A requiem for the Australian motor vehicle industry

The last automobiles manufactured in Australia rolled off the assembly line in the fall of 2017. This article looks at some of the factors that have impacted the industry since 1968 and led to its demise, including a high value of the Australian dollar in recent years, strategic decisions on the part of parent companies and reductions in governmental support and tariff protection. We estimate a cost function for the industry with inputs of domestic capital and labour and insourced intermediate goods as well as imported intermediate goods. The findings include that the remaining firms are operating in an output range of strongly statistically significant economies of scale, and that all of the input pairs are substitutes except for statistically significant complementary relationships between capital and domestic intermediate goods and labour and foreign intermediate goods. Unexpected results are that an increase in output per assembly plant appears to have a positive effect on total cost, while an increase in the effective tariff and an increase in the number of models appears to have a negative effect. One explanation for these robust but unexpected findings may be that total profit contribution is a part of total cost, and, therefore, factors that increase total profit contribution will also increase total cost.