by Craig Milne
PODCAST Chris McCormack talks to executive director of the Australian Productivity Council, Craig Milne about the history of automotive manufacturing in Australia; where we went wrong; and what is needed to revive an industry that would yield huge benefits to the economy and advance technological innovation in general. Listen here.
Import regulation was needed to facilitate the growth of Australian manufacturing after Federation because Australia was, and is, a nation of high incomes. This has always meant that, aside from a few naturally favoured activities such as grazing, farming and mining, doing anything in Australia costs more than doing it elsewhere.
A small population and peripheral settlement also meant that the Australian market was small and fragmented. Large distances between major population centres imposed high transportation costs, which persist to the present day.
High labour input costs and the difficulty of achieving economies of scale meant that a free-trade policy would have slowed down or prevented Australia’s industrialisation.
Transformative industries were emerging at the time and it was in Australia’s interests to participate in them. Automotive manufacturing was a case in point, and local engineers and entrepreneurs were actively engaged from the beginning.
Most people think that Australian automotive manufacturing began with the first Holden in 1948 but this is not the case; there were many attempts to launch Australian-made motor cars, trucks and tractors from the late 1890s onwards.
An outstanding automotive example was the Tarrant, built in small numbers in Melbourne between 1901 and 1907. Harley Tarrant, who had begun making kerosene engines in the 1890s, was a prescient and capable engineer and Tarrant cars were technically advanced, well engineered and beautifully made.
Between 1907 and 1913, Felix and Norman Caldwell designed and built heavy trucks and tractors at a plant in Sydney. These ingenious machines were among the world’s earliest four-wheel drive vehicles. About 60 Caldwell-Vale trucks were built.
Caldwell-Vale tractors were extraordinarily effective: a 40-horsepower model could pull an eight-bottom plough at three miles per hour, a feat that any modern 40 hp tractor would struggle to match. Truly innovative, the mechanical layout of the Caldwell-Vale tractor anticipated the huge broadacre machines of today.
After World War I, an importer in Sydney, Frederick H. Gordon, made the first attempt at volume production. His cars, a localised American design called the Australian Six, were assembled from mainly imported parts, although 60 per cent local content was claimed. Production of the Australian Six ran to almost 500 units before the business failed.
Local entrepreneurs displayed a flair for innovation and technical competence, even managing to raise capital to launch their ventures. All faced an insurmountable problem, however: the absence of any Australian capability to produce interchangeable parts, an indispensable requirement for efficient automotive production.
People like Harley Tarrant built cars one at a time with parts made on engine lathes and shapers, by hand forging, fitting and other craft techniques. Workshop methods could produce high-quality results, but Australian wages made costs too high for the business to be competitive, particularly against American imports, and the market was too small and their capital too limited to justify more efficient production techniques.
American manufacturers possessed unmatched production capabilities, developed in their country over the preceding century. Originally applied in military arsenals, these capabilities were perfectly suited to automotive production.
Australia’s first “American System” factory started production of SMLE rifles at Lithgow in 1912. The Commonwealth Ordnance Factory at Maribyrnong followed in 1924. But it was not until the middle 1930s that Australian capabilities in interchangeable-part mass production were sufficiently dispersed to be available to civilian industry.
Only at that time was viable automotive production feasible, but it was already too late for an unassisted Australian effort. This was because the major American companies occupied a dominant position in the Australian market by that time. This dominance was facilitated by the establishment of a large Ford body plant at Geelong in 1925 and by the acquisition of Holden Motor Body Builders by General Motors in 1931.
Automotive bodybuilding had been an Australian success story, facilitated by an embargo on auto body importation in 1917, ostensibly to conserve shipping space due to shortages imposed by losses to German submarines during World War I.
In 1917, unlike today, car bodies and car chassis were separate structures, the production of which entailed different technologies. Australia struggled to produce chassis and drive trains on a competitive basis, but bodies were a different proposition; they were able to draw on the capabilities of a well-established carriage-building industry.
The most successful auto body business was Holden Motor Body Builders, established as a saddle and harness business in Adelaide in 1856. By 1924, Holden had built Australia’s best body plant at Woodville. By 1927 it employed over 3,000 people and produced more than 47,000 car bodies; it was the world’s largest enterprise of its type outside North America.
General Motors had contracted the entire output of Woodville for its own needs to the exclusion of other customers. This alarmed Ford, previously supplied with Holden bodies, and led to the establishment of its plant at Geelong. When Holden fell into financial difficulties during the Great Depression, General Motors acquired the business.
By 1931 American companies were in a dominant position. The remaining bodybuilding companies were mopped up over the following decades: T.J. Richards by Chrysler, Ruskin by BMC and AMI by Toyota.
Australia needed active statist intervention during the 1930s to establish a sovereign automotive industry. It should have emulated the European and Asian practice. In these places, governments identified the importance of automotive manufacturing and acted decisively to force national companies into dominant positions. In all cases this entailed discriminating against American companies; these were too big, too capable and too rich to be given free access to their markets.
The pre-World War II Menzies government almost achieved an Australian industry, against Country Party and Tariff Board opposition, but the War intervened to forestall the attempt. The Curtin government returned to the issue five years later but made the fatal error of handing the business to General Motors; a decision that gave Australia an easy path to mass production at the cost of ensconcing an ownership group uninterested in extending beyond a local presence.
Letting an American company run things meant that Australia got an industry that was going nowhere; the foreign owners were never interested in developing the brands or the market beyond Australia.
Tariff reform visited a destruction of Carthaginian proportions on the whole of Australian manufacturing. It marked the beginning of the end for a foreign-owned automotive industry only located in Australia because of tariffs. The owners worked towards relocation while the local managers and workers laboured valiantly and ingeniously, with ever-diminishing resources, to stave off an inevitable closure.
Throughout the history of the automotive industry, there came several opportunities to establish the industry properly that were never acted upon. The last, and perhaps best, chance was presented when Holden indicated its plan to cease local production. The Abbott government, the actions of which had precipitated the decision, should have nationalised the business, with fair compensation, on the spot.
With local ownership and management and a capital injection to produce a new model range, a revitalised Holden business could have shaken off the remnants of its moribund American design culture and built the Australian BMWs that its engineers always wanted to produce.
With Holden secured, Toyota would have stayed, the suppliers would have survived and a platform for industry recovery and expansion would have been established.
Craig Milne is executive director of the Australian Productivity Council.