An Economic Analysis of the Decline of the Australian Automobile Industry

Abstract

The Australian automobile industry was at one point the largest industry in the country in terms of GDP, yet it practically became non-existent over forty years. This paper analyzes the drivers of the Australian automobile industry's failure by applying a theoretical economic lens and context of the Japanese automobile industry. Three key factors played a role in the downfall of the Australian automobile industry. First, the Dutch disease suggests that the relative abundance of Australian resources in Australia has lowered the labor pool and manufacturing resources and raised the real value of the Australian currency, making it harder to sell Australian-made products. Additionally, the presence of unions as institutions in the country led to higher input prices derived from higher required pay and soured relations between labor and multinational corporations. Finally, the 1980s tariff policy, initially in favor of a protectionist car industry, switched to minimal tariffs, rid domestic producers of their edge on foreign producers in domestic markets, and gave manufacturers no realistic way of turning a profit. Although federal policy changes could have reduced the effect of these factors, the final blow to the industry's future growth came after the OPEC oil crisis, creating a demand for small cars compared to large cars, which was not the focus on Australian manufacturing.