Political dithering threatens to send the automotive industry to the wreckers.
The federal Coalition is correct to start a rethink of its manufacturing policy, particularly in relation to the car industry. Any decision to drop its threat to cut $500 million from the $3.4 billion Automotive Transformation Scheme can only be welcomed by the industry, which has been pushed by world events to a tipping point. Production in 2011 was the lowest since 1957. But the plan to restore the $500 million to the scheme unfortunately falls far short of what is required because the whole New Car Plan has been overtaken by world events since its was announced in 2008.
What the situation requires is not so much a job for ministers. This is a job for the World's Best Treasurer, Wayne Swan, who has to make some big decisions if Australia is to avoid becoming just another South Pacific quarry.
The New Car Plan has been an unqualified success, prompting investment of more than $2 billion in the local car and parts industry (including $500 million of taxpayers' money) in its first two years.
However, investment has largely dried up, partly because the Gillard government froze the Green Car Industry Fund to help pay for the Queensland floods damage, but mostly because of the strength of our dollar.
The huge commodities boom may well have filled the coffers of the mining giants, but its effect on the dollar has effectively crippled the manufacturing sector, which employs at least eight times as many people.
The government has been slow to react, even though the list of factories closing grows longer every month: Heinz, Bosch, one of BlueScope's two blast furnaces and Coca-Cola's Ardmona fruit and jam processing plant in Mooroopna are high-profile examples. These and many others are being forced out of business by the strong dollar, which makes exports too expensive and makes imports too cheap to compete with.
Only an optimist would argue that the three local car makers are not headed for the same fate unless the government acts.
Indeed, governments from Europe to South America have already acted to protect their car industries.
Brazil is in almost the same position as Australia, with a strong commodities export business that has driven the value of its currency, the real, sky-high. The government there has decided to augment its usual 35 per cent tariff on automotive imports (the average Australian automotive tariff is only 3.5 per cent) by imposing an industrial products tariff (IPI), which ranges from 25 to 55 per cent, according to the real's exchange rate. This way, Brazil's manufacturing base will be protected from what may be an extended period of cheaper-than-usual imports.
Yes, the tariff will push up prices, which means people won't be able to consume as much as in the past, but they will still have jobs and income. And when the commodities boom subsides, Brazil will still have a manufacturing base, less social dislocation and a smaller welfare bill.
If the present high exchange rate for the Australian dollar lasts 20 years, the period some economists forecast for the mining boom, then Australia's manufacturing base will be wiped out given the recent rate of job losses.
And, just to repeat, there are 135,000 jobs in the mining industry (2009 figures), and almost 1 million in manufacturing. Without manufacturing, Australia would be transported back 100 years, to when the economy was totally reliant on the primary sector - agriculture and mining - with a few service jobs just to send cheques overseas to absent landlords.
The car industry is crucial to the manufacturing sector as a whole. The competition between the international auto giants means the industry drives innovation and development in a whole string of supplier industries, whether it is metals, plastics, glass, electronics, robotics or dozens of others.
This means the latest developments in these areas become available to other manufacturers that may not otherwise have the wherewithal to adopt new technologies.
During the protracted battle over tariffs, the Productivity Commission used to delight in putting a dollar value on the bonnet of each locally made car, suggesting that any assistance to the car industry was just a handout to the manufacturers.
But what the commission never said was that the assistance afforded the car industry was always recouped by government, simply by having 60,000 people (in the past many more) employed in high-skilled, well-paid jobs.
All those people pay income tax, GST, stamp duty and whatever else in their day-to-day lives, revenue that would not be flowing to government if they were unemployed. In fact, the flow would be the other way when unemployment benefits are taken into account.
The Coalition is right to start rethinking manufacturing policy. If there is much more dithering, there may soon be no need for one.
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