[This letter is a reponse to Hail the yellow vest, written by Sarah Falson, editor of Manufacturers’ Monthly. The article was published in the February 2012 issue of the magazine.]
HAIL THE SHINY GOLDEN SUBSIDY
Your recent editorial on the desirability of subsidising the car industry raised some interesting – even philosophical – questions regarding the balancing-act which subsidies involve, ie. taking from the many, to give to the few.
I have a long background, over 100 years (visit our website) in print in Australia so I can fairly be said to be a “manufacturer” exposed to the chill winds of currency fluctuations, cheap foreign labour – and more recently, the elephant-in-the-room – China’s capacity swamp our own print market.
And, I’m a long-standing member of our industry lobby-group, the PIAA, so I’m not exactly a bleeding-heart when it comes to promoting and protecting one’s turf from foreign competition.
. . . . . .
I also acknowledge that the lot of the editorial writer is not a happy one, as the world is composed of vested interests who fight tooth and nail to defend their domain from attack – regardless of whether it has some merit.
For example, we’ve seen banks pleading against the threat of increased competition, on the curious platform that we MUST have a “strong banking system”! Beware of false dichotomies – it doesn’t have to be either/or.
And we’ve watched the mining giants fiercely resisting a super-tax, even though it would only kick-in, if and when their profits exceeded the “grossly obscene” level. The “social equity case” in favour of some kind of re-distributive tax was virtually unassailable, so the government’s cave-in was a pathetic sell-out – not the least of which, because its brand of politics purports to push a social agenda.
And so we come to the car industry.
Your position, as agreed, is to sing from the same song-sheet as your readers, but in my view, the tone was that of the lobbyist – mouthing well-worn platitudes aimed at an enthusiastic audience, and almost gloating that we’d had a “win”.
To the arm-chair economist, however (such as me), ALL subsidies are bad. They’re a distortion of scare resources, as even governments have only a limited amount of funds. If one group is to get a hand-out (benefit), it effectively means everyone else is being levied (disadvantaged). That issue is rarely discussed in the quest for favours.
Addressing a couple of points in your editorial –
Your term “bail-out” smacks of the boyhood dream of every capitalist – to find a government that will “capitalise his profits – and socialise his loses”. He walks away with the bags of cash, but if he fails, the tax-payer will come to the rescue. How many times have we seen that with the former NSW and Qld governments and tollways?
What’s different about Ford? I thought it was a private enterprise, which lived or died by its own hand? If we MUST “bail them out” why not make it a low-interest loan, which can be repaid over time?
A “bail-out” has all the hallmarks of throwing bag-loads of cash at the problem, without any (genuine) conditions being applied?
While still on Ford, in response to getting this “hand-out”, its PR jocks announced recently the funds would go into various refinements (I forget which – better acoustics or something equally banal) – and, to reducing the fuel-consumption by (I think) 5%. You are kidding! The best brains of the entire global auto industry have been hell-bent on improving fuel consumption for the last 20 years! Surely we’re at the point where the law of diminishing returns MUST kick in – you just can’t keep reducing fuel consumption ad infinitum.
The cynic (lurking within the arm-chair economist lurking within me), can’t help make the observation: why would an Ozzie car maker BOTHER to reduce fuel consumption beyond what it is – our price of petrol is about HALF what it is in Europe! There is NO price imperative to do so!
And why should THAT responsibility fall upon Broadmeadow’s broad shoulders? Doesn’t Ford have a skunk-works team somewhere in the vast Ford empire whose job it is to reduce fuel use? I don’t believe the Ozzie taxpayer should be saddled with such “pie in the sky” promises. Are you going to check up with Ford in a few years to see if they’ve achieved their goal – and ask for your/my $103million back, if they haven’t?
I hope so.
Another thing about cars, is that they occupy such an emotional place in our hearts, it’s as if we as a nation could NOT survive in the modern world, unless we can build a big steel box, with some round rubber things at each corner. It’s as if the future of modern technology is at stake if we don’t makes cars.
The modern car has already achieved 99% of its design efficiency (here comes that annoying law of diminishing returns again) – it’s safe, efficient and looks good. Why keep re-investing in new tooling each year at MASSIVE cost?
The answer (to the arm-chair economist) is that there’s obviously still enough loose cash slopping around in the car industry, otherwise they couldn’t justify so many design-changes – so many models – so many colours – so many door-handle re-designs.
The world derives very little in flow-on technology from cars – as I mentioned – we’ve achieved 99% efficiency. What we’re now doing is spending money on cosmetic titivation. New front-lights, new bumper-bars – all presented as important new steps in the march of progress.
Phooey.
You refer to the workers’ joy at not being retrenched BEFORE Christmas. We should accept the reality, that car manufacture here, is in its mature stage of the life-cycle. (Even Qantas is having trouble fighting off the leaner, meaner jackals snapping at her ailerons.)
Like so many large, corporate structures created 80 years ago – car manufacturers (like airlines) are sitting ducks (white elephants?) unless they’re near major markets, enjoy economies-of-scale and have a source of cheap labour. Australia fails all three tests.
But no, we appeal to our emotional side. It’s better that one employee remain “employed” through subsidies – even though it’d be cheaper to let him go and keep paying him his current rate (while he seeks other jobs).
In fairness (even the arm-chair economist likes to be fair sometimes), this pickle is not ALL the car-makers’ fault. They are suffering as their costs float up on the rising-tide of our dollar. It is hence reasonable to provide some kind of insulation against that in the form of a rebate for every vehicle sold (not made – but sold). That’s an entirely fair approach as it’s not Ford’s or GMH’s fault that the dollar is going through the roof. That method is also pleasingly transparent (ie, so many “dollars per vehicle”), easy to implement, and is fair to ALL vehicle manufacturers, rather than the ad hoc system now, where the one that presents the greatest horror story gets the most dough.
Turning now to GMH, the advent of the Cruze was greeted with much fanfare last year. But really, it was a case of millions going into re-inventing the wheel. The same (or better – or at least alternate) technology was available in overseas vehicles. Did we REALLY have to spend millions, here, just to prove we can bolt together a steel box? If one took into account the massive investment in duplicated research, tooling, etc, each Cruze may prove to be worth more than a Rolls Royce, based on an honest, “true cost” assessment.
In fact, the very idea of promoting the building of MORE cars flies in the face of our so-called environmental concerns – I thought we’re trying to REDUCE our greenhouse gas emissions – not INCREASE them.
What about building a hi-speed rail network – or even a slow-speed one would be good – and other infrastructure that’s crying out for funds? But no, we chuck another $103million-dollar shrimp on the great automotive barbie, and drink a toast to ourselves!
The editorial makes the point that it’s “pretty tough making cars”. Why? We’ve been doing it for 100 years, surely we’ve worked out all the easy ways?
You say “you need a lot of technology” – what technology? We’re not making Hadron Colliders – cars are only large billy-carts with an internal-combustion engine shoved up the front (which was invented over 100 years ago and hasn’t changed much) – and a few lounge-chairs chucked in the middle.
Everyone loves to talk about the “flow-on” (aka, the “trickle-down”) effect, but, in fact (to the arm-chair economist, again) it could be the reverse, there could be a huge “opportunity cost” involved. The obsession with building cars could in fact be taking us AWAY from devoting more productive technology and research into other areas (medical research, agri-science, alternate energy technology, etc)?
You say isn’t it good “all those factory workers” will still have a job in four years. What about after that? How long do we keep pouring money into one industry at the expense of others – particularly when many exist in marginal electorates?
Are we also going to subsidise the giant coking-coal operator in Queensland? Or the global aluminium producer in Victoria, who’s now threatening closure? Or the banks – who are throwing bodies overboard by the bucket-load?
What about our “local” mining companies – all pleading special treatment?
And what about Kodak? If you recall Bob Hawke (I think) who forked out millions to preserve the jobs of a few workers in Brunswick. Sometime later they shifted to Singapore – and last month they’ve filed for bankruptcy in the US.
So much for picking winners.
. . . . . .
Anyway, this whole issue is a complex one that could benefit from more frank discussion. What do readers think? If they receive subsidies they’ll probably disagree with me – if they missed out, they’ll probably agree. That demonstrates the problem.
James Cryer,
JDA PRINT RECRUITMENT