Local car maker, Holden, is expected to cease manufacturing operations in Australia with the next three or four years, no matter what the Federal government does to try and save the company.
That's the view of several senior federal government ministers, and comes as Holden is in crisis talks with the government over assistance payments from 2015, when the current plan expires.
According to Fairfax Media, the view is creating resistance to any further taxpayer funded subsidies to the local car industry. One minster is reported to say that they had recognised that too much good money had been thrown after bad, and the end of the car manufacturing sector could not be forestalled forever.
Several ministers are also reported to be increasingly cynical about Holden's parent company General Motors and believe the company has already resigned itself to pull out of Australia, moving manufacturing to China. One potential sign of that is the redeployment of Holden chief executive Mike Devereaux to China.
Most car manufacturers around the world are subsidised by governments, showing the poor economics of the industry. Car makers spend billions developing new models, and are hugely capital intensive.
Ford has already made its decision to exit manufacturing in Australia in 2016, while Toyota says it will need productivity improvements from its employees to cut the cost of its cars by $3,800 by 2018. Back in June this year, Toyota was rumoured to be considering leaving Australia, while Holden boss Mr Devereaux says Toyota would definitely shut its local factories if Holden goes.
The issue facing politicians is that hundreds of thousands of workers are estimated to be supported by the local car manufacturing industry. Losing the industry could see those workers out of a job and unemployment skyrocket. Steel makers BlueScope Steel (ASX: BSL) and Arrium (ASX: ARI) ex-OneSteel, will be watching with interest, as they could be heavily affected.
Foolish takeaway
Realist will suggest that subsidies need to be cut and the car industry needs to find a way to survive on its own two feet. But politicians will also have to consider the likely effect of that on thousands of workers and our economy. Either way, it doesn't seem likely that the issue will be resolved anytime soon.
