Lately I have been hearing a number of people lamenting the loss of car manufacturing in Australia. The loss of jobs is certainly devastating for many former assembly line workers of Holden, Ford and Toyota, who may struggle to find new well-paying jobs. But the loss of the industry was always inevitable, as Australia’s small domestic market, high labour costs and highly variable currency meant that domestic car producers were going to find life difficult without high levels of ongoing taxpayer support. That support, which amounted to many hundreds of millions of dollars annually, was unsustainable. Even the industry recognised that. This was confirmed by comments by former Holden CEO Peter Hanenberger, reported in News Ltd papers today. The Gold Coast Bulletin reports:

HOLDEN had planned to stop taking taxpayer cash 15 years ago — but a change to the Rudd Government saw the car giant ask for more.

The manufacturer received more than $2.17 billion in government subsidies over 12 years — double the amount Ford and Toyota received in the same period — but it was still not enough to save the planned closure of its car assembly line next year.

The bombshell revelation to end government handouts to the car industry is made in a book to be released this week called “Holden: Our Car”.

The book quotes former Holden boss Peter Hanenberger, who led the company between 1999 and 2003, a period of record sales for Holden and the Commodore — and also the last time Holden was the top-selling car brand, in 2002.

“It was under the Howard Government with (industry minister Ian) Macfarlane that we negotiated a deal at that time — in 2000 or 2002, it was — that we committed to have no more support by the Australian government. For that, we got $2.5 billion to make this industry a modern, globally based industry,” said Mr Hanenberger, who hinged his plans on exporting the Commodore to Europe and the USA.

In the early 2000s, Holden and the other car manufacturers had agreed with the Howard Government that assistance was meant to be transitional only. At the time, the industry thought it might be able to eventually survive without government assistance, given the then relatively low value of the Australian dollar, which made the industry’s exports more competitive internationally. But the mining boom led to a currency appreciation that brought into question the viability of the car manufacturers. Ignoring the car industry’s lack of long-term economic viability, in 2008, the Rudd Government agreed to increase assistance to the car manufacturers, as I discussed and criticised in my 2011 article in the CIS’s Policy magazine:

Carr’s car cash and Australia’s reform malaise

Most Australians now realise that it made no sense to waste hundreds of millions of dollars each year buying ourselves a car industry. If we want a thriving manufacturing sector, we will need to promote one through encouraging more flexible labour market arrangements and improving our education and training systems.