Australian Car Industry

Australian Car Industry

Question 1

Automobile industry is one of the most important industries for any country in the world. In the Australian economy, the importance of automobile industry is pivotal to the growth of economy. The importance of government subsidies is vats and well-grounded to the Australian industry, and therefore, the revival of the automobile industry is extremely essential through the grants given by the government.

The Australian industry for car manufacturing has been in serious crises, since more than half of the industry is controlled by a very few makers, whereas, the industry is at the verge of collapse. The Australian government is therefore, putting immense amount of investment in the automotive sector to combat the problems and handle the situation. The government is very hopeful and positive about the revival, as well as, the success of the industry (Phillip, 2013, pp.1).

The Australian government is therefore, supporting the industry through direct subsidies, the term that is defined as “most commonly, it is the payment made to the producer by the government in order to help him with the funding of the business”. The government recently announced that it would continue supporting the local automotive industry through 'co-investment', that is, the subsidies funded by the tax payer.

The rationale behind the strategy is to encourage the people to invest in the industry, as well as, spare the survival of multinational corporations such as Ford and Holdens, so as to make them capable of maintaining the production in Australia. The public generally prefers locally manufactured cars, rather than, cars manufactured by the multinationals due to price, as well as, other considerations. The automotive industry is ailing, and therefore, needs a saviour to survive the crises. Due to appreciation in the currency the trade graph is going down, whereas, the industry is doing job cuts every going year (Phillip, 2013, pp.1).

The critics are questioning the approach, since they believe that the companies are returning a lion's share to the government for every $1 they get through subsidy is paid back to the government due to taxation or other dues.

The industry does not have comparative advantage; that is, the multi-national corporations working in Australia are incurring much higher cost due to maintenance of the offering they design for the customers, and therefore, they are not bothered to save the cost. The appreciation in the currency is diminishing their cost one way; however, it leads to the decrease in sales in the other way. The industry is lowering manufacturing jobs, whereas, the marginal cost for production of every unit is much higher when compared with other first world countries of the world.

Question 2

The strategy of the Australian government to support the car manufacturers through subsidies is still questioned widely by the critics and economist. The subsidies are not playing the role of a saviour, and such a high co-investment into the multinational companies that include Holdens, Ford and other international manufacturers is not playing a very positive ...