Car Crash – Automotive Industry on Collision Course?

General Motors Holden is on a collision course with closure.

It was possible to secure GMH’s future prior
to the federal election if bipartisan support for a co-investment package was pledged but it wasn’t. Instead, assistance to the industry became a political football. The major auto producer had made it well known over recent years that it needed continued co- investment from the Federal and State Governments to maintain its operations in Australia. Chief Executive Mike Devereux was extraordinarily candid about the need for government to continue supporting the industry or risk closure. He made it clear that the future of production facilities in Australia was contingent on resolution of a co-investment package by late this year. A pre-election commitment of $225m in co-investment from the former Labor Federal Government had been secured along with $50m from the South Australian Government. GMH employees offered up a wage freeze as a contribution to making the plant viable over coming years. As it turned out, this wasn’t enough. GMH asked for more, claiming that global economic conditions had further eroded the competitiveness of their Australian operations. Rumours circulated that the price tag for staying in Australia had risen to around $500m – a number that caused many to question continued support for the company. It appeared that key figures in the Coalition shared this view while some like Ian Macfarlane harboured a more pragmatic position on what was needed. In the lead up to the federal election the Coalition pledged to cut automotive industry assistance by $500m and commission a Productivity Commission inquiry into the future of the automotive industry that would delay any decision on support for the ailing manufacturer until the end of March 2014. With the election of the Coalition to government, GMH were confronted with this reality, an outcome that very likely triggered a decision at GM headquarters to close down its Australian operations. The warning signs loom large. The recent announcement that GMH boss, Mike Devereux, would leave Australia by the end of the year to head up General Motors’ Asia Pacific operations was ominous. Devereux had played a pivotal role in the negotiations with the former Federal Government to try and secure a deal going forward. It is hard to have confidence in the future of General Motors’ Australian operations knowing that he will be leaving at such a pivotal time. It suggests that GM is keen to insulate the capable Devereux from the stench of closure. Adding to the gloom was the decision by visiting GM executive, Stefan Jacoby, to turn down a request from the new Industry Minister, Ian Macfarlane, for high-level talks during his brief Australian visit. Combined, all of these circumstances suggest that an announcement to close General Motors’ Australian manufacturing operations is probably immanent. There is another possible outcome. GM might decide to continue manufacturing the Commodore and Cruze on their existing production platform for a few more years. Further cuts in the size of the workforce would almost certainly flow from this strategy prior to a decision to close by the end of the decade. Much more likely is an early December decision to close. Leaving it later in the year would be too cruel a blow for a workforce damaged by continued uncertainty. What would save GMH at this late hour? Well, nothing less than an announcement over the next few weeks by the Prime Minister that the Coalition is willing to co-invest upwards to $400m in the future of the GMH operations over the next decade. This is not a realistic outcome given the processes set in train by the Coalition Government through the Productivity Commission. An interim report by the Commission is due by the end of this year. While it may well draw attention to the great costs associated with losing the industry, the Productivity Commission is likely to conclude that other industries will benefit from the redirection of the skills and capital currently available to the industry – a view rooted in myopic neo-liberal economic orthodoxy. If GMH closes, GM will not reinvest in other sectors. It will consolidate its operations off shore, resulting in a net loss of investment. What Holden has been seeking to secure in Australia reflects global automotive and manufacturing industry realities. For decades high tariffs on imported cars protected the domestic automotive manufacturing sector. As these came down other forms of assistance became necessary to deal with the reality that the Australian automotive sector is playing on a very uneven economic playing field – per capita funding for the industry in Australia is around $18 compared to $90 in Germany and $96 in the US. Non-tariff barriers on the export of Australian vehicles to some countries in Asia provide insurmountable barriers to entry. In the real world, industry development is a beneficiary of government assistance and investment – a fact that is much more obvious in other nations, particularly in the automotive industry. A great deal is now at stake if GMH closes. It could trigger the collapse of the Australian automotive industry, an industry responsible for 200,000 jobs and $21 billion in economic activity. In South Australia the closure of GMH would lead to the loss of up to 13,000 jobs, a devastating shock to families and communities at a time when manufacturing employment has been in sharp decline – over 30,000 manufacturing jobs have been lost since the GFC. What this means is that a high proportion (more than one- third) of workers are likely to experience long-term unemployment in the absence of a very substantial assistance package – one designed to generate both short- term employment opportunities through investment in infrastructure projects and drive the growth of new industry development opportunities that respond to demand. On the former, Raymond Spencer, Chair of the State’s Economic Development Board, was absolutely right to argue for a substantial boost in government investment in infrastructure over years to come. We have among the lowest public debt levels in the western world. Being parsimonious about the use of public debt to fund the modernisation of productivity-enhancing social and physical infrastructure is dangerously shortsighted. If GMH closes in weeks or months to come, its parent company GM must leave more than the legacy of job and component supplier losses. It must invest, along with the Federal and South Australian Government, in major infrastructure and industry development projects that help recover from the crisis the closure would create. An adjustment package in excess of $500m will be needed to support this along with commitments to provide continuity of work for our major defence manufacturing contractors who face a sharp decline in their operations if new Australian government contracts are not awarded in the near future. Out of crisis might come transformative change for the better but only if we invest in it. Associate Professor John Spoehr is the Executive Director of the Australian Workplace Innovation and Social Research Centre at the University of Adelaide