Australia's automotive manufacturing industry: inquiry report

26 Aug 2014

This report presents the Productivity Commission's views on the costs and benefits of industry-specific assistance to the automotive manufacturing industry, in light of the structural change that will occur over the next few years as Ford, Holden and Toyota close their motor vehicle manufacturing plants in Australia.

Key points:

  • Australia's automotive manufacturing industry is undergoing significant change.
    • Motor vehicle producers in Australia have not been able to survive in the highly competitive global and domestic automotive markets — Ford, Holden and Toyota have announced they will cease local manufacturing before the end of 2017.
    • Component manufacturers face ongoing adjustment pressure and rationalisation.
    • It is estimated that up to 40 000 people may lose their jobs as a result of the closure of the motor vehicle manufacturing plants and the rationalisation of firms in the supply chain. It is likely that job losses will be staggered over several years.
    • Decades of transitional assistance to automotive manufacturing firms ($30 billion between 1997 and 2012) has forestalled, but not prevented, the significant structural adjustment now facing the industry.
  • The policy rationales for industry-specific assistance to automotive manufacturing firms are weak and the economywide costs of such assistance outweigh the benefits.
    • The Automotive Transformation Scheme should be closed after Ford, Holden and Toyota have ceased manufacturing motor vehicles in Australia.
    • Component manufacturing firms are currently set to receive over $300 million in industry-specific assistance between 2014 and 2017. There are both efficiency and industry equity arguments against extending assistance beyond that already committed, or introducing new assistance programs that would advantage component manufacturers ahead of other firms that face adjustment pressures.
  • The labour market in Australia is dynamic — many employees lose their jobs in any one year and many people who are jobless are hired. In the year ending February 2013, about 355 000 people were involuntarily retrenched across Australia.
  • Retrenched employees face costs associated with job search and training, and some will have lower paid or less secure jobs once re-employed. Loss of employment is particularly challenging for older people, or those with poor English proficiency or lower skill levels.
    • While retrenched manufacturing employees may take longer on average to find re-employment than employees retrenched from other industries, within a year about two-thirds are likely to be re-employed on a full, part-time or casual basis.
    • Adjustment pressures are likely to be concentrated within particular regions, such as North Adelaide, parts of Melbourne and Geelong. Some affected regions already have relatively high rates of unemployment and social disadvantage.
  • Governments should ensure the appropriate resourcing of the delivery of generally available welfare, training and employment services for all clients in regions placed under pressure by automotive manufacturing retrenchments.
  • Providing adjustment assistance to retrenched automotive manufacturing employees at a level that exceeds the assistance generally available to other jobseekers raises efficiency and equity issues.
    • Governments should consider ways to better target assistance to retrenched employees who are likely to encounter the greatest difficulties finding re-employment.
  • Regional adjustment funds, infrastructure and defence spending and industry support programs are costly and ineffective ways to facilitate workforce adjustment.
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