Countdown to automotive industry closedown

Out of national political chaos must come bold action. It is frustrating that the Australian automotive industry is closing when other high cost manufacturing nations such as the United States, United Kingdom and Germany are managing to sustain and grow their automotive sectors. While I was in Birmingham recently visiting the former Rover/MG manufacturing site at Longbridge, Jaguar/Land Rover announced they were recruiting 1300 new workers for their factory in Solihull to build a new fiveseat Jaguar sports car. The CEO of Jaguar Land Rover, Ralf Speth, said the announcement “once again demonstrates our commitment to the UK and the advancement of a high-tech, high skilled manufacturing led economy”. Both the South Australian and national economies are at a crossroad. The impending closure of General Motors Holden and, indeed, the entire national automotive manufacturing industry, is the most dramatic of several unmistakeable pointers to the acute danger of the deindustrialisation and, consequently, the deskilling of the Australian economy. Of the many and multifaceted consequences that would attend such a crisis – with many of the consequential losses being irreversible – one would be to hobble Australia’s capability of competing and participating in the global knowledge economy. Whether the current crop of national political leaders and decision makers is capable of recognising it or not, South Australia’s – and Victoria’s – economic problems and vulnerabilities are, in fact, those of the whole nation, and they are ignored at the peril of us all. There is, in particular, precious little appreciation from Canberra of the economywide impacts of either the resources boom or of the nation’s position now that the boom’s construction and investment phase is over, facing years of below-trend growth. That the dizzying rise in the exchange rate, and rising input and overall costs, both fuelled by the mining boom, placed extraordinary competitive pressure on other trade-exposed sectors, such as manufacturing, is generally known. But what is only now beginning to be appreciated is that the return to a lower dollar, now that resources are contracting, will not lead to the compensating higher investment in other sectors of the economy as seen in the past. The reason? The boom and its aftermath have seen the accelerated demise of many large, scale-intensive industries, as well as smaller export-oriented firms. With the gradual return to a more competitive exchange rate, we are not seeing the previous compensating positive stimulus to these sectors – because of the massive disinvestment decisions by major companies. The installed capacity of these industries no longer resides in Australia. It has gone forever. The automotive industry needed an exchange rate of about 80 cents to be competitive. The exchange rate is now trending down toward that level. But the internationally mobile capital and capacity of the automotive industry will never be returning to Australia on a scale that transforms the economic landscape in which it sits. The automotive industry is just the most obvious industry of many from the past seven or eight years. Whatever have been the benefits of the resources boom, Australia’s handling of it has reduced the competitiveness and size of much of the nation’s tradeable goods and services sector, and the diversity of our economy. Without targeted action to retain, transform and diversify our manufacturing, Australia faces the permanent loss of essential economic capabilities and, with that – let me stress – reduced capacity to develop new ones in the future. The consequences would include: dependence on fewer, and lower value-adding, industries; greater vulnerability to external shocks as a consequence; and a weaker, more narrowly-based and exposed Australia economy. And yet, at a time when they would be justified more than ever, what has been a more or less bipartisan commitment to growthand innovation-promoting industry policies, these policies and programs are largely being dismantled. Not revised, changed and improved, but rejected altogether. The economic context in which the closure takes place is all-important in determining the severity of the impacts. The first point to make is that total employment in South Australia has held up relatively well given the Global Financial Crisis and high Australian dollar. Over the short term, growth prospects are fairly subdued however. While there has been a slight recent rise in employment vacancies, they are 50 percent below their March 2008 peak. Significant reductions in unemployment are unlikely in the lead up to closure, leaving a legacy unemployment rate of around six percent. But remember, this doesn’t capture the wider problem of under-employment in South Australia. At around 15 percent, the labour force underutilisation for November last year is very sobering. While manufacturing remains one of the state’s largest employers and could well remain so in years to come, the reality is that we have lost around 30,000 jobs from the sector over the last three decades. So workers losing their jobs in the automotive sector will have few opportunities available to them in other sectors of manufacturing, with the exception, perhaps, of food-product manufacturing where the right strategies might generate a significant jobs dividend in years to come. Offsetting these losses has been a sharp growth in the community services, health and aged-care sectors. There has also been significant growth in the education and training sectors. Mining employment has ticked up from a low base of around 6000 but it is not expected to deliver a jobs boom until commodity prices improve or new cost-saving technologies make mining more viable in locations like Olympic Dam. In the meantime, it is smart to lay the foundations to capture the benefits of the next upswing in mining. Some have argued that the growth in community services, health and ageing employment can fill the jobs gap. To some extent it will, but we have to acknowledge that knowledge and skills gained in the automotive industry are not readily transferable to the services sector. In the midst of all this uncertainty we have also the Federal Government’s decision – now all but confirmed – that it will renege on the promise to build the next fleet of submarines in Australia, with construction and consolidation in South Australia, in favour of units imported from overseas. The prospect of both automotive and submarine manufacturing ceasing in South Australia is a frightening one. Combined closure would generate a perfect storm capable of wreaking havoc on the South Australian economy. Out of national political chaos must come bold action to prevent this. Associate Professor John Spoehr is the Executive Director of the Australian Workplace Innovation and Social Research Centre at the University of Adelaide @JohnSpoehr