The end of the road
16 Dec 2013|

 Bushmaster protected mobility vehicle used by the 2nd Cavalry Regiment Task Force at Multi National Base – Tarin Kot during their 2013 deployment in Afghanistan.

Last week General Motors Holden, spurred by some cavalier observations by federal government ministers, heralded the death-knell for the Australian automotive manufacturing industry.

It’s been a long time coming but it’s a safe bet that there’ll be no major car maker left in Australia by 2020. Toyota is surely destined to follow Ford in 2016 and GMH in 2017 in winding up its manufacturing operations in Australia.

What this will mean for defence isn’t clear. Australia’s defence industrial base has never depended on the survival of car-manufacturing but it isn’t independent of it either. There are many smaller companies in the automotive sector that help sustain Australia’s broader defence effort when it comes to advanced manufacturing and complex engineering design.

It’s hard to imagine the highly successful Australian-designed and built Bushmaster armoured vehicle existing without a local car manufacturing industry. When car making finally ends in Australia many small enterprises in the automotive supply chain will look to the defence sector, but few could bank on surviving purely on local defence contracts.

With the prospect of a new generation of submarines to be built in Adelaide, Australia’s defence industry will continue to demand advanced manufacturing and design skills similar to those that the local automotive sector has gradually developed since WWII. ASPI’s Mark Thomson, who has been watching the defence business for a long time, notes that ‘the demise of the car industry will only make it more difficult to maintain the skills base and the sub-contractor base that underpin defence manufacturing in Australia’.

Established in 1931, GMH assembled GM branded cars in its Australian assembly plants in the lead-up to WWII. In wartime GMH turned to full-time military production, building everything from artillery, to armoured vehicles and aeroplanes for Australian and American forces. In 1948 GMH began building the Holden, the first mass-produced passenger car built entirely in-country. It quickly became the most popular and biggest selling vehicle in Australia, holding that position for four decades. The Holden became the mainstay of GMH’s local production and in later decades a major export earner for the Australian company.

But car-making in Australia was never going to be a manufacturing sector where Australia could enjoy a comparative advantage. Forty years ago, assisted by high tariff barriers, a handful of companies produced around 400,000 vehicles annually. Local production then gradually declined before reviving a decade ago, with 408,000 vehicles being produced in 2004. But by 2012 this figure had dwindled to 221,000 with just three carmakers-GMH, Ford and Toyota still in the business.

In today’s ferociously competitive global automotive manufacturing market Australia’s just a minnow, even if we are only one of a dozen nations to possess the capacity and skills to design and build cars from the ground up. Our annual passenger vehicle production of 221,000 vehicles in 2012 compares with 15.5 million in China, 8.5 million in Japan, 5.4 million in Germany, 4.2 million in South Korea and 957,000 in Thailand.

The demise of car making in Australia will have a significant impact on our economy and industry skills base, even though vehicle manufacturing has been in a downward spiral since the late 1990’s. The Allen Consulting Group in a report earlier this year (PDF) on the strategic role of the automotive manufacturing sector calculated the overall economic loss to Australia at $21.5 billion, with South Australia and Victoria being hit particularly hard. The cost to SA alone by some estimates will be a $1.2 billion hit to the local economy and 13,000 direct jobs.

According to the Australian Industry Group, automotive manufacturing in Australia accounts for around 45,000 people with 17,000 employed by the three car makers and 28,000 in the auto supply chain businesses. AIG says that around 3,000 small companies are directly linked into the supply chain, contributing around $5.5 billion to the economy including $3.5 billion in exported vehicles and components. AIG chief Innes Willox observes:

The auto sector has long played a pivotal role in the development of Australia’s manufacturing capabilities and it generates significant benefits that extend well beyond the assemblers and their extensive supply chains. Many of Australia’s leading manufacturers employ managers and skilled employees who cut their teeth in the auto industry and who spread into the broader industrial landscape the experience and know-how nurtured in the auto sector.

He notes that vehicle manufacturing in Australia made a $700 million contribution to research and development in 2011–12 assisting indirectly in product innovation across the broader economy.

For South Australia especially, the impact of GMH’s departure later this decade is likely to be compounded by a run-down in naval shipbuilding work as the third air warfare destroyer is completed in 2017. The SA government is looking to the defence sector to fill the gap but in the absence of a fourth AWD order and a belated start to the new submarine construction, SA’s manufacturing sector will come under more pressure.

The challenge for the Abbott government will be to design a strategic plan to foster the skills base and innovative manufacturing technologies that will build on the long-term contribution of the car industry to Australia’s national well-being and help sustain those elements of manufacturing that defence relies on.

Patrick Walters writes regularly for The Strategist. Image courtesy of Department of Defence.