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by John Cadogan

CRUZER PAYS?

After pocketing $40 million last month to help build more fuel-efficient future Commodores, Holden sent strong signals last week that its burghers in Detroit will probably pull the pin on Australian manufacturing of the next generation Cruze – unless even more millions of taxpayer dollars are forthcoming.

Above: Cruze hatch debuted in Melbourne last week, an example of Holden’s superb design and engineering credentials. But future manufacturing appears to hang off the level of taxpayer funds Holden requires

If the government elects not to tip more taxpayer cash Holden’s way, manufacturing of the next Holden Cruze will probably move back to South Korea, with bleak knock-on effects for Holden’s manufacturing facility at Elizabeth in SA, which also makes the Commodore.

It’s widely speculated by insiders that the declining popularity of the Commodore means building it alone at the Holden plant in SA is unsustainable. Holden boss Mike Devereux is previously on the record declaring 100,000 units per annum as his targeted ‘sweet spot’ for annual factory output, to deliver acceptable economies of scale. Whipping the Cruze together here was a way to bolster the numbers – not to mention the car’s ‘Aussie made’ cred. And it’s a damn good car. No question there. The diesel manual, in particular, is a winner.

Above: Holden boss Mike Devereux says future Holden manufacturing is being squeezed by Detroit over the demise of government funding and the impending carbon tax

Commodore sales were fewer than 50,000 last year, and the long-term trend looks exactly the way you don’t want the flight plan on your Airbus A380 to look if two of those gigantic Rolls-Royce turbofans start belching smoke, and you’re hundreds of kilometres from dry land. People – especially corporate/fleet clients, traditionally Commodore’s main target market – are sprinting away from six-cylinder cars. This trend appears not to be reversing any time soon. (Government ministers still find them attractive, however.)

Holden’s most recent call for increased taxpayer funding, off the back of the discontinuation of the Government’s Green Car Investment Fund (GCIF), came just days after CarAdvice’s report on the remarkably poor health of the Australian car manufacturing industry, which is being jammed two ways, by falling sales and diminished export attractiveness. Judging from the hundreds of comments from CarAdvice readers across our three most recent reports on this issue, community sentiment over increased taxpayer funding and the future prospects for local manufacturing are overwhelmingly negative.

Above: Carmakers are monumentally browned off over the demise of the Green Car Investment Fund

Regarding axing the GCIF, even South Australian Industry Minister Tom Koustsantonis appears to be on board with killing it, telling The Australian newspaper last week, “I think the fund had run its course. I think we’ve benefitted as much as we can out of that.”

In the past week, Mr Devereux has lashed out at the impending carbon tax, too, claiming it would dig Holden $40-50 million further into the red. (Although, notionally, Holden declared a $138 million pre-tax profit last year, its actual bottom line result was a $20-million-plus loss if you discount the government funding it received and the currency windfall flowing from the sky-high Aussie dollar.) In the prior five years, the company lost well over half a billion dollars – inclusive of government funding.

Above: More than 80 per cent of cars sold in Australia are imported. Most attract a 5% import duty

Mr Devereux told the ABC recently that Australia was not a “low cost” country to manufacture cars in, and that we offered “virtually zero” import tariffs. (Import tariffs are taxes on imported cars designed to protect the local manufacturers. Import duty is currently five per cent, except for cars from countries like Thailand, with which Australia has a free-trade agreement. Thailand is the second-largest source country for imported cars here after Japan.) Duties received from imported cars here are estimated to be in the order of $750 million, which is a lot of hoot … though not in comparison to (say) cigarettes or fuel excise.

You can look at tariffs two ways. Here’s the other way: shut the factories here, ditch the tariffs because there’s no industry to protect, and your new imported car gets hundreds of dollars cheaper. Would you prefer that? Please tell us by commenting below. Are you happy to pay a premium on, say, a Mazda3 so that Holden, Ford and Toyota can insulate the factories here from global economic forces?

Above: Holden says your next new Commodore could be $1000 dearer – if the government’s hated carbon tax kicks off at $25 per tonne

Reports are surfacing that the proposed carbon tax, if it kicks off at $25 a tonne, will add $1000 to the drive-away price of a Holden Commodore. Mr Devereux recently called for “certainty” and “clarity” over the carbon tax – a position most Australians would almost certainly endorse. At least, we found out across the weekend, fuel will be exempt.

Last week, according to the official transcript, Mr Devereux told the ABC’s PM program: “We will viciously defend not just the right to build here but the right to design, engineer and build in this country.” (Although he probably actually said ‘vigorously’ with a moderate US accent, the fight could get dirty. You never know…) In the same week Mr Devereux is reported to have said that Holden is reassessing its commitment to manufacturing in Australia, a curious position from which to being a vigorous defence. The whole issue appears to hang on the level of forthcoming taxpayer funds – which Mr Devereux prefers to call “co-investment”.

In a response to Mr Devereux’s recent comments, Senator Kim Carr (the Federal pollie with, effectively, with his finger on the industry-propping-up purse strings) said the government was acutely aware of Holden’s position. “The government remains strongly committed to an economically sustainable automotive industry and to the livelihoods of the more than 200,000 workers employed in the manufacture and servicing and repairs of motor vehicles,” Senator Carr said, in a sweeping statement totally devoid of any substance.

Above: Senator Kim Carr – rhetorically committed to Australian car manufacturing…

Senator Carr’s response is disingenuous: there are not the livelihoods of “more than 200,000” workers at stake. Servicing, retailing and repairs of motor vehicles will continue unabated regardless of whether or not Holden’s manufacturing operation (or Ford’s or Toyota’s) continues. It’s the jobs of the factory workers and the component suppliers that are at risk. Holden employs more than 2000 people in its manufacturing operation, split between the car plant at Elizabeth in SA and its Port Melbourne-based engine manufacturing facility.

For argument’s sake, let’s assume 2500 Holden jobs are at risk. And let’s assume there’s a deferred ‘welfare cost’ attached to each job that’s on the line; an impost on the public purse of $50,000 per job. That’s $125 million annually in welfare payments that are deferred by those people being employed at Holden. (Similar comparisons would be possible at Ford and Toyota, Australia’s other two local manufacturers.)

Above: Strong recent signals from the Federal Government in Australia suggest that funding’s not going to be this forthcoming any time soon

Mr Devereux uses the term “co-investment” to describe Holden’s receipt of taxpayer funds. This term implies a return on investment for both parties. Holden’s return is, obviously, keeping the factory’s lights on and its doors open. Is the government’s return on investment merely not having to deal more directly with the welfare burden of 2500 additional unemployed persons? Is the taxpayer funding of local car manufacturing merely a matter of shifting (in Holden’s case) something like $150 million from the Government’s Centrelink budget to its ‘car industry support’ budget? Is that what the local car industry has beome? A means of cooking the unemployment stats? Is working at the Elizabeth merely welfare, or is there truly the prospect of long-term turnaround to self-sustainability for the industry? Please comment below with your opinion.

There is a massive moral dimension to this issue. There is a profound (and hard to quantify) collective social and individually personal burden to long-term unemployment. Especially to erstwhile willing workers. Alternative employment prospects around Elizabeth? Starkly limited: the place might as well be called ‘Holdenville’. There are the remnants of towns across the western world, left over when booms turn to busts – they’re never the kinds of places you see on the glossy holiday brochures.

Above: It’s more than just factories, taxes and grants – thousands of individual livelihoods are on the line

Holden’s employees at Elizabeth pay taxes. They buy groceries. Their kids go to school and play sport. They’re average, hard-working Aussies. These people contribute both economically and socially in a way that unemployed people generally can’t. The same is true of Ford’s employees at Geelong and Broadmeadows and Toyota’s people at Altona.

Is the net benefit to society (not just the net financial benefit) greater, having those people in jobs – even if the jobs can only exist off the back of taxpayer funding, in an industry in its twilight years? Has the local manufacturing of cars become merely a back-handed way for struggling governments to avoid seeing more hardworking blue-collar Australians join the welfare queue?

Tell us what you think on this issue by commenting below.

Above: Do you think government funding of the car industry is an appropriate use of your tax?

Instead of concentrating on local carmakers, should the Federal Government concentrate instead on the development of industries with greater long-term growth – and employment – prospects? Many brilliant ideas leave Australia for want of appropriate funding. Where should your support money go instead?

Carmakers and governments are strangely silent on the moral dimension to this story – the issue of the cumulative value to society of keeping workers in jobs. Or whether better jobs in more intrinsically viable industries should be developed as a kind of succession plan in the event that local manufacturing here fails. Perhaps this is because the respective spin doctors prefer to frame the debate in terms of a ‘return to viability’ some time in the future – but, let’s face facts, probably never. When the issue of the value of jobs does come up it’s usually played as a bargaining chip, either lobbed by a union back to a car company, or by a car company to a government. Such behaviour effectively reduces the workers merely to political pawns in a negotiation game and de-values them and their contribution to society as real people. What do you think? Is ‘jobs’ a different issue to ‘people’?

Have Holden’s, Ford’s and Toyota’s factories effectively become de facto Centrelink halfway houses propped up just to keep people in jobs – since the industries they labour in resist viability even after billions of dollars in taxpayer seed money? Has making cars in Australia become a kind of Dickensian hiding to nowhere? Does government funding of the car industry constitute a kind of back-handed work for the dole scheme? Does the government have enough fingers to plug the holes in the dyke?

Above: Is it hypocritical for the PM and other ministers to use Holden as a convenient photo-op when it suits, and then stab the process in the back by axing the GCIF just a few months later?

Does this current controversy mark a shift in policy – keeping people in jobs at any cost? Or are the Federal and State Governments and the car makers merely taking a step towards greater honesty, and admitting what’s really been going on for quite some time now?

Perhaps your view is different. Maybe you believe the local car industry is just a few more years of Government taxpayer ‘co-investment’ away from standing on its own two feet?

Above: Where do you think the brilliant Cruze hatch’s successor will be built – here or South Korea?

Should there be a use-by date on government funding? Should Kim Carr effectively say: ‘We’ll prop you up until 2020. Here’s a contract. If you can’t swim on you own by then, sink.’? What fledgling alternative industry with real jobs and economic growth potential would you like to see nurtured instead? Would this kind of ultimatum be the kind of ‘certainty’ and ‘clarity’ the car industry cries out for, in the face of schemes like the GCIF that seem to evaporate at the whim of whatever the PM feels like doing this week?

Whatever your opinion, please contribute to the discussion by commenting below. What do you want the Federal Government to do? After all, it’s your money.

 




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