Vale Holden: I told you so edition

I was sending this column to an ABC journo regarding the auto industry. It makes for sad reading today. From 

Herewith – somewhat late owing to my being out of the country – is my second column for the Age and the SMH in Ross Gittins’ place while he goes on hols. It seems there is further news – that we’re disgorging some more money to the mendicant car companies. I am not close enough to things to know all the details, but it certainly looks like it conforms to the kinds of things we did with Mitsubishi – which was to chase them with money while they slowly withdrew from production.

Next week governments with an interest in Australia’s auto industry – from Victoria, South Australia and Canberra close in on Detroit, cap in hand, wallets open begging Ford and GM to keep manufacturing in Australia.

They should look around. Having once housed nearly 2 million souls, Detroit is now down to about 700,000. Large parts of Detroit remain like Mad Max sets come to life. Criminal homicides are down to just 300 a year, a big improvement on the past, but still over 3 times America’s average levels and 20 times Australia’s!

Just as Rome’s invaders and then its inhabitants feasted on the eternal city – scavenging marble and bronze from its buildings, smashing statues for souvenir cameos – today Detroit’s gangs squat in long deserted buildings scavenging the very materials from which they’re built. Barring a fatal fall, or knife fight over the spoils, a day’s work stripping copper from a tenth-floor roof gable might reward its new owner with a few hundred dollars on the scrap markets.

Custodians of the industry that built Detroit’s great wealth and transformed our world have been feasting on that industry’s body – now carcase – for generations. Top executives got huge salaries, private jets and internal promotion over outsiders despite continuously disastrous results.

Having bid their workers’ wages and conditions to uncompetitive levels, the aristocracy of the American labour movement, the United Auto Workers (UAW) used their industrial muscle to ameliorate the niggardly American safety net – at least for their own workers. And so their great automotive benefactors remain weighed down with crippling pension obligations.

As surging Japanese imports illustrated their new-found uncompetitiveness in the early 1980s, Detroit’s ‘leaders’ got Washington to pass their costs onto American consumers by capping Japanese imports. So the Japanese continued their onslaught from new plants in America. Having once copied Ford, they’d taken Henry Ford’s ideas about mass production and eliminating of waste much further.

They’d fashioned a production system which endlessly optimised the vast complexity of car manufacture by cultivating high morale, high skill and highly co-operative relationships among everyone in the process. Rather than bark orders at isolated and insecure workers who were under surveillance to prevent shirking, they arranged workers into teams, gave them more autonomy, security and (literally) ten times the training the Americans provided and helped them measure and so optimise their own collective performance.

Likewise with their suppliers. Where American firms immediately sought lower prices from suppliers to reflect any cost reductions they’d achieved, the Japanese involved their suppliers more intimately in new product design – encouraging their unique expertise – and helped them improve quality and cut costs and let them keep their gains for several years until the next major price negotiation. This encouraged trust and co-operation and strengthened their incentives to keep investing and improving.

Normally specialised industrial cities just keep growing as competitor cities can’t match their scale and expertise. But those feasting on the body of the Great Wealth Making Machine of Detroit had so gorged themselves that the new Japanese auto plants headed elsewhere, particularly to the South where ‘right to work’ anti-strike legislation broke union power.

Detroit declined apace. It eventually had some success copying Japanese production methods. As an iconic American advisor to the Japanese, Edwards Deming, put it, the Americans kept trying to copy the Japanese, but they didn’t know what to copy. They’d imitate tokens of the system, but not the whole system or its ethos – the relentless elimination of waste and respect for all those in the production system, workers and suppliers, as collaborators.

Our own industry has often resembled the American one, though mostly without the extremes of abuse. And it’s had particular Australian characteristics. Since the 1940s it’s housed strong pockets of competitive strength in large car design and manufacture, but foreign owners never cultivated those strengths as integral to their global strategy.

A tenacious industrial cringe arose from a coalescence of three very different ideologies and interests. Manufacturers and unions’ lobbied to continue their comfortable life behind import protection. Then they battled each other in wage negotiations that determined how they shared the spoils.  And even when economists belled the cat on this racket from the ‘70s on, they focused on smoothing the pillow of the most uncompetitive activities (like assembling others’ vehicles) rather than playing to our strengths.

In fact, we were the perfect complement to Japan’s car industry during its rise. But only one prominent local economist – Peter Drysdale – turned his mind to crafting trade policy options to permit our respective industries to specialise with Japan exporting smaller cars to us whilst importing our larger cars and limousines. And in the absence of the requisite intellectual leadership, we retreated into blocking imports and encouraging local assembly at sub-economic scale.

Today we have one more – probably our last – chance to get this right. Ford or GM’s Australian assets would strongly bolster the design and engineering capability of China or India’s emerging auto giants. So if such firms had a stake in our auto assets they’d have the incentive to invest and find a valued place for them in their global supply chain as VW has invested in Skoda – that is as an integral and valued part of its global footprint. Right now the emerging firms of Asia are cranking up their export of small and medium-sized cars for global markets, making Australia hard to beat as a source of larger cars to fill out their global offering.

Our automotive assets can never aspire to more than back-office status whilst owned by the American auto companies. Personally I’d rather the industry closed than limp along devouring billions of our dollars in assistance, with our politicians begging and bribing the clapped out, cash strapped, bailed out auto manufacturers of a once-great – indeed still great – power now bent on its own decline for a stay of execution.

Instead, we could have a ‘beauty contest’ in which access to those billions would only be available to those that could demonstrate an investment plan and ownership structure that gave Australia a worthwhile place in their global division of automotive labour. That wouldn’t be possible for the American firms without joint venturing with, or selling out to, the rising Asian giants. At least that way our billions just might buy us a seat at the grown-ups’ table.

1 Response to Vale Holden: I told you so edition

  1. I am and will always be Not Trampis says:

    I remember a long time ago discovering two thirds of people employed in the car industry were in services.
    It occurred to me at the time that protecting the manufacturing industry was simply limiting the effect on all those employment opportunities in the tertiary industry.

    It was not fashionable to say that way back when.

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