Hand in Question 1

1. Why did the Australian government give protection to the Australian car industry
after World War 2?

The Australian government provided protection to:
- keep the people in the car manufacturers employed
- generate revenue from tax from selling cars
- there was a high demand for holden cars at that time
- there exists competition
- it is a symbol of modernity, affluence, and the Australian way of life

2. Give reasons for the decline in Holdens share of car sales in Australia from over
40% in 1958 to 15.2% of total sales in 2006 and finally the shut down in 2017.
What impact will the shutting down of Holden have on the economy?

- World commodity declined
- Foreign car manufacturers had set up shops in Australia to evade the tariff, thus their
cars are cheaper and more people buy it
- The global competition was too strong and Holden lost its number 1 car sales spot
- Too many models are manufactured in a small market
- Depreciation in the Australian dollar
- The car quality isnt specially superior and the labour cost is high
- The way the government is subsidizing Holden is unsustainable
Due to government funding Holden large amounts of money, there seem to be no
improvement in the car industry which means billions of dollars are effectively wasted on this
fail investment affecting our economy. Many workers will also lose their jobs upon shut down.

3. Why has the Australian government stopped giving protection to the car
industry?

Under the Labour government in 1980s the Button car plan steadily withdrew the protection
for optimal trade reform. Despite government funding and reduced tariff throughout the
decline in the market, the trends showed it was unsustainable. For example, more money is
paid for a pack of components to build a Ford than to import a car from Japan. Furthermore,
when low volume models were eliminated and average volume runs increased, the cars was
still not globally competitive. Therefore, the firms have to keep downsizing to lose less
money. The government support would only mean prolonging the inevitable shut down.

4. Does Australia have a comparative advantage in the production of cars? Explain
your answer
Australia has a comparable advantage in the technology used, but does not have an overall
comparable advantage. The labour cost is relatively high compared to other countries. For
example more money is paid for a pack of components to build a Ford than to import a car
from Japan.