The end of car production in Australia - what went wrong

The car industry says it invested three dollars for every one dollar of taxpayer funds. That figure may be debated but one thing is certain: the end was inevitable. With low – or zero – import tariffs over the past decade, Australia became flooded with foreign cars that were either cheaper to buy than local models or better equipped, or both.

There are now more automotive brands sold in Australia than in mainland Europe, the UK, the US or Japan. This had the effect of gradually eating into the volume Australian car factories needed to remain viable. At their peak, Holden built 165,000 cars in a calendar year (2004), Ford built 155,000 (1984) and Toyota built 148,000 (2007). But last year, all three sold a combined total of just 87,000 locally made cars.

Fifteen years ago, the Holden Commodore led the market with close to 90,000 sales per year. Today, Australia’s top-selling car notches up a little over 40,000 annual sales.

There is not a car factory in the world that can survive on such small volumes, other than luxury brands that command premium prices. The UK car industry survives because it exports eight out every 10 cars it manufactures (in 2016, 1.35 million of the 1.7 million vehicles produced).

But Australia couldn’t export its way out of trouble because it is surrounded by developing countries with much cheaper labour costs. The minimum wage in Thailand equates to less than $2 an hour (Australian dollars, so about £1.20). Car assembly line workers are paid more generously – about $6 an hour (£3.65), or close to $12,500 a year (£7660) – but it’s nowhere near the average Australian car manufacturing worker wage of $69,000 (£42,850).

Of all the Free Trade Agreements that Australia has with other countries, none was more brutal than the deal with Thailand introduced in 2005. Since Australia agreed to lift the import tariff on cars from Thailand, more than two million Thai-made vehicles have been imported; from familiar brands such as Ford, Holden and Toyota, as well as Honda, Nissan, Mitsubishi, Mazda and others.

In return, Australia shipped to Thailand just 100 Ford Territory SUVs. That’s because Thailand maintained hidden, non-tariff barriers while Australia opened its borders completely. Ingeniously, Thailand continued to impose higher registration fees on cars with larger engines – such as those made by Ford and Holden. Toyota already had a Camry factory in Thailand so couldn’t export cars there. Thailand – regarded as the ‘Detroit of the AsiaPacific’ – is now the second-biggest source of motor vehicles in Australia after Japan and ahead of South Korea.

Was it right to end the taxpayer assistance to the Australian car industry or will the billions of dollars seem cheap in the long run when compared against the social cost? The nation is about to find out.

A 2013 report by University of Adelaide estimated about one-third of sacked blue-collar workers are likely to become long-term unemployed. The statistics were gathered after the closure of the Mitsubishi car factory in 2008.

“We know from the research that a high proportion of manufacturing employees go on to be long-term unemployed,” the report said. “It requires significant retraining to work in... other sectors.”

While sacked factory workers are concerned about future livelihoods, car enthusiasts are wondering what will replace the homegrown V8 and turbocharged six-cylinder rear-drive saloons. Ford and Holden produced some of the fastest and most powerful performance saloons in the world for a fraction of the cost of their German and UK counterparts.

A Holden Commodore with the V8 from a Corvette – or a Ford Falcon with a supercharged V8 or a blistering turbocharged in-line six-cylinder – could be had for the equivalent of £30,000. But those Aussie hero models could be created only because, once upon a time, fleets and families bought the regular saloons in the tens of thousands each year. It gave Holden and Ford the funds – and quite literally the platform – from which to build performance saloons with powerful engines, big brakes and sticky tyres.