Will Toyota’s move to end car manufacturing by 2017 in Australia cause a recession?

Toyota has announced it will close its Australian manufacturing division by the end of 2017, signalling the end of car manufacturing in the country.

The move follows similar announcements from GM Holden and Ford last year, with economists now tipping the total job loses to be in the tens of thousands.

Toyota also said it’s considering scaling down its development and technical operations in Australia and around 2500 jobs will be lost from its Altona plant alone.

The car company’s Australia chief executive, Max Yasuda, said in a statement Toyota had done everything to try and keep its operations in Australia.

“We did everything that we could to transform our business, but the reality is that there are too many factors beyond our control that make it unviable to build cars in Australia,” he says.

“Although the company has made profits in the past, our manufacturing operations have continued to be loss-making despite our best efforts.”

The move will have a drastic impact on local suppliers, which will be forced to close, start exporting or diversify into other industries.

There has been talk of up to 50,000 jobs being lost and the potential for Victoria to be pushed into a recession, but JP Morgan chief economist Stephen Walters told SmartCompany this is too “alarmist”.

“The closure isn’t for three-and-a-half to four years, so like the other carmakers it’s not immediate, but if you’re not making cars there are direct losses of those jobs. There is a debate going about how many jobs will be lost, I’d say it’s likely to be tens of thousands,” he says.

“With retraining and some assistance, the jobs will end up elsewhere. Component manufacturers are also able to reposition and even export their components, so just because car manufacturing is ending, it doesn’t necessarily mean these smaller companies will shut down.”

A Federal Chamber of Automotive Industries study released in November last year tipped by 2018, if automotive manufacturing ended the Australian economy would be $7.3 billion smaller.

To what degree the economy is affected will be influenced by what policies are created to support manufacturing in the next three years, Roy Green, the dean of the Business School at the University of Technology, Sydney, told SmartCompany.

“It would be reasonable to say with the combined impact of the three assembly makers exiting the market between 30,000-50,000 people will be affected in the immediate companies, the car component suppliers and related services in engineering and design.

“It’s contingent on what the government does next in terms of policy in respect to manufacturing. It may not be as many jobs if there is a strategy developed around the diversification of the components manufacturing sector to let it participate more in global chains or to diversify into other industries.”

Green says the government needs to provide SMEs in the car components sector with an understanding of their opportunities and with new skills and management expertise to allow them to transition.

“It isn’t a question of throwing money at the remaining SMEs… Some will make it, many will not.”

In an article in The Sydney Morning Herald,Adelaide University economics and workplace expert John Spoehr said Victoria and South Australia could be pushed into a recession.

He also speculated the closure of Holden alone could cause 50,000 jobs to go.

Green says a recession is possible, but unlikely.

“Whether it’s a recession or not depends on what else is happening in the economy – whether the component suppliers are transitioning and if other industries absorb the job losses, but if nothing happens and we sleepwalk into the next three years a recession is likely,” he says.

“But it’s hard to imagine policymakers being so short-sighted or businesses not taking advantage of other opportunities.”

Dr Philip Toner from Sydney University’s department of political economy told SmartCompany research suggests a third of the jobs in the car industry will be lost, with the people either retiring or going on the dole.

“Another third will get jobs with lower wages and conditions in things like hospitality or aged care, and another third will get jobs with equivalent wages and conditions,” he says.

“Ironically, the effect of that is a reduction in Australia’s productivity. A rather startling statistic that emerged from some analysis I did was that something like 90% of jobs created over the past four decades were in industries with below-average productivity and low-wage jobs in things like aged care, retail, cleaning and security services.”

The FCAI study predicted the closure of Holden and Toyota in Australia would see the loss of 33,000 jobs in Melbourne by 2018 and 6000 in Adelaide.

Australian Chamber of Commerce and Industry acting chief economist Burchall Wilson told SmartCompany the alarmist commentary will harm the state economies.

“The job losses will be relatively small compared to the broader labour market and it’s still very unclear the extent to which there will be losses further up the supply chain,” he says.

“There is some quite dangerous and alarmist commentary which will only undermine business confidence in these states. It’s doing the states a disservice.”

Wilson says the closure of the car manufacturers shows the billions of dollars spent on propping up the sector has been “wasted”.

“In terms of support to the industry, it’s been costly to the community. There is no justification for propping up private sector businesses in relation to the automotive industry, as the Productivity Commission told us just two weeks ago,” he says.

“The first solution for any business which is struggling is to do what it can to contain costs and put itself on sustainable footing. It’s not the government’s responsibility.”

AMP chief economist Shane Oliver told SmartCompany the real danger in these situations is overstating the economic impact of an industry’s closure.

“I grew up in Newcastle and saw the closure of the steel industry. I remember going back in the 1990s when it looked fairly dismal. Today, however, the place is buzzing. They moved on. The regions here will also move on,” he says.

“I think there’s a real danger in overstating the economic impact. We’ll get by – there won’t be a recession. The longer-term impact is probably a positive one.

“All the money that taxpayers have been pumping into the car industry will probably come to an end. It can be reallocated to more useful areas, like infrastructure spending.”