Paying For General Motors Mistakes | BTalk Australia

(11min 47) The Australian government has promised $6.2 billion over 13 years to support the Australian car industry. The question is, of course, will the industry last that long? Holden could well be brought down with the collapse of its US parent, General Motors.

With the cash injection amounting to $100,000 for each job, Phil Dobbie asks Dr Hartwich, a research fellow at the Centre for Independent Studies, if our car industry is worth saving.

Listen on the player above then add your thoughts in the Talkback section at the end of this post.

Subscribe to BTalk Australia on iTunes.

View all BTalk Australia podcasts here.

Transcription

Phil Dobbie: Hello. I’m Phil Dobbie, and welcome to BTalk Australia. Today, no matter how much money Kevin Rudd may pump at it, is there a future for the Australian car industry?

Last November you’ll recall Kevin Rudd promised $6.2 billion for the car industry in Australia. Saying Australia needed a green car industry that would create high paid, high skilled jobs for the future. Saving the economy and going green at the same time, what more could he ask for? But it won’t work, says Dr Oliver Hartwich from the Centre for Independent Studies in a new report just published which is called “No Particular Place to Go, The Federal Government’s Ill Conceived Support for the Australian Car Industry”. Well, first of all Dr Oliver, With No Particular Place to Go. It sounds like a line from a song.

Dr Oliver Hartwich: It is a line from a song.

Dobbie: You might be giving your age away. What’s the song?

Hartwich: Well, the song is older than I am. It’s Chuck Berry’s old “No Particular Place to Go”. You know, riding along in my automobile and my baby beside me at the wheel.

Dobbie: Right, and you think that’s pretty much where the Australian car industry is headed?

Hartwich: Well, not saying that the position that the Australian federal government is in. I mean Kevin Rudd is not cruising and playing the radio, as Chuck Berry is saying. But he certainly lacks a particular place to go. Because this is basically a support for the Australian car industry, regardless of whether you are the global market leader, Toyota. Or whether you are a company on the brink of bankruptcy like General Motors.

Dobbie: And, of course, Holden does have that problem that it’s part of General Motors. So whatever happens to GM happens to Holden I guess.

Hartwich: Yes. And I think we haven’t quite realised the implications of that. Because Holden, or General Motors rather, is really on the brink of bankruptcy. General Motors auditors have said last week that they have concerns about the company not being able to survive the next few months. So I think the situation for General Motors is dire. And you can see, especially in General Motors European operations that governments in Europe are now desperate trying to save the company. In Australia, I think we haven’t seen that kind of activity yet. And I think we’ll soon come to the position where we have to really have some radical rethought about the Australian car industry. Because if GM really goes under, where does it leave Holden?

Dobbie: Presumably Holden goes with it, doesn’t it?

Hartwich: Well, that’s a question really, because the Australian government has put so much physical capital into the car industry. When Kevin Rudd launched the plan last year, he said Australia was only one of 15 nations able to build a car from scratch. So that means he has put a lot of emphasis on the importance of the car industry for Australian businesses. So I think it will be quite difficult for him to get back from that position and say, well, if General Motors goes under then so will Holden. He really has to come up with a credible alternative for what’s going to happen.

Dobbie: Do you think he’s right in saying that? Is that the case, that we can build complete cars here in Australia?

Hartwich: No. Actually, it wasn’t even right at the time I’m afraid. The problem is really that the car industry is one of the most globalised industries in the world today. And when he says that only 15 countries build cars from scratch, I think he’s probably making a little mistake here. Because it’s not countries that build cars, it’s companies that do. And General Motors, for example, is a company that is really spread across the whole globe. They’ve got Saab in Sweden. They’ve got Opel in Germany and Vauxhall in Britain. And, of course, lots of American brands. And then they have Holden. So Holden is really part of an international production chain, and they are heavily dependent on technology developed elsewhere in the GM Empire. They rely on platforms. People look elsewhere. They get some of their parts from overseas, so it’s not really an entirely Australian operation.

Dobbie: Do you think that Holden is held back? Is it less of a nimble company because of its GM connection? I noticed that they’ve been progressively losing market share, and you’d have to say that’s because they haven’t adapted to the market. Is that part of the problem of being part of such a major multinational?

Hartwich: Usually it’s not a big problem if you’re a part of a big multinational operation. It can have some advantages because you can benefit from the technology developed elsewhere. That’s not the big problem. The big problem is really if GM goes under. The problem is how it could we secure a future for Holden as a very small manufacturer. If it’s once dependent on it and we’re going to feed it, it will probably be discovered before too long that a company with only 7000 blue collar workers is probably too small for today’s global car manufacturing industry. Even Opel and Vauxhall in Europe found out that with 25,000 employees they are probably too small to remain as independent car manufacturers. So the problem is maybe we have got a company here about a third of the size of GM Europe. How can we make sure that that company has a future?

Dobbie: When Kevin Rudd made this promise of money we didn’t realise at the time, or did we, that General Motors was in quite such dire situation?

Hartwich: I think it would have been quite obvious at the time that General Motors was in trouble. Because there was a time when the British and the German government both started thinking about the future for Vauxhall and Opel. And they were basically in the same situation as Holden is in as well. It should have been quite obvious for some time now that GM was in dire straits, and that Holden will be affected. But what the governments did at the time was to promise more money to Holden to make funds available from that $6.2 billion subsidy program to them to help them develop, for example, a new four-cylinder car. They’re always building that whole new car plan on some very optimistic foundations.

Dobbie: So what is the answer for the car industry in Australia? You’re saying there’s no particular place to go. It seems a big call to say we should just give up on car manufacturing. We don’t as a nation obviously want to find ourselves in the situation that countries like the UK, for example, that are becoming so heavily reliant on service industries, and just don’t have enough of a manufacturing base.

Hartwich: True. But if you have a car industry that is dependent on continuous government support, that’s not the kind of car industry that we would like to see over. We have to see that in the current global crisis we have huge over capacities in car manufacturing. The world’s car manufacturers are able to produce about 19 million units a year. And currently the demand is just for about 50. So you see that there are over capacities and some of these capacities will have to go. And I’m afraid that some of the capacity that we’ll have to get rid of is probably based in Australia and it will have to shrink.

Dobbie: Are we just too small a market to produce locally, do you think?

Hartwich: Not necessarily. But I think we are probably too small to have independent car manufacturers that are not part of the global production chain. But as these global companies are struggling, if General Motors is probably about to go under, if Ford is struggling. Even Toyota reported a loss last quarter. I think it will become very, very difficult for Australian-based manufacturers.

Dobbie: Some of the companies that are experiencing losses at the moment are potentially very short-term losses, aren’t they? Because we have seen it is one sector that’s particularly heavily hit by the economic downturn. We’re just not buying cars this year, but that doesn’t mean we won’t buy them next year.

Hartwich: True. However, I think we will probably not return to the levels that we saw just a few years ago. That is something that is more than temporary. It’s more a lasting effect of the economic crisis. Because you have to see, for example, in America where production capacities are about 17 million, they only sold 9 million. And they will never return to the previous 17 million cars a year because that was based on some real estate market speculation and some mortgage equities on all these nice financial products that we have now seen that went bust. But I think the Americans will return to the previous market conditions, and therefore it’s very unlikely that we’ll actually as whole see the car industry recover very quickly.

Dobbie: We just won’t be able to borrow as much ever again. Is that what you’re saying?

Hartwich: Indeed. And I think we’ll probably find ourselves in a completely new economic environment. And therefore, I think the car industry will have to shrink over time.

Dobbie: Now, you’re not convinced by Kevin Rudd’s green argument, either? You think there was a bit of spin in that $6.2 billion announcement last year?

Hartwich: Yes. Indeed, I find it quite extraordinary for the government to exclude transport from their emissions trading scheme. Only then to say that by giving some money to car manufacturers to produce some four-cylinder cars or some hybrids. I think the two strategies don’t really go together. If the government were really that keen on reducing the emissions from the transport sector, then they would definitely include cars and transport into their emissions trading scheme. And I mean, there are other ways to reduce the emissions from transport. For example, you could just import some more fuel-efficient cars. And all the evidence points in the direction that in Europe and in Japan where a fuel tax system much higher for a long time, they are already offering these cars that the government just wants to support here.

Dobbie: So do you think if Kevin Rudd’s keen to spend another few billion dollars here and there he should be looking at the car manufacturing, and looking at those parts of the economy or towns and cities that are dependent on it and starting to invest in alternate sources of employment for those areas?

Hartwich: No. Not necessarily. When it comes to, for example, job problems in the car industry, it is more important to help the workers of these companies to find new employment. To give them the skills that they need to find employment in other sectors. But I think it shouldn’t be the government deciding which sectors of the economy will recall and replace lost jobs in the car sector.

Dobbie: Now, Kevin Rudd’s meeting Barack Obama in Washington next week. I’m sure this is going to be on the agenda. What do you think they’re going to discuss? And what would your advice to Kevin Rudd be?

Hartwich: Well, it ought to be on the agenda for a simple reason. When General Motors did the emergency agreement with the US Treasury last year to get some extra funding for General Motors to keep it alive for the next few months, part of the contract between the Treasury and General Motors said that for every business transaction over $100 million, the company now needs the approval from Barack Obama. So when it comes to liquidating foreign assets, when it comes to, for example, trying to sell Holden, the last word, the final say, will be the American president. And so we can imagine the kind of situation where we won’t find a private investor for Holden quickly, which only leaves the government at its last resort. Basically providing that kind of support to Holden. Then Kevin Rudd can basically directly negotiate with Barack Obama over the conditions.

Dobbie: And do you think that’s going to happen?

Hartwich: Yes. I think it’s going happen because we can already see it in GM Europe. We have European politicians now travelling across the Atlantic to discuss it with General Motors and the US government what to do for their companies, for their GM subsidiaries. And I think we’ll probably see something very similar happening for GM Holden here.

Dobbie: It’s going to be an interesting space to watch. Not looking at a particularly healthy 2009 or a particular future generally for the Australian automotive industry. But thanks very much for your time today, Dr Oliver Hartwich.

Hartwich: Thank you.