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Australia’s automotive industry offers an industry policy lesson

5 October 2016: The closure of Ford’s vehicle assembly operations in Victoria this week offers a chance to reflect on the issues that have led to this outcome, and understand what can be learned from the experience.

There are also key lessons for policy makers in regard to the emerging opportunities in advanced manufacturing and defence, according Deloitte’s manufacturing group leader, Damon Cantwell.

“State and Federal governments need to maintain a constant watch on global developments in these sectors, and the way in which other competing countries are managing their policy settings needs to be a benchmark to maintain Australian competitiveness,” he says.

Cantwell sees the Ford closure as the culmination of a range of developments over a long period of time: “Outcomes such as this arise through the interaction of individual company decisions in the context of the broader industry policy environment. Rarely are there individual events that lead to the loss of an entire industry.”

Deloitte’s work in Australia and globally around manufacturing industry policy points to a number of central pillars related to the need for certainty, consistency, and to have governments ensure they are proactive when it comes to the way a range of policy levers interact, including science, technology and innovation, tax and trade, innovation and talent retention.

Deloitte’s 2016 Global Manufacturing Competitiveness Index highlights the extent to which international manufacturers consider industry policy settings in deciding where to invest.

“Governments must continually review their policy settings in a dynamic environment where the physical and digital worlds continue to converge,” says Cantwell.

“Industry policy cannot be ‘set and forget’. Successive Australian governments over the last 30 years had a tendency to re-set automotive industry policy every five years or so, and unfortunately we were eventually playing catch up in regard to where the global industry had moved.”

Cantwell says decisions government make in regard to the way funding and support programs are structured are also a key aspect of the overall industry policy picture.

“This is not about more funding. The way in which governments invest in a given industry is also important. In the Australian automotive context, there is a concern we received too little from the car companies for the public investment being made, and we supported an unsustainable number of component companies along the way.”

A relevant industry policy also needs to keep pace with new manufacturing business models.

“While Australia’s auto industry remained characterised by high-capacity plants and a modest number of vehicle models, the global industry has seen new developments through many companies investing in smaller, more agile production facilities.

“Companies like Mahindra Reva in India, and contract manufacturers such as Valmet in Europe have production models that are quite different from the traditional automotive norm. These facilities represent the type of industry innovation that we were not able to attract to Australia,” Cantwell concludes.

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