By on April 8, 2014

holden-plant

In the span of 24 hours, Australia inked two free trade agreements with both Japan and South Korea. Even though Holden, Ford and Toyota had already committed to ending auto manufacturing in Australia, it’s hard not to see the agreements as the last nail in the coffin of Australia’s once strong auto industry.

Although North American perception of Australia’s car market is one composed of big, rear-drive V8 sedans and Utes, that image is largely a construct in the minds of enthusiasts. The real picture is a lot less sexy.

Australia’s market is both unique and remarkably mundane. At around 1 million units annually, Australia’s new car market is a mere fraction of the United States – but it’s also far more competitive, with roughly 60 brands competing for a very small pie.

In past decades, the local auto manufacturing industry was heavily protected by tariffs, which encouraged a thriving domestic auto manufacturing industry. Holden and Ford ruled the roost, while Chrysler enjoyed a brief run of localized cars. Later on, companies like Mitsubishi, Nissan and Toyota joined the fray, establishing themselves as the favored Japanese brands.

But in 1983, the Button Plan radically changed the automotive landscape in Australia. The chief goal of the Button Plan was to consolidate the domestic auto industry by halving the number of model produced, while also looking to reduce tariffs and import quotas. The overall goal was to foster a more competitive, export-focused Australian car industry through increased competition.

In the immediate term, a number of badge engineered domestic models appeared in the showrooms of Japanese brands, but none sold particularly well. For a long time, traditional Australia vehicles like large sedans and Utes reigned supreme. But the past decade has seen a major shift in the automotive market, with rapidly changing tastes.

Much like their cousins in the United States, Australia’s traditional vehicles – large sedans and Utes – are facing a two-fronted war, and the outcome has all but been decided.

A report by Ward’s Auto shows that in 2003, large sedans (which ostensibly includes not just the Holden Commodore and Ford Falcon, but also front-drive entrants from Toyota and Mitsubishi) were the most popular cars in Australia, with 26 percent market share. A decade later, that number has fallen to just 7.6 percent.

Small cars and SUVs have overtaken the large car as the most popular segments in Australia. Rising fuel prices, shifting market tastes and a greater selection of small cars have helped propel vehicles like the Holden Cruze, Mazda3, Hyundai i30 to the top of the sales charts – to say nothing of the Toyota Corolla, which was Australia’s best-selling car in 2013.

At the other end of the spectrum, SUVs, crossovers and mid-size pickup trucks have eroded the large sedan’s domain as the family car of choice, with Ward’s reporting that one fifth of buyers are opting for mid-size or large SUVs. The Toyota HiLux was Australia’s best-selling truck in 2013, as sales of mid-size trucks (including Holden’s popular Colorado) helped dampen enthusiasm for Utes.

Beyond the lack of enthusiasm for traditional vehicles, the importance of Australian pedigree is on the wave. As Ward’s reports, the preference for Australian-made vehicles has declined substantially from over a quarter of new buyers in 2003, to roughly one eighth in 2013. Last year marked the first time that the three most popular brands in monthly sales rankings (Toyota, Mazda, Nissan) were all imports.

With a changing climate regarding imported vehicles, the FTAs with both Japan and South Korea will only reduce the cost of vehicles that Australian consumers are already gravitating to. While the FTA with Thailand arguably served as the catalyst for Australia’s major market shift towards Thai-built trucks and certain passenger cars, other factors, like a strong Australian dollar, high manufacturing costs and limited export demand for Australian cars (despite the protestations of enthusiasts across the internet) did their part in bringing about the inevitable end to Australia’s auto industry. The Japanese and South Korean FTAs won’t do any more harm to an industry on death row. But it’s impossible to ignore their symbolism in the wake of the Australian car industry’s annus horribilis.

 

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52 Comments on “Analysis: Australia’s Free Trade Deals Are The Final Nail In The Coffin Of Its Auto Industry...”


  • avatar
    PonchoIndian

    Sounds like our NAFTA.

    Not to be political, but it does relate to this article. Some day this overpaid government “officials” supposedly elected by the people for the people will realize that there is
    No such thing as a Free Trade agreement!

    • 0 avatar
      Onus

      Whats wrong with NAFTA, a few Canadians and Mexicans building our cars?

      You know the people we pay to build our cars then use the money and buy crap ton of us made products right? Doesn’t sound to bad to me. Our ag industry put tons of Mexican farmers out of business. NAFTA was probably one of the most successful free trade acts and now the US, Canada, and Mexico have some of the most integrated economies in the world.

    • 0 avatar
      Xeranar

      Gotta love the right-wing fantasy that this crowd lives in. “Free Trade” as we understand it sends our higher paying manufacturing jobs out while maintaining some agriculture jobs. It has wrought destruction on the US as a whole and has created an outflow of jobs that benefit fortune 500 companies while hurting the US as a country.

      I suggest you read “Bad Samaritans: The Myth of Free Trade” by a leading neo-classical economist. He basically undermines the entire theory of free trade.

      http://www.amazon.com/Bad-Samaritans-Secret-History-Capitalism/dp/1596915986

      • 0 avatar
        28-Cars-Later

        I have to agree, it has wrought destruction on the US as a whole.

        • 0 avatar
          bd2

          NAFTA didn’t really help Mexico with manufacturing until China became more expensive (rising wages, high cost of fuel to transport across the Pacific) and NAFTA destroyed the local agricultural way of life in Mexico and Central America as cheap/subsidized US farm goods such as corn flooded the region – which, in turn, caused the massive exodus of rural Mexicans and Central Americans northward.

          Generally, I’m in favor of fewer trade barriers, but
          the automotive sectors for Brazil and China are a large component in driving the growth for their middle classes.

      • 0 avatar
        Pch101

        Free trade is fine.

        But the US doesn’t partake in that. It imports a lot more than it exports, so there isn’t much “trade” going on.

        Mostly, what we export is inflation, which is to say that our largest import is lower wages.

        • 0 avatar
          RobertRyan

          The Higher US Dollar is making imports cheap, exports more expensive.

        • 0 avatar
          TW5

          China and Japan love buying our inflation. Who are we to spite them by shutting off supply?

          • 0 avatar
            Pch101

            “Exporting inflation” is not a function of selling treasury bonds, but of buying imported goods that are cheaper because of the use of low-wage foreign labor.

            Americans love to buy stuff, and that stuff would cost a lot more than it does if it was made at home. In turn, we would buy a lot less of it if we had to pay more for it.

            Those higher prices that we get to avoid are effectively the inflation that we export when we take advantage of those lower wage rates. China, Mexico and other developed countries are providing us with that benefit.

          • 0 avatar
            RobertRyan

            Not really lower wages but an exchange rate that has been deliberately downgraded for an economic advantage.

          • 0 avatar
            ect

            TW5, considering that Japan has been dealing with the negative effects of deflation for more than 20 years, they would welcome some inflationary impetus. But the Yen is freely
            traded, so they’re not going to get it this way.

            Neither is there any inflationary pressure in the US economy, because demand continues to significantly lag capacity.

            Inflation in China is a function of trying to base economic growth on exports, supported by currency controls designed to maintain the official rate of the Yuan at a below-market level. As the saying goes, there is no free lunch.

            So, what exactly is the point of your post?

      • 0 avatar
        Onus

        Loss of manufacturing jobs is not due to free trade. There isn’t any proof the us even is manufacturing less stuff. Fact is manufacturing output is higher than ever.

        Loss of jobs more has to do with automation. The us is still the largest manufacturing country. It’s percentage of world manufactured goods has stayed consistent for decades.

  • avatar
    carguy

    While it is always sad to see jobs disappear, Australians will benefit from this inevitable development. For years Australian families have been paying way too much cars and it has been a greater drain on the collective pocket than the benefit of the handful of jobs the local auto industry could provide. Let’s see the rest of the imports tariffs removed and local safety standards aligned with the rest of the world and most Australian consumers will benefit in the years to come.

    • 0 avatar
      beefmalone

      Yeah, now they can enjoy cheaper cars that they can barely afford thanks to their low-wage service economy jobs which are all that’s available now that they’ve exported their manufacturing base overseas.

      • 0 avatar
        sportyaccordy

        Getting rid of tariffs isn’t dependent on this agreement. And if you need tariffs to protect your industries its probably a net negative.

      • 0 avatar
        carguy

        @beefmalone: Not exactly. The cost of the tariffs to the consumer was massive in relation to the few auto jobs the industry provided. The tariffs are public extortion: The government collect millions and local industry can raise it prices. Apart from the very few lucky enough to get a job, everyone else loses by paying way more than they should. It would have been more cost effective to give the workers the money directly and get them to sit at home.

        Also, the Australian economy is in great shape. They are currently in the middle of a mining boom and they are more in danger of labor shortages then they are of unemployment.

        • 0 avatar
          silverkris

          Well, the mining boom is partly responsible for the high value of the AUD. Looks like what economists call the “Dutch disease”, when a booming export sector draws away resources (land, labor, capital) from other economic sectors – in the case of the Netherlands in the 1970s it was the natural gas export boom squeezing its other industries such as electronics (Philips). Or Nigeria’s oil boom helping to starve its agricultural sector.

          I’m not sure if the minerals (and natural gas) boom is a good tradeoff for the country as a whole. Note that the mining sector employs relatively few people compared with, say manufacturing, in Australia.

          • 0 avatar
            bd2

            Canada is starting to get in a similar boat.

          • 0 avatar
            RobertRyan

            Mining boom and the US attempts to devalue the US Dollar drove the exchange rate up. Now it is climbing up again as we look better for investors than other markets.

          • 0 avatar
            RobertRyan

            @bd2,
            “Canada is starting to get in a similar boat”

            very much so and it is not surprising to now see more Automotive production that would have gone to Canada going to Mexico or even Europe.

          • 0 avatar
            RobertRyan

            @silverkris,
            Other sectors of the economy are starting to improve but the Dollar has remained “highish” with perceived problems in the US and Europe.

          • 0 avatar
            Onus

            The Aussie hasn’t been doing too good the last couple months compared to the USD.

            The kiwi ain’t doing too bad though.

            A currency built on commodities and open exchange rates makes for pretty big swings in value and that not good for anybody. I agree the minerals boom isn’t good for Australians.

          • 0 avatar
            RobertRyan

            @Onus
            Agreed. Seeing unlike Germany we export Mining,Agriculture and Services there will be swings. The US has a similar problem but made worse by the very large debt

          • 0 avatar
            Big Al from Oz

            @silverkris
            We didn’t have a mining boom as such. It was incorrectly termed a mining boom.

            I was actually a mining infrastructure boom. We are now exporting more in value than we import.

            As for a decline in our economy this year our economy will only grow at 2.8%.

            Next year it will be over 3% again.

            Better read up on what is going on over here.

            Also, contrary to this story we currently will have a shortfall of 23 000 workers for the auto industry very soon.

            GM is keeping it’s engineering here as well. So, you guys will hopefully still get some great chassis’s from us.

            The predicted declined in the local auto supply chain will not occur as well.

            Our new government is very good. It policy is if you can’t run a business without handouts, then move out of Australia or go broke.

            We only want profitable business in Australia.

            This has the unions a little worried, now when they make a demand they have to consider if it is viable in the longer term.

          • 0 avatar
            Big Al from Oz

            @Onus
            The AUD in now as well as a commodity currency and pseudo reserve currency.

            It’s the 5th most trade currency globally after the USD, Euro, Yen, and Pound Sterling.

            The yuan will most probably within 15 years overtake the USD as the most traded currency in the world.

          • 0 avatar
            charly

            From a national level it is very hard to see which industry is profitable or not as there are so many cross subsidies, hidden charges etc. Also most people work in pure local industry (for example nursing, high school teaching, auto mechanics, builders) that you do have to differentiate between pure local work and international work. The first one is more pumping around money than earning money

    • 0 avatar
      RobertRyan

      Not much cheaper, only roughly $1000 less on average.

    • 0 avatar
      RobertRyan

      No safety standards do not move one bit.Importers had to meet those standards as well as producers. No the FTA is not going to have a huge difference in the prices, a marginal drop in prices

      “the benefit of the handful of jobs the local auto industry could provide”
      Correct there not that many involved building cars in Australia compared to te rest of the economy.

    • 0 avatar
      charly

      I know i have said it a million times but in ten year you will pay a lot more in tax for your car.

      • 0 avatar
        RobertRyan

        No do not expect that at all, Tax more on corporate tax and superannuation the ageing time bomb that Governments have to tackle.

        • 0 avatar
          charly

          Higher new car taxes are very good for the finance department, very good for the current account and good for employment (people keep cars longer so more mechanics). They are bad for almost nobody if you don’t have a car industry so the assumption that Australia wont raise taxes is only hope.

          • 0 avatar
            RobertRyan

            @charly,
            Not on the table especially when they are signing free trade agreements with everyone.

          • 0 avatar
            charly

            So an import tax is off the table. But that doesn’t really matter if all cars are imported anyway. Just call it a registration/luxury/road whatever tax. Those are completely legal

        • 0 avatar
          28-Cars-Later

          I know next to zero about the tax situation in Australia, but regarding the need for more car taxes is it more gov’t to control/influence behavior or the Aussie gov’t is constantly cash strapped?

          • 0 avatar
            RobertRyan

            @28-Cars-Later
            Definitely less taxes not more. Last thing they want is fewer cars. Previous Govt had a thing about Luxury cars so taxed them, not the case with current one.

          • 0 avatar
            charly

            A government that is not (claiming to be) constantly cash strapped is not a good government. And the yearly sales volume of new cars is so large that any tax done for control/influence is also done for revenue

            @robert Taxes don’t influence the money people spend on cars, they just buy less car. But the lowest price cars aren’t that popular in the Australian market so the number of people who will be priced out of the new car market is small. Also luxury car tax has more to do with class war than with seeing people use cars.

  • avatar
    APaGttH

    It truly is the last of the V8 Interceptors.

  • avatar
    Pch101

    At this point, the new FTAs don’t really make much of a difference. The Thailand FTA and otherwise reducing the tariffs to less than 10% were already enough to kill off the domestics.

    The prices of the Falcon and Commodore had to be high in order to mitigate the high costs that are a byproduct of the low volume of Aussie production. With the low tariffs, those Aussie family cars are being undercut by Mazda3′s and Toyota Corollas that are substantially cheaper to buy, plus use a lot less fuel. (Aussie fuel prices are a bit like Canadian prices — more than the US, but not nearly as high as Europe.)

    • 0 avatar
      RobertRyan

      No “Changing Tastes” not price was a major determinant as Derek said in his article. People are buying a lot more expensive SUVS,Pickups(similarly priced) and small cars

  • avatar
    LALoser

    It is a bummer seeing the end of Oz Holdens. Drove them in Oz and NZ. Big fun. They were rough, coarse, rustic, whatever..but fun.

    • 0 avatar
      RobertRyan

      Feelings we share about US produced Automobiles without the fun factor.

      • 0 avatar
        TonyJZX

        Chevy SS – you can enjoy it too, not that anyone really wants to

        cars have become commodity items like phones and tvs and toasters

        next up is probably an FTA with China

        yep, its the way its gonna happen, with no industry to protect and with no demand, you may as well flood the market with cheap Asian cars, if there wasnt enough already

        • 0 avatar
          Onus

          Sounds like the road you’ll head down. New Zealand already has FTA with China. Though they seem to have non existent trade barriers anyways. It’s purpose was really to help the New Zealand dairy industry get a foothold in China.

  • avatar
    Conslaw

    It’s one thing to appreciate free trade; it’s another thing to pray at the altar of free trade. Free trade can (but does not necessarily) efficiently maximize total wealth; but free trade theory doesn’t account for changing distribution of that wealth. The gains are truly pareto-noncomparable. Our top heavy economy; no, make that the WORLD’s top-heavy economy is a product of free trade. As Bill Mahr recently pointed out: 50 years ago, the leading employer in the U.S. was General Motors, with an average wage (in current dollars) of around $50/hour. Now the #1 employer is Wal-Mart, with an average wage of $8.00/hour. Are we better off? Are we going in the right direction?

    • 0 avatar
      Pch101

      There’s simply no way to remedy that in a global economy. Those high wage rates were sustainable when the world was a smaller place, but that genie isn’t going back into the bottle.

    • 0 avatar
      Dimwit

      What they always conveniently forget to tell you is that those wonderful high wage, relatively low skill jobs were leaving, FTA or not. Automation and rising tech requirements mean more skills but less employment. The FTA’s only kept the standard of living high while the jobs were leaving.

      Sure, making industries more inefficient through tariffs is a strategy, it’s just a bad one and very short sighted.

    • 0 avatar
      Big Al from Oz

      @Conslaw
      You are correct free trade has very little to do with income disparity.

      The US has a high level of disparity and a mostly free economy. Sweden on the other hand has a freer economy than the US and less disparity.

      We have the same here in Australia, our median income is very good, this is driven by a much better minimum wage structure.

      As a percentage we pay nearly the same rate of tax as the US as a percentage of GDP. But how and where it comes from is different.

      Over the past tow years prices are dropping, this now has been 6 years plus since our dollar appreciated against the countries that are manipulating their currencies, ie, US, Euro, UK, Japan, etc.

      We are in a good position and now have the second highest standard of living in the world.

      Our cost in comparison to the US is very relative, except a much higher percentage of Australians aren’t in poverty like the US.

      • 0 avatar
        charly

        Income disparity has also to do with having multiple labor markets. In Sweden there is probably one major labor market (Copenhagen, Gothenborg Stockholm area). Australia two major labor markets (Sydney & Melbourne) and in the US dozens.

        • 0 avatar
          Big Al from Oz

          @charly
          You’d better read up.

          What about the NT, the average wage is over $80k?

          Or, Perth?

          The ACT or Canberra?

          Tasmania?

          Even within every state rural and urban wages differ.

          It isn’t much different to the US.

          The problem in the US is it’s minimum wage structure is designed poorly, as with many other social support agencies.

          The US welfare system is a patchwork of systems. It probably is verging on unmanageable.

          If the US cleans up its welfare system it will probably save billions in just administration.


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