At the risk of labouring the obvious
What do Holden and Qantas have in common?
Here’s a clue. It isn’t that they are being strangled by the carbon tax.
(Although you might think they were. In his letter to Holden on Tuesday the deputy prime minister Warren Truss said axing the carbon tax would “lower the cost of producing cars in Australia”. The truth is the cost would scarcely budge. The cheapest new Commodore sells for $35,000. Holden says the carbon tax costs it $45 per car. That’s right, only $45. It’s a decimal place of a per cent.)
And nor are Holden and Qantas being done over by rapacious unions.
During the global financial crisis Holden’s workers accepted half shifts in order to stop job losses. In April this year they signed up for a three-year wage freeze in exchange for a commitment from Holden to stay in business beyond 2016. Each production line worker put in an extra quarter hour per day.
They are literally the most productive in the 37 countries General Motors in which General Motors manufactures cars.
“Every 60 seconds a vehicle rolls down our assembly line,” Holden boss Mike Deveraux told the Productivity Commission this week.
“The people making cars in Adelaide have to deal with a significant amount of complexity as each car comes past them - much more than many and most other GM plants. They will build a couple of Cruzes, they will build a Commodore, a sports wagon, a Caprice, another Cruze. I mean, a different car and a different job comes at these people every 60 seconds, and on Cruze, they are loaded to 56 seconds out of that 60-second cycle time, balanced across hundreds of people on that assembly line.”
“It's the highest loading in GM plants anywhere that build the Cruze"...
And yet Australian workers cost more than their less agile counterparts overseas.
Around 80 per cent of the cost of making a car is people.
Deveraux asked rhetorically: “Is the cost of labour higher in Australia than it is in Asia?”
He answered: “Of course it is. We have a very good standard of living here and I don't think I would be making anybody surprised when I say that people in Australia make more than they do in many other places in the world.”
Holden told the Commission it cost twice as much to make a car in Australia as in Europe, four times as much as in Asia.
Holden never needed to close that gap. The deal it had struck with the Gillard government (which the Abbott government reneged on) wouldn’t have closed the gap. But it would have closed it somewhat, enough to make it worth staying.
A global corporation like GM can tolerate having loss-making plants in affluent markets like Australia. Its general philosophy is to “build where we sell”. And it knows the dollar might one day turn down.
The dollar is the common thread that’s linking the death spirals of Qantas and Holden. Not as obvious or as politically charged as less important issues like the carbon tax or industrial relations it has jumped to where it has jumped to a height never before seen in its 30-year history as a floating currency and hasn’t yet moved too far down.
In the quarter of a century to January 2010 the Aussie averaged 72 US cents. In recent months it has been 105 US cents. It has been great for car buyers, great for travellers. A foreign car that used to cost $20,000 now costs $14,000. A foreign air ticket that used to cost $2000 now costs $1400.
For companies like Holden and Qantas that were on the edge before the dollar soared, it means anything they try to sell overseas costs 45 per cent more. Its why Golden Circle is closing its canneries and moving to New Zealand, its why Electrolux is closing its factory in Orange and will source fridges from Asia and Eastern Europe. It’s why neither Holden nor Qantas can survive. Unless the dollar falls.
On Friday the Reserve Bank governor Glenn Stevens abandoned his usual reserve and said he would prefer a dollar nearer to 85 US cents than 90 where it has recently been. It’ll need to go lower still if we are regain our competitiveness. When mining prices were high and earnings were flooding in, it didn’t much matter whether the rest of the economy was able to make money. Now that they are not, and that the Australian dollar is still high, we have a problem.
One way or another we will have less buying power next Christmas. Either the dollar will be dramatically lower allowing us to compete again or more and more Australian firms will collapse, bringing on a recession. It’s time to talk seriously about how we can bring the dollar down.
In today's Canberra Times, Sydney Morning Herald
. Holden's tragedy. Elvis has left the room
. Jump in my car. Why Ford was heading south
. Manufacturing will bounce back?