The Australian car industry has been experiencing a decline in sales both domestically and internationally. According to reports the continued poor performance of the industry will lead to lose of jobs with the leading car manufacturer, General Motors Holden, announcing that it is planning to lay off 400 workers. The poor performance is basically due to the high cost of production in the Australian market. As a result, to rescue the industry therefore, the government has to come in by providing subsidies (ABC News, 2013). The subsidies will help the industry survive the hard economic time it is experiencing. The high production cost makes Australian automobiles very expensive than the imports. Consequently, their sales have been as low as many consumers even in the country prefer the cheap import cars. The government must play part in rescuing the industry that provides employment for over 4000 Australian citizens. Export trade for auto mobiles from Australia therefore lack adequate competitive platform as their high production cost means high prices for the same thus making them to attract few consumers.
Despite Australian car industry producing car for local and export consumption, the industry is not advantaged in terms of production cost. The Australian industry competes with other international producers from various countries. Comparing the currency value of Australia in relation with the dollar, its appreciation means that the production cost is higher than mostly of its competitors in the market (Hutchens, 2013). Consequently, the Australian automobiles are expensive and therefore many car consumers prefer the cheaper imported cars than the locally produced. This scenario is the same in the export industry. Statistics shows that the sales of cars from manufacturers in Australia were 160,000 or 22% cars out of the 1.1 million cars sold in Australia alone in 2008. In 2012, the percentage fell to 12 % and this year’s statistics shows a decline to 10%. This shows a high level of competition with the imports which have taken 90% of all the consumed cars in the country. This shows that therefore, the Australian industry has no comparative advantage over its competitors as the high production cost keep on reducing its sales over the years and an economic projection shows that the industry will collapse in 2018.
There is need to decrease the subsidies for the car industry in Australia. Looking at the performance of the industry, there is no adequate justification for continued support for a dying industry. The Australian industry has been decreasing over the years and there is a projected fail in the year 2018. It makes no economic sense therefore for the government to continue offering the industry with subsides. Economically, the industry is a failure and therefore it is an added burden to the taxpayers. The returns that are accrued from the car industry and the cost incurred do not make economic sense considering the earlier performance of the industry. If the industry main objective is to yield profits therefore, the Australian government has to rethink its position and how much to give to the industry (Kohler, 2013). If the industry does not rediscover itself and get back to its performing days, then there is no economic advantage of supporting it. However, in reducing the subsidies to the car industry, it is important to consider the effects of the failure of the industry to the economy and the whole population of the country more so the workforce in this industry.
According to reports by the federal chamber of automotive industries, there will be dare economic consequences if the car industry collapses. The projected collapse of the industry which is presumed to be 2018 will have fatal consequences on the Australian economy and affect many people. The report which was compiled by the Allen consulting group and Monash university researches for the chamber concluded that the Australian economy was $21.5 better off due to the government subsidies and nearly 40,000 jobs would be lost if car makers left the market (Oselen, 2013). It makes economic sense to support the industry as the chamber chief executive Tony Weber says, "When you compare the level of assistance provided by the Government, which is less than $500 million a year, the benefit for the economy is extremely large so this is very conservative modeling." The report retaliated that there will be a possible hit on the nation’s Gross Domestic Product by $7.3 billion if the country lost the automotive industry. This combined with the estimated job loss will hit the economy real hard. It is therefore important for the government to protect the industry by all means.
Looking at the effects of the car industry closure closely, there is adequate justification for the government to increase the subsidies and rescue the industry. The conservative model which proposes for the protection of the industry outlines the effects that Australia would experience. The model looks at the face off of the industry in the period of 2017 and 2018. First looking at the government assistance to the industry, the figure of $18 per person is very low by international standards. If the car industry in Australia is lost by the projected year, the nation GDP will reduce by $7.3 billion. The level of foreign investment in this sector wills also decline as investors will move to more favorable countries (Tim, 2013). The number of employees laid off in Melbourne would be 33,000 and 6,600 in Adelaide which will not return to normal till 2027 and 2025 respectively. The country will therefore need to be supported as the industry analyst John Spoehr says, "There is no level playing field out there in the international auto industry, so it is a reality that if you’re going to be a player in automotive manufacturing you has to supply support to it." The government needs to step up and offer the industry with the required support. As Tim Pallas, the Victorian Opposition treasury spokesman says, it is ridiculous to lose $21.5 billion because the nation was not prepared to spend 5oo million dollars and save the industry, the national economy and a great number of employment opportunities. This justifies the importance of the government subsidies to the industry.
The continued support by the government will be helpful to all the stakeholders in the whole nation. These include the government, the car industry and the employees. The government will maintain a stable economy in the long-run as the industry will soon realize profits and therefore contribute immensely on the GDP. The car industry will acquire the required support and be competitive in the car manufacturing industry worldwide. Finally, the employee of the industry will not lose their jobs (Toner, 2013). However, the main losers for this move will be the importing agencies and the competitive manufacturers. A boost to the Australian car industry will offer stiff competition to the other parties in the industry. This will reduce their sales and due to the local industry market take over; they will probably leave the Austrian market making the local industry to have a higher market command.
There is need for Australia to protect their car industries against foreign competition. It is a fact that no country has ever developed their industrial economy without car industries. Therefore, its protection is a key factor by which government should put into greater consideration. Car manufacturing industries in Australia has come on a brink of collapse. Car industry for instance Ford has proclaimed its closure and this can lead other car industries such as Toyota and Holden to follow the same path without further cash subsides (Wimmer, Engelbert, & Muni, 2012).
The only country with a car industries producing trade to that one will export cars with success and vie on value is Australia. The active typical tariff here is 3.5% – 5% on cars from countries with that have a tendency of not having a trade Agreement and nil from countries with that have a tendency to have one. There are no any different barriers excluding the superior car industries tax of thirty three per cent on top of concerning $60,000.
In different words Australian manufacturers’ share of the native market has fallen from a fifth to a tenth in 5 years and exports have declined by nearly that is why the trade is on life support, dying. Its part as a result of they don’t create enough little cars and SUVs, that square measure currently the foremost well-liked cars. However it is in the main thanks to value. Australian cars square measure too overpriced, that has been exacerbated by the high rate of exchange (Wheeler, Stephen, & Beatley, 2009).
For car manufacturing industries to be sustainable and not to go out of the business the Australia government is capable of donating its revenue to them since their success is also reflected back in the government. It is well known the car protection is protection of the country. Without local car manufacturing industries Australia would be relaying on import which could be very expensive for automotive (Wimmer, Engelbert, & Muni, 2012). However, if Australia car manufacturing industries would be rely entirely on exports it might be fine but Australian costs are really high than other countries. Many countries have non-tariff and tariff barriers on car manufactured imports. It is excited to purchase Australia resources which are tariff free. However, car manufactures are regularly protected. It is a problem of Australian costs usually they are too high. That comes down to construction and land costs which motivate all other costs. I think Australia will support the car industries manufacture forever (Wheeler, Stephen, & Beatley, 2009).
Works Cited
Hutchens, Gareth. "Australia's ailing car industry in desperate need of a savior." The Sydney Morning Herald: 2013. Web: 18 Dec. 2013. <http://www.smh.com.au/business/australias-ailing-car-industry-in-desperate-need-of-a-saviour-20130412-2hrlb.html>.
Kohler, Alan. "Do we need a car industry?" Business Spectator: 2013. Web: 18 Dec. 2013. <http://www.businessspectator.com.au/article/2013/10/16/automotive/do-we-need-car-industry>.
Oselen, Leith Van. "The car industry’s economic king hit." Macro-Business: 2013. Web: 18 Dec. 2013. <http://www.macrobusiness.com.au/2013/11/the-car-industrys-economic-king-hit/>.
Possible Regulation of the Car Rental Industry in Australia: Discussion Paper. Canberra: Ministerial Council on Consumer Affairs, 2003. Print.
Tim Beissmann. "Australian automotive manufacturing industry exit to cost economy $21.5billion Car-Advice." CarAdvice.com.au:2013. Web. 18 Dec. 2013.
Toner, Philip. "What do we lose if the car industry is allowed to fail? - The Drum (Australian Broadcasting Corporation)." ABC News. 2013. Web. 18 Dec. 2013. <http://www.abc.net.au/news/2013-08-14/toner---car-manufacturing-in-Australia/4886462>.
Wheeler, Stephen, and Timothy Beatley. The Sustainable Urban Development Reader. Abingdon, Oxon: Routledge, 2009. Print.
Wimmer, Engelbert, and Arun Muni.Motoring the Future: Vw and Toyota Vying for Pole Position. Houndmills, Basingstoke: Palgrave Macmillan, 2012. Print.
