The Automotive Manufacturing in Australia - Case Study Example

GОVЕRNMЕNT-BUSINЕSS RЕLАTIОN Name Course Name Course Instructor Date Gоvеrnmеnt-Businеss Rеlаtiоn Introduction Motor vehicles in Australia provide mobility and independence to families and the society in the whole country. Therefore, this paper will explain the government-business relationship in the Australian car manufacturing industry. It will also answer the question if the government made the right decision by not supporting the struggling industry financially. The car industry is central to the economy and the Australian way of life. The motor industry turns Australia’s aluminum and steel into valuable goods that are sold all over the world. The industry is the leading contributor to the country’s economy and the community. The motor industry is the highest employer, and it is also the leader in innovation with magnificent investment in research and development. The Australian automobile industry invented advanced safety technologies like the electronic stability control. The industry is considered as the highest employment contributor in the whole country since over 4,000 people are employed directly and indirectly in manufacturing, servicing, repair, logistics and retail (Federal Chamber of Automotive Industries, 2010). The level of government assistance in many manufacturing industries differs in many countries especially in developing countries, but most share some common factors like declining government support like trade barriers, but they still maintain some extent of industrial support. In the year 2,004 to 2,005, the government provided 6.9 billion dollars as manufacturing support which is equivalent to 7.2 percent of the total contribution to the country’s GDP (Bracks, 2008). The Australian government is moving more towards the non-financial assistance and leaning more on the market is driven support, though there are some discrete industrial assistance programs that have been created to help the manufacturing industry (Mackay, 1993). The government protected the automotive industry through tariff and non-tariff barriers and as tariffs progressively reduced. The industry received assistance through co-investment measures, production subsidies, and grants. Assistance is also rendered through taxation arrangements which favored luxury car productions and also through government purchasing policies. Like other automotive producing nations, the Australian government has assisted the industry in recognizing the spillover benefits it delivers in manufacturing and technological know-how and its importance to the regional economies. The industry was also able to enjoy accessible skills and employment programs for its employees, support for investment in research and export facilitation (Productivity Commission, 2002). The automotive manufacturers in Australia announced that they intended to stop production of cars in the year 2017. These companies are Ford, Toyota, and Holden. The automotive business is known to have a long history of government support. However, as the tariff assistance declined in the car industry since 1984, some specific budgetary actions to assist the industry in making some adjustments were taken into consideration. The productivity commission in a statement said that the ongoing support to the automotive manufacturing industries was not warranted (Productive commission, 2014). Among the programs which were assisting the Australian Automotive industry for the year 2008-2014 is the Automotive Transformation Scheme (ATS). ATS main agenda was inspired reasonable and competitive investment and innovation. In the 2014 to 2015 budget, the government made a decision to dismiss ATS at the beginning of the year 2018. Termination of the program will save the state millions of shillings by not proceeding with the funding, of Holden’s next future generations projects as well as Ford Australia- assistance to workers program. The government announced that they would open a grown Fund in support of new jobs and investment programs to employees after the closure of automobile manufacturing facilities (Productive commission, 2014). The government’s position on the closure of the automotive industry is optimistic because they claim that the economy will do better than it has in the past. They argue that the technological and management skills in the automotive industry will be issued to other manufacturing industries which will be more beneficial (Singh, 2005). The incentives which have been awarded to the auto industry will be allocated to other more government worthy entities. Poor communities and less skilled individuals surrounding the car manufacturing sector will suffer after the closure. The government will manage adverse impacts through Australia’s well-resourced social welfare system (Automotive Supply Chain Competitiveness Initiative, 2015). The other reasons given for the closure of the Australian motor manufacturing industry is that the market is not adequate to fully exploit the economies of scale. Therefore, for the market to remain active and running, the best solution is to use cheap foreign materials which include both labor and raw materials (The Allen Consulting group, 2013). There are also claims that the Australian domestic market conditions have become untenable. The Australian dollar has significantly appreciated, the signing of free trade agreements and the lowered import tariffs. There is an unreasonable demand for high wage rates and better working conditions by the country’s labor unions which make it hard to compete when the labor market in other countries is cheaper than the country (Valadkhani, 2016). The Australian Government Productivity report of 2014 shows that the government’s failure to support the local car industry by explaining through a theoretical case on how to further support the industry will make it weak. The report fails to give an analysis of the cost benefits that will be realized if it decides to offer support to the motor industry. The government’s position is backed by neoclassical theories, which always conclude that importation of cheaper raw materials from other countries is more economical than producing in its country. There will be many shortcomings if the car industry in Australia is closed due to lack of government support. It will be difficult for the local manufacturing operations to be globally competitive since it will be hard to build a local industry without a sizeable domestic market base. This is a major problem if the local manufacturing content is low. Liberalized domestic markets may lead to a proliferation model in the local market which will decrease opportunities for economies of scale in the local production of cars. This will limit the opportunity for the local market to realize international competitiveness in production (Barbaro & Spoehr, 2014). The other main challenge which the country will face is increased levels of unemployment. The motor industry is among the major employers in the country. There is a high expectation that more than 200,000 people will be rendered jobless. Studies show that Victoria will feel the most impact with 71 out of 136 car suppliers either diversifying while other companies are quitting production (Rahim, 2007). There will be need of high level of retraining of employees who will leave the motor industry for the to be absorbed in other manufacturing sectors which will mean increased costs will be added to those companies. Most companies may refuse to hire since they will avoid increased costs of re-training (Maxcy, 2013). The argument of whether the government made the right decision to stop financially supporting the struggling car industry in Australia can be looked at as an advantage or a disadvantage. The advantage is that the government has the right to make a proper business analysis from a holistic view and decide the best industry to invest. If the government has good evidence that one industry is more beneficial than the other, then it can choose to forego others and support the most valuable and more profitable industry. Therefore, the government had done its research for it to make such a major decision. In the case of the car industry, it is clear that the government saw that by not funding the vehicle industry would benefit other industries and also there would be cutting costs. The decision to import cheaper manufacturing materials from other countries might seem like a bad idea from an average person’s perspective, but it is fair to say that in the long run, it has its benefits. Other than looking at the government’s financial withdrawal as only a disadvantage people should look at the economic benefits and weigh their options. The other problem of the government's withdrawal from providing financial support is the level of unemployment. The motor industry is among the largest employers and therefore if the automotive industry decides to close it means that many people will be left unemployed. The older people who have worked for the firms all their life might find it hard to secure employment with other companies due to age factors and retraining. As much as the government claims that there is a plan to cater for the financial status of the unemployed, the support may not be enough for the people’s financial satisfaction. Conclusion The Australian motor industry is the center of Australia’s economy and ways of life. The government was the leading financial supporter of the car production industry. The industry was protected from tariff and non-tariff barriers, production subsidies, and grants. Toyota, Holden, and Ford announced they would cease operations by 2017. The government is optimistic about its closure because the technological and management skills in the industry will be discharged to other manufacturing industries. The effects of the car industries are mainly joblessness where 200,000 people will become unemployed and lack of competitiveness in the global markets References Bracks, S. 2008. Review of Australia's automotive industry: final report. Rahim, M. M., Shanks, G., Johnston, R., & Sarker, P. 2007. Organizational motivation and inter-organizational systems adoption process: Empirical evaluation in the Australian automotive industry. Journal of electronic commerce in organizations, 5(3), 1. Singh, P. J., Smith, A., & Sohal*, A. S. 2005. Strategic supply chain management issues in the automotive industry: an Australian perspective. International Journal of Production Research, 43(16), 3375-3399. Read More