Economics for Business: Car Manufacturing in Australia Analysis

This report provides an economic analysis of the car manufacturing industry in Australia, focusing on the challenges and decline the industry is facing. The introduction highlights the issues of high manufacturing costs, currency appreciation, and the government's decision to withdraw funding, leading to major manufacturers ceasing operations. The discussion delves into the high labor costs, which make imported cars more attractive, and examines the government's managed decline policy. It also compares the Australian situation with other countries, analyzing the options of low-cost manufacturing or high-end luxury car production, concluding that neither is ideal. The report emphasizes the need for government support and a shift towards sustainable manufacturing industries. The conclusion reiterates the unsustainability of the car manufacturing industry without government support and suggests a discussion between the government and stakeholders to divert resources for job creation and diversify the economy. The report is supported by several references.

ECONOMICS FOR BUSINESS
Topic - Car Manufacturing Industry in Australia
(Managed Decline Policy)

Economics for Business
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion.......................................................................................................................................6
References........................................................................................................................................8
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Economics for Business
Introduction
Car manufacturing industry is facing several issues to sustain in Australian market.
Appreciation in the Australian currency has had adverse effect on the business environment of
car manufacturing in the country. This would lead to increase the import of cars, which directly
affects the in-house manufacturing units. The Federal Government has decided to revoke the
funding and support to car manufacturing units. Hence, the major car manufacturers have
decided to terminate their manufacturing operations in a phased manner (Jericho, 2015). This
results in the lack of interest of the main manufacturers like General Motors, Ford etc. Even,
General Motors has declared that they will stop producing the Holden model car in Australia by
2017 (Toner & Stilwell, 2014).
Discussion
The major reason behind this disturbing trend in the car manufacturing has arisen due to
the high manufacturing cost. The main element for this high cost is high labour cost in Australia.
Hence, the customers are more comfortable to import cars at lower rate from various trade
partners. Car manufacturing industry is considered to be a major industry from the economic
point of view considering the employment it generates. The remedy for this issue directly
depends on the steps adopted by the Australian government, which can enhance the level of
competitiveness of the car manufacturing and other manufacturing units in the country (Jericho,
2015).
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Economics for Business
The graph below shows the contribution of the manufacturing industry in the economy of
Australia. Manufacturing sector is the third major contributor in the economy (Toner & Stilwell,
2014).
Also, majority of the employment in the manufacturing sector is provided by the motor auto
parts and car manufacturing sector in Australia. The relevant statistics and figures are given
below (Conley, 2014):
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Economics for Business
On account of the above discussion, it is essential to determine the various measures that need to
be initiated in order to reduce the downfall in the car manufacturing sector in Australia (KPMG,
2014).
Australian government has stuck managed decline policy with respect to car
manufacturing in order to prevent any sudden change in the economy. Implementation of this
policy involves protectionism, specific allowance and funds to the manufacturers to continue the
production operations. Over the last three decades, the Australian government has not taken any
effective initiatives towards the improvement in status of the car manufacturing in terms of their
sustainability and susceptibility. Some of the relevant actions have been taken by the investors
for the improvement of the industry. However, this approach of investors has not succeeded due
to the lack of government support, because without the continuous alimony from government,
this sector will not be able to survive (Conley, 2014).
As discussed earlier, the Australian government has decided to withdraw support from
car manufacturing sector. Government has adopted this step, because of the higher labour cost
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Economics for Business
which enhances the overall manufacturing cost of the car. This activity indirectly leads the
customer to move on the cheaper imported cars from the lower cost manufacturing region liken
Asian countries. However, effective options need to found to sustain in this competitive
environment of car manufacturing. One imperative step for this issue is to increase the
availability of the skilled labour force at cheaper rate in the country. This option has been taken
from the car manufacturing industries in country like India and China, where the labour is
available in abundant supply at a cheaper rate. Another reason for the sustainable status of these
countries is geographic location, as they have situated the manufacturing unit nearby sea, which
results in ease of export of the manufactured car to other countries (Barbaro, Spoehr & NIEIR,
2014). Additionally, the other developed countries like United States, Europe are also facing the
issue of high labour cost and thus have higher manufacturing cost as compared to the Asian
countries like India and China. However, these have ventured into the manufacturing of high end
cars for which the higher labour cost is not a hurdle (KPMG, 2014).
Australia has the choice of either of these two models which are prevalent globally.
However, after analysing the various relevant factors for Australian car manufacturing, it can be
concluded that the low cost car manufacturing model of Asian country cannot be applicable in
Australian industry. This model can only be suitable, if the labour cost decreases in Australia
which is not viable. Alternative option for this issue can be adopted as per which the
manufacturing of the high end luxury car could be adopted because this segment of
manufacturing results in higher expected revenue. However, this option is not much effective in
terms of the overall growth of the manufacturing industries, because the demand of luxury car is
restricted to only some major cities of Australia (Barbaro, Spoehr & NIEIR, 2014). Also, the
prospect of exports of the manufactured car is very limited, since the geographic location is
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Economics for Business
slightly isolated and hence, export of manufactured car to other countries does not seem feasible
in economic terms. Therefore, the most logical option for Australia is to deploy the tax funds
which are currently poured into sustaining the car industry into other manufacturing industries
which can be more sustainable in the long run (KPMG, 2014).
Conclusion
Therefore, it can be concluded from the discussion above that without continuous support from
the government, the car manufacturing industries cannot be sustainable in Australia. Since from
the figures, it is observed that a sizable GDP is obtained from manufacturing sector, hence
withdrawal of the government support will cause potential reduction in the GDP and increased
unemployment. Therefore, the most suitable option is only that discussion between the
government and the stakeholders must be initiated to obtain new alternatives to divert the
resources currently earmarked for the car industry so as to allow for more productive use of the
capital resources while focusing on job creation. A significant shift in the policy is also needed in
order to stimulate the manufacturing sector in general so as to diversify the economy which is
currently heavily dependent on services and primary activities.
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Economics for Business
References
Barbaro, B., Spoehr, J. & NIEIR. 2014. Closing the Motor Vehicle Industry: The Impact on
Australia, University of Adelaide, Available [Online] from:
https://www.adelaide.edu.au/wiser/research/development/automotive%20industry/
Closing_the_Motor_Vehicle_Industry_-_The_impact_in_Australia.pdf (Accessed on August 18,
2017)
Conley, T. 2014. Managed decline to rapid demise: Abbott’s car industry gamble, The
Conservation, Available [Online] from: http://theconversation.com/managed-decline-to-rapid-
demise-abbotts-car-industry-gamble-23124 (Accessed on August 18, 2017)
Jericho, G. 2015. Car industry exit: manufacturing is declining but it is still a vital cog, The
Guardian, Available [Online] from:
http://www.theguardian.com/business/grogonomics/2014/feb/13/car-industry-exit-
manufacturing-declining-but-still-vital (Accessed on August 18, 2017)
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Economics for Business
KPMG 2014, The UK Automotive Industry and the EU, KPMG Website, Available online from
https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market
%20Sector/Automotive/uk-automotive-industry-and-the-eu.pdf (Accessed on August 18, 2017)
Toner, P. & Stilwell, F. 2014. Why does Australia need manufacturing industry?, Australian
Options, Available [Online] from: http://www.australian-options.org.au/2014/02/why-does-
australia-need-manufacturing-industry/ (Accessed on August 18, 2017)
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