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Until a generation ago, Australia had a relatively robust auto sector, the legacy of active industrial development policies through the postwar era. Governments attracted global producers through a combination of financial incentives and high-tariff barriers. (Mark Blinch/REUTERS)
Until a generation ago, Australia had a relatively robust auto sector, the legacy of active industrial development policies through the postwar era. Governments attracted global producers through a combination of financial incentives and high-tariff barriers. (Mark Blinch/REUTERS)

Jim Stanford

The end of Australia’s auto industry offers cautionary tales for Canada Add to ...

Jim Stanford worked as economist for the Canadian Auto Workers, and then Unifor, for over 20 years. He is now Harold Innis Industry Professor of Economics at McMaster University, and lives in Sydney, Australia.

As negotiators for my former union hammered out new contracts with the Detroit Three auto makers this fall, I was cheering them on from my new post in Australia. It’s pretty ironic that after working for Canadian auto workers for more than two decades, fighting to hang on to every job we could, I moved to a country in which the auto industry is shutting down entirely. That made it all the more satisfying to see Unifor win $1.6-billion in new investment commitments that will help cement the Canadian footprint of each company.

All of the auto makers left in Australia recently decided to close their operations: General Motors (through its subsidiary Holden), Ford and Toyota. Ford was the first to lock the gates; the last-ever Australian-made Ford rolled out of a factory near Melbourne last month. GM and Toyota will cease production next year.

There are many geographic and economic similarities between Canada and Australia, so it’s not surprising that some auto analysts draw a pessimistic comparison between the two countries. And the pressures facing Canada’s auto industry are not dissimilar to those which brought down Australia’s.

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Neither country has a “home-grown” auto maker, and hence must compete with other jurisdictions for foreign investment from global auto makers. Manufacturing in both countries was battered in the 2000s by overvalued currencies that artificially inflated production costs. Both countries experience large and growing auto-trade deficits with Asia and Europe.

Until a generation ago, Australia had a relatively robust auto sector, the legacy of active industrial development policies through the postwar era. Governments attracted global producers through a combination of financial incentives and high-tariff barriers.

As recently as the mid-1980s, Australia produced almost as many cars as it consumed, and the industry was one of the country’s largest industrial employers. But unilateral elimination of those tariffs, beginning in the 1980s, combined with a failure to stabilize domestic investment and production, then set the industry on a downward track. The resource boom and sky-high Australian dollar during the 2000s put the final nails in the coffin.

The Aussie story is a gloomy one. But it is not inevitable that Canada’s industry must follow the same trajectory. And the Unifor contracts are just one of several signals that our industry has a brighter future:

Geography: Canada’s proximity to the world’s biggest market is a huge factor in our favour. So is the structural legacy of the former Canada-U.S. Auto Pact, which efficiently oriented Canadian auto plants around an integrated continental marketplace. The United States is the only place to which Canada exports as many automotive products as we import. Everywhere else, it’s a one-way inflow. Australia faces an even more one-sided trade system; it lacks any counterbalance to enormous imports from Asia and Europe.

Productivity: Most Canadian auto plants operate at or near full capacity. Combined with advanced technology and work organization, that gives the Canadian industry an important productivity advantage. Output per worker is 10 per cent to 15 per cent higher than it is in the United States – and three times higher than in Australia’s badly underutilized factories.

Government support: When GM’s future in Australia was in question, then-treasurer (finance minister) Joe Hockey famously dared the company to leave. Guided by laissez-faire ideology and undue faith the resource boom would last forever, government sat back while the industry packed its bags.

In contrast, the Canadian and Ontario governments recognize the necessity of government participation to win new investments in the face of global competition. Their support is now needed to seal commitments from GM, Ford and Fiat Chrysler.

Union strategy: Canada’s auto union has been proactive for years trying to win new auto investments: in the workplace, in the boardroom and in the political arena. The investment commitments inked in Unifor’s 2016 contract talks are just the latest chapter of that ongoing effort. Under Australia’s restrictive labour laws, in contrast, it’s not even legal for unions to bargain over investment decisions.

After years of retrenchment, Canada’s auto industry finally faces a more optimistic future. Our labour and production costs are attractive. Our productivity and quality are unmatched. Government, the union, suppliers and the auto makers are showing they can work together to stabilize, and hopefully rebuild, the Canadian footprint.

There are many great things about living in Australia. But with the auto industry, I am very glad Canada isn’t following the Australian example.

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