Mitsubishi to Shut Adelaide Plant

[muzzamo]

service industry, trade, R&D initiatives, etc

You mean the jobs that are being offshored to india?

[Wayno]

service industry, trade, R&D initiatives, etc

You mean the jobs that are being offshored to india?

Economist hat on again: yep, in a global economy the bar is always slowly being raised...

[AtD]

Will, let me regurgitate some undergraduate trade theory at you. Sorry if I'm too simplistic, I don't know what exposure you have to economics.
The arguments against tariffs (and indeed, all trade barriers) are long and well researched, and I suggest you have a look around Wikipedia if you wish to familiarise yourself with the matter. It's a general consensus in modern economics that trade barriers lead to detrimental effects on well-being and generally (but not always) lead to a less than ideal outcome in the long term.

Consider this diagram, representing local supply and demand in a global market for an importing country for a specific good:
http://en.wikipedia.org/wiki/Image:Surp ... iff-v2.svg

Price is on the vertical axis, quantity is on the horizontal. The decreasing line is the demand curve, which plots the relationship between the local price of the good, and how many units are sold locally, it's consumer's willingness to buy. The increasing line is the supply curve, which plots the relationship between the local price and how many units are produced locally, it's producer's willingness to sell.

You can see there are three prices indicated on the vertical axis. At $70, local demand = Y* and local supply = Y*, thus this would be the price in the absence of trade.

The world price Sw = $50, and since this is independent of local supply and local demand, we can say the economy in question is small relative to the world, which is true for Australia. The effect of local supply and demand on world price is zero in this model. At the world price, Y2 units are demanded locally, but only Y1 units are supplied locally. The difference is made up by imports.

Finally, there's Sw+T = $60, which is the world price plus the import tariff. At this price, the difference between demand (Y4) and demand (Y3) is smaller, thus there are less imports. The tax revenue generated by the tariff can be represented by the difference between Y3 and Y4, multiplied by the tariff, which is the grey box in the diagram.

The difference between the price at which a consumer is willing to buy, and the price at which the purchase takes place, is called utility. If a consumer is willing to buy at $100 (presumably because they expect $100 of value from the good), but can score at just $50, then their utility (profit) is $50 x 1 item = $50. If it costs the producer $40 per unit for 10 units, but can sell at $50 per unit, then its utility (profit) is $10 x 10 units = $100. The sum of all consumer's utility is represented by the area below the demand curve but above the price, and is called consumer surplus. The sum of all producer's utility is represented by the area above the supply curve but below the price line, and is called producer surplus.

With the tariff in place, the local price is $60, the producer surplus is the green triangle in the diagram, consumer surplus is the blue triangle in the diagram and government revenue is the grey box. If the tariff is removed, the price falls to $50, producer surplus falls to the green area under $50 (triangle FGL) and the government revenue is removed completely (ie $0), so both the government and the producer lose out. But the big winners (and the point of all this) is consumers, who see their utility increase to triangle KFJ, which is bigger than both the loss to producers and government. The total gain to the economy is represented by the dark green triangles (referred to the dead weight loss of tariffs).

Generally speaking, the reason for debate around tariffs is the concentration of these gains and losses. In the case of Mitsubishi, the smaller losses are concentrated amongst the company (and therefore the employees who have lost their jobs). The larger gains are diluted amongst those who buy new cars (annual new car sales exceed one million in Australia), though lower prices. Thus, the producers are very vocal about supporting the tariff whilst consumers are relatively indifferent. This is a common problem in trade debates and it takes a strong political will to see though this. (It's also a common problem in NIMBY debates but lets not go there )

The above only relates to the local effects of the tariff. The impact on the global economy can be far greater, hence the formation of organisations such as the WTO, but again, that's another story.

I hope this makes sense, and if not, let me know.

[teflon fox]

Totally makes sense. Unfortunately it wont matter whether we have tarrifs or ther forms of government assistance.
Manufacturing industry whether it be car,simpson pope , electrolux etc will always struggle to compete here because of our
relative high wages and conditions. International companies will readily pay the sub $5/hr overseas with little or no long service,
sick leave entitlements rather than the $20+/hr for the same outcome. It's a simple fact that most forms of manufactring
will continue to decrease in the developed world.

[AG]

Ah, macroeconomics and microeconomics, some of the best stuff they teach us in Economics, Commerce and Finance.

[SRW]

Govt announces $50m for Mitsubishi workers
ABC News Online

The Federal Government has announced a $50 million package to help Mitsubishi workers affected by the closure of its South Australian plant.

Mitsubishi today announced it will be closing its Adelaide factory in March, meaning around 1,000 people will lose their jobs.

Mitsubishi management says the closure of the Tonsley Park factory is a commercial decision, forced by the high Australian dollar and falling sales for the Adelaide-built Mitsubishi 380 model.

The $50 million package is made up of $35 million from the Federal Government, $10 million from the South Australian Government and Mitsubishi will contribute $5 million.

Federal Industry Minister Kim Carr says the closure has very serious consequences for the factory's workers and he is extremely disappointed at the decision.

Senator Carr told Sky television that many of Mitsubishi's employees will never work again and the Government has an obligation to provide help.

"That's why we're announcing a $50 million package in line with the Government of South Australia and the company itself," he said.

"[It is] to attract new investment to the region, to ensure proper counselling services are provided and that every possible effort is made to assist workers of Mitsubishi get on with their lives," he said.

Management

Mitsubishi Australia chief Robert McEniry says a significant drop in large car sales has been a leading factor in the company's decision to close its Adelaide factory at the end of March.

He says Mitsubishi could only remain viable in Australia as an importer.

"More pressing however is the commercial reality that it does not make economic sense to carry on with such losses in the Australian manufacturing operation for us," he said.

He says Mitsubishi Australia's losses over the past 10 years are more than $1.5 million.

Mr McEniry says the company will repay a $35 million grant from the South Australian Government toward development of the 380 model.

He also believes media speculation about Mitsubishi's future in Australia has contributed to its demise, with media reporting on monthly sales of the 380 model having a significant impact on the business.

"As soon as it was one car off that target, it was like a frenzied feeding going on," he said.

"Every month we've had to defend the number that we sold."

Mr McEniry estimates the flow-on effect of Mitsubishi's closure to the local car component market could cost another 280 jobs.

'Losing skills'

Meanwhile, Australian Workers Union (AWU) spokesman Dave Oliver says today's announcement is a disappointment for the 1,000 workers who will lose their jobs.

"There is a need now for the Government to intervene as soon as possible and to get all the players around the table to see what can be done to sustain the automotive industry, and the manufacturing industry in general," he said.

"It will have a significant knock-on effect in the auto component sector and servicing sector.

"The other impact it has is that large manufacturing workplaces like Mitsubishi historically have been known to train up apprentices, or invest in skills, and every time we get a large plant closure like this, that's another venue we've lost."

It seems at least that Mitsubishi is acting responsibly here, by repaying the SA government and putting up funds for its laid-off workers.

[jk1237]

an economics tutor once told me the definition of an economist - "someone that finds the answers today, why all the predictions/forecasts made yesterday, didnt work"

[rev]

For those of you arguing against tariffs, I am slightly confused. Isn't it better to keep Australians in jobs, than give consumers cheaper cars?

How exactly is losing thousands of manufacturing jobs good for the economy?

Personally I would have liked to see the car industry in Australia protected, but I also don't think higher tarrifs on imports would have saved Mitsubishi. Mitsubishi as a company failed to produce a car that appealed to consumers. Only 700 sales of the 380 in January apparently.
In my opinion I think Mitsubishi's head office in Japan had made the decision long ago to shut its operations in Australia, regardless of sales.
Think about it, if they wanted to keep the plant open, they could have started production of other models in their range here and exported them to other parts of the world. Or they could have even built their trucks here. They had an engine factory too. The head office just wasn't committed to Adelaide despite their promises.

[s]Anyway lets see if the government can get back its 35 million from Mitsubishi.[/s]

edit - So they are paying back the government.

[Will]

Thanks Adam for the explanation! The most economics training I ever got was Business Studies in Year 10. (despite this I was treasurer in Year 12!)

However I am still confused about one aspect of reducing tariffs:

You mention that by removing tariffs, government revenue is decreased as well as the profit of the Australian producer. However you mention that consumers are the big winners. I agree that consumers are the big winners as they can buy goods cheaper. However I am confused because if these consumers are buying overseas made cars for example, does this not mean that their money is leaving the country instead of staying here? Additionally isn't it bad that the government receives less revenue? How does the government make up the revenue that it loses via reductions in tariffs?

[AG]

For those of you arguing against tariffs, I am slightly confused. Isn't it better to keep Australians in jobs, than give consumers cheaper cars?

How exactly is losing thousands of manufacturing jobs good for the economy?

I think the issue goes deeper than simply keeping people in employment. Certainly the car manufacturing industry helped our economy from the point of view that it created lots of jobs, but the introduction of tariffs to protect the industry have created a whole lot of inefficiences in the economy and overall wellbeing (economists call this a deadweight loss), and been hitting the consumer harder than necessary with higher prices on vehicles as you pointed out. Particularly in a society where job vacancies and skilled-worker shortages are now reaching record levels such as Australia, reallocating the labour resources to where they are needed would be appropriate.

[MGR]

Tonsley park worth $200m. Article in todays Tiser already talking about the opportunities for the mitsi site. p6

[muzzamo]

Tonsley park worth $200m. Article in todays Tiser already talking about the opportunities for the mitsi site. p6

I love how the agent they interviewed shat himself at the prospect of that area being used for residential development. More land == lower prices, just as the bubble is bursting.

[Wayno]

Tonsley park worth $200m. Article in todays Tiser already talking about the opportunities for the mitsi site. p6

does the article state who owns the land? is it the SA Govt or Mitsubishi?

[Edgar]

For those of you arguing against tariffs, I am slightly confused. Isn't it better to keep Australians in jobs, than give consumers cheaper cars?

How exactly is losing thousands of manufacturing jobs good for the economy?

Will, you have to think that foreign manufacturers are here to set up plants if they sees the profitability of producing models that will sell well in Australia.

In this case, the Toyota Camry did. The Mitsubishi 380 didn't. Even if the state government continue to fund these manufacturers just so that they can keep producing millions and billions worth of losses every year, just so that they could keep the employments of these people? Would you just want the government to give free money to the people instead?

I believe both Mitsubishi Japan and Mitsubishi Australia failed to sit down and work together in a harmonic environment to plan a feasible production in its plant in Adelaide. They could have produce locally made Lancer (which is a better selling car than the 380), and it would have kept going. But nope, the decision to setup a plant in Australia to build an Australian only Mitsubishi 380, proved that it did not go to well, and obviously Mitsubishi is just chasing profits and not worry about creating jobs in Australia as you all hope for.

So it is a lesson to them that they will continue to export their better selling 4x4 and medium sized Lancers into Australia and not produce their failing big car 380 to keep them afloat globally. Hopefully other car manufacturer will learn from this mistake that yes, you can fail if you do not maximise and be more flexible in your production.

Local car manufacturers can survive, they could even do very well, if they plan ahead, and responds to market demand by producing these supplying these demands locally. I've given examples in my previous postings, that Holden should look into producing small cars locally for their small car market segments, instead of importing them from Europe. What is wrong with that? Are they holding their ego so tight just so they could keep their heritage tradition of producing locally built big-cars-big-engine-high-consumption vehicles only?

So if the local manufacturers are so concerned about doing goods to Australian people by keeping their jobs, then do something about their local production plants. If the government wants to play their part to help these employees keep their jobs, they should pressure the manufacturers to produce more work and keeping up with the local supply for the local demand. Not just protecting them and funding them, they will still eventually shuts, if the market stops demanding for big vehicles. More than 50% of cars on the road today are small-to-medium sized cars, you should already see that, they big-cars makers should already see that too, and know what they are expecting in the future.

[Edgar]

Here is more proof, and a reminder for Holden and Ford, this comes as a warning as well.

http://wheelsmag.com.au/News/Toyota+on+ ... &pagenum=1

Toyota on top as market stays upbeat
Chris Gable | 02/05/2008
Toyota has retained its number one spot in a strong January new vehicle market, and Corolla's again Australia's top selling new car.


New motor vehicle sales have started the year on a roll, with just-released official figures showing January was another record month for the industry.

In fact, last month’s 82,270 new car and commercial vehicle sales were up 6.9 percent on the previous January record, achieved last year.

But in percentage terms at least, the star performers weren’t so much new passenger car sales but SUVS and both light and heavy trucks.

New car star last month and top-selling motor vehicle overall was again Toyota’s Corolla, selling a January record 3843, or 10.3 percent better than it did during its previous best January, last year.

Toyota also scooped third-best-selling vehicle status with its HiLux (3020 sold) and fifth-best with Yaris (2433).

No prizes, then, for guessing that Toyota (17,852 sales) again topped the Top 10 for the month, followed by Holden (10,253), Ford (7676), Mazda (7103), Honda (5969), Mitsubishi (5084), Nissan (4867), Subaru (4059), Hyundai (3172) and Volkswagen (2374).

Second biggest-selling passenger car was Holden’s Commodore (3210), down 264 sales (7.6 percent) on January last year. Perhaps not surprisingly, Toyota Aurion sales were up a fairly robust 12.5 percent over its January, 2007 result.

Federal Chamber of Automotive Industries chief executive Andrew McKellar said strong January sales of light and small cars and for SUVs were tempered by diminishing demand for large vehicles, mostly from local manufacturers.

"Strong competitive activity and consumer confidence has resulted in more than 80,000 January sales for the first time," Mr McKellar said.

While demand increased 20 percent for SUVs, 10.5 percent for medium passenger cars and 8.4 percent for light cars, sales of large passenger cars fell 20.9 percent -- down 1890 sales compared with January, last year.

Mr McKellar said seasonal factors and model cycle influences contributed to the drop in large car sales.

Demand for imported cars increased 10.4 percent while sales of locally manufactured models diminished 11.5 percent, or 1407 vehicles.

And Mr McKellar is playing the card game by telling all Australians that we should be relaxed and not worry about it because "....it is just a seasonal factors and model cycle".