Why car subsidies are good economics

[.FoMoCo.]

From Wednesdays SMH:

http://www.smh.com.au/opinion/politi...718-22a03.html

opinion
Paul Bastian

Commentators line up to bag out the car industry. Too expensive they say. Not worth it they argue. The dollar makes it uncompetitive; our workers demands for living wages and conditions are just too high.
But it's damaging, and wrong.
Australians acknowledge that the manufacture of cars is central to our national interest. Australians welcome the jobs, the precision engineering skills, the local know how and brands and the flow on benefits that our car industry provides to manufacturing and our economy more broadly.
Essential Research recently released a poll showing almost 60 per cent of Australians support 'provisional assistance by Federal and State governments to ensure US motor companies continue to manufacture cars in Australia'.
Commentators who call for the end of the "handouts" demanding the industry either sink or swim, are not supported by the populace and are espousing a simplistic view.
Let's get this clear – while the vast majority of Australians support everything being done to keep high quality cars being made in Australia – everything is not being done.
It's a simple question of economics. The simplest rule in economics is the relationship between supply and demand. Co-Investment in the car industry provides supply-side support – but to properly realise the benefits of the Australian car industry we need to do more on the demand side.
In short, the co-investment scheme must be backed by a plan to buy Australian.
Over the next twenty years federal, state and local governments will purchase around 1.5 million cars. It's obvious that these cars should all come from Australia – but that’s not the reality.
As recently as 2004, over 1 million of these cars would have been made in Australia with the previous provision of local procurement arrangements.
In 2008, this changed, and ironically enough when we were hit with the GFC, governments at all levels moved away from their commitment and began purchasing more imported vehicles.
Today, only a third, or half a million of these cars will be locally sourced. It's nonsensical.
Australia's car industry is versatile. We make big and small cars in the Territory and the Cruze. We make efficient cars – rapidly expanding our capacity in hybrid, electric, gaseous and greener cars in response to increasing fuel costs and consumer preferences. There are no excuses for our governments not to buy Australian made.
And through our governments showing leadership and buying Australian made vehicles for their fleets we can encourage private fleets to purchase Australian. That would mean increasing sales of Australian cars by around 450,000 per year.
Despite the strong Australian dollar making it hard for our industry to compete around the globe, we still look outwards to international markets for our cars. The majority of Toyota's cars, and many of Holden's, are exported.
Australia's cars are also some of the safest new cars in the world. All Australian vehicles produced by Holden, Ford and Toyota are 5 star ANCAP rated or the highest quality in respect to safety. Yet 300,000 vehicles made overseas and bought here each year do not meet these standards.
Emissions and fuel efficiency coupled with innovative safety mechanisms and precision engineering means that the car industry drives the creation of new skills and the harnessing of science and technology.
But the high dollar and the most open vehicle market in the world resulted in 86% of all new cars in Australia being imported in 2011. Twenty-one percent of these attracted no tariff as they entered into the country and the rest attracted one of the lowest tariffs in the world at 5%.
Eighty percent of the vehicles imported into Australia come from four countries – Japan, Thailand, Korea and Germany. Yet all of these countries maintain a mix of tariffs and non-tariff regimes protecting their car industries at significant higher levels than we do creating impenetrable barriers for our cars.

Either we grow some muscle and smash down these barriers or we reciprocate with our own measures that reward safety, fuel and emissions innovation and make Australian made cars more attractive to consumers.
Car manufacturing is highly contested turf. Nations compete against one another to ensure that their workers produce vehicles – as it is deemed to be in their national interest.
Co-investment from the Australian government pales in comparison with the investment of other nations with automotive industries. In per capita terms, Australia invests $US18 per annum. Compare this to the $US330 in Sweden, $US260 in the USA and $US95 in Germany.
On the back of these numbers, Australia's investment provides tremendous value for money in relative international terms.
Australia's served well by co-investment. It provides skilled jobs, quality cars and places Australia as a world leader in manufacturing, science and technology. And despite the opinions expressed by some, it does come with reciprocal commitments.
In the case of GM Holden, the recent $275 million co-investment provided by our Government drew a commitment from GM to invest $1 billion in its Australian operations and maintain a presence for at least another decade. Similarly at Ford, the recent co-investment is already being put to use to design more fuel efficient models and Ford have committed to remaining here at least till 2016.
Unless we continue to co-invest and encourage demand, we will not only lose the skills, the opportunities and the know-how, we'll be disserving the national interest.
It’s the right time for our commentators to start talking up Australia’s car industry and promoting policies that encourage Governments, businesses and consumers to do themselves and their country a favour and buy the cars that we make here.

Paul Bastian is national secretary of the Australian Manufacturing Workers Union