G'day, South Korea. Toodle-oo, Holden.

As Australia concluded negotiations on free trade with the Republic of Korea on 5 December 2013, the Aussie auto manufacturing indus...

As Australia concluded negotiations on free trade with the Republic of Korea on 5 December 2013, the Aussie auto manufacturing industry was not popping any champagne (rather, they were possibly drowning their sorrows in them).

The Korea-Australia Free Trade Agreement (KAFTA) will undoubtedly boost the agriculture and technological industries Down Under, but will deal a deathblow to automakers with the removal of the 5% tariff on imported South Korean vehicles. The Australian government acknowledges that “some sectors”, including motor vehicles and automotive parts, will face overwhelming competition from South Korean imports, but according to the Department of Foreign Affairs and Trade, “This impact will be in line with the progressive liberalisation already underway in the Australia economy.” The government has published an analysis forecasting that after 2030, when tariff on beef exported to South Korea is completely lifted, Australia stands to enjoy a boost of revenue of about AUD653 million. Essentially, it’s a cows-for-cars trade off.

South Korea is the 4th largest economy in the Asian region, with a population of 50 million, and is Australia’s largest export market. In 2012, South Korea exported about AUD2 billion worth of motor vehicles to Australia, making it the 3rd largest foreign car exporter to the country after Japan and Thailand. Although under the KAFTA, Australian automotive suppliers would also enjoy the immediate lifting of 8% tariff in South Korea, but with the strong Aussie dollar and high domestic labour costs, the Australian automotive service providers and parts manufacturers would find it hard pressed to rival their South Korean counterparts.
According to OICA, South Korea produced about 2.2 million vehicles during the first 6 months of 2013. Meanwhile, only 94 000 vehicles were manufactured in Australia, losing out miserably on the economy of scale comparison. Did we say “hard pressed”? We meant “impossible”.

Hot on the heels of the KAFTA news, just a week later, General Motors announced that it will be ending 65 years of car production in Australia by 2017, marking the first demise of auto manufacturing in the country. Holden had its beginnings as a saddlemaker in 1856 before venturing into the field of automotives in 1908, and then becoming a GM subsidiary in 1931. Alas, the Australian icon has been struggling for the past 12 years and has received a total of AUD2.2 billion of taxpayers’ money to keep it afloat, for the government thought that a domestic automotive production industry was vital for the country’s economy. However, restrictions on labour processes and the strength of the country’s currency have resulted in less cars being produced per employee. About 2900 of them might be out of a job by the end of 2017, but with a 4-year notice and a generous severance package, we think they’re not to be pitied too much.

image: news.com.au


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