06 July 2016
by Andrew Warrilow
Is Nick Xenephon the car industry's X factor?
Australia's automotive industry can be saved and Nick Xenephon might be the man to do it.
Without knowing it, did we just witness the car industry election?
With a hung parliament increasingly likely, Senator Nick Xenophon may be shaping up as the king maker of the next government and the holder of the balance of power in the Senate.
Nick Xenophon has made it his personal mission to save the car industry in his State of South Australia.
If it does indeed turn out that the seats in the lower house tally up with close to even numbers for the two major parties, Nick Xenophon will have enormous power to push his agenda. The Senator has made numerous statements about his dismay at the loss of the car industry. One of the three stated objectives of his new party – the Nick Xenophon Team - is saving the manufacturing industry. Senator Xenophon is also on record as saying that the loss of the automotive industry is also the end of Australia as a manufacturing nation.
Given such comments, it’s a reasonable prediction to make that the Senator will do everything in his power to save the car industry. That being the case, a quick reflection on how crises in car industries in other countries were dealt with, may provide some excellent inspiration for the good Senator from South Australia.
To find an excellent model on which to base a rehabilitation of the Australian automotive industry, we need to look no further than the United States. In 2008, the U.S. automotive industry faced a total collapse in demand due to the financial crisis taking place at that time. Automotive giants such as General Motors and Chrysler were facing obliteration. President Barack Obama, after much horse trading with the U.S. Congress, put together a deal to save the car industry.
The car industry in the United States was essentially nationalised by the government. Financial restructuring of the industry followed share purchases by the government. As the economy improved and car sales gradually returned to normal levels, loans extended to the automotive industry by the Government were repaid and the U.S.Government was able to resell the shares they had purchased in car makers back to the public.
At the end of the day, over 3,000,000 jobs were saved and the total cost to the U.S. taxpayer of the car industry bailout was around US$9 billion — a relatively small sum in an economy worth US$15 trillion annually. Since that time, the United States automotive industry has returned to health and is once again profitable.
Currently in Australia, the closure of General Motors Holden, Ford and Toyota is considered a done deal. However, the Australian Parliament would be well within its rights to nationalise each of those three businesses and consolidate them into one larger manufacturer so that the entity which eventuates would enjoy the benefits of greater economies of scale, greater competitiveness and profitability.
The Australian automotive industry is unlikely to survive without some level of tariff protection so the government would need to increase tariffs on automotive imports to make a restructured industry viable. Granted, this would necessitate the breaking of free trade agreements but considering the unthinkable loss of 200,000 jobs and the destruction of a huge slice of the remainder of Australia's manufacturing base, this is a price which simply must be paid.
The end product – a consolidated and restructured Australian car industry with an increased level of protection – would be a very attractive investment for any investors, local or foreign, seeking to gain a foothold into the Australian automotive market.
The loss of the automotive industry would equate to industrial suicide for Australia. A scheme such as the one proposed would result in no substantial increase in public debt but would reshape car manufacturing in Australia for the future. Let us not forget that this country, without a car industry, would be importing around $20 billion of car imports, annually. Those imports have to be paid for, somehow.
Current events have given Senator Xenophon the political power to save the 200,000 jobs reliant on the automotive industry. The U.S. experience has shown us how it is possible to bring an ailing car industry back from the brink with minimal cost to the public purse. All we need is for Xenophon to implement it.