Pump the brakes, Hastie. Let me explain how wrong you’ve gotten it

Nostalgia can be a powerful thing, as anyone who has texted an old flame at 3am can tell you. Yet, like the inebriated man fumbling through long-lost loves late at night, sometimes you are better off leaving the past in the past. 

This is a lesson many of us have learned the hard way: the past is usually the past for a reason. So it is with Australia’s car manufacturing industry.  

Andrew Hastie has put out a viral social media post lamenting that Australia is no longer a country that makes complex things. In particular, he lamented the demise of Australia’s car industry and that the Liberals and Labor let the car industry disappear from Australia.  

It’s an interesting choice of words… ‘let’. It implies a hostage situation had developed, Australia had left the door unlocked, and the car companies escaped.  

In reality, it was taxpayers and consumers who were being held hostage: by government who funnelled billions of dollars to the car industry, and by big business and big unions who made sweetheart deals to distribute their ill-gotten subsidies. 

The fact is the car industry left for two reasons. First, when given the choice, Australians preferred the higher quality, lower prices and better options available with foreign cars — so sales of local cars had tanked.  

Second, the government stopped the massive taxpayer subsidies that were flowing first to the Australian manufacturers, and then subsequently to their foreign-owned parent companies. 

It’s worth examining each in turn.  

Australian car manufacturers largely focused on making large family cars; the Holden Commodore and the Ford Falcon being the two best known. While these dominated the market for decades, over time people’s tastes in cars changed.  

In particular, smaller and more fuel-efficient cars become far more popular from the early 2000s onwards. Meanwhile, the family car market was increasingly dominated by SUVs, as anyone who has recently done a school pick-up can confirm. 

Another important trend was the massive increase in both the quality and quantity of vehicles manufactured in south-east Asia. Over time, vehicles made in Japan and Korea, and then later other Asian countries, became real competitors to local offerings.  

More than real competitors in fact. Customers began to view those vehicles as better and cheaper.  

It’s worth noting this was driven by another important trend, which had a multifaceted impact: the increasing automation of manufacturing. Car production was no longer a sink for unskilled labour. It was mechanised and increasing in scale.  

State-of-the-art manufacturing facilities could be operated anywhere and produce high-quality automobiles. 

These plants were far larger than anything that existed in Australia and the benefits of scale were considerable. By the early 2010s, there were multitudes of individual facilities around the globe producing more than 500,000 cars a year each — more than twice the output of the entire Australian industry. 

This lack of scale meant that it simply didn’t make economic sense for the car manufacturers to retool Australian production towards changed preferences.  

Of course, it never really made economic sense to even build cars in Australia. The industry was dependent on taxpayer support for its existence. 

The Productivity Commission, in its 2014 report on the automotive industry, estimated the government had given $30 billion to the industry over the past 15 years.  

What did all this largesse deliver, given it didn’t create a sustainable industry?  

Some of it went to the unions — as they managed to get massive pay increases from the auto manufacturers in exchange for supporting subsidies politically. 

The parent companies of the auto manufacturers got their cut too, repatriating millions of dollars in licencing fees and IP charges. 

It is far from clear that taxpayers or consumers benefited at all from this ‘investment’. They paid more in taxes for the cars they actually wanted, and their taxes paid to manufacture cars nobody wanted.  

In the end, it was clear even this level of support wasn’t enough. Mitsubishi had already closed its operations before the Abbott government announced it wasn’t going to continue the massive wave of subsidies. Holden, Toyota and Ford soon followed them out the door.  

Hastie presents this as a loss, attacking those who criticised his rose-coloured view of the past, and saying other countries are smart enough to protect their manufacturing base, so we should too. 

Whatever superficial appeal this might have, economically it makes no sense.  

First, it makes things more expensive for the efficient parts of the economy. 

Second, industry assistance is a transfer wealth from the taxpayer to the consumer. In this context, foreign governments are currently paying us to take their cars.  

Instead of just taking this free money, Hastie and other protectionists would prefer to compete with those other countries to give more of our money to them. 

As my mum used say when I was younger: “if your friend jumped off the Sydney Harbour Bridge would you do it too?” 

Unfortunately, simple-sounding protectionism is popular. When asked in surveys, people say they want to support industry and jobs. Yet, when it comes to their dollars, people have more sense. They are unwilling to pay a premium for locally manufactured goods. 

Australia has learned this lesson the hard way. We were a deeply protectionist economy for a long time. It was the demolition of these trade walls that led to the prosperity we all now enjoy. 

Much like our love-lorn texter once he sobers up in the morning: sometimes the way the past looks at 3am doesn’t reflect reality.  

Simon Cowan is Research Director at the Centre for Independent Studies.