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The decision by General Motors HQ in Detroit to quit car production in Australia in 2017 has led to criticism of its Australian subsidiary, Holden, for entering agreements with unions which established uncompetitive cost structures. And the same might be said about Toyota, whose attempt to change its agreement with unions on the ground that it had created  “outdated and uncompetitive terms and conditions” has been rejected by the Federal Court (see article below). So why did it agree to them in the first place?

My view is that the basic reason is that these and other companies have been subjected by the Labor government to greatly increased regulation in workplace relations under the Fair Work legislation and its heavily pro-union administration. If these arrangements are not changed quickly, there will be continuing increases in closures and unemployment. The Abbott government spoke during the election about a “budget emergency”. But while undesirable a delayed response there can occur  without causing closures and unemployment. Failure to deal with the emergency in workplace regulatory arrangements, however, risks a marked slow-down in economic growth and increasing unemployment (including those who drop out of the workforce altogether).

Under existing regulatory arrangements businesses, particularly large businesses, are subjected to claims by unions which if not met are either likely to be approved by FW (perhaps in a modified form) or, if not met, are likely to lead to disruption of business activity by unions which the FW is disinclined to stop (or to impose severe penalties on unions). Such disruptions are also sometimes threatened unless “donations” are made to unions, which then establish “slush funds” that are used to benefit union officials – and others. The Abbott government intends to try to effect some changes but these are much less than what is needed, both economically and politically.     

This is not the place to elaborate on my reasoning: I have done that in a submission to the farcical review of the Fair Work arrangements and (with Theresa Moltoni) in a Policy Paper just published by the HR Nicholls Society (both are on my web site). The article immediately below in today’s Herald Sun by Terry McCrann adds weight to my reasoning that quick reform is needed in FW. In this regard note also that the second article below refers to the  relative steadiness in manufacturing employment prior to 2009 but a decline of 100,000 since then ie as the Fair Work arrangements came into full play. The implication is that, prior to FW, inefficient manufacturers were able to maintain activity but since then they have become increasingly exposed.

Des Moore

Holden left high and dry by float of dollar

Article by Terry McCrann published in the Sunday Herald Sun, December 15, 2013
(highlights by Des Moore)

IT was pure coincidence that the decision by General Motors in Detroit to end 65 years of making cars in Australia came in the week of the 30th anniversary of our decision to float the Australian dollar.

But it was also strikingly appropriate. For the floating of the Aussie by the Hawke-Keating Labor government in December 1983 was the first of a series of moves - and also, crucially, non-moves - that ultimately sealed Holden's fate.

And that of Ford, and possibly also Toyota, along with Mitsubishi, Nissan and all the others that at various times had ventured to make cars Down Under.

The other key decision came later in the Hawke-Keating years, when it was decided to lock-in staggered but relentless reductions in the local car industry's protective tariffs.

Those decisions, along with the abolition of controls on capital flows and (most) investments into and out of Australia were all about opening up the economy and financial system - and the country - to the world.

Then-treasurer Paul Keating is right to claim they were the foundation of Australia's prosperity and growth in the 1990s and 2000s.

But they also contained a fundamental flaw, which, when joined by a totally unpredictable change in the global economy in the mid-2000s, would prove fatal to not only local car manufacturing but so much of the rest of manufacturing.

The flaw was not to deregulate the labour market, so car makers were saddled with high wages and inflexible working conditions that have persisted.

This rendered local makers intrinsically uncompetitive, especially with burgeoning new producers in Asia. It was made that much worse by the small-scale plants scattered across three makers and different states.

The big change was, of course, the explosive rise in China from about 2004. This was great for our resources industry; it was great for Australia more broadly - for one thing, it poured money into Canberra, financing all those tax cuts to wage and salary earners from the Howard-Costello government.

But it also sent the Aussie dollar rocketing; turning the screws that much tighter on local manufacturing and car makers in particular.

If we could turn back the clock, three critical things could have been done that would arguably have left us with an industry that would have been worth protecting today.

The first would have been to embrace a slightly less brutal regime of tariff cuts. To have ended the cuts at, say, 15 per cent, not the all-but meaningless 5 per cent we now have. And to have facilitated greater integration to get remaining plants closer to globally competitive scale.

But the big one, arguably the impossible big one, would have been serious industrial relations reform.

Depressingly, even in December 2013, with the full knowledge of what has happened to the car industry in the past 20 years, we can see that remains impossible.

PM Tony Abbott's one core promise is there will be "no WorkChoices under a government I lead".

But only last week the Toyota unions last week successfully stopped the company from seeking to amend its labour agreement.

In short, ultimately, there really was no saving the local car industry. It was always going to be the most high-profile victim of our industrial relations pigheadedness and our China-driven prosperity.

I would add that the letters to the newspaper after the Holden decision showed readers had a keen understanding of all this. They made repeated references to "economic reality"; that the inevitable decision was a "long time coming" - so it's absurd to blame the new Abbott Government; that all our add-ons, such as 9 per cent super and 17 per cent leave loadings, had collided with competition; their market shares were too small to survive; and so on.

All this poses questions and should provide lessons for the future. Brutally, the car industry is dead, long live … what exactly?

There's a chance that a combination of "jawboning" by Reserve Bank governor Glenn Stevens, and finally a move by the US Fed to begin its taper, could force the Aussie dollar to move lower. Perhaps even significantly lower.

Although I'd caution against the assumption a weaker Aussie is guaranteed. We've been teetering here before; and a resurgent China could yet "save" us again, pushing up the prices for our commodities along with the currency.

But a weaker Aussie would be too late to keep Holden; if it came quickly, it might persuade Toyota to hang in over the "invitation" from its unions to close up and go away.

But the real opportunity from a lower Aussie lies in niche, high value-adding manufacturing, tourism, services, and most notably education.

There's no point in embarking on national ululation and recrimination about Holden. Let us instead focus on what we can do, what we have to do, to provide a growth environment for the rest of Australian industry.

This is a mammoth policy and operational canvas, but it all comes back to one core. And that core, is absolutely not about slashing wages and conditions; although some greater realism is needed.

As RBA deputy governor Philip Lowe has argued, it is all about promoting productivity - simply, producing more with less.

That means investment in infrastructure, reforming the tax system, improving the financial system; and yes, reforming IR to give businesses greater flexibility in managing and operating their businesses.

Holden follows other dodos off assembly line

Article by David Uren and Paige Taylor published in The Australian, December 13, 2013
(highlights by Des Moore)

HOLDEN is disappearing alongside an entire generation of Australian manufacturers that grew up in the 1950s and 60s, protected by high tariff walls and selling solely to the domestic market.

When tariff protections came down, and consumers suddenly had a world of choice, many manufacturers struggled to adapt. Those that did - and there are plenty of encouraging examples - continue to thrive.

"Broad-based assembly line stuff, which is relatively labour-intensive, is going the way of the dodo in Australia," said Barry Hughes, an authority on manufacturing who has been an adviser to the Australian Industry Group.

But Australian manufacturing is far from doomed, with foreign investment figures released yesterday showing that in the past five years, global companies have poured $20 billion into Australian manufacturing, lifting their direct stake to just under $90bn. And while the textiles and tools manufacturers have been decimated, official figures also point to robust export markets in manufactured products as diverse as aircraft parts, irrigation equipment and swimming pool monitors.

Dr Hughes said the greatest opportunities for Australia lay in highly specialised, high-skills markets, pointing to thousands of dynamic manufacturing firms carving out profitable business.

He cited the example of Kingston Bridge Engineering in Perth which, when he visited it, was "squeezing 2m diameter piping like toothpaste from a machine". The pipes were destined for Hong Kong, where they would carry the island's freshwater supply from China.

A business unit within Iplex Pipelines with about 95 staff, Kingston Bridge has won projects for Western Australia's vast liquefied natural gas industry.

"We put the success of KBE down to the strong technical skills of its people and a culture of innovation and customer focus," national sales manager Lee Brailsford said.

The closure of the whitegoods industry in South Australia also left behind many companies making pipes and pumps that have gone on to prosper. An Adelaide company that made water heaters, Maric Flow Control, developed an innovative valve for controlling the flow of water at variable pressures. The company, which recently celebrated 50 years in business, no longer makes heaters but sells its valves around the world.

Like agriculture, manufacturing remains an important contributor to national prosperity despite being a much smaller share of the economy than it once was.

The manufacturing industry has been beating a long retreat, having peaked at more than 20 per cent of gross domestic product in the late 50s and now down, in last week's national accounts, to just 6.6 per cent. It is declining more rapidly now as the high Australian dollar intensifies the structural pressures caused by the emergence of highly efficient manufacturing across Asia.

Although declining as a share of the economy, employment in manufacturing held steady at just over one million for almost 20 years until 2009, but has declined by 100,000 since then.

Dr Hughes says the eclipse of the older generation of manufacturers was an inevitable result of changing competitiveness.

The closure of Holden follows closure announcements in the past six weeks of Rio Tinto's Gove alumina plant in the Northern Territory and the last refrigerator factory in Australia, run by Electrolux in Orange, NSW.

Where once Australian workers were able to offset their high wages by being more productive than workers in low-wage economies, that is no longer the case. "Globalisation has lifted productivity practices around the world. People in emerging nations have copied and caught up," Dr Hughes said.

The rise and fall of industries is a constant feature of economies. While Australia lost most of its textile and clothing industry to China in the 1980s and 90s, China is now losing it in turn to lower-cost countries such as Bangladesh and Vietnam.

However, new industries are growing in Australia. The Australian Bureau of Statistics records that companies making parts for aircraft achieved exports in the last year of $1.2bn, while companies making telecommunications equipment had exports of $1bn, with both sectors having achieved solid growth over the past five years, despite the strength in the dollar.

Australian companies manufacturing equipment to monitor swimming pool quality have exports worth hundreds of millions of dollars.

Dr Hughes said manufacturing will always be more difficult in Australia than in most other countries because of the extreme volatility of the dollar, which is caused by the large influence of commodities on the Australian economy. The currency volatility cannot be hedged other than over the short term.

Court blocks Toyota cost-cut plan

Article by Ewin Hannan and Pia Akerman published in The Australian, December 13, 2013
(highlights by Des Moore)

TOYOTA Australia's cost-cutting strategy has received a major setback after a Federal Court judge blocked the company from holding a meeting of employees today to consider changes to their workplace agreement.

Toyota said last night it would consider appealing against the decision by judge Mordy Bromberg after he ruled that the carmaker had breached the Fair Work Act.

Following legal action by four shop stewards, Justice Bromberg ruled Toyota's bid to "reduce employee entitlements" and achieve cost savings had breached the no extra claims provision of the workplace agreement covering employees.

He made the order just hours before the vote of employees was to open at midnight.

While he said he would not restrain Toyota from seeking to remove or vary the no extra claims provision, his decision was likely to delay by months the attempt by Toyota to change the employees' working conditions.

It is expected that the company would first have to get approval to remove the no extra claims provisions before it could put the modified deal to employees.

Toyota Australia president and chief executive officer Max Yasuda said he was disappointed with the outcome, and the company was considering its options, including an appeal.

"We believe that we are within our rights to vary our workplace agreement provided the majority of our employees support the changes through a formal vote," Mr Yasuda said. "The company is doing everything that it can to secure the future for our employees and their families."

He reiterated that GM Holden's planned closure in 2017 "will put our manufacturing operations and the local supplier network under unprecedented pressure so it is now more important than ever before that we make urgent changes".

"A decision will be made next year on the next-generation Camry and export program and we need to take urgent action if we want to stay at the negotiating table for future investments.

"The proposed changes were designed to remove outdated and uncompetitive terms and conditions that make it difficult to compete with other Toyota plants throughout the world," Mr Yasuda said.

The court ruling to block the proposed vote by 2500 workers at Toyota's Altona plant in Melbourne is a blow to the carmaker, which is the sole car company left committed to manufacturing cars in Australia after the decisions by Ford and Holden.

Federal Employment Minister Eric Abetz said last night he had sought urgent advice from his department on the court ruling and was "concerned by reports that the unions are opposing outright the proposed changes to the enterprise agreement".

"It is clearly in the best interests of all parties, particularly Toyota employees, to work together and consider changes to increase flexibility, improve competitiveness and help protect jobs," he said.

The four shop stewards who brought the case against Toyota have sought financial penalty for the company's breach, and Justice Bromberg has adjourned that part of the case until at least February.

Outside court, AMWU vehicles division national assistant secretary Warren Butler said there was no great victory in the case and the union wanted to work productively with Toyota.

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