Vale Ford

Well, as Ned Kelly may have said on the scaffold, “I suppose it had to come to this”. Ford has been prosecuting a strategy of risk minimisation which has principally been about investment minimisation in Australia for at least a decade and naturally enough, if you don’t invest you end up uncompetitive.  It’s been sad to watch how little dignity our politicians have had in negotiating with Ford. We’ve tossed them money begging them to stay.  Even if you accepted the protectionist argument that manufacturing is the salt of the earth and that we should therefore subsidise it if necessary – which I don’t – the real pity is that it has been evident with Ford for a decade or so that our subsidies were good money after bad.

As I’ve argued, if you did want to build the industry, we tossed these guys a lot of money and had we made that available in a ‘beauty contest’ I think it’s quite likely we could have got one of the emerging Asian giants of India or China to buy Ford’s assets and use them not just to accelerate their entry into what is an important developed country market but also to export a large car to stick in their showrooms around the world to fill out their model range. This would have been the cheapest way available for them to build a unique, large flagship car for those showrooms – where the game is largely to present buyers with a large, luxurious and highly priced car which then ‘frames’ their main range as better priced.

I’ve discussed this and some other issues in numerous columns and since I enumerated them the other day in an email to a journo who was doing a feature on the industry, I thought I’d copy them all down for you here for your reference:

http://clubtroppo.com.au/2006/08/05/some-ideas-for-the-car-industry/

http://clubtroppo.com.au/2007/07/19/the-car-industry/

http://clubtroppo.com.au/2009/02/23/choosing-your-parents/

http://clubtroppo.com.au/2012/02/13/car-industry-policy-the-podcast/

http://clubtroppo.com.au/2012/01/12/back-to-picking-losers-the-current-woes-of-the-car-industry/

Postscript: I’ve done some radio interviews on this subject and here’s one which was quite fun.

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13 Responses to Vale Ford

  1. Paul Frijters says:

    yep, you picked it early on, Nick.

    Unlike you though, I dont think the beauty-contest was going to work, nor do I think we should give it a go at this late stage. Given the current high exchange rate, we’d be swapping one loss-making subsidy-addict for another.

    • Nicholas Gruen says:

      Yes, fair enough – my argument was always conditional on the fact we were spending the money in any case.

    • Patrick says:

      Gheely’s purchase of Volvo shows that Nick’s basic idea has merit (I’m not sure how much on an absolute chart, but I have been sure for quite some time that Nick’s ideas here have a million times more merit than just throwing money away to mollify trade unions).

      The biggest problem with selling to an Asian giant would have been IP, since I suspect that both Ford and Holden rely reasonably heavily on IP owned in the US, and their US parents would probably not have wanted to play very nice with an Asian purchaser. And they obviously couldn’t have sold Fords, although they may have been able to sell Falcons (Holden is another question).

      I think I would have vastly preferred a scheme under which the various Australian and State governments gave the hundreds of millions they’ve spent on our car manufacturers to our car workers for retraining and/or relocation. At our recent levels of spending, and assuming that there are about 60k workers all up, we could have given them each $30k a year for three years (and I appreciate that the actual spending was doled out more slowly than that, but it isn’t like it costs the government that much to borrow).

      • Nicholas Gruen says:

        Yes, I’m broadly in agreement with that Patrick.

        I expect that it’s in the interests of the US car companies to sell what IP is necessary to make a go of the large car platforms to Asian buyers and thus to improve the sale price of their Australian assets, but, having dealt with them in the 1980s, I’m under no illusion that they’d act in their own self interest. Indeed it was part of my economic education to witness Ford in the 1980s with excess import credits unprepared to convert them into currency even when they couldn’t use them properly to sell them to any competitor – even if it was much better for their profits. Such are the cushions that large bureaucracies and access to governments provide for hard headed thought.

        My response is that Australian Governments had the levers to lean heavily on the American auto makers, though I’m under no illusion that they would have either. Ultimately a lot of the IP involved in building Falcons and Holdens is separate or at least separable from the IP Ford and GM use globally, but I think you’re the first to take the ideas sufficiently seriously to explore properly the issues and problems they raise.

        • Patrick says:

          Not to understate my taking your idea seriously Nick (I really do/did!), next to ‘throw billions of dollars towards which I have personally contributed to by taxation and my share of the deadweight costs down a foreign drain‘, I’m instinctively open to taking alternatives seriously ;)

          What I do like about your idea is that it starts with a greater sensitivity to the political economy of the situation than, say, my preferred idea.

          The way to have made your idea really work could have been something like:
          – giving the Chinese/Korean/Indian buyer exemption from the various restrictions on foreign investment here;
          – trying to persuade them to include in the deal a JV arrangement in their home country with the seller; and
          – trying to persuade the home country government (presumably quite susceptible to being persuaded to help a local champion) to allow the JV in their country to benefit from ‘third party reciprocal’ concessions along the lines of the concessions we hand out to their local champion here.

          Obviously, much easier to just throw more money down the same drain, without even factoring in your union mate promising to piss even harder in your pocket.

  2. perplexed says:

    Still it would be something if the Vic and Federal Government were to tell Ford that their tally of subsidies constituted a ‘handover’ sale price and then mobilised a workforce of designers and engineers to develop an electric vehicle for domestic and overseas markets. As I said…it would be something!

  3. desipis says:

    Do we know if they’re really closing, or is this a ploy to get more money out of the government so they can look like heroes? It seems like the announcement is a long way out from actually doing anything.

    • Nicholas Gruen says:

      Well it’s the usual amount of time a closure takes, and the last similar closures – of Nissan and Mitsubishi have not been plays for more money. They’re not asking for more money.

  4. nottrampis says:

    well done nick. Great article . You are definitely the Auutralian David Glasner

    I have two of yours plus Richard’s here.

    Aren’t I admirable in giving your place a plug ?

  5. Nicholas Gruen says:

    Patrick – following on from thread above – I guess some reciprocal arrangement in the home market is OK (is it WTO compliant) though if it’s not a large country export markets are more important. Even if the host country of the MNC you were dealing with were India or China it may be a long time before they have much of a demand for large rear wheel drive cars. Japan has continued not developing that demand for decades.

    Remember the idea – at least in the variant I cooked up – is a ‘halo’ car for global markets, not really a car for the masses in the (other) home country.

    One might also need to involve unions and/or other workers’ representatives in the negotiations to try to prevent them from creaming rent – though it’s easier to say that than to figure out how it could be done. But with the security of investment that could provide, one might get some serious investment, some serious effort to build our assets as a serious part of the MNC’s global supply chain – the way Skoda is (in the process of becoming) a serious part of VW’s supply chain.

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