Subsidising the wrong things

So, I was reading in Wheels magazine today that Ford Australia received $100 million in funding from the government so that they could keep open their manufacturing operations here.

To put that figure into perspective, the government has committed $75 million towards the recently announced “world’s largest” solar energy plant [Replaced broken link 14 Mar 2017].

Obviously the intent is to maintain a manufacturing presence in Australia which will support Ford’s workers, but also the component manufacturers that supply Ford. I’m not a fan of subsidies for uncompetitive industries, but on balance it sounds reasonable. (I’d love to know how many people would be affected by Ford closing local manufacturing – could that $100 million be better spent re-skilling the workforce? But I digress…)

Of course, that mag went to press before the layoffs announced the other day. These layoffs are blamed on rising oil prices, and a drop in “big car” sales.

This is not a new trend. Car manufacturers that are relying on “big car” sales, like Holden (Commodore) and Ford (Falcon) have been seeing declining sales of their bigger models for years, with a particularly steep drop in the past year. The biggest selling cars for some time have consistently been smaller cars. And the dominant player at the moment is Toyota.

You’d think they’d cotton on to the fact that maybe they should be looking to develop smaller cars. Or more efficient engines. Or something! Not just keep building the same old cars that aren’t selling. Certainly it doesn’t seem to be a winning strategy.

But I nearly fell of my chair when I continued reading the article to see that the funding was specifically for development of large cars (specifically V8s if memory serves) and related technology – with a view to export markets. So not only is the government propping up an uncompetitive industry, but it is throwing money at a strategy that is clearly a dud.

In the same edition of Wheels, they interview last year’s Wheels Young Designer of the Year who is close to finishing an internship at Ford (the internship is a prize for winning the award). He is environmentally conscious, and clearly wants to work on cars that are more efficient and environmentally friendly. But Ford aren’t doing a whole lot in that area, are they?

Now to me, connecting the dots is pretty easy. (Am I being too simplistic?) Yet high-paid executives at Ford seem unwilling to see the writing on the wall and change course. Instead of looking for government handouts to prop up their unsustainable “big car” strategy, they should be looking to utilise Australia’s strong design talent to deliver innovation – cleaner, more efficient cars might be a good place to start.

And perhaps our government could think more strategically about spending our tax dollars on a dying business and instead focus it on research and development of cleaner and more efficient technologies. Focus on the development of “green tech” – one of the biggest growing industries worldwide – with a view to position Australia as a leader in the field.

What would it take to switch from subsidising “business as usual” practices to spurring innovation? I do hope we find out soon, coz I fear for the continued economic success of our country if we don’t start changing course soon…

Update 2006-11-10: Just a pointer to the comments section – John has some really interesting points in his post there…

3 thoughts on “Subsidising the wrong things

  1. The paragraph about developing large cars for export markets is really the crux of the matter. Australia is such a backwater when it comes to total market size that it really doesn’t make sense for us to build cars here for the domestic market alone. Of the ‘big four’ local manufacturers only Holden and Toyota are remaining profitable because they have cracked the export market. This is really a move by the government to try and jump start Ford’s export business, hence their focus on the large V8 powered models that the middle east can’t get enough of (for obvious reasons…). Holden currently export around four times the number of locally sold large cars (Statesman, Grange etc) to the middle east. These guys are making more money than they can spend at the moment so where there is a demand…

    So in a short-term, economic sense this would appear to be logical but as a long-term strategy it is flawed on many levels. Australia’s (and most of the developed world’s) greatest asset at the moment is our expertise and experience. Once countries like China get their quality up to scratch, ANYONE trying to manufacture a complex, mass-market device like a car competitively is in big trouble. We should be focusing our resources and attention on positioning ourselves as a world centre for design and engineering expertise and leave the heavy lifting to those best equipped to do so.

    And on the environmental front, I was lucky enough to be at the Paris motor show this year. Apart from the usual car porn on display the thing that really struck me was the Toyota stand did not feature ONE performance/sexy car – instead the whole focus was on their hybrid and alternative power technology. Remember, this is the most profitable car company int he world.

    If our government and thought leaders would spend less time being led around by the US and take a look at what the rest of the world is doing (or even come up with some original ideas of our own…) then things might not look so shitty.

  2. …and just to cloud things even more, check out this research (admittedly by a US based research firm, but food for thought):

    It seems we may still have some ways to go before getting it right.

    Smug, Smug Smug…

  3. Yeh – I’ve been reading a lot of this kind of stuff lately. It all started when I began following the Tesla Motors blog and they were looking at the total energy usage of cars powered by hydrogen, ethanol, and electricity. Admittedly, this isn’t a cradle-to-grave analysis, but even on the basis of energy consumption, electric cars well outperform even hybrids.

    The other thing that seems obvious now, but took a little while for me to get my head around is the fact that ultimately a hybrid simply uses a petrol engine to charge the batteries of the hybrid – which seems terribly inefficient when you think of it that way. Plus the electric engine has to pull the weight of all those extra components around (i.e. the engine, gearbox etc.) which reduces efficiency even more.

    Looking at a cradle-to-grave model, it makes intuitive sense to me that a hybrid will consume more electricity to produce (extra components etc.) – but I think the key to hybrids is not total energy efficiency – it’s all about emissions. It doesn’t matter which way you cut it, a 40-50% emissions cut is important, even if at an efficiency level doesn’t add up overall.

    But we absolutely have to go further. New engine technology like the NuStroke which reduce the number of components, complexity, weight and emissions of the engine are a definite step forward (I want to post more on that later). That would reduce energy consumption and costs to produce. Even by itself this type of engine would be a huge win. Combined with hybrid technology this would be an even better proposition.

    P.S. thanks for your comments JB – I’m really enjoying and appreciating your contribution 🙂

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