The Mitsubishi closure & industry policy

The politics of Mitsubishi
John Spoehr

On Friday May 21 2004, Mitsubishi Motors Limited released its much anticipated restructuring plan saying that it would close its Lonsdale Plant within eighteen months, resulting in the loss of 650 jobs. The plan also included a reduction in the Tonsley Park assembly plant workforce of 350 through voluntary separation packages.

In making the momentous Mitsubishi Motors announcement, global CEO, Yoichiro Okazaki said the restructuring 'plan is our last chance for survival as an auto maker'. When asked about the future of the Adelaide operations he gave no assurances stating that 'Considering our business circumstancesÂ…it is really hard to make any guarantee or any commitment'. The uncertainty surrounding Mitsubishi's future remains.

The ailing Mitsubishi vehicle empire faces the prospect of extinction unless it returns to profitability over the next few years. It is burdened by a failed vehicle financing scheme in the US and losses of around $2.8 billion in 2003. This has rocked the financial foundations of the auto giant. When Mitsubishi was refused a $6.5 billion restructuring package it sought from its majority shareholder Daimler-Chrysler, the alarm bells began ringing about its future. Fear about the survival of Mitsubishi's Adelaide plants reached new heights, forcing state and federal ministers to seek urgent talks with Mitsubishi executives in Tokyo.

Mitsubishi has problems in Australia as well. The high value of the Australian dollar is hurting exports while local sales of Magnas fail to meet expectations. The scene was set for a bad outcome for Mitsubishi in Australia. Desperate lobbying of Mitsubishi executives by the state and federal governments seemed to play a role in preventing a total closure, at least for the time being.

The survival of Mitsubishi in Australia will depend on the extent to which it and its parent company can satisfy shareholder expectations of a return to profitability over the short term. It will take a monumental effort to achieve this. The continued uncertainty surrounding the local operations is likely to hurt Magna sales. Reversing this will require a brilliant marketing strategy and an exciting new look for the Magna. Mitsubishi will also need to capture a higher share of fleet vehicle sales and perhaps enter into collaborative arrangements with other car manufacturers to make full use of the Tonsley assembly plant.

While the May 21 announcement was far from the worst outcome for South Australia, it comes as a blow to hundreds of workers and local businesses. Mitsubishi operations in Adelaide purchased over $1 billion worth of goods and services in Australia in 2001. Around $420 million of these purchases were in South Australia. There are around 3320 people employed at the Mitsubishi Lonsdale and Tonsley Park manufacturing plants. Most of these employees live in Southern Adelaide, particularly in the Cities of Marion, Mitcham and Onkaparinga and Holdfast Bay.

The closure of the Lonsdale plant and downsizing of Tonsley Park will result in the loss of around 1000 jobs over the next eighteen months. Mitsubishi is also planning to reduce production to 30,000 cars, down from 33,600 in 2003. All of this will have a significant impact on the South Australian economy and labour market.

While the impact of Mitsubishi's decisions are not likely to be felt for some time, it is reasonable to expect that there will be considerable flow-on effects throughout the South Australian economy. These are not as great as they might have been. The Lonsdale engine plant does not have the extensive linkages with local component suppliers that the Tonsley Park plant has. Early estimates suggest that an additional 1300 jobs are under threat, primarily in property and business services, trade and motor vehicle parts and related manufacturing. Other states will be affected by the announcements as well, particularly Victoria which supplies a range of key components to the Lonsdale plant.

Responding to the announcement, the federal government announced it would provide a major assistance package worth $50 million. The package provides around $10m for employment and training support services to workers who loose their jobs and $40m for investment attraction. The state government provided a further $5 million for employee support and industry diversification in Southern Adelaide.

The search for new business investment in South Australia is officially on. The State government is on a quest to persuade US and European contractors bidding for the $6.5 billion Australian Navy shipbuilding project, to identify South Australia as their preferred location. It has the support of Liberal Senators Robert Hill and Nick Minchin who are talking up South Australia's prospects. The competition is hotting up with Victorian Premier Steve Bracks calling on the federal government to not give preferential treatment to South Australia in the awarding of the ship building contracts. Premier Rann responded by announcing that the fight over the contract was officially on.

Winning a share of the naval ship building contract would generate hundreds of new jobs in South Australia but they probably won't be available in time for the 1000 people who lose their jobs at Mitsubishi over the next eighteen months. A short term strategy would be to substantially increase public investment in physical infrastructure including the establishment of a light rail system for metropolitan Adelaide and expansion of the state's pubic housing stock. As well as generating suitable jobs for many Mitsubishi employees this sort of investment has important social and environmental benefits for South Australia.

The job losses at Mitsubishi and Port Stanvac oil refinery signal the pressures facing manufacturing industry and the need for a more interventionist national industry policy framework. While the high Australian dollar has made it difficult for exporters, the lure of moving offshore is becoming irresistible for some manufacturers. As the benefits to manufacturers of tariff protection evaporate and massive new markets for consumer goods open up in countries like China and India a manufacturing exodus threatens Australia. In the absence of a national industry policy designed to cultivate and sustain manufacturing industry, South Australia is vulnerable. It will not be able to out-spend the eastern States in bidding wars over the location of footloose firms. The $40 million available might buy Australian manufacturing some time but it will not solve the fundamental structural problems facing the industry.

If the free trade policies of the last decade are followed through to their logical conclusion a large number of Australian based manufacturers will consolidate some or all of their operations in low wage countries with few environmental or social protections. This is not inevitable but it does loom as the greatest threat to retaining a viable manufacturing industry in Australia.

In the context of a federal election we can hope that the Mitsubishi crisis might focus the minds of politicians on policies that ensure that manufacturing industry has a future in Australia.


John Spoehr is Executive Director, Centre for Labour Research, University of Adelaide.


 

Suggested citation
Spoehr, John, 'The Mitsubishi closure & industry policy', Evatt Journal, Vol. 4, No. 2, June 2004.<http://evatt.org.au/news/mitsubishi-closure-industry-policy.html>