Thursday, October 5, 2017

Financial globalisation: Whither Financialisation

McKinsey has recently released an excellent summary of global finance. The authors present a positive picture of global finance despite the significant decline in global flows and the continuation of major financial risks, not all of which are related to cross-border flows.
After a decade of aftershocks from the seismic financial crisis of 2007, the landscape of global finance is much altered. Global cross-border capital flows—including lending, purchases of equities and bonds, and foreign direct investment—have shrunk by 65 percent since 2007, from $12.4 trillion to $4.3 trillion (Exhibit 1). Half of that decline reflects a sharp reduction in cross-border lending and other banking activities. But it would be wrong to conclude that financial globalization is over. New research from the McKinsey Global Institute, The new dynamics of financial globalization, concludes that what is emerging from the rubble is a more risk-sensitive, rational, and ultimately more resilient version of global financial integration.

The most dramatic change in the postcrisis global financial system has been in cross-border lending. Large European banks—particularly those in the eurozone—are leading the retreat from foreign markets. Foreign claims of eurozone banks (including loans, other foreign assets, and lending by foreign subsidiaries) have declined by $7.3 trillion, or 45 percent, since 2007 (Exhibit 2). Nearly half has occurred in intra-eurozone borrowing, with interbank lending declining the most. The foreign claims of Swiss, UK, and other European banks have fallen by $2.1 trillion. Several of the largest US banks are shifting their portfolios away from foreign business, too. ... 
Despite the retrenchment of global banking, financial globalization continues. The global stock of foreign investment relative to GDP has changed little since 2007, standing at roughly 180 percent of world GDP. In absolute terms, total foreign investments have grown to $132 trillion in 2016, up from $103 trillion in 2007. More than one-quarter of equities around the world are owned by foreign investors, up from 17 percent in 2000. In global bond markets, 31 percent of bonds were owned by a foreign investor in 2016, up from 18 percent in 2000. Foreign lending and other investment is the only component of foreign investment assets and liabilities that has declined since the crisis.
This shows the relative stability of FDI and how destabilising short term flows can be. Reversals of short term flows into equities and property markets can add to domestic 'Minskyian' financial instabilities.
While foreign investment stocks remain highly concentrated among a handful of advanced economies, more countries are participating. MGI’s Financial Connectedness Ranking (see the short version of the ranking in this downloadable poster) shows the total stock of foreign investment assets and liabilities for 100 countries, as well as their composition and growth. Advanced economies and international financial centers are the most highly integrated into the global system. The United States, Luxembourg, the United Kingdom, the Netherlands, and Germany top the ranking. 
But developing countries are becoming more connected to global finance. Their share of total foreign investment assets has risen from 8 percent to 14 percent in the past decade. China’s rise in global finance is most notable; it rose from 16th place in 2005 to 8th in 2016. China’s total stock of foreign bank lending, foreign direct investment, and portfolio equity and bond investments reached $3.4 trillion in 2016, exceeding its $3.2 trillion of central bank foreign reserve assets—a notable shift.
Nevertheless the authors have a positive story to tell.
The new era of financial globalization promises more stability, for several reasons. 
  • Foreign direct investment (FDI) and equity flows now command a much higher share of gross annual capital flows than before the crisis, from 36 percent before 2007 to 69 percent in 2016. This is good news for stability, since FDI is by far the least volatile type of capital flow and cross-border lending is the most volatile.  
  • Global current-, financial-, and capital-account imbalances have shrunk, from 2.5 percent of world GDP in 2007 to 1.7 percent in 2016. This reduces one potential spark that could ignite a financial crisis. Even more dramatic has been the decline in the very large US deficit and Chinese surplus. For the first time in a decade, developing countries have become net recipients of foreign capital flows.  
  • Banks around the world have larger capital and liquidity cushions to offset future losses. Most global banks have also built stronger risk-management capabilities.
These are significant changes and the reduction of the imbalance between the US and China is important. However, a slowing Chinese economy may encourage Chinese policy-makers to reinvigorate Chinese mercantilism. This will no doubt anger the Trump Administration in the US, creating wider problems for the world economy and the integration of the US and Chinese economies.

The authors also point out some significant risks.
But potential risks also remain and are worth watching. 
  • Gross capital flows—particularly foreign lending—remain volatile. Over 60 percent of countries experience a large decline, surge, recovery, or reversal in foreign lending each year, creating volatility in exchange rates and making macroeconomic management more difficult. The median fluctuation for these countries is equivalent to 6.7 percent for developing countries and 10.8 percent for advanced economies.  
  • Equity-market valuations in some markets have reached new heights, which raises questions about whether a bubble could be emerging.  
  • With more countries participating in global finance, financial contagion remains a risk—especially for developing countries that lack deep, transparent, and liquid domestic financial markets.
Clearly some efforts to ease volatility must involve restrictions of some sort. Countries can make individual decisions to try to restrict flows but an international framework or agreements between states would allow states to choose lower volatility. Super low interest rates have also inflated housing and property markets making the world economy vulnerable to the potential consequences of monetary policy normalisation. Finally, while the risks of financial contagion are enhanced by greater participation, what consequences could flow from a reinvigoration of global flows?

The authors argue that banks and regulators must respond to the changing dynamics of cross-border finance.
Financial globalization is arguably healthier than it was before the crisis, but banks and regulators must remain vigilant and continue to adapt. In the future digital platforms, blockchain (PDF), and machine learning may transform financial markets and create new channels for cross-border capital flows. These technologies are enabling faster, lower-cost, and more efficient international transactions, and will further broaden participation in global finance to more firms, investors, and countries.
Banks and regulators must respond to several aspects of the new era.
  • Banks. How long the ongoing retrenchment of European and US global banks persists is uncertain, but it is likely that it will continue—or at least not reverse—for the foreseeable future. Banks must continue to scrutinize their international strategies to ensure healthy long-term performance. This will entail focusing on corporate clients and countries in which they have significant market share, and shifting from subsidiary to branch structures when possible in order to optimize their capital. Banks must harness the new technologies across their global operations to increase efficiency, meet customer expectations, and capture new opportunities. Harnessing advanced analytics and machine learning algorithms to better understand risks in international markets could be a competitive edge. 
  • Regulators. Given the dynamic changes in the way global finance is conducted, policy makers should continue refining regulation and supervision of financial markets. Regulators must continue to build systemic risk monitoring capabilities and ensure prompt reaction to changing market conditions. New tools for managing volatility in capital flows and in reducing capital- and financial- account imbalances are needed. In the eurozone, further development of the banking union and establishment of a capital markets union is warranted and could help promote a return to growing intraregional investments. Continued innovation in digital technologies requires favorable regulatory climate to allow experimentation, but also could create new market dynamics and risks.
Regulators must also not allow the non-bank sector to evade stabilising regulations or otherwise activity will just switch.

When considering the implications of these global changes, it is important to remember that the process of financialisation is not just related to cross-border flows, but to domestic financial systems as well. Domestic financial systems - admittedly with assistance from foreigners - have facilitated massive increases in household debt, which, in turn, have inflated property markets. While there was deleveraging in countries affected by the GFC - particularly Ireland - other countries - e.g the Netherlands have seen a reinvigoration of their housing markets, and while, household debt has fallen it is still 219.9 per cent of income.

Australia's ratio of household debt to income has increased significantly since the 1990s and after stabilizing for a period after the GFC, it has increased again to 193.7 (up from  low point of 163.1  per cent in December 2008). Housing debt to income has increased from 112.0 in December 2008 to 136.4 per cent in June 2017. The saving grace for Australia thus far is that low interest rates have stabilised the interest paid to income ratio at about 8.7 per cent. While the next move in Australian interest rates will probably be down, a return to more normal monetary policy (i.e. higher interest rates) will increase financial pressures on households.

Household assets to income is up, but increased debt has spurred increased house prices. A fall in house prices will obviously lead to a decline in that ratio. People will feel poorer and just like everywhere else this has happened, consumption will fall. If it falls by a lot and unemployment increases, it is possible that this will lead to recession, higher unemployment, falling prices, further declines in consumption etc. Hyman Minsky provides a framework for understanding developing financial fragilities in the Australian economy and elsewhere:
The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. (Minsky 1992)
Minsky highlights the dangers of what he calls Ponzi financing, wherein ‘cash flows from operations are not sufficient to fulfil either the repayment of principal or the interest due on outstanding debts by their cash flows from operations’. The only way to pay off principal or interest is to sell assets (ideally at a profit) or borrow more (in the hope that asset prices will continue to grow). According to Minsky, a heightened emphasis on speculative and Ponzi finance increases the risk of the financial system becoming a ‘deviation amplifying system’.

It is clear that the growth of the property sector, as an outlet for investment, shares many of the characteristics of Ponzi finance. Investors utilising negative gearing provisions in the tax code – income tax deductions for property income losses – are less concerned whether their assets produce sufficient income to cover interest payments and costs and rely instead on capital gains. This enables the speculator to borrow more and more using inflated property values as collateral for further purchases. In a rising market investors and owner-occupiers can sell when necessary and utilise profits to buy another investment property or upscale, and continue the process of asset price inflation, increased indebtedness and unrealistic expectation of never-ending price increases. In Minsky’s framework, the longer the process goes on, the more likely it is that instability becomes endemic to the financial system.

Eventually, there is a point of inflection where assessments about future profits turn negative, revealing the precarious nature of the whole edifice. Minsky (1992) argues that his hypothesis:
is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

Nevertheless, it seems clear also that external events can play a big role in creating inflection points, and in leading to shocks that undermine liquidity and confidence.

In a recently published paper, I argue the financialisation of the Australian economy has led to a cascading series of vulnerabilities in the Australian financial system. The vulnerabilities begin with the domination of banks in the financial system and the preponderance of the “big four” banks in the banking system. They are then exacerbated by the weight of real estate in the balance sheets of the big four. Underpinning the whole edifice is the sharp rise in household debt. Ultimately, the fate of the Australian financial sector – and the fate of the share market and the wider economy – sits precariously close to the precipice of over-inflated property markets and debt-ridden households. The debt-house-price-nexus in Australia is like a stretching rubber band. A stretched band can be relaxed gradually or it can be stretched further until, eventually, it breaks. The success of the Australian economy since the recession of the early 1990s, the profitability of the banks and the long-term rise in house prices has inevitably made investors and policy-makers complacent about these risks.
I argue that financial policy-makers have underestimated the financial vulnerabilities building up in Australia as evidenced by the slow take-up of macroprudential policies and their complacent statements about growing risks. There are three reasons for this sanguine attitude: the policy predilection for idealised economic liberal regulation of the financial sector, Australia’s overall growth performance and the profitability of the major Australian banks. Policy-makers appear to believe good fortune will continue indefinitely. Instead, “Minskyian” fragilities have built up within the property-finance nexus, which will eventually result in deleveraging, falling asset prices, a decline in consumption and recession.


While it pays to analyse what is happening to financial globalisation, financialisation is a wider process emergent in both domestic and global arenas and, of course, in the linkages between financial systems.

If policy-makers and polities want to avoid a cycle of financial crises and the negative impacts of increasing financialisation on consumption and production, then finance is going to need to be more effectively regulated. While this would mean that global financial flows do not return to the heights of the pre-GFC world, does this matter?

With the development of cryptocurrencies, the time is ripe for a reconsideration of international international financial and monetary relations, with the aim of developing new international agreements to regulate global financial flows, imbalances and currencies.

Not likely, however.

Friday, July 21, 2017

Monetary policy and inflation

Recent inflation in advanced capitalist countries remains subdued, despite the expansionary monetary policy that has dominated major economies.. As Guy Debelle from the RBA argues that "four common global factors that have led to the expansionary monetary policy settings seen in most advanced economies for almost a decade".

They are: the global financial crisis, low levels of corporate investment over the past decade, low wage growth and low inflation. 

The fourth and last common factor is the sustained low inflation that has been evident globally for the past decade (Graph 2). This is a direct consequence of the three previous factors I have just talked about . In addition to those influences, there has been a continuation of the disinflationary pressure resulting from the integration of China into the global economy. There are signs that this latter force might be waning, with producer prices in China actually growing, following many years of continual, often quite substantial, declines. Throughout the past decade, expectations about future inflation have remained broadly anchored, which, at times, has helped stave off a shift towards deflation, but currently may be dampening the prospects of a sustained pick-up in global inflation.

He concludes: 
The effects of these global influences on the Australian economy have been material. The global economic environment and global policy settings that have been in place for the past decade have contributed significantly to the monetary policy settings in Australia that we have today and will likely continue to do so for the foreseeable future. 
Currently, financial markets don't expect any further lowering of policy rates in the major economies, nor any further expansion in policy settings. Hence the downward pressure on domestic policy settings from this source does not look like it will intensify in the foreseeable future. But the four common factors that are highlighted in the first half of my speech are still present. While there are some tentative signs that they are abating, the evidence is inconclusive at this stage.  
As I said earlier, the Federal Reserve has raised its policy rate very gradually four times over the past two years. And last week the Bank of Canada increased its policy rate to 0.75 per cent. Just as the policy rate in Australia did not need to decline to the very low levels seen in other parts of the world, the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase. The policy rates in both the US and Canada still remain below that in Australia. 
Ultimately, in Australia as is the case elsewhere, policy rates are set at the level assessed to be appropriate to achieve the domestic policy objectives. While global influences, including monetary policy settings in other economies, have a significant impact on that assessment, they are, in the end, only one of a number of considerations to be taken into account.
Longer-term structural changes will affect overall inflation/deflation more than the vagaries of individual commodity markets. Chinese overinvestment leading to declining production, in the context of eventual debt deleveraging (and perhaps crisis) could overwhelm the world economy and all variables such as inflation.

Mix that with a spike to the stock bubble in the US as the Fed tries to get to more 'normal' monetary policy and the world's two major economies could go pear shaped. The Fed is likely to reverse any return to normal as the consequences of the initial shift - begin. Meanwhile, Europe has Germany running a record current account surplus meaning it has to export capital and import demand from countries that need that demand. Southern Europe remains in turmoil with political reaction increasingly likely.

If China and Japan try to export their way out of their problems, Germany doesn't start exporting demand, and the US is increasingly wary of continuing its role as the global consumer of last resort, then where are those exports going to go?

The interesting variable is a possible Trump stimulus. He's going to have to do something to avoid registering an even lower approval rate. The sort of stimulus that would work best - advantaging lower and middle income households - is the least likely because Trump believes in trickle down - fix up the rich people and everyone benefits! A Trump stimulus will also mean the Fed will try to return to normal monetary policy more quickly

Notwithstanding this Trump caveat, I'm not sure we have to worry about rising interest rates over the medium-term. Asset price deflation in the context of the attempt to get back to normal will expose the fragility of business investment and the excesses of household debt. The possibilities of deflation outweigh the possibilities of inflation.

On a rosier front, employment in Australia is holding up, which means the coming collapse in consumption has a little way to go.

Monday, July 17, 2017

The more debt the better ....

Just what Australia needs: more lenders, increased prices and more debt.

Morrison fails to realise that a correction is coming.

Treasurer Scott Morrison says bank plan will mean cheaper home loans

AUSTRALIANS are being promised cheaper home loans and bigger returns on savings under a federal Government plan to allow more lenders to call themselves a bank.
Treasurer Scott Morrison will today reveal he wants to dilute the power of the Big Four by removing laws that require lenders to have more than $50 million capital.
Mr Morrison said lenders faced a significant obstacle by not legally being able to call themselves banks.
His plan to inject more competition into the banking sector mirrors the UK where, after it was made easier for lenders to compete, 56 new banks entered the market.
Many were online lenders that could offer cut-price rates due to lower overheads.
“The Turnbull Government wants to bring greater competition to the banking sector,’’ Mr Morrison said. “Allowing more lenders to be called banks will mean better access to cheaper loans and more generous deposit rates.’’
Mr Morrison will today release draft legislation for public consultation.
He said restriction of the term “bank” could lead the public to mistakenly believe small banking businesses faced less regulatory scrutiny.
The Australian Prudential Regulation Authority will be given the discretion to allow a smaller lender, credit union or building society to call itself a bank.

Wednesday, April 26, 2017

From Protectionism to Economic Liberalism: The Managed Decline of the Australian Automotive Industry

From Protectionism to Economic Liberalism: The Managed Decline of the Australian Automotive Industry

Tom Conley


For the past 30 years, policy-makers have managed the decline of the Australian automotive industry. Beginning in the 1980s with the Button Plan, the aim of policy has been to consolidate the industry and avoid the economic and political fallout that would accompany its rapid demise. Managed decline was never the stated aim of automotive industry policies. Up until recently, the stated aim of intervention and assistance was to create a consolidated industry that could develop a research and export focus and survive without protection. Managed decline, however, was an implicit component of automotive policies as the embrace of economic liberalism and globalisation turned into a new policy consensus guiding policy for both Labor and Coalition governments.

Managed decline in this paper refers to a long-term cycle of assistance, declining protection, investment, inadequate restructuring, weak profitability, declining market share, assistance and so on. Inadequate intervention and insufficient industry adjustment led to renewed demands for assistance, increasing calls from commentators that the industry should be allowed to fail,[1] and creating dilemmas for politicians about how to manage the costs of assistance and the potential fallout from industry failure. This led to a growing acceptance that decline was inevitable, given globalisation.[2] Assistance provided for industry survival rather than revival. Nevertheless, governments continued to argue that each new package would set the industry onto a sustainable path, while others argued that the industry had enough flow on benefits to the rest of the economy that survival was essential for a diversified economy.[3] Managed decline, therefore, was accompanied by rhetorical flourishes that promised the possibility of increased global competitiveness, expanding exports, improved R&D spending and the maintenance of employment.[4] This future oriented narrative only partially disguised the growing realisation that the sector would require ongoing assistance.[5]  

With the policy structure shifting to economic liberalism and globalisation, the traditional way of ensuring profitability – restricting the domestic market – was no longer possible. Marks argument in the early 2010s that Australian policy-makers had successfully globalised the automotive industry, “thereby safeguarding the viability of production in the long run”, seems naïve in hindsight.[6] Rather than a transformation of the industry towards production for global markets or as a supplier to regional production structures, the declining domestic market remained the primary focus of Australian car production. [7]  Exports grew, but globalisation opportunities were limited by foreign parents, who never saw a major role for Australian operations in their overall global and regional strategies. In 2012, Toyota assembled vehicles in 23 countries, Ford in 18 and General Motors in 17 countries.[8] Australian operations have been minor components of General Motors, Ford and Toyota’s global empires. The parents were unwilling to provide the investment necessary for a major increase in export production that would have enable increased economies of scale and greater specialisation.

This left the possibility of a complete change of ownership. Policy-makers were unwilling to consider the development of an Australian-owned car industry with one scale producer. Nor was the possibility of tying a restructured Australian industry into the growing network of automotive operations in Southeast Asia. The argument here is not that these changes would necessarily have been successful, but that no alternatives to the existing and declining structure of production and ownership were ever seriously considered. Instead, governments encouraged consolidation of the long-standing industry structure as a trade-off for more assistance, which, in turn, made production viable over the short-to-medium term. These inadequate measures were unable to stave off continual crises and the cycle repeated itself until the Abbott government made it clear to the remaining manufacturers that there would be no additional assistance, and Holden and Toyota announced they would end vehicle production in 2016-17.[9]

Comprehensive policy change and restructuring would have required a belief in the benefits of industry policy, a faith that died in the 1980s.[10] Instead, Australian policy-makers shifted the policy framework from a protectionist policy structure to an economic liberal globalising structure, which precluded the possibility of comprehensive interventionism in the automotive industry.[11] While economic liberalism dominates as a ‘governing’ framework for the appropriate direction of policy, the automotive industry shows that governments have not been pure in their liberal embrace, nor have they abandoned all assistance and industry policies.

Economic liberalism in practice is not the same as economic liberal theory.[12] Governments face political imperatives as well as economic ones. Up until the Abbott government, both Labor and Coalition governments believed that any sudden end to vehicle manufacturing would have serious political and economic consequences. Key marginal seats were at stake and significant unemployment would result. Political machinations, therefore, have forced compromises on the liberal framework. The automotive industry provides a neat case study of both the limiting impact of economic liberalism on policy and of the ways that economic liberalism itself has been limited by political factors.[13]

Economic liberals argue industry assistance (as a key political factor) is nearly always a backward step, crudely associating it with the old protectionism.[14] There have been many influential critics of policy-makers’ failure to embrace a more pure form of liberalism. Treasury Secretary Ken Henry (2001-2011), for example, argued that, “the structural change in Australia’s terms of trade” means that there will have to be a “change in the structure of the Australian economy”. Governments should not resist these structural changes by assisting the manufacturing sector. Instead, governments should support the transition of workers to those “businesses in the Australian economy which do have a long term future with the sorts of terms of trade that we are confronting”.[15] Australians, Henry contends, “should be comfortable with the fact that a country’s pattern of national endowments favours some industries and products over others.”[16]

The dominant economic (policy) narrative in Australia is that policy-makers in the 1980s, 1990s and early 2000s heroically transformed the economy by embracing economic liberalism. The evidence is Australia’s 25 years without a recession. As the Treasury Secretary from 2011-2014 Martin Parkinson argued:
Australia is not immune from economic cycles. But the economic reforms of the 1980s, 1990s and 2000s mean that recessions will happen less frequently and be less severe, on average, than if we still had the economic policies and structures of the 1970s. The conclusion that I would like you to take away is that the 23 years of continuous economic growth that Australia has experienced … was neither an accident nor was it easy. It was built on the tough decisions made by governments in the 1980s, 1990s and 2000s.[17]

This paper argues that the comprehensive, albeit ‘impure’ policy shift towards economic liberalism precluded comprehensive industry intervention because it simply did not fit with the new globalising model of Australian political economy.[18] Globalisation and the development of an economic liberal policy structure acted to constrain economic policy discretion, but declining policy autonomy from the world political economy and market forces was not an unfortunate by-product of the policy shift – it was the very aim of policy.  It was the aim of policy to increase the scope of market regulation by liberalising economic processes and introducing competition to previously protected areas of the economy.  It was also the aim of policy to privilege a more ‘economic’ or ‘market’ set of values and regulations in the determination of individual and societal choices.[19]  This meant that the only viable option for policy was to manage the decline of the industry. Within the confines of an increasingly economic liberal policy structure, managed decline was a rational, incremental, and effective political and policy response to the crisis of car manufacturing in Australia.

The process of managed decline culminated in the ‘decision’ of the Abbott government to ‘allow’ the closure of Holden and Toyota’s vehicle manufacturing operations. Eventually a process of managed decline makes the end less destructive and more palatable. Whether this point had been reached is debatable, but what this paper’s historical narrative makes clear is that automotive industry policies during both the protectionist and economic liberal eras led incrementally and rationally to this outcome.[20]

The paper begins with a brief history of the industry and outlines how the structure of multiple foreign owned manufacturers – developed in the 1960s – was a recipe for an industry that would require ongoing assistance to remain viable. Within the protectionist policy framework this was an expected outcome, even if the form of protection and assistance changed over time. The next section considers the Button Plan as a key turning point for automotive industry policy in Australia. Managed decline (‘consolidation’) was an integral component of the Plan, but it also provided positive assistance that aimed to wean the industry off protectionism. The new interventionist possibilities of the Button Pan were restricted by the Hawke-Keating government’s wider embrace of economic liberalism.[21]  The following section outlines the efforts of the Howard government to restructure the industry. Howard was a pragmatist who supported economic liberalism, but realised the potential damage to his government’s chances of re-election if a key industry folded. This is followed by an assessment of the Rudd government’s short-lived efforts to develop a new ‘green’ car industry. Rudd’s mid-crisis critique of economic liberalism[22] soon morphed into a renewal of vows in support of freer trade and smaller government, and against protectionism. Finally, the article assesses the Abbott government’s decision to ‘allow’ the industry to fold.

Never a Viable Industry

The Australian car industry was protected from its beginnings. It had to be. In the lead up to World War I, demand for automobiles grew quickly and, without protection, their importation would have had a severe effect on Australia’s balance of payments.[23] The availability of Henry Ford’s mass produced Model T through importation made the domestic production of fully built units (FBUs) unlikely. This led to a compromise wherein Australian workers would build vehicle bodies and assemble them with chassis and engines imported from North America and the United Kingdom.  Coach builders transferring to the new industry lobbied hard for increased protection and policy-makers were only too happy to oblige. There was also a growing demand for components – tyres, internal trim and leather, shock absorbers and the like – that could be supplied by Australian firms. After the war, the dual role of tariffs for protection and revenue made them attractive to a heavily indebted federal government.  

In the 1920s, Ford, General Motors, Chrysler and British Leyland established assembly plants. Production became very important for employment. In 1926-7, Australia produced 90,000 car bodies, with a third made by the former coach building company, Holden. Sales of cars were boosted by access to consumer credit, with the formation of Australian Guarantee Corporation. By the end of the 1920s, Australia had the fourth highest number of cars per capita behind the United States, Canada and New Zealand.[24]

The Brigden Report of 1929, while arguing that a further rise in tariffs would lead to costs exceeding benefits, fully supported the role of the tariff in helping new industries like automobile assembly, the building of vehicle bodies and the increasingly important automotive parts and component industries.[25] The Report noted that manufacturing industries could supply higher levels of employment than the export industries. It made sense for Australia to be protectionist during this stage of development, but, as the Report made clear, this needed to be done with a framework of eternal vigilance. The Great Depression reinforced the protectionist ethos, with manufacturing seen as increasingly important for employment and strategic purposes. In 1936, the Lyons government took the next step in the evolution of the automobile industry and established a bounty to encourage “the manufacture of motor engines and chassis in order to permit the manufacture of complete motor cars in this country”.[26]

After World War II, Australia turned to the United States to supply capital and technology for the manufacturing sector.[27]  This was especially the case in the nascent Australian car industry, with the first fully manufactured Australian car, a product of General Motors-Holden, rolling off the assembly line in 1948.[28]  Investors were provided with extensive tariff walls and import quotas so that investments were made with the assurance that the market was fixed and competitive pressures minimal.  The state offered inducements for investment and did not attempt to exact commitments from manufacturers to reinvest profits so as to ensure modernisation.[29] The failure of policy-makers to bargain with the multinationals led to low research and development spending, the use of overseas sources for major contracts, and a generally low priority given to, and sometimes explicit banning of, exporting by subsidiaries.[30] Both political parties were complicit in easy protectionism.
In 1964, GMH built 150,000 EH Holdens with 100 per cent local content.[31]  The Menzies government’s 1964 Plans A and B, however, led to a proliferation of models and reduced any possibility that the industry could increase scale to make it competitive. Local content rules were set at 95 per cent, but less Australian content was needed for lower volume model production. As Richardson puts it, “the system contained an incentive towards low volume vehicle production – a large number of models produced inefficiently”.[32] Conlon and Perkins argue that the inability to exploit economies of scale “has been at the core of the industry’s problems throughout its existence”. [33] In 1966, the Menzies government increased tariffs for completely built up imports from 35 to 45 per cent, making the Australian car industry one of the most protected in the world.
Tariffs were increased three times during the 1970s, although the Whitlam government’s across the board tariff cut of 25 per cent obviously applied to automotive tariffs as well, lowering the automotive tariff to 33.75 per cent.[34] The tariff subsequently returned to 45 per cent in 1974. Chrysler’s position was increasingly perilous and British Leyland exited Australia. In that year, “Chrysler, Ford and GMH announced they would retrench more than 7,000 employees”. The Australian share of the market fell from 84 per cent in 1966 to 68 per cent in 1973. The Government’s response in 1974 was to introduce an 80/20 market arrangement, wherein quotas would restrict imports to 20% of the domestic market. [35]

Prime Minister Malcolm Fraser had opposed the Whitlam government’s tariff cut from opposition, making his support for protectionism a significant point of electoral difference.[36] The new government’s invitations to Nissan and Toyota in 1976 to become full manufacturers increased their number to five, putting intense competitive pressures on Chrysler, Ford and GMH. Chrysler tied up with Mitsubishi and then sold its operation to its Japanese partner in April 1980. Increasing imports, particularly of Japanese small cars, led the Fraser government to extend the temporary 80/20 measure to 1984, increase the tariff to 57.5 per cent in 1978 and to develop an export facilitation scheme in 1979.[37] The 1981 Lynch plan – which would have begun operation in 1984 – continued the local content scheme, extended export facilitation, and substituted a tariff quota system for the 80/20 arrangement, which meant that vehicles could be imported beyond the quota, but at a duty of 150 percent (reduced to 125 per cent in 1992).[38] While protectionism didn’t guarantee profitability, quotas and tariffs did guarantee a market for Australian manufacturers.

The Button Plan and Consolidation

The Lynch Plan was stillborn after the Hawke government won the 1983 election. By the mid-1980s, the manufacturing sector had been in serious decline for more than a decade. Hawke government Industry Minister, John Button, stressed that he was against special assistance to particular sectors and that too little of Australian industry was exposed to “the harsh world of international competition.”[39] The government, he added, “cannot be involved in any detailed attempts to ‘pick winners’.”[40]

Button’s express aim in the Motor Industry Development Plan (Button Plan) was to reduce the number of models produced in Australia from thirteen to six and the number of car manufacturers from five to three.[41] The industry had to decline – consolidate was the chosen description – if it were to be revitalised. The Button Plan had to reform four different types of assistance: local content plans, tariff protection for vehicle (57.5 per cent) and component producers, import quotas (restricting imports to 20 per cent of the domestic market), and export facilitation.[42] The government wanted to build a streamlined, export-oriented automotive sector that could cope with the reduction in tariffs and quotas with so-called ‘positive assistance measures’ such as incentives for exports, investment, and skill and design upgrades.[43]

Given the problems of Australian industry and the government’s connections to the union movement, change had to be gradual. The Plan aimed to maintain assistance in the short-to-medium-term, whilst gearing the sector for lower protection. According to Owens, the Plan aimed to deliver an industry that by the 1990s, would exhibit:

·         a lower cost disability against the world industry (and thus an ability to compete with less assistance)
·         lower real prices for output
·         an ability to export
·         stability of employment
·         greater unity of purpose between the vehicle manufacturing and component sectors.[44]

The Plan was helped in its initial stages by the significant fall in the exchange rate, which allowed the government to abandon import quotas, speed up the pace of tariff reductions and eliminate local content requirements.

In 1990, the Industries Assistance Commission recommended that automotive tariffs be reduced from 35 per cent to 15 per cent in 2000 via annual reductions of 2.5 per cent. The government accepted the recommendation and opened up the Australian industry to a declining share of domestic sales. The measures outlined in the 1991 statement, Building a Competitive Australia, accepted the IACs timetable to reduce Passenger Motor Vehicle (PMV) tariffs.[45] 

Button’s aims for an industry policy shorn of its protectionist shackles was hamstrung by the globalising and liberalising ethos of the government’s two major players – Hawke and Keating. Button’s failure to convince economic liberals within the government that intervention was a necessary component of overall economic policy led to significant frustration. Button was particularly disdainful of Keating’s devotion to Treasury’s economic theories.[46] In 1989, Button complained:

First they told us that the dollar’s depreciation would do the trick via the now long forgotten and unlamented J-curve.  Then we had the W-curve theory, which supposedly took account of the lags.  But these ‘theories’ grossly overestimated the response that could be expected of a narrowly-based and somnambulant industry sector.  Next they told us about the twin deficits thesis . . . Needless to say, after we had achieved what really is a miracle in Australia and eliminated the public sector borrowing requirement, the correlation between the budget deficit and the current account deficit promptly disappeared up its own R-squared.[47]
The Australian automotive industry structure – small market, few exports and too many models – meant that it would never be globally competitive without significant intervention to create one scale producer with perhaps two or three models.  Although there was support for new interventionism within the wider political and industrial wings of the party, a combination of faith in the market, global pressures to restructure the industry, and a belief that the industry needed to be smaller led to managed decline by default.

Delayed Demise during the Howard Years  

In the lead up to the 1996 election, influenced by the disaster of John Hewson’s Fightback package, the John Howard-led opposition argued for a more moderate stance on remaining protection. The Coalition stated that it would link tariff cuts to microeconomic reform and the speed of tariff reform in key trading partners.[48] The government quickly announced a review of the automotive industry by the Industry Commission (IC).[49] Treasurer, Peter Costello, argued that the inquiry should “have regard to the Government’s desire to encourage the development of a sustainable, prosperous and internationally competitive” automotive industry.[50] The government realised that without cutting costs or winning new markets, the industry could not survive further tariff cuts. While exports had increased since tariff reductions had begun in 1988, the industry quickly lost domestic market share. Vehicle exports increased from one per cent of production in 1988 to 7.5 per cent in 1995 and component exports doubled. The problem was that imports had tripled over the same time period.[51] Given the government’s reluctance to increase budgetary assistance, the vehicle manufacturers soon demanded a tariff pause.

In its 1996 draft report on the automotive industry, the IC recommended that tariffs be reduced to 5 per cent by 2004.[52]  The Victorian and South Australian governments were vehemently opposed and the South Australian Liberal Premier John Olsen warned that the Howard government would not survive “being the executioner of our automotive industry”.[53] The Labor Party also called for a freeze on car tariffs.[54]  On the side of further cuts was former Labor PM, Gough Whitlam, who argued that Labor should support further cuts.[55] As the time for a decision grew near it was evident that the issue divided the government with Industry Minister, John Moore, and Costello leading opposed camps. Car industry executives lobbied the Prime Minister hard and were heavily involved in the final negotiations.[56] 

The government’s response was to freeze tariffs at 15 per cent until 2005 when they would drop to 10 per cent.[57]  Howard was concerned about marginal seats in Adelaide and Melbourne, and threats from car companies that future investment would be curtailed if assistance wasn’t forthcoming. As could be expected, the decision was widely condemned by a wide range of political commentators, the National Farmer’s Federation and economic liberals generally.[58]

Much of the rhetoric was hysterical. A major critique was that Howard himself had directly negotiated with the PMV industry chief executives and had caved to their demands. One suggestion was that Howard was pushing an “Australia Inc.” strategy that was redolent of East Asian development strategies.[59] If only. In late August, Toyota responded to the tariff freeze by committing a billion dollars to its Melbourne Production Centre.[60] 

An acceleration of tariff cuts would have signalled to the industry that the government was willing to leave it to its own devices. It’s possible that the government could have matched immediate tariff cuts with extra assistance, but this would have been costly. The maintenance of tariffs provided surety and added to – rather than subtracted from – the budget. The freeze bought some time for an industry that accounted for 5 per cent of manufacturing and one per cent of GDP. A slowdown in the pace of change encouraged the new investment necessary for an orderly, rather than precipitous process of decline. Howard and his key Ministers did not want to preside over the end of the Australian automotive industry.

In the lead up to the 1998 election, the government announced an Automotive Competitiveness and Investment Scheme (ACIS) that Minister Moore argued would provide “an incentive for industry to continue its progress toward global competitiveness and a self-sustaining future in the context of trade liberalization and the globalization of the car industry”.[61] The rhetoric fitted the times, but the real issue was whether the parent companies were really interested in making Australian production part of their global strategies.[62] Earlier, the newly badged Holden announced a plan to invest $1.4 billion to develop export models. This plan played a significant role in the government delaying further tariff cuts.[63] Other manufacturers joined in with headlines announcing that $6 billion in exports were now possible because of the tariff freeze.[64] In April, the government announced a new ‘tax exemption in return for investment’ program to replace the Export Facilitation Scheme, which had been ruled illegal by the World Trade Organisation.[65] 

Problems soon returned. In early 1999, Toyota complained about the falling share of car sales accounted for by local producers, arguing that the government should introduce measures to provide advantages to local producers in the domestic market.[66] The old mind set remained, but the economic environment was now global.

In late April 2000, Mitsubishi announced it was cutting 600 jobs, blaming exchange rate pressures, global overproduction and declining domestic demand.[67] Mitsubishi was the weakest of the car companies and was always likely to be the next pin to fall, but no Federal or South Australian government wanted to be held responsible. This meant that a few more rounds of assistance would be necessary. Mitsubishi’s Japanese parent faced considerable difficulties and made it clear that the Australian operations would require further assistance for the company to remain.[68]
In December 2000, Holden’s US parent decided to build V6 engines in Melbourne, providing some hope that the industry had turned the corner.[69] Chairman and Managing Director, Peter Hannenburger, argued that Holden’s performance was unique in the world: “we are the only guys who can design, develop and build a relatively affordable, high tech car in the low volumes we do while earning some good money”.[70] The decline in the dollar had improved confidence and the prospects for future exports. Continued government support, however, was a necessary part of the profitability equation.  Holden had agreed to $400 million of new investment after the Victorian and Federal governments had offered a further $160 million of assistance, which was on top of assistance already available through ACIS.[71] The deal annoyed the South Australian government who argued that Victorian Premier Steve Bracks had “bought Holden for $60 million”.[72] It didn’t take long for the barbs to come out, with long-term industry critic Alan Wood arguing that the deal was another taxpayer gift to Holden.[73] 

The May 2001 Budget provided further assistance to the industry, with the government announcing a scheme to allow companies to claim full input tax credits on automotive purchases. This was projected to cut $600 million off vehicle prices over the following year. The prediction was that this would increase fleet buying by about a billion dollars.[74] Fleet buying – both public and private – was a significant source of sales for the PMV sector. Despite this new assistance, the sense of crisis in South Australia over Mitsubishi was palpable, with continuing rumours that a shutdown was imminent.[75] Opposition leader Kym Beazley argued that a review of the future trajectory of tariff cuts needed to consider “the jobs issue [and] the activities of our competitors.[76]
The Howard government’s chances in key marginal Adelaide seats was improved by the announcement in early August that Mitsubishi would stay until at least 2005. Although no new assistance was offered by the Federal government, under the revised general $2 billion assistance scheme, Mitsubishi was entitled to $200 million. The SA government provided a further $20 million.[77] Mitsubishi represented managed decline par excellence. It was not going to last, but it wasn’t going to go just before an election.   

On the eve of the 10 November 2001 election, Beazley promised to develop a comprehensive 10 year plan for industry policy and review tariff cuts for the automotive industry. A new Manufacturing Council would investigate ways Australia could overcome Australia’s $60 billion deficit in advanced manufacturing goods and industry recipients of aid would have to make commitments to future employment, skills, R&D and production.[78] Earlier, while visiting a Tasmanian components manufacturer, opposition Industry Spokesperson Simon Crean, had argued: “Australia should not go unilaterally into disarming its tariff levels … There should not be an automatic reduction”.[79]  Delaying cuts to protection had to be a part of the process of managed decline if fiscal costs were to be minimised. 

In December 2001, Mitsubishi asked for additional assistance of $140 billion to stay operational. Around the same time, the re-elected Coalition government directed the PC to review the tariff schedule and to report after the SA election. The government also set up an Automotive Council comprising the CEOs of the 4 majors, CEOs of the five largest part makers and the Heads of the Federal Chamber of Automotive Industries and the Federation of Automotive Components Manufacturers.[80]

After much debate and speculation about Mitsubishi’s future and whether the government would provide additional assistance, the company reported a profit in March 2002.[81] The Japanese parent had made it clear that profitability was essential if a new model were to be developed in Adelaide. Finally, at the end of April 2002, Mitsubishi agreed to invest in its Adelaide operations in return for an $85 million assistance package, comprised of $35 million from the Feds and $50 million from the state government.[82]

In June 2002, the PC provided three options for the Howard government on future assistance, with the preferred option a tariff reduction from 15 to 10 per cent in 2005, a freeze until 2010 and then another fall to 5 per cent. The PC argued that workplace relations would be a key component of future sustainability and that the major companies needed to develop either individual enterprise unions or a single union for all automotive workers. Surprisingly, for the PC, it recommended a continuation of assistance for up to 10 years to help the transition to lower protection.[83] One of the Commissioners argued that “this should be the last period of special treatment”.[84] The PC’s recommendations were surprisingly moderate, with its Chairman Gary Banks realising that a hard line approach would see it sidelined from the debate. Nevertheless, it also recommended an end to tariff protection and a wind down of assistance.[85]

The political imperative for managed decline was so great that it had tamed the government’s key source of economically liberal policy advice. The opportunity to accelerate the process of decline by winding back assistance had passed. The government could have used its ‘independent’ policy advisory body and a growing chorus of media and industry backers to back such a stance, but it was too early both politically and economically. The potential damage to the economy was too large to contemplate at a time of economic uncertainty. At this time, the Australian economy had weathered the Asian financial crisis and the tech wreck of 2000 and early 2001. One of the major reasons for Australia’s success was the collapse of the dollar, which had led to higher exports.[86] This renewed export dynamism strengthened the industry’s case that renewed assistance would lead to large ‘sustainable’ increases in automotive exports.

In mid-December 2002, the Howard government announced a 10-year, $4.2 billion package for the car industry (later redefined to be worth $7.3 billion).[87] The Automotive Competitiveness and Investment Scheme (ACIS) replaced an earlier 5-year $2 billion scheme that was to end in 2005. The new package was available to car makers and the components industry and was to run from 2005 to 2015, augmenting the 1998 package. The government legislated to lower tariffs to 10 per cent in 2005, with a further reduction to 5 per cent in 2010.[88] The Industry Minister Ian McFarlane argued that the package would create “10 years of certainty” for the car industry and suppliers.[89] He noted that:
The new-look ACIS package goes far beyond what was recommended by the Productivity Commission Review, adding an extra 50% or $1.4 billion over the 10 year continuation of the scheme. The package is also aimed squarely at innovation, it has a greater emphasis on R&D, rather than production, subsidies. The post-2005 package will deliver more than $1 billion to car and component research and development. A new feature will be a $150 million R&D fund specifically for vehicle manufacturers investing in new and innovative technologies.[90]
The Minister also argued that without the package (and despite the recent assistance), Mitsubishi would not have committed to new investment and would have folded.[91] Reinforcing the sense of optimism, Ford announced a $500 million expansion of its Broadmeadows operation in Victoria, Toyota declared it was considering a $600 million expansion and Holden announced plans for a $400 million engine plant in Melbourne and a $460 million plant in Adelaide.[92] Unsurprisingly, economic liberal commentators were unconvinced and continued to question the desirability of assistance and protection.[93]

Over the next year, it appeared that the industry was going from strength to strength, with Mitsubishi and Toyota announcing further investment in Australia and Holden opening its $400 million engine plant.[94] Industry executives predicted that by 2010, the PMV sector would “produce 500,000 vehicles a year and export $10 billion worth of product”.[95]

In early 2004, the ALP National Conference committed the Mark Latham-led opposition to an interventionist industry policy with Industry spokesman, Kim Carr, announcing that “Labor will work with particular industries to achieve national goals”.[96] Labor’s renewed support for interventionism came as pressures in the car industry began to increase once again. In May 2004, Mitsubishi announced that it would close its engine plant at Lonsdale in Adelaide, but commit to vehicle manufacture at its Tonsley Park operations with a $600 million investment in a new sedan.[97] Unfortunately, there were no commitments beyond 2011 and most analysts believed that Mitsubishi was simply managing its own decline and eventual departure. Political pressure on the Japanese parent had played a role in staving off closure.[98]

On 1 January 2005, car tariffs dropped from 15 per cent to 10 per cent and the automotive sector faced a rising dollar, significantly higher steel and energy prices and greater competition from imports. The components sector was particularly hard hit as cost pressures led to closures and offshoring, which in turn lowered the level of local content in the ‘locally’ built models.[99]  Exports, however, continued to expand, with the Ford Territory SUV garnering significant sales in South Africa, Holden entering China and South Korea and Toyota exporting Camrys to the Middle East.[100] In early August, Minister Macfarlane announced the formation of an Auto Industry Strategic Group to develop a ‘Team Australia’ approach to negotiations with Detroit and Tokyo. [101]  

Once again, problems soon returned. Holden announced it would reduce production from 855 cars a day to 620 and cut 1400 jobs.[102] The new Commodore VE model – a flagship for the company – would be only 50 per cent locally built, meaning less business for local component manufacturers.[103] On a trip to Tokyo to plead for more work for Australian component makers, Macfarlane warned that: “[t]his is the low-water mark for the Australian car industry.”[104]

The misery continued into 2006, with Holden’s announcement that it would use an Australian designed ‘Zeta’ platform for a new Camaro model in the United States, a rare exception. Mitsubishi bled more jobs and there was growing belief that the industry’s days were numbered. In May 2006, Howard announced a further $52 million of assistance for Ford and $101 million for industry research and development.[105] He argued, “I don’t believe in an Australia with a steadily diminishing contribution from manufacturing industry to the nation’s future”.[106]

In late 2006 and over the whole of 2007 rumours about Mitsubishi’s imminent demise grew stronger.[107] The US parents of Ford Australia and Holden announced major losses, adding to the general perception of malaise.[108] In December, Macfarlane announced a $7.2 million assistance package for the components sector.[109] Later that month, the four majors asked the government for a tariff freeze at 10 per cent and an additional billion dollars of aid. Both Costello and Howard ruled out any further changes, reminding the companies that the government was committed to planned tariff cuts.[110] The protectionist option was no longer considered by either the government or the opposition. The automotive unions, however, continued to support tariff protection as did Finance Minister, South Australian Senator Nick Minchin.[111]

By 2007, the rising dollar increased the attraction of imports and the rising price of petrol was further bad news for Australian vehicle production. In March, the Labor opposition announced that it would develop a$500 million dollar plan aimed at the production of environmentally friendly vehicles.[112]  In July, Ford announced that it would close its engine plant in Geelong in 2010 with a loss of 600 jobs, but then announced that it would begin manufacture of the small Ford Focus.[113] The Federal and Victorian state governments contributed $20 million each.[114] The project, however, never got off the ground.

Despite his reputation on the left of the political spectrum as a neoliberal ideologue, Howard realised that ad hoc assistance bought some time – helped to manage the decline of the sector – and was necessary to maintain electoral support.[115] The strategy was to provide support and hope that it would be enough to keep the companies operational for at least the next electoral cycle. The booming economy of the early –to-mid-2000s led to some complacency about the state of manufacturing generally, but it also provided an important budgetary boost. From 1996 to 2005, exports grew at an annual average of 14 per cent, but this good news was overshadowed by the four car makers’ loss of domestic market share to 20 per cent of the market in 2006.[116] Australians were buying cars in record numbers, just not Australian made ones. The industry unsuccessfully gambled on a continuation of Australians’ love affair with large family sedans, but buyer preferences shifted to smaller cars and sports utility vehicles (SUVs) not manufactured in Australia.[117] The ad hoc nature of industry assistance could not counter the unpreparedness of the Australian industry for globalisation.

If we consider openness, assistance and investment as three key variables, then it is clear that all three were necessary for the industry to continue.  The equation was clear for policy-makers: openness was now a given, which meant that new investment would require ongoing and substantial assistance. The overall embrace of economic liberalism presented policy-makers with a choice: let the industry die or maintain the charade that the industry could get on a sustainable footing with another round of assistance, leading to another round of investment. Apart from consolidation, industry structure remained the same, which meant that continuing assistance would be necessary. But what if the Australian industry could embrace green technologies, would that allow the industry to get on a sustainable footing?

The Unfulfilled Promise of the Rudd Government

Despite Kevin Rudd’s rhetorical support for manufacturing, he left office with a substantially smaller sector than when he entered.[118] Manufacturing fell from 10.1 per cent of gross value-added in 2007 to 7.1 per cent in 2013.[119] Its percentage contribution to overall employment slipped from 9.9 per cent in 2007 to 7.9 per cent in 2013.[120] The pain started immediately. Mitsubishi announced that it would cease vehicle production and the government considered a tariff freeze for the three remaining manufacturers.[121] The Rudd government quickly announced four industry inquiries and did not give the PC a role in assessing the merits or otherwise of prospective industry assistance. Rudd knew what the PC would argue, because it had been arguing the same thing for years – that assistance to the car industry came at a cost to other sectors of the economy and that it should be abandoned. The PC and its Chair Gary Banks believed that the automotive industry should adjust to the shift in investment towards commodities, meaning that its continued operation was not necessary for Australian prosperity. Worse, assistance inhibited the free working of the market.[122] This view was widespread amongst key economic policy-makers in the Treasury and the RBA.

Industry policy also lacked support among economic policy commentators. It was easy to criticise industry policies as ad hoc, because they were.[123] The Rudd government, they argued, was returning to the ‘bad old days of big government and state intervention in the economy’.[124] Any effort to comprehensively restructure the industry, therefore, had to battle against the now dominant economic liberal policy consensus. Australian business was also offside with what it considered to be the “old, failed policies of protectionism and intervention.[125] Despite pressure from the unions, the Rudd government was keen to establish its free trade credentials by upholding plans to reduce tariffs. The government’s trade policy did not help the car industry and manufacturing generally. Free trade deals with Thailand and the United States allowed cars to come into Australia tariff free, while Australian producers faced prohibitive tariffs in Thailand and parent-imposed limitations in the US.
In response to the global financial crisis (GFC), the government increased spending, but targeted households and infrastructure, rather than long-term industry development. With the Australian economy subsequently invigorated by China’s massive economic stimulus, the government soon cut spending to improve the budget position, restricting the scope for future assistance measures. No wide scale restructure of the car industry occurred because it would have been expensive and policy-makers lacked faith in its potential to flourish even with increased assistance.

The rearranging of the deck chairs continued. In mid-2008, Holden announced it would cease production at its engine plant, but announced that it would build the Cruze – another small car model.[126] Given the tardiness of their parents in developing hybrids, it was unlikely that Australian production could adapt to growing demand for these vehicles. Ford and Holden’s aim in Australia was to continue to bet on domestic demand buttressed by continuing assistance. Assistance was assured under a Labor government, but within the opposition there were growing calls for an end to the endless cycle of assistance.[127]

The major players continued to stumble through a cycle of crisis-assistance-crisis, which ultimately ended with the closure of Mitsubishi in 2008. The substantial funds that the South Australian and Federal governments poured into the company ultimately could not save it. The political ramifications were less severe because the Rudd government was newly in office and could not be blamed for its closure (although the state government could be blamed) and most people, even in the southern suburbs of Adelaide where the factory was located, had increasingly accepted the fact that Mitsubishi was doomed. Managed decline had worked.

Throughout 2008, there was dire news from both Ford and the components sector. Ford announced more than 1450 job losses and the components sector warned that up to 7000 jobs were in danger because of falling demand.[128] Holden also announced significant job losses. Production cuts were planned by the whole sector and the global industry was experiencing its worst crisis in a generation. In June, The federal government and Victorian state government gave Toyota $35 million each to build a new hybrid Camry in Melbourne.[129] Some critics argued that Toyota had already decided to build the car and that the money was a gift.[130]

The global credit crunch severely affected demand for cars world-wide because of the vital role that consumer credit plays in car purchases. Ford and General Motors in the United States teetered on the brink of bankruptcy and became even more reliant on government bailouts. Global oversupply and widespread assistance to national car industries throughout the world meant that continuing assistance would be vital for the survival of an Australian industry. 

In August 2008, the Bracks Review argued for increased ‘green’ assistance but no delay on planned tariff cuts.[131] Paul Kelly argued that the report showed an enthusiasm for “green protectionism”.[132] The PC was also a critic arguing:
Assisted ‘green car’ production is unlikely to lead either to innovation spillovers or lower greenhouse emissions. The GCIF [Green Car Investment Fund] will likely encourage some buyers to switch from taxed, more efficiently produced imported hybrid and fuel-efficient vehicles to subsidised, higher cost, locally-produced ones — without markedly increasing ‘green car’ sales overall. Moreover, with an Emissions Trading Scheme in prospect, policies that directly encourage or prescribe production and use of particular emission reduction technologies are not needed and may be counterproductive.[133]
Labor wanted its car industry plans to tie in with its climate change commitments. The aim was to revitalise the local car industry by developing fuel-efficient vehicles. Soon after, Ford announced that it was cutting 300-350 workers at its Melbourne plants because of declining demand for its 6-cyllinder vehicles. A month later it said another 450 jobs would go.[134] Meanwhile Holden was increasing its number of ‘down days’.

In November 2008, the government responded to the Bracks Review by announcing A New Car Plan for a Greener Future. New assistance aimed to support continuing production and was now backed by a new ‘green’ justification. The measures involved would not be enough to assist any wide scale restructuring of the industry to take advantage of future changes in vehicle demand; nor were there any plans to tie in with regional production networks. Rudd argued the Plan was a “decisive action to build an internationally-competitive, green economy for the future”.[135] The substantial new assistance was greeted with relief by the industry and workers and criticism from the usual suspects.[136]

Nevertheless, the sums committed were not small. Total assistance was $6.2 billion. A 10-year Green Car Fund (GCF) provided $1.3 billion of assistance, with the aim of generating $5 billion of investment. A $3.4 billion Automotive Transformation Scheme (ATS) replaced the Howard government’s ACIS and was to operate from 2011 to 2020, with the aim of generating $12 billion in new investment in R&D. There was $2.2 billion in new assistance, beyond what had already been committed, and the main assistance items would only be spent if the industry committed to new investment. The objective was to kick-start the production of low-emission and fuel efficient vehicles and to get the industry to embrace green car technology and reduce fuel consumption. Assistance to the car industry was sold as a contribution to the wider policy aim of reducing carbon pollution.[137]

Industry survival required the government to deliver assistance across the board to both the manufacturers and component suppliers. The green plan included a $116 million structural adjustment program for the components sector, $80 million to smooth the transition between ACIS and the ATS, $20 million to help suppliers integrate into the global supply chain, $6.3 million to improve market access, and a $10.5 million expansion of the LPG vehicle scheme.[138] The plan led Ford to shelve plans to shut its Geelong engine plant and Holden received another $180 million ($149 million from the GCF and $30 million from the SA government) to produce a small, fuel-efficient model.[139] The problem was that the Plan continued to rely on the benevolence of the parents to maintain existing and develop new production.

Despite the initially positive outlook generated by the new plan and investment, the mood soon turned sour, and once again it was not long before the industry was pleading for more assistance. In 2009, Holden announced an end to Holden’s exports of a restyled version of the Commodore, sold in the United States as a Pontiac. In 2008, Holden had shipped 36,000 cars to the US. With GM filing for bankruptcy in the US, the directive was that overseas subsidiaries would have to finance themselves.[140] Holden was not their major concern. Minister Carr and Holden moved to reassure Australian workers that their jobs were safe. In August, Holden announced that it would build a new ‘green’ V6 engine in Australia.[141] In August the Federal government gave Holden another $200 million. This was on top of the $179 million given to the company to fund the new ‘green’ car.[142] The debate then turned to the possibility that Australia could become an electric car “champion”. In October, the Federal government led a mission of executives and designers to the US and the UK to try to secure additional business for the automotive sector. Survival was the major goal. Minister Carr said that:
Australian vehicle production volumes for 2009 have fallen to the lowest level since 1957, yet car manufacturers in Australia have emerged as survivors from the global recession. This is a testament to both the sacrifices made within the industry, and to the effectiveness of the support it has received from the Rudd Labor Government. [143]
In early 2010, Ford President Alan Mullaly argued that the end of the road was near for the Australian produced Ford Falcon.[144] The PC continued its criticism of assistance, arguing that the government should rollback existing subsidies for the sector. The launch of the hybrid Toyota Camry in February took place amidst global safety concerns about Toyota’s Prius models.[145] In October, Holden opened a new Cruze body shop at Elizabeth in readiness for the production of the small car, which would occur alongside the manufacture of the Commodore.

In the 2010-11 Budget, the government scaled down the Green Car Innovation Fund (GCIF) by $200 and subsequently abolished it in January 2011, saving $234 million from uncommitted funds over the forward estimates and $401 million over the life of the scheme. These savings helped to pay for recovery and reconstruction after the natural disasters of early 2011.[146]

The government broke its promise to develop a new environmental focus for the Australian industry and any possibility that the government was not simply managing the decline of the industry disappeared with the cuts.[147]  Despite the difficult conditions caused by the GFC, during the life of the fund, local manufacturers “introduced Australia's first hybrid car (Toyota's Camry Hybrid), and committed to introducing a new small car (Holden’s Cruze) and the release of a number of new, more fuel-efficient engines, including the country's first diesel engine”.[148]

In April 2011, Toyota’s operations were negatively impacted by the Japanese earthquake and Ford announced another 240 job losses.[149] In May, the government committed $39.8 million to Holden under the Green Innovation Fund to help produce a more fuel-efficient Commodore. The company, however, was critical of the wider cuts to the GCIF and later in the year argued that the government needed to develop a new and comprehensive co-investment program with the vehicle manufacturers.[150]

Desperate measures to stave off further decline continued. In January 2012, the Federal and Victorian governments committed $34 million to help Ford maintain production until 2016. Later that month, Toyota announced that the high Australian dollar had forced it to cut 350 jobs. Despite the regularity of new assistance to the industry, the public still overwhelmingly supported automotive production.  In an Age/Nielsen poll in February 2012, 79 per cent of respondents supported either maintaining (58 per cent) or increasing (21 per cent) subsidies to the industry.[151]

In March, Prime Minister Gillard announced a $275 million deal to sustain Holden’s operations after the company threatened to close its manufacturing base in Australia if it didn’t receive further assistance.[152] The federal government contributed $215 million, the South Australian government provided $50 million and, after some resistance, the Victorian government offered $10 million. In return, Holden agreed to invest more than $1 billion in its manufacturing operations, which were to continue in Australia until at least 2022. The government declared that the assistance was “not a hand out” but “a strategic investment”.[153]  Darkening the clouds was the fact that the opposition was committed to cutting $500 million from automotive assistance if it won the next election.
The equation was now clear: either government provided assistance and managed decline continued for another round or assistance was cut and the industry folded. It seemed all players had dropped the pretence that the industry could eventually stand on its own two feet after just ‘one more round of assistance’. Opposition Treasury spokesperson, Joe Hockey stated that he had “deep, deep reservations” about assistance to Holden.[154] Paul Keating joined the chorus of criticism arguing the case for economic liberalism: “[i]f you are going to have terms of trade like this for a decade or 15 years or even perhaps longer, and the exchange rate is going to be elevated and the structural pressures are on, then the idea of trying to insulate companies and industries is a sub-economic idea”.[155]

Throughout the rest of 2012, speculation grew that Ford would be the next manufacturer to fall. Late in the year in an increasingly rare piece of good news Toyota opened a new $330 million engine plant after receiving $63 million in Federal funding. Toyota Australia President Max Yasuda said “I am a true believer in local car making and Australian manufacturing … Building a new engine plant in Australia is at the heart of our manufacturing strategy”.[156]

In April 2013, Holden Chairman, Mike Devereux, revealed that the company had received $2.2 billion in assistance over the previous 12 years. He argued that without the assistance it would have been “absolutely impossible to make cars in this country”.[157]  The company then announced that it was cutting its Elizabeth workforce by a quarter. In May, Ford Australia confirmed that it would end local vehicle production in October 2016, leading to the loss of 1200 Victorian jobs and the end of production of the Falcon and Territory.[158] After returning to the Prime Ministership, Kevin Rudd announced $500 million of new assistance to the car industry, insisting that the September election would be a “referendum on the car industry”.[159] If that were true, the subsequent election of the Abbott government was not a positive sign for the industry.  

The Abbott Government and the End of the Road

Despite calls for additional assistance, new Prime Minister, Tony Abbott, made it clear that there would be no extra financial support beyond the $1 billion allocated from 2015 to 2020. Holden rejected Abbott’s demand that the car companies double exports in return for any assistance, arguing that there would be insufficient international demand.[160] In distinction to Labor’s sidelining of the PC in industry inquiries, the newly installed Abbott government assigned the PC the dominant role in its deliberations on the sector’s future.[161] This was a clear signal of change, given the PC’s hostility to automotive assistance.

On 5 December 2013, Abbott told Holden there would be no additional assistance and demanded that the company reveal its intentions.[162] Over the next few days, Joe Hockey argued that the “numbers involved in [automotive] employment are greatly exaggerated when it comes to the motor vehicle industry”. Hockey expressed frustration that Holden had not revealed its plans and in Parliament stated: “either you’re here or you’re not … There’s a hell of a lot of industries in Australia that would love to get the assistance the motor vehicle industry gets”.[163] Within the week, Holden was gone; the company announcing that it would cease Australian production by 2017. South Australian Premier, Jay Weatherill, was scathing about the government’s cavalier attitude: “The Feds asked Holden to delay a decision about their future pending the Productivity Commission report. Now they bag them for delaying a decision about their future.”[164] In February 2014 Toyota decided that it too would cease local manufacturing by 2017.

The Abbott government’s failure to continue assistance fitted with its rhetoric about the “end of the age of entitlement”.[165] Abbott argued that ‘we don’t want to see corporate welfare … we don’t believe in corporate welfare’.[166] Trade Minister Andrew Robb warned of “hard outcomes” for companies that could not adapt to global change.[167] According to the Treasurer, Joe Hockey: “Everyone in Australia must do the heavy lifting now. The age of entitlement is over. The age of personal responsibility has begun.”[168]  A year after the announcements Hockey argued that the end of car industry assistance had been an important trade-off for the completion of trade deals with Korea, China and Japan: “There would not have been any free-trade agreements if we hadn’t made the hard decisions about industry assistance”.[169]

The demise of the industry did not mean an immediate end to budgetary outlays as the government had to assist the large number of workers affected and provide funds to encourage alternative economic development. The major issue for the automotive industry after Toyota’s exit announcement was whether the components industry could survive without demand from the domestic vehicle manufacturers and without increased government support. Given the reliance of many components manufacturers on contracts with vehicle manufacturers, the end of vehicle production has meant the end for many component suppliers.[170]

Both the government and the Labor opposition blamed each other for Holden’s demise.[171] The government argued unpersuasively that Labor’s carbon tax and excessive wages were major factors.[172] Clibborn et al. argue that it is “difficult to accept the argument prominent in public discourse that industrial relations arrangements were the main factor contributing to the demise of the automotive industry”.[173] The opposition contended that the government bullied Holden out of Australia by criticising its failure to commit to future production and refusing to canvass reinstating already withdrawn assistance or developing new forms of assistance.[174]

The Abbott government gambled that the political fallout would be limited and that the economic consequences could be limited by expansion in other sectors of the economy. The continuing growth of the economy over 2016 and 2017 has helped to soften the blow of closure, but the major concern for the Turnbull government or its successor is whether the final end of production in October 2017 will be accompanied by an end to Australia’s comparatively stellar 25 year economic performance.[175]  Regardless of the political consequences, the economic consequences are certain. Australia no longer has a vehicle manufacturing industry.


Managed decline provided a neat fit for an automotive industry that was increasingly seen as economically unsuited for the new policy environment shaped by globalisation and economic liberal ideals, but which was still politically significant. Automotive industry policies show how economic liberalism shapes policy possibilities and how the uptake of economic liberal policies is itself limited by political demands for government assistance and intervention.

Political demands for assistance have been the norm in Australia’s manufacturing industries and it is this expectation of protection that had to be fought against in the 1980s. Once that battle had been won by the 1990s, the question was whether the industry as it existed could ever be viable in an open Australian economy without ongoing assistance. The answer was clearly no. The automobile industry moved from birth through infancy to old age without ever really achieving adulthood.

The demise of the automotive industry and continuing decline of the wider manufacturing sector signals another victory for economic liberals who have long argued that governments should facilitate rather than fight the reallocation of economic resources from manufacturing to resource and service industries in which Australia has a comparative advantage. The major issue for governments has been the electoral consequences of collapse rather than the role an automotive industry (or indeed manufacturing) could play as a key component of a diversified economy.

The Australian industry did not develop as part of a global production network, nor did it integrate sufficiently into the evolving regional production structure. China is already the world’s largest producer of cars and India is likely to join it at the top in coming years. Thailand’s protected industry is also likely to grow. The domestic industry could have developed a global or regional niche for specialised vehicles or components or pushing Australia’s strengths in rear-wheel drive, sophisticated large car production. Consolidation could have co-existed with an attempt to encourage one of the major producers to turn their Australian operations into high volume producers of major components or engines. If even a portion of assistance provided to the major foreign producers had been spent on researching alternative engine technologies, Australia could have been at the forefront of a vibrant and potentially productive industry.

[1]       See for example Alan Mitchell (2002) “Bite the Bullet on Mitsubishi”, Australian Financial Review, 23 January.
[2]       See for example Alan Wood (2001) “Gift Wrapped” Billion Dollar Business Welfare”, The Australian, 13 December. 
[3]       Philip Toner (2012) “It’s Time to Weigh the Cost and Benefits when it Comes to the Car Industry”, The Conversation, 23 March <>; Steve Bracks (2008) Review of Australia's Automotive Industry, Canberra, 22 July <>.
[4]       See for example Anonymous (1998) “Australia to Give its Industry a $1.3 Billion Boost”, Automotive News, May 11; Mike Kable (1998) “Holden Invests $1.4bn in Exports”, The Weekend Australian, 7-8 February, p.1; Robert Gottliebsen (2000) “GM Shows the Way Forward for Local Industry”, The Australian, 14 December, p.26; Ian Macfarlane (2002) “A Decade of Certainty for the Automotive Industry”, Media Release, 13 December <;fileType=application%2Fpdf#search=%22media/pressrel/82e86)%22>.
[5]       See for example Alan Wood (2000) “Taxpayers’ Gift to Holden”, The Australian, 19 December, p. 1.
[6]       Andrew Marks (2013) “The Globalization of the Australian Textile, Clothing, Footwear and Motor Vehicle Industries: Results in Line with Other Western Market Economies”, Global Economy Journal, 13(1), p. 148.
[7]       Alan M. Rugman and Simon Collinson (2004) “The Regional Nature of the World’s Automotive Sector”, European Management Journal, 22(5); Timothy Sturgeon, Johannes Van Biesebroeck and Gary Gereffi (2008) “Value Chains, Networks and Clusters: Reframing the Global Automotive Industry”, Economic Geography, 16(3); Prema-chandra Athukorala (2010) “Production Networks and Trade Patterns in East Asia: Regionalization or Globalization?”, Working Paper Series on Regional Economic Integration, No. 56, August, Asian Development Bank <>;
[8]       Productivity Commission (2013) Australia’s Automotive Manufacturing Industry: Preliminary Findings Report, December, Canberra <>.  
[9]       Emma Griffiths (2014) “Holden to Cease Manufacturing Operations in Australia in 2017”, ABC News, 14 January <>.  Emma Griffiths (2014) “Toyota to close: Thousands of jobs to go as carmaker closes Australian plants by 2017”, ABC News, 10 February <>. Joshua Dowling (2017) “Holden Last to Turn out the Lights on Australian Car Manufacturing After Toyota announces October 3 Shutdown”, 31 January 
[10]     Tom Conley and Liz van Acker (2011) “Whatever Happened to Industry Policy in Australia?”, Australian Journal of Political Science, 46, 3.
[11]     Tom Conley (1999) Economic Discipline and Global Punishment: Globalisation and Australian Economic Policy during the Hawke and Keating Years, unpublished PhD dissertation, Department of Politics, University of Adelaide, Adelaide, June <>.
[12]     Damian Cahill (2010) “‘Actually Existing Neoliberalism’ and the Economic Crisis”, Labour and Industry, 20(3), pp. 298-316; Tom Conley (2009) “Globalisation and Liberal Democracy” in M. Heazle, M. Griffiths and T. Conley (eds) Foreign Policy Challenges in the 21st Century, Cheltenham, Edward Elgar.
[13]     Karl Polanyi (1957[1944]) The Great Transformation: The Political and Economic Origins of Our Time, Boston, Beacon Press; Dani Rodrik (1998) “Why Do More Open Economies Have Bigger Governments?”, The Journal of Political Economy, 106(5); Elmar Rieger & Stephan Liebfried (2003) Limits to Globalization, Cambridge, Polity Press, Tom Conley (2009) The Vulnerable Country. .
[14]     See Tom Conley (2001) “The Domestic Politics of Globalisation in Australia”, Australian Journal of Political Science, 36(2); Conley and van Acker, ‘Whatever Happened to Industry Policy in Australia?’.
[15]     Henry appearing before the Senate Select Committee on the Scrutiny of New Taxes (2010) “Reference: National Mining Tax”, Official Committee Hansard, Canberra, 22 November <>. See for detailed discussion Tom Conley (2010) “Keep on Booming” Big P Political Economy, 2 December <>. 
[16]     Ken Henry (2014) “Public Policy Resilience and the Reform Narrative”, Address to the Crawford School of Public Policy, 16 September <>. 
[17]     Martin Parkinson (2014) “Reflections on Australia’s Era of Economic Reform”, Address to the European Australian Business Council, Sydney, 5 December <>.
[18]     Conley, Economic Discipline
[19]     Tom Conley (2004) “Globalisation and the Politics of Persuasion and Coercion”, Australian Journal of Social Issues, 39(2).
[20]     Tom Conley (2013) “The Great Transformation? The Political Economy of Structural Change in Australia” in E. van Acker and G. Curran (eds) Government and Business in Volatile Times, Sydney, Pearson.
[21]     Conley, Economic Discipline, ch. 6.
[22]     Kevin Rudd (2009) “The Global Financial Crisis”, The Monthly, February, pp. 21-22.
[23]     R. M. Conlon and J. A. Perkins (1995) “Automotive Industry Policy in Australia: Origins, Impact and Prospects”, Economic Papers: A Journal of Applied Economics and Policy, 14(3), pp. 50-51.
[24]     Meredith and Dyster (1999), pp.107-09.
[25]     J. B. Brigden, D. B. Copland, E. C. Dyason, L. F. Giblin, C. H. Wickens (1929) The Australian Tariff: An Economic Inquiry, Melbourne, Melbourne University Press. Meredith and Dyster (1999), p. 106.
[26]     Conlon and Perkins, “Automotive Industry Policy in Australia”, p. 50.
[27]     Brian Pinkstone (1992) Global Connections: A History of the Exports and the Australian Economy. Canberra, AGPS, p. 146. 
[28]     Dyster and Meredith, Australia in the International Economy, pp. 188-189. 
[29]     N. G. Butlin, A. Barnard and J. J. Pincus (1982) Government and Capitalism: Public and Private Choice in Twentieth Century Australia. Sydney, Allen & Unwin, p. 142.
[30]     Stephen Bell (1993) Australian Manufacturing and the State: The Politics of Industry Policy in Australia, Melbourne, Cambridge University Press, pp. 34-35.
[31]     D.C Haas (2013) “Protectionism and the Australian Automotive Industry 1896 to 2012 - A Timeline”, In Four Wheels, 26 February <>. 
[32]     David Richardson (1997) “Protection in the Motor Vehicle Industry”, Current Issues Brief, 22, 1996-97 <>.
[33]     Conlon and Perkins, “Automotive Industry Policy in Australia”, p. 51.
[34]     David Owens (1995) “The Button Plan in Retrospect”, Economic Papers: A Journal of Applied Economics and Policy, 14(3).
[35]     Conlon and Perkins, “Automotive Industry Policy in Australia”, p. 53.
[36]     John Warhurst and Jenny Stewart (1989) “Manufacturing Industry Policies” in Brian Head and Alan Patience (eds) From Fraser to Hawke, Melbourne, Longman Cheshire.
[37]     Conlon and Perkins, “Automotive Industry Policy in Australia”, p. 53. 
[38]     Ibid., p. 54 and Richardson, “Protection in the Motor Vehicle Industry”. 
[39]     John Button (1983) “Speech to National Economic Summit,” (14 April) Commonwealth Record, 11-17 April, p. 444.
[40]     John Button (1984) “Speech to Regional Economic Symposium,” (7 May) Commonwealth Record, 14-20 May, p. 878.
[41]     Maximilian Walsh (1984) “Button’s Car Scheme: The Time for Decisions is Nigh”, Sydney Morning Herald, 31 May.
[42]     Owens, “The Button Plan in Retrospect”, pp. 69-70.
[43]     Bell, Australian Manufacturing and the State, p. 139.
[44]     Owens, “The Button Plan in Retrospect”, pp. 70-71.
[45]     Hawke, Keating and Button, Building a Competitive Australia, p. 1.6. See section 5 of the document for the detail of the measures. The statement cut remaining tariffs substantially. The general level of assistance was to be reduced from the 10 and 15 per cent levels declared in May 1988, to a general rate of 5 per cent by 1996; motor vehicle tariffs were to be reduced from 35 per cent to 15 per cent by 2000 (in annual increments of 2.5 per cent); textiles, clothing and footwear tariffs were to be reduced to a maximum tariff level of 25 per cent in 2000, with quotas being terminated by March 1993, two years earlier than planned; and finally, general agricultural assistance was to be reduced “in line with the pace of tariff reform in manufacturing.”
[46]     John Button, “The Hawke Government’s Initiatives and Strategies for Growth (Address to the Australian Financial Review Conference ‘Industry Policy and the Hawke Government’),” Sydney, 14 July 1989. 
[47]     John Button, “The Hawke Government’s Initiatives and Strategies for Growth (Address to the Australian Financial Review Conference ‘Industry Policy and the Hawke Government’),” Sydney, 14 July 1989.  When interviewed by Button on the Nine Network's Business Sunday programme on 15 August, 1993, Keating admitted that Button was probably right about the ineffectiveness of the J-curve.  Laura Tingle, “Seven Years On PM Admits Button Was Right On J-Curve,” Australian, 16 August, 1993, p. 2.
[48]     Michael Lynch (1995) “Car Industry Greets Lib Tariff Rethink”, Australian Financial Review, 4 July.
[49]     The Productivity Commission came into being administratively in June 1996, but was not legislated for until 1998. See Productivity Commission (2003) From Industry Assistance to Productivity: 30 Years of ‘the Commission’, Productivity Commission, Canberra. The draft report on the automotive industry was published nominally under the PC label, but the final report was published as an IC Report. 
[50]     Ian Porter (1996) “It’s Just the News the Auto Industry Wanted to Hear”, Australian Financial Review, 5 August.
[51]     Natasha Bita (1996) “Car Industry Tariff Cuts Drive in the Competition”, The Australian, 14 October, p. 21.
[52]     Industry Commission (1996) The Automotive Industry: Draft Report, Melbourne, The Commission.  See Ian Henderson (1996) “Pressure for Hard Line on Tax, Tariffs”, The Australian, 20 December, pp. 1& 4.
[53]     Cited in John Kerin (1997) “Olsen Drives Car Tariff Cut Dangers Home to Howard”, The Australian, 20 March, p. 4.
[54]     David McKenzie, “Labor Ties Tariff Cut Timetable to Foreign Progress,” Australian, 22-23 February 1997, p. 4; Steve Lewis, “Labor Calls for Car Tariff Freeze,” Australian Financial Review, 27 February 1997, p. 4.  Former Industry Minister, John Button, also came out in support of a freeze.  Natasha Bita, “Button Backs Tariff Freeze, Warns of APEC Cheats,” Australian, 20 February 1997, p. 4.
[55]     Gough Whitlam, “Labor Must Hold the Line on Tariffs”, Australian, 14 March 1997, p. 15.
[56]     John Short, “The Inside Story: How They Won Over Howard,” Australian, 6 June 1997, p. 2.  It is worthwhile noting that noone in the Government supported the Industry Commission majority position with Costello arguing for a 1 per cent a year decrease in tariffs between 2000 and 2005. 
[57]     Steve Lewis and Michael Dwyer, “PM Caves in on Tariffs,” Australian Financial Review, 6 June 1997, pp. 1 & 8. 
[58]     Michelle Grattan, “Bad Compromise Weakens Howard,” Australian Financial Review, 6 June 1997, p. 8; Steve Lewis and Ian Porter, “Car Industry Decision Sends ‘Negative Signal’ on Reform,” Australian Financial Review, 10 June 1997, p. 5. 
[59]     Michelle Grattan (1997) “Cars Deal: Just Another Day in Australia Inc”, Australian Financial Review, 13 June, pp. 1 & 27.
[60]     Lou Caruana and Ben Hutchings (1997) “Toyota’s $1 Billion Backs Tariff Freeze”, The Australian, 19 August.
[61]     Cited in Anonymous (1998) “Australia to Give its Industry a $1.3 Billion Boost”, Automotive News, May 11.
[62]     Marks, “The Globalization of the Australian Textile, Clothing, Footwear and Motor Vehicle Industries”; Marie-Claude Belis-Bergouignan, Geâ Rard Bordenave and Yannick Lung (2000) “Global Strategies in the Automobile Industry”, Regional Studies, 34(1), pp. 41-53; Peter Dicken (1998) Global Shift: Transforming the World Economy, 3rd edition, Paul Chapman/Sage, London.
[63]     Mike Kable (1998) “Holden Invests $1.4bn in Exports”, The Weekend Australian, 7-8 February, p.1.
[64]     Mike Kable (1998) “Car Makers gear Up for $6 billion in Exports by 2005”, The Australian, 9 February, p. 2.
[65]     Ian Porter (1998) “$2bn in Tax breaks for Automotive Industry”, The Australian Financial Review, 23 April.
[66]     Ian Porter (1999) “Toyota to Canberra: Get Behind Local Wheels”, The Australian Financial Review, 8 January, p. 4.
[67]     Sid Marris and Carol Altman (2000) “Car Giant Cuts 600 Jobs”, The Australian, 28 April, p. 1.
[68]     Stephen Lunn (2001) “Adelaide Plant Safe for Now”, The Australian, 27 February.
[69]     Robert Gottliebsen (2000) “GM Shows the Way Forward for Local Industry”, The Australian, 14 December, p.26.
[70]     Cited in John Mellor (2000) “Holden the Line”, The Australian, 14 December, p. 26.
[71]     Ben Mitchell and Kristine Gough (2000) “Holden’s Secret Handout Defended”, The Australian, 20 December.
[72]     Misha Schubert and Carol Altman (2000) “Bracks ‘Bought Holden’ for 60m”, The Australian, 14 December, p. 4. 
[73]     Alan Wood (2000) “Taxpayers’ Gift to Holden”, The Australian, 19 December, p. 1.
[74]     Katharine Murphy and Brendan Pearson (2001) “Budget’s $1bn Rev Up for the Car Industry”, The Australian, 25 May.
[75]     Carol Altmann (2001) “Reports of Manufacturers Death Greatly … Rumoured”, The Australian, 3 August.
[76]     Editorial (2001) “Tariff Freeze Exposes our Populist Leaders”, The Australian, 3 August.
[77]     Stephen Lunn (2001) “Jobs Saved Amid Car Strike Mess”, The Australian, 4-5 August.
[78]     Duncan Macfarlane (2001) “Beazley Promises to Review Tariff Cuts”, The Australian, 9 November, p. 13.
[79]     Paul Cleary (2001) “Crean’s Tariff Pitch at Bass”, Australian Financial Review, 19 October, p. 2.
[80]     Jason Koutsoukis (2002) “Steering a Clear Path for Auto Industry”, Australian Financial Review, 22 March.
[81]     Neil McDonald and Duncan Macfarlane (2002) “Profitable Mitsubishi Here to Stay”, The Australian, 8 March.
[82]     Sid Marris “Mitsubishi’s $85m Deal Buys 1300 Jobs”, The Australian, 26 April.
[83]     Productivity Commission (2002) Review of Automotive Assistance: Position Paper, Melbourne, Productivity Commission, June. See also Jason Koutsoukis (2002) “PC Calls for Car Tariff Cut”, Australian Financial Review, 28 June.
[84]     Koutsoukis, “PC Calls for Car Tariff Cut”.
[85]     Productivity Commission (2002) Review of Automotive Assistance: Inquiry Report, Melbourne, Productivity Commission, 30 August <>. The PC noted: “Turnover for the industry as a whole is around $17 billion a year. Employment is around 54 000 — some 17 000 in vehicle assembly, nearly 30 000 in component production and the rest in tooling and automotive service provision. The industry accounts for some 6 per cent of value added and employment in the manufacturing sector and around 0.6 per cent of value added and employment in the economy as a whole. Its significance to the South Australian and Victorian economies, and to cities and regions within them, is greater again”, p. xv.Alan Wood (2002) “A More Palatable Productivity Pill”, The Australian, 28 June.
[86]     Conley, Vulnerable Country, pp.
[87]     Conley and van Acker, “Whatever Happened to Industry Policy”.
[88]     See Sid Marris (2002) “We Pay $14 billion for Export Drive”, The Australian, 14-55 December. The extra 10 billion mentioned in the title refers to the cost of tariffs for consumers.
[89]     Ian Macfarlane (2002) “A Decade of Certainty for the Automotive Industry”, Media Release, 13 December <;fileType=application%2Fpdf#search=%22media/pressrel/82e86)%22>. 
[90]     Ibid.
[91]     Marris, “We Pay $14 billion for Export Drive”.
[92]     Ibid.
[93]     Editorial (2002) “No Case for Car Subsidy”, The Australian, 18 December.
[94]     Ian Porter and Darren Gray (2003) “State Wins $47m Car R&D Project”, The Age, 13 June <>; Chris Milne (2003) “Mitsubishi Unwraps Adelaide R&D Plant”, Australian Financial Review, 25 July; Stuart Ines (2003) “Boost for Car Industry: Mitsubishi, Holden in New Export Deals”, The Advertiser, 6 November.
[95]     AAP (2003) “Automotive Industry Wins Tariff Certainty to Boost Exports”, Australian Associated Press Financial News Wire, 17 September.
[96]     Mark Davis and Morgan Mellish (2004) “Tariffs a Target of Strategic Intervention”, Australian Financial Review, 30 January, p. 7.
[97]     Michael Maguire, Richard Sproull and Catherine Armitage (2004) “Sun Goes Down on Mitsubishi”, The Weekend Australian, 22-3 May, pp. 17 & 27.
[98]     John Howard (2004) “Mitsubishi - $50 Million Federal Assistance Package”, Media Release, 21 May <>. 
[99]     Peter Roberts (2005) “Carmakers Under Fire as Jobs Head Offshore”, Australian Financial Review, 1 July, pp. 1 & 24.
[100]   Chris Milne (2005)
[101]   Ian Macfarlane (2005) “‘Team Australia’ Strategy to Secure Auto Future”, Media Release, 12 August. 
[102]   Michelle Wiese Bockmann and Robert Wilson (2005) “Holden to Cut Output and 1400 Jobs”, The Weekend Australian, 27-28 August, p. 5.  
[103]   Robert Wilson (2005) “Holden’s Flagship Car Half Foreign”, The Australian, 30 August, p. 3.
[104]   Josh Gordon (2005) “Car Industry Hits ‘Low-Water’ Mark”, The Age, 22 September <>.  
[105]   Andrew Trounson (2006) “Prime Minister Gives Ford $52 million Injection”, The Weekend Australian, 6-7 May, p. 33 and Ian Macfarlane (2006) “$101 million Boost to Auto Industry R&D”, Media Release, 16 May.
[106]   Cited in Trounson, “Prime Minister Gives Ford $52 million Injection”.
[107]   Peter Costello (2006) “Interview with Kerry O’Brien 7.30 Report”, Transcript, 24 October < <>.
[108]   Andrew Trounson (2006) “Ford Holden their Own as Yanks Tank”, The Australian, 25 October, p. 44.   
[109]   Ian Macfarlane (2006) “Macfarlane Announces Assistance for Components Industry”, Media Release, 7 December 
[110]   AAP (2006) “Costello Won’t Bail Out Car-Makers”, The Age, 20 December <>. 
[111]   Katharine Murphy (2007) “Brakes May Go On Car Tariff Cuts: Minchin”, The Age, 19 February <>.
[112]   Katharine Murphy (2007) “Labor Offers Green Relief to Car Industry”, The Age, 16 March <>. 
[113]  Brad Norington and Ewin Hannan (2007) “600 Jobs Go as Ford Shuts Plant”, The Australian, 18 July
[114]   Ian Macfarlane (2007) “New Ford Focus to be Built in Australia”, Media Release, 23 July; Andrew Trounson (2007) ‘Ford Puts Focus on Domestic Sales’, The Australian, 26 July.
[115]   Cited in Angus Grigg (2006) “Electrolux Moves Out of SA”, Australian Financial Review, 15 September.
[116]   Ben Doherty (2006) “Car Industry’s Long and Winding Road to Trouble”, The Age, 21 December
[117]   Robert Wilson (2005) “End of an Affair”, The Australian, 31 August. Department of Industry (2013) Key Automotive Statistics <>.  The trend continues. Roy Morgan Research (2016) “SUVs Drive Growth in New Car Market (and Size Matters)”, Press Release, 29 August <>.
[118]   Ehssan Veiszadeh (2013) ‘I’m an Economic Nationalist: Rudd’, Sydney Morning Herald, 29 August <>.
[119]   ABS (2013) ‘Table 5 Gross Value Added (GVA) by Industry’, 5204.0 Australian System of National Accounts, 1 November <>.
[120]   Tom Conley (2013) ‘Where the Jobs Were and Are: Employment Trends 1984-2013’, Big P Political Economy, 29 November <>.  
[121]    Tim Dornin (2008) “Mitsubishi to close SA plant in March”, Sydney Morning Herald, 5 February <>, Pia Akerman (2008) “Taxpayers Lose Out as Millions Go Up in Smoke”, The Australian, 6 February. 
[122]   Ben Potter (2008) ‘PC Questions $6.5bn Budget package’, Australian Financial Review, 28 March.
[123]   Lenore Taylor (2008) ‘Nation-Building Back in Vogue for Kevin Rudd’s Labor’, The Australian, 16 May <,25197,23706649-5017014,00.html>.
[124]   Sinclair Davidson, (2008) ‘Industry Policy Madness’, The Age, 12 June <>; Stephen Kirchner (2008) “Car Subsidies Blow Good Money Out the Exhaust”, Sydney Morning Herald, 11 November <>. 
[125]   Australian Chamber of Commerce and Industry (2007) ‘Media Release: ACCI Releases Manufacturing Sector Position Paper’ <>.
[126]   Ian Porter (2008) “GM Holden Planning to Build a Smaller Vehicle in Australia”, The Age, 9 June
[128]   Andrew Trounson (2008) ‘Auto Sector Reels as Ford Cuts 450 jobs on Top of Holden Job Losses’, The Australian, 17 October <,25197,24508839-5013404,00.html>.
[129]   Matthew Franklin and Lenore Taylor (2008) “Rudd in Defence of Toyota Handout”, The Australian, 12 June.
[130]   Philip King and Matthew Franklin (2008) “Labor’s $70 million Gift”, The Australian, 11 June, pp. 1&4.
[131]   Steve Bracks (2008) Review of Australia's Automotive Industry, Canberra, 22 July <>.  
[132]   Paul Kelly (2008) “Second Worst Deal”, The Australian, 16 August.
[133]   Productivity Commission (2008) Modelling Economy-wide Effects of Future Automotive Assistance, Melbourne, May <>. 
[134]  Agencies (2008) “We Can’t Prevent Ford Job Losses: Wayne Swan”, The Australian, 22 August
[135]   Kevin Rudd (2008) Remarks at the launch of the New Car Plan for a Greener Future, Melbourne, 10 November <>.
[136]   Michael Stutchbury (2008) “On road to protectionism”, The Australian, 23 December; Paul Kerin (2008) “Rudd Has Made it Too Easy for GM”, The Australian, 17 March.
[137]   Michael Priestley (2010) “How Green is the Green Car Innovation Fund?” Background Note, Parliamentary Library, Parliament of Australia, 27 May <>.  Conley and van Acker, “Whatever Happened to Industry Policy?”, p. 512.
[138]   Department of Innovation, Industry, Science and Research (2008) A New Car Plan for a Greener Future, Canberra <>.
[139]   Lenore Taylor (2008) ‘PM Kevin Rudd Backs Green Machine’, The Australian, 23 December <,25197,24835885-2702,00.html>.
[140]   Mark Skulley
[141]   Kim Carr (2009) “Holden Safe”, Media Release, 2 June <>; Kim Carr (2009) “Holden Introduces a New Green Engine”, Media Release, 24 July.
[142]   ABC (2009) “Holden Gets $200 million Bailout”, ABC News, 8 August <>. 
[143]   Carr, K. (2010) “Tenacious Automotive Industry a Cause of Optimism”, Media Release, 10 January <>. 
[144]   Jez Spinks (2010) “End of the Road Nears for Falcon”, The Age, 12 January <>. 
[145]   Philip King (2010) “Camry Arrives to a Crisis”, The Australian, 13 February.
[146]   Productivity Commission (2011) Trade & Assistance Review 2009-10, Annual Report Series, Productivity Commission, Canberra, May.
[147]   Productivity Commission’s Position Paper (2014) Australia’s Automotive Manufacturing Industry, Commonwealth of Australia, p. 90-91.
[148]   Ian Porter (2011) “Dumping Green Car Fund Throttles Industry”, Sydney Morning Herald, 4 February <>. 
[149]   David Uren and Ewin Hannan (2011) “Toyota Slowdown adds to Pain as Ford Sheds 240 Jobs”, The Australian, 15 April.
[150]   Mark Skulley and Matthew Dunkley (2011) “Holden Pushing for Tax Payer Support”, Australian Financial Review, 4 November, p. 7.
[151]   Michelle Grattan (2012) “Car Industry Subsidies Get Broad Voter Backing”, Sydney Morning Herald, 7 February <>. 
[152]   Greg Combet and Julia Gillard “Investing in Automotive Jobs and Skills”, Joint media release with the Prime Minister, the Hon Julia Gillard MP, 22 March <>.  
[153]   Michael Owen (2012) “Ted Baillieu Dragged Feet on $275m Holden Rescue Deal”, The Australian, March 23 <>.
[154]   Phillip Coorey (2012) “Hockey has ‘Deep Reservations’ over Holden Handout”, Sydney Morning Herald, 24 March.
[155]   Mathew Dunckley (2012) “Labor’s Car Cash Riles Keating”, Australian Financial Review, 30 March <>. 
[156]   Mark Skulley (2012) “‘Headwinds’ for Toyota despite New Plant”, Australian Financial Review, 7 December <>.
[157]   AAP (2013) “Holden Says $2.2b Govt Help Essential”, The Australian, 2 April <>. 
[158]   AAP (2013) “Ford Australia to Stop Making Cars”, The Guardian, 23 May <>. 
[159]   Sid Maher and Sarah Martin (2013) “Kevin Rudd's $500m Boost for Car Industry”, The Australian, 17 August <>.
[160]   Phillip Coorey and Mark Skulley (2013) “Holden Says No to Abbott Car Export Plan”, Australian Financial Review, 10 October <>.  
[161]   Productivity Commission (2013) Review of the Australian Automotive Manufacturing Industry Issues Paper, Melbourne, November.    
[162]   Mark Kenny (2013) “Tony Abbott Demands Holden Makes Decision on Future, Rules Out Any More Funding”, Sydney Morning Herald, 5 December <>. 
[163]   Cited in Ben Potter (2013) “Hockey Dares GM to Leave”, Australian Financial Review, 11 December <>. 
[164]   Phillip Coorey (2013) “Government’s Treatment of Holden was Bizarre”, Australian Financial Review, 11 December <>. See also Greg Jericho (2013) “Holden’s Fate Draws Attention to Government Assistance”, The Guardian, 12 December <>;
[165]   Joe Hockey (2014) “Interview with Steve Austin, ABC 612 Brisbane”, Transcript, 3 February <>.
[166]   Lenore Taylor (2013) “Tony Abbott Declares an End to ‘Corporate Welfare’”, The Guardian, 18 December <>.
[167]   David Crowe (2014) “Andrew Robb leads the way in pushing China exports”, The Australian, 31 March <>.
[168]   Editorial (2014) “Treasurer’s Bold Mission to End Culture of Handouts”, The Australian, 6 February  <>. 
[169]   Sid Maher (2014) “Car Industry Cuts Helped Seal FTA Deals: Hockey”, The Australian, 3 December < >.
[170]   Jessica Longbottom (2017) “Toyota Altona Plant’s Closure Leads to Hundreds of Job Losses in Component Manufacturing”, ABC News, 1 February <>. 
[171]   Jonathan Swan (2013) “Blame Game Erupts in Parliament over Holden Decision”, Sydney Morning Herald, 11 December>; Stephen Clibborn, Russell D. Lansbury, and Chris F. Wright (2016) “Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions?”, Economic Papers, 35(1).
[172]   Jared Owens (2014) “Tony Abbott Blames Unions over Toyota Pullout”. The Australian, 11 February; Simone Fox Koob (2017) “Automotive Aftermarket Apocalypse Set to Cost 25,000 Jobs”, The Australian, 2 February <>. 
[173]   Ibid., p. 13.
[174]  Rick Wallace and John Ferguson (2014) ‘Toyota to Stop Making cars in Australia, Follows Ford and Holden’, The Australian, 10 February <>.
[175]   Leith van Onselen (2017) “It’s Official, Australia’s Car Industry to Close in October”, MacroBusiness, 1 February <>.