Two Strategies of an Automobile Manufacturer in High Cost Countries

Recently in Australia, the car manufacturer Holden announced the date for the closure of its car manufacturing plant at Elizabeth, a suburb in the north of Adelaide, South Australia.  Holden is the Australian subsidiary of the American automotive manufacturer General Motors.  In accordance with the company’s announcement back in December 2013 that the company would close its plant perhaps as early as 2016, the company has set 20 October 2017 as the date that the last car to be manufactured at the plant will be completed. At the time of closure, Holden will have been manufacturing automobiles at the plant over 60 years.

The closure of the plant is significant in Australian industry terms as it represents a significant part of the total closure of automobile manufacturing as an industry in the country. Car manufacturing is shifting at a considerably rapid rate to alternative countries where lower labour costs in particular provide a draw card for manufacturers.

While Holden reports that nearly 1000 people are still working at the Elizabeth plant, employment for close to 700 employees has already ceased.  As the automobile manufacturing industry includes not just the car manufacturers / assemblers themselves but also an entire industry ecosystem including designers and engineers, parts manufacturers, and parts transporters, effected through hundreds of suppliers, the effects of the closures of each car manufacturing plant is far more extensive than just the loss of employment from the one company.  The employment of possibly about 12,000 people can be affected by the closure of the Holden plant at Elizabeth alone. And some estimates put the overall labour cost for the closure of the entire industry in Australia at 27,000 jobs.

The same industry in the USA has also faced cost pressures over recent decades and lost a considerable proportion of the world’s automobile production to other countries, particularly to Japan initially, then to South Korea and China amongst others. At a time of considerable domestic political discussion in the United States over the progressive loss of manufacturing employment (and issues around long-term loss of employment arose with high emotional impact during the recent presidential election in the country), General Motors has announced that it is seeking to create industrial park complexes close to its main assembly and manufacturing plants in the USA.

Within the same company group, General Motors, two very different approaches are being pursued for automobile manufacturing in two different relatively-high labour cost countries.

This raises many questions.

Some of these questions are around the place of industry hubs, technology parks, and the creation of industry ecosystems. How effective are such initiatives, including in terms of how much additional innovation do they generate? What does it take to ensure their effectiveness? For higher labour cost countries, can anything be done long term to counter the diminution of manufacturing or is it ultimately a foregone conclusion that countries that have high labour costs must ultimately forego such industries to low labour cost countries?  Can more efforts at innovation in high labour countries ever counter the advantages that low-labour countries have?