Subsidies are evil

197099-hyundai-getz-ford-falcon-xr6

The Australian taxpayer must be wondering today just exactly what their AUD$34 million of federal funding for Ford earlier in the year got them. Billions of dollars more has been poured into the industry that is now almost dead.

About $10 billion over seven years. That’s how much has been pumped into the car industry by federal and state governments.

But has it been a case of throwing good money after bad, especially after Ford Australia’s announcement today that it was going to halt its local manufacturing operations in 2016?

Ford Australia president Bob Graziano said for every $1 the governments gave to his company, it returned $6 back to the economy. But at the same time, he said the firm’s cost structures in Australia were uncompetitive.

“Our costs are double that of Europe, and nearly four times Ford in Asia,” Mr Graziano said, adding that the company made a net loss of $141 million in the past financial year and had a total of $600 million over the last five years.

The local automotive industry has struggled in recent times as consumers switched to smaller, fuel-efficient cars and following the financial crisis, market research firm IBIS World said in a February report.

Car industry analyst Dr Danny Samson said the governments had been getting value for their subsidies to the sector.

“The subsidies have kept the industry here in my opinion for 30 years longer than the industry otherwise would have been here,” said Dr Samson, a management professor specialising in manufacturing and business competition at the University of Melbourne.

“If not for those subsidies, the industry would have completely evaporated decades ago. Every country that has a car industry has government subsidies. It’s not like the only one. It’s just the way it works to keep those jobs.”

Subsidies are evil, and now the gravy train is at an end.

 


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  • blokeintakapuna

    This is an “unintended consequence” of artificially raising
    pay rates without a corresponding increase in productivity / profit… very much
    like making the minimum wage $15 or $20/hr overnight without any increase in
    profit or productivity.

    Initially those receiving the increased money think it’s
    great, but incrementally the golden goose is strangled… until eventually, input
    costs exceed output sales and the business can no longer sustain those higher,
    fixed costs – such as those extortionate union wages – 2 x the cost in Europe
    and 4 x the cost in Asia!!

    Great money while you can get it – but totally unsustainable
    long-term… and that’s why there needs to be more of a balance between productivity
    and wages paid. This is a prime example (taken to the extreme though) of month’s/years
    after wage costs have exceeded productivity requirements to remain financially
    viable.

    It’s exactly the same for SME owners employing 1 or 2 people
    near minimum wage versus giving them $20/hour without any increase in either
    productivity or sales… eventually the person paying the bills decides they can
    no longer afford to subsidise a business it costs them to own – instead of
    making profits for them to re-invest back into the business to keep it viable
    long-term.

    Would someone grab Shearer and Norman by the scruff of the
    neck and sit them down with an Economics 101 text book before they get put in front
    of another TV camera to tell NZ about their “brilliant” economics / fiscal
    policies…

    • cruiseyman

      Exactly my thoughts as I read the story. As a SME owner I am terrified what a Labour govt would do to our business, kill it most likely or at the very least make not worth our effort. We simply could not absorb across the board wage increases without dramatically putting up our prices and a small, local business can simply not get away with doing that. We can increase turnover but only to a point as our business is very dependant on it’s location and the premise has a finite amount of space with which to work in. At some stage we would run out of room. We have nearly been operating 3 years, when we started it was just my husband and I, we now employ 8 staff.

      • cows4me

        Well said madam, just wait till the socialist idiots introduce the “living wage”. I’m pretty sure most of these nuts realise that business simply can not absorb costs as such as they would impose. I’ve always wonder why they fly in the face of the laws of physics. Those on the left cater for Gods dimmer souls and buying votes by way of screwing the employer is fair game.

        • Sir Cullen’s Sidekick

          Oh yeah, I forgot the living wage!!! Also the communists will restore the youth wage back to living wage level too.

        • Bunswalla

          How do you know it’s a woman that wrote that?

          • cows4me

            “my husband and I”. Specials at spec savers at the moment Bunswalla.

          • Patrick

            Given recent law changes your assumption (my husband and I) is flawed

          • cows4me

            Very clever Patrick, your example further highlights the stupidity of the recent piece of bullshit fostered upon the people.

      • tarkwin

        We’re the same, things are pretty tight at the moment but appear to be slowly improving. This is the first year in the last 5 I haven’t been able to give my staff a rise. To do so I’d end up reducing hours sooner or later, as you point out putting up the prices to cover the extra cost is not an option. Having said that, if I ran my business like I did 5 years ago we wouldn’t be here now. That alone shows we are well ahead of Australia in some respects and can only be good for the future. just pray labour and the Greens don’t get in.

        • blokeintakapuna

          Amen to all of that!

      • Sir Cullen’s Sidekick

        Well well well – Who have we here? A SME looking to get ahead and employing people and contributing to economy! You will be enemy number one for the Communist and Socialist Government that will be in place in 2014 led by Communist Sheep and Hippie Norman. We will first of all impose a higher company tax to pay for social programmes. Then we will impose higher personal income tax to pay for more social programmes. You will then be hit with an Earthquake levy to build art studios for the hippies in Christchurch. Finally you will be hit with a 10% carbon tax to reduce global warming. Get ready.

        • cruiseyman

          That all sounds dead on execpt for the hippiess in chch. As I live down here I can tell you that it’s all snobs, bogans and rednecks, Buggered if I know who goes to the art gallery, tourists perhaps?

  • onelaw4all

    For similar tales of U.S. “success” see G.M.

  • Just as well we got out of car assembly years ago.

    So when will Holden shut down?

  • Patrick

    Average Australian worker is 40% more expensive than his/her counterpart in other parts of the world – so our CEO told us when he was in town recently. But Labor keep loading more costs onto the employer & employee.

    • Bunswalla

      In my industry (IT) the costs are almost double those in NZ, for example a good intermediate Business Analyst is around $75k in NZ, and around A$100k in Sydney. By the time you add 9% superannuation and convert it to NZD you’re looking at $136k – plus add in the more expensive rent and other overheads compared to NZ.

      • Patrick

        Same industry. However having worked in NZ until a few years back I have to say we are underpaid. Living & working in NZ is treading water in terms of being able to save & get ahead.

        • rockape

          Not in IT can just about get my e mail. But my son was looking to settle in Nz he likes beer and rugby but hewould have taken a drop in salary from 100 pounds to about 75k dollars. He now goes it alone and is making serious money.Purple square consulting.

  • sheppy

    Sadly the evidence of Aussie Labours mismanagement of their economy grows!

  • Steve (North Shore)

    ” Bob Graziano said for every $1 the governments gave to his company, it returned $6 back to the economy.”
    I think he means the $6 was what was spent on the car ie fuel, tyres, seat covers, mag wheels, sound system etc etc.
    Wrong. If Ford did not get that $1 from the Govt is would have gone bust years ago and the consumer would have bought a different car which would create the $6.
    Bad management and unions are the problem; also Ford have struggled against Holden with the V8 history

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