ((AUSTRALIA AUTOS REPORT, 2013). Therefore, the shutdown has affected the lives of many people, not just the workers only but also the surrounding communities and the families. To add to this, the withdrawal of support leads to employment multiplier effects which claims about 200,000 jobs that are indirectly associated with car manufacturing and around 45, 000 jobs of the directly employed individuals in the car manufacturing industry. The Australian Manufacturing Workers’ Union has then purported that these multipliers are a clear indicator that the loss from no auto vehicle production would be very significant: it would translate to the loss of about 50,000 direct jobs, thousands of other related jobs, the loss of over 5 billion dollars in annual industry value added, the loss of the biggest Australian source of manufacturing research and development which is worth about 700 million dollars yearly and 3.6 billion dollars in exports. Thus a very big impact in the overall Australian economy (AUSTRALIA AUTOS REPORT, 2013). The Government policy has also failed in taking up its role of effecting change. The Austrian government instead of just offering subsidy for production, it would have been forceful by shifting local production in order to match the local demand. It would have done what the US government did in the 1970’s-1980 when the giant US auto industry had almost collapsed when they failed to respond to the Japanese high quality revolution cars. At that time, the US government bailed out the major car manufacturers including Ford, Chrysler and General Motors (Cooney, 2010). That is exactly what the Australian government would have done to the car manufacturing industry instead of withdrawing its support. To conclude, the government should not have stopped funding the struggling car industry in Australia. The modern world of fast changing economies, a world where occupations are being changed and industries are facing restructuring, a world where manufacturing industries are ensuring that employee’s skills are up-to-date so that they can meet the varying demands of employment. In such a world, very effective intervention programs as well as strategies should be employed by the government and the company in question in order to avoid what is happening to the Australian car manufacturing industry. Reference AUSTRALIA AUTOS REPORT. (2013). Australia Autos Report, (1), 1-62. Automotive Manufacturing in Austria. (2016). Automotive Manufacturing Industry Profile: Austria, 1-36. Cassin, R. (2014). Economists undaunted by car industry canning. Eureka Street, 24(2), 12- 13 Cooney, R. (2010). Workplace training in a deregulated training system: Experiences from Australia's automotive industry. Economic & Industrial Democracy, 31(3), 389- 403. Crandall, R. E., & Crandall, W. R. (2008). New Methods of Competing in the Global Marketplace: Critical Success Factors from Service and Manufacturing. Boca Raton: CRC Press International Business, T. (2014, February 13). Recession Feared With Death of Australia's Car Industry; Unemployment Rate Climbs to 10-Year High. International Business Times. Klier, T., & McMillen, D. (2015). Plant Location Patterns in the European Automobile Supplier Industry. Growth & Change, 46(4), 558-573. doi:10.1111/grow.12114 Moore, R. (2007). Selecting the Right Manufacturing Improvement Tools: What Tool? When? Amsterdam: Butterworth-Heinemann Singh, P. J., & Power, D. (2014). Innovative knowledge sharing, supply chain integration and Firm performance of Australian manufacturing firms. International Journal Of Production Research, 52(21), 6416-6433. doi:10.1080/00207543.2013.859760 Zubrzycki, J. (2013, December 12). As auto industry dies, Australia asks: Do we still make Anything? Christian Science Monitor. p. N.PAG Read More