In the second week of December, General Motors’ passing the scepter of leadership to the first female CEO in its history was just one story from the auto industry. But in terms of major implications for the future of the global auto industry, Mary Barra’s elevation may also have been the least important one.For one thing, Volkswagen’s head of North America left for greener pastures — or so the official PR release said. For another, GM sold off the last of its stake in Ally Financial, the old GMAC, ending a century of owning what used to be one of its most profitable divisions. And then GM turned around and announced that it would quit selling Chevrolets in Europe, leaving the continent to its Opel and Vauxhall divisions. But wait, there’s more. It was discovered that the French knew we had been privately negotiating with the Iranian government over a possible solution to their nuclear plans, which meant that Renault and Peugeot executives had taken the first steps toward returning to Iran as soon as certain sanctions could be lifted. Then the report came out that China’s Dongfeng Motors would invest over a billion dollars in a lifeline to save Peugeot Citroen from its current automotive downturn. For those seven days it was as if everything shifted in the automotive industry. Then came one move that marked the coming end of an era and became an object lesson for all in why globalization may have reached its intended end game.What happened? GM announced that it would close its production facilities in Australia. Our koala-loving friends were left hoping that Toyota doesn’t follow suit, because that would completely end 112 years of car production Down Under.Gang Beat-Down (Under)Of course, car companies have been leaving Australia for decades. Volkswagen and British Leyland left in the 70s, Chrysler and Renault in 1981, Nissan in 1992 and Mitsubishi in 2008. Earlier this year, Ford announced that it, too, would cease manufacturing in Australia within a few years, and then a week and a half ago GM gave up on that country. The only automotive manufacturer left there will be Toyota, which actually exports 70 percent of the vehicles it builds in Australia. But it’s highly doubtful that the Australian parts supplier system can survive if Toyota is the only manufacturer left standing — and ordering.So what is Australia’s problem? There’s little doubt it has suffered the effects of globalization. As in most of the world’s advanced industrialized countries, for decades Australia’s economy and government edicts encouraged and sometimes demanded that a certain level of automobile production be based where the cars were sold. But Australians have never been in love with new cars the way Europeans or Americans have been; even today their market is only around 1 million new vehicles a year. But as the waves of free trade agreements came into effect, tariffs were reduced or eliminated and automobile manufacturing moved to countries where labor costs are extremely low. As a result, like the rest of the world, Australia found itself flooded with inexpensive imported cars — just when they’d turned their backs on the full-sized sedans that were the only products bringing any semblance of profitability to automakers still manufacturing there.When these trade agreements and cheap imports coincided with the deregulation of the financial markets and trading desks worldwide, Australia’s commodity and fuel prices jumped just like they did everywhere else. Although gasoline retails for approximately twice as much in America, Australians’ higher per-capita income means they spend 3.3 percent of income per year on gasoline. In contrast, the Bloomberg Sustainability Report puts Americans’ cost for gasoline at 2.4 percent of income. Even so, the increase in fuel prices was enough to move Australians into smaller and more fuel-efficient imports. At the same time, the deregulation of the commodities market drove up the price of raw materials. At first this benefited the Australian mining operations, but eventually it strengthened the country’s dollar so much that the exchange rate for exported minerals removed a great deal of their profit gain. More important, the strength of the Australian dollar severely damaged any hopes of using the nation’s home auto production for profitable worldwide export. We Bought Them TooFor those who have forgotten, in the early 90s Mercury sold its Capri convertible as a Miata fighter in the U.S., and that vehicle was Australian built. Mitsubishi sold one generation of its Diamante here that was shipped from Down Under; and most recently, the last Pontiac GTO was really a Holden coupe made in Australia. Australia’s largest auto union simply put its problems down to globalization, and while that’s true to a great extent, it is not the entire story. Peter Roberts, a journalist whose main specialty is manufacturing, was quoted in the British Guardian as saying, “The end-game is a deindustrialized country reliant on finance, service industries and resources extraction.” Ultimately, the ugly truth may have been expressed by Pat Aughterson, head of Excellent Plating Works of Melbourne, in a recent Bloomberg column, when he warned, “If automotive goes, manufacturing is finished.”What everyone is leaving out of the post-game analysis is the fact that the car-buying public shifted their overall preferences in personal transportation. They demanded smaller and more fuel-efficient vehicles, instead of the larger and more expensive cars that were the only vehicles still making a profit for car companies still building in Australia. And when that demand changed simultaneously with deregulated markets that sent the prices for both commodities and fuels skyrocketing — and then globalization knocked down trade barriers — the result wasn’t just predictable, it was inevitable. Works Globally Gummed UpCars and trucks are built all over the world. And for two decades we’ve heard the warnings about keeping up with modern times and how it’s a global marketplace now. And we’ve been told that larger world trade will in time improve everyone’s life. And it has improved life, for some — the select few. But if Toyota calls it quits, and it’s highly likely that it will, Australia will become the largest country to lose automobile manufacturing completely.That’s actually what made this the most important story of the week. Not GM’s new CEO, or even GM pulling Chevrolets out of Europe. This is the first case to point up the results of 30 years of financial deregulation, combined with new and far more liberal standards of world trade, and to highlight how much they can affect one industrialized nation.It was just a few years ago when Michael Rann, the Premier of South Australia, came on my radio show to discuss the fact that a Holden truck built outside of Adelaide would be sold here as a Pontiac. We got along famously, so much so that he invited me at his government’s expense to come to Adelaide and do my show one weekend. Two things kept that from ever happening. One was the 27 hours’ worth of plane flights to get there, and the second was the fact that I’d have to do my show in the middle of the night because of the 16 ½-hour time difference. Then again, shortly after Rann made his very generous offer came the 2008 financial meltdown, and Pontiac ceased to exist — along with the promise of an Australian-built small truck for the American market.When that happened, I felt sorry that Rann had to fly the 27 hours to get to Dallas to do my show.© Ed Wallace 2013
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: email@example.com, and read all of Ed’s work at www.insideautomotive.com.