Economics for Managers: Analysis of Australian Car Manufacturing

This report provides an in-depth analysis of the Australian car manufacturing industry, examining its historical decline and the factors contributing to it. The report explores the relationship between the industry and the Australian government, including financial assistance, tariff reforms, and the impact of government decisions on manufacturers. It delves into the effects of macroeconomic changes, such as dollar depreciation, inflation, unemployment, and global oil prices, on the industry's production, exports, and consumer behavior. The report highlights the challenges faced by the industry, including high production costs, reduced consumer demand, and the closure of major manufacturing plants. It also explores the impact of these changes on employment rates and government revenue. The analysis includes predictions on how macroeconomic changes could affect the industry's future, considering factors like currency fluctuations, inflationary pressures, and global economic conditions. Overall, the report offers a comprehensive economic perspective on the Australian car manufacturing industry, its challenges, and its future prospects.

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ECONOMICS FOR MANAGERS
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Economics 2
Contents
Australian Car Manufacturing Industry.......................................................................................................3
Relationship Between Australia Automotive Industry and Government.`...................................................5
Prediction in the Event of Macroeconomic changes....................................................................................8
Insights and Recommendations.................................................................................................................11
References.................................................................................................................................................15

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Australian Car Manufacturing Industry
Notably, the Australian automotive industry was once a glorious industry but has since
declined. Equally, the automotive manufacturing sector contribution to the gross domestic
product has reduced over the years. Currently, manufacturing in Australia dropped to 24033 m
Australian dollar during the first quarter of the year from million in the year 2016(Trading
Economics,2017). Specifically, since the year 2014,the car industry contribution to the gross
domestic product has significantly reduced due to the challenges facing the industry.Towards the
first quarter of the year 2014,the car manufacturing industry made 25940m Aus($) which
reduced to 25573m at the close of the year .Similarly, in the first quarter of the year 2015,its
contribution stood at 25553 m and 24763m as at the fourth quarter of the year
2015.Moreover,there was a significant drop in the contribution between July 2016 and January
2017.
Source: (Trading Economics, 2017).

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Noteworthy, the automotive manufacturing industry in Australia is among the top sector
contributors of its gross domestic product. According to the Australia Bureau of Statistics data,
car manufacturing industry accounted for 6 per cent of the Australian Gross domestic product in
the years 2015-16 with an output of 99.4 billion. Further, the car manufacturing industry in
Australia managed to employ 0.9million workers (Department of industry, innovation and
science,2016).Manufacturing industry contribution to GDP has declined over the
years(Kryger,2014).Noteworthy,in the year 2013-14,6.5% of the Australian gross domestic
product came from the manufacturing sector which is considered the lowest figure in four
preceding years.The decline in contribution is due to the fact that major car producers have
closed their operations in most Australian states hence less revenues for the government of
Australia and high unemployment rates.
Source: (Australian Bureau of Statistics, 2017).

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According to the Australian Bureau of Statistics, the automotive industry in Australia s
contribution to the gross domestic product within the years 1974 to 2015, was the highest in
between the years 1974-79 and later slowed since the years 1982 and has never picked up.
Notably, the highest gross domestic product contribution by the Australian car manufacturing
industry was 14 per cent in the year 1974-75 and lowest at 6.8% in the year 2014-15.The car
manufacturing industry has faced various hurdles since its inception but has somehow managed
to stay afloat all this years. Mainly, the influx of government based subsidies has helped keep
the automotive manufacturers in business.The growth of the manufacturing industry in Australia
was curtailed with the global financial crisis, harsh economic conditions facing other sectors of
its economy and globally.
Relationship Between Australia Automotive Industry and Government.`
Recently, the relation between the Australian car manufacturing industry and the Australian
government has been rocky. Specifically due to the government s decision to wind up the
industry. In addition, the Australian government has reduced automotive tariff levels
(Porter,2016).Further, the Australian car manufacturing industry is an open market thus reducing
the employment rates in the various Australian states.Noteworthy,the government of Australia is
considered to have offered the lowest assistance levels to its car manufacturing industry globally
according to the Sydney Morning Herald. Also, the Australian car industry has been declining
over the past decade. Most of the top car manufacturers have closed shop in the Australian states.
Remarkably, the Australian government has extended some level of financial
assistance to the crumbling car manufacturing industries. Mainly, this has been effected through
tariff reforms and the implementation of subsidies (Davidson, 2013). Specifically, the Australian

Economics 6
labor government car plan,5.4 Australian $ were allocated as subsidies for the period 2008-20
amounting to a total figure of 415m annually.Noteworthy,the Holden group was a recipient of
1.8bn$ annually since the conception of the subsidies package in Australia(Davidson
2013)Through the influx of subsidies, employees in the automotive industry have maintained
their source of livelihood and government received substantial revenue from the industry.
Notably, Toyota, Holden, Mazda were some of the car manufacturers operating in the Australian
states. Due to the decline of the car manufacturing industry most of the manufacturers have
closed business in Australia and relocated overseas thus creating substantial unemployment rates
in the different Australian states and causing huge reductions in government revenue from the
industry.
Particularly, the refusal of the Australian government under the Abbot
Administration to supply further subsidies to the Toyota Group led to its closure which to public
opinion may seem like lack of interest in sustaining the industry.The decline of subsidies was
justified on corporate welfare grounds to which car manufacturers went to court.In addition,the
effort to renegotiate an agreement on the Toyota Altona enterprise plant was unsupported by the
workers Union in the manufacturing sector.To some,this can be interpreted as harsh working
relationship between manufacturers and government players in the Australian car

Economics 7
industry(Forsyth,2014).However,the car manufacturing industry and the Australian government
have enjoyed a supportive relationship in the sense that the Australian government has
implemented various programmes to make the sector sustainable and transition smoothly
following the closure of most of the car manufacturers in the country(Lee 2014-15)
Noteworthy,Under the Australian Budget 2015-16,a growth fund was established with the aim
of creating new employment opportunities and boosting economic growth levels in the
Australian states of South Australian and Victoria in preparation of the closure of automotive
manufacturer production plants in the states.Additionally,there was a transition grants program
set up to aid manufacturers in the car industry produceshigh-quality vehicles and improve
competitiveness of the car manufacturers. By and large,it can be said that the relationship
between car manufacturers in Australia and the government hasn’t been all murky but normal in
that the government has at one time extended help and at other times declined to as per normal
relationships.As a show of good faith,the Australian government has made provisions for the
employees likely to be laid off from the manufacturing industry accessible to an adjustment plan
in a bid to provide employment opportunities to redundant workers.
Moreover, subsidies on employment,equipment and training have been made available to the laid
off workers through the Employment Pathway fund encompassed in the Australian Budget of
2014-15 hence the assertion that the Australian government has been a supportive partner to the
car manufacturers and their employees.As much as it’s the duty of government to provide
employment opportunities for its citizens,it’s a show of good will that the Australian government
has implemented such initiatives and policies for its people.

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Prediction in the Event of Macroeconomic changes
Usually dollar depreciation makes exports cheaper hence boosting the aggregate
demand for automotive by 10 percent. However, importation of spare parts for motor vehicles
will be expensive .Further through depreciation of the Australian dollar by 10% will boost the
aggregate demand for Australian made motor vehicles due to the high rates of exportation as
compared to the low rates of importation(Tejvan,2017).Primarily ,inflation is the instability of
prices.in the event that there’s a 5per cent increase in the inflationary pressures in Australia,
means there will be reduced production of automotive by Australian car manufacturers. The
reduction in production is due to the fact that most cars produced outside Australia will look
cheaper as compared to domestic cars by Australian manufacturers. This is because with the
increase in prices by 5percent,car manufacturers will assemble car parts at high prices and later
transfer the costs to consumers .In addition ,there will be reduced export volumes due to the high
cost of production in Australia following the inflation(Wilber N. d).Moreover ,due to the price
increase ,manufacturers will opt to save rather than expand production. Inflation limits the
resources of production due to the high cost of resources for production.
Increase in global price of oil will cause a reduction in production of goods and services and
price hikes due to the fact that oil is a raw material for most goods and aids in transportation.it
can be said that without affordable oil prices most consumers will shy away from purchasing
vehicles due to the high maintenance costs because most vehicles run on fuel. Also, there will be
high cost of transportation of spare parts and also exportation costs thus transferring these high
costs to the consumer(Dr.Econ 2007).There will be reduced production of cars in the event of
high oil prices due to the high production costs incurred by car

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manufacturers(Michael,2000).further the price of cars will be high thus low volumes of cars will
be purchased from manufacturers.
Typically, unemployment implies that there are no jobs available for persons actively
seeking employment opportunities or many people have lost their jobs .An overall
unemployment rate in Australia might mean there’s an active labor force that can be absorbed
into the car manufacturing industry. With the high unemployment rate at 10%,the means that
there is a skilled labor market that means if employed there will be an increase in production due
to the increased number of workers in the manufacturing plant(Plache,2013).However
,in the event that many people have lost their jobs that means there will be less production of cars
by manufacturers.
Usually depreciation of currency will trigger inflationary pressures owing to the fact that
importation costs are high ,aggregate demand for manufactured vehicles will increase thereby
triggering demand pull inflationary pressures thus leading to an increase in the cost of
manufacturing cars in Australia. With inflation, unemployment is imminent this is because there
will be high costs of production and other expenses most employers are likely to lay off most of
their workers(Doucet 2010). During inflation, there is few money to spend on expenditure thus
most employers prefer to lay off workers so as to retain the profit margin.For instance,the closure
of the Holden plant in Australia led to many Australians losing their employment9. Besides with
high inflation rates, production volumes reduce thus there will be no need for having many
workers. Less workers means less salaries and more profit for the car manufacturers.
In the event that there are high unemployment rates, inflation, dollar depreciation and high
global oil prices, there’s bound to be reduced production due to high production costs.Owing to

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the fact that oil is a major raw material, in the event of rapid price increases, there will be less
production and consumption of goods and services and car manufacturing industry is no
exception .Also, the fact that oil is a global raw material implies with high costs of oil
inflationary pressures are likely to emanate and thereby reduce purchasing power and
consumption habits at the global and national levels. Through high inflation rates, most of the car
producers will opt to restrict production due to the fact that there will be less capital to assemble
car parts for production. The higher the prices of goods and services, the less that good or
services will be consumed as dictated by the demand laws. With high inflation rates, salaries will
be expensive for car manufacturers thus some workers may be rendered jobless by this negative
development.
The combination of inflationary pressures and unemployment, since unemployment may be
triggered by inflationary pressures in the economy, implies that there will be less production of
automotive since there will be less capital to assemble car parts due to the high pricing and there
will be less workers to do the manufacturing hence there’s need to uphold low inflation rates and
high employment rates. High oil prices will mean less consumption of the goods thus there will
be less production of automotive by car manufacturers due to the fact that a surplus production
won't immediately yield profits which is the sole aim of car manufacturing. In the unlikely event
that there s high unemployment rates ,dollar depreciation and higher global prices of oil ,this
could paralyze the automobile industry due to the high cost of production incurred and less
consumption of the goods .There likely to be massive layoffs of car production industry workers,
closure of some car manufacturing plants and bankruptcy.

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Typically, it s impossible to sustain any business or industry in the event that the average
costs of production are higher than profits thereof .Production of automotive under a
combination of these four factors will lead to decline of some industries due to the high cost of
operations and little profits .Further, this can lead to bankruptcy of some car operators. For
instance, Toyota Motor Group, Holden car manufacturers have closed down their plant
operations in most Australian states due to the high cost of production and unsustainability of the
industry. As at 2014, Toyota car manufacturers had issued a 2017 closure decline of its
manufacturing plants in Australia. Similarly, Ford Motors were set for closure due to the high
operating costs and the strong Australian dollar was at 2014(Reuters,2014).Following the
closure of The Toyota manufacturing plant,2500 employees lost their jobs.
Insights and Recommendations
The Australian car manufacturing industry is considered one of the struggling industries in
the Australian economy. The decline in economic industry growth has been partly attributed to
the harsh macroeconomic factors such as inflation, exchange rates, inflation and unemployment
levels .In my view, there’s need for government policies and intervention in macroeconomic
indicators of the economy .There’s need for government intervention to reduce inflation ,control
unemployment rates ,stabilize the Australian dollar and maintain low prices of oil within its
economy for economic growth purposes and social welfare of the Australian people.To contain
inflationary pressures in the economy,The Australian government can adopt fiscal measures and
policies such as tightening fiscal policy to contain aggregate demand for goods and services to
prevent prices from spiraling .

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In addition, taxation can contain the disposable income which inturn directly impacts on
consumption and expenditure. High taxation rates reduce income levels thus less spending by
consumer thus controlling inflation(Riley,2015Moreover,monetary policies have been used to
control the stability of prices in an economy .Predominantly,a tightened monetary policy through
the incorporation of high- interest rates on credit facilities for longer period will substantially cut
down on consumer income hence less consumer expenditure .Additionally,the implementation of
supply side measures and policies have been considered effective in controlling prices of goods
and services.Essentially,supply side policies are aimed at boosting
productivity,efficiency,competition and encourage innovation through promoting research and
development thus controlling the pricing of goods and services.
Through contractionary monetary policies high prices of goods and services is
controlled(Amadeo,2017).Contractionary monetary policies are able to slow down rapid
economic growth levels which might have negative consequences on the economic and business
cycle.Reserve requirements,interest rates policy are at the disposal of the central or federal banks
of most economies to control money circulation in the economy thus controlling inflation.
Also ,demand side policy measures are effective in controlling unemployment spells in various
economies in the sense that a controlled demand policy will contain demand deficiency which
triggers some form of unemployment(Pettinger,2017).Supply based policiesare responsible for
containing structural forms of unemployment.Through monetary policies which reduce interest
rates on credit financial facilities,aggregate demand for goods and services will be boosted hence
the need to employ more workers to fill the supply gap thereby reducing unemployment rates.

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Moreover,taxation,which is a fiscal policy can be used to boost aggregate demand for goods
and services through lower taxation percentages. However, there’s further need to encourage
vocational training,education to eliminate structural forms of unemployment.Through the
implementation of lower minimum wage provisions,real wage unemployment levels can be
averted thus boosting employment levels. Youth unemployment is among the most notorious
form of unemployment in Australia hence the need to address the issue by the Australian
government(Borlan,2014).Significant economic growth levels will create employment
opportunities for the youth, training should be offered to the youths at an early age in preparation
for the labor market thus boosting their employability chances.Further setting up of placement
agencies and school and corporate based partnerships will go a long way in eliminating
unemployment rates.
Regarding dollar depreciation,there need to stabilize and boost the value of the Australian
dollar.Typically,a devaluation implies more coin for less and the reverse is true.There's need to
incorporate monetary policy to control the supply of the Australian dollar.A limited supply of
Australian dollar will mean more value for the Australian dollar whereas surplus circulation of
the dollar will mean less value for the dollar at foreign exchange rates(Investopodia,2017).An
increase in the inflow of foreign currency boosts the value of the domestic dollar.In the case of a
strong currency the cost of imports will greatly reduce(Taylor,2017).Through stronger Australian
dollar ,Australian automotive will seem more competitive and stir economic growth which will

Economics 14
create investment and employment for the Australian population. owing to high costs of
production.
Primarily,most manufacturers have closed shop hence the urgent need for the Australian
government to implement measures for low production costs to enable foreign and local car
manufacturers into the industry(Westmore,2013).Through low production costs, manufacturers
are encouraged to invest due to the possibility of high-profit margins as compared to high
production costs will yield low-profit margins.Noteworthy,higher oil pricescan be a recipe for
recession due t the fact that it is a major raw material for most goods and is vital for
transportation thus the need to keep them low.Higher oil prices equals high cost of automobiles
and high production costs which could lead to decline in the automotive industry due to low
profitability(Trerberg,2013).There s need to regulate oil production in the world so as to regulate
the prices of oil globally(Trevberg,2016).
Conclusion
Despite the challenges facing the Australian car manufacturing industry,it still
makes a contribution to the gross domestic product.The low contribution is due to unfavorable
macroeconomic conditions such as inflation,unemployment,stability of the dollar and high global
oil prices.There urgent need for government intervention to reduce the high production costs for
car production to create more employment opportunities through creation of conducive business
environment for car manufacturing.By and large,all is not lost,various recommendations have
been made to turn the car industry in Australia back to its original glory.

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