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MELBOURNE INSTITUTE Applied Economic & Social Research 2017 Economic and Social Outlook Conference Rebir birth of th of Industr Industry y Clus Cluster ters: s: Era P Er a Post ost Auto uto Ass Assembl embly y in VIC and in VIC and SA SA Prof. Dr. John P. Haisken-DeNew johnhd@unimelb.edu.au Tuesday, 25 July 2017 Special thanks to GM Holden: A. Winnett, T. Frost, J. Getgood, S. Renshaw Disclaimer: The author is not a representative of GM Holden or any firms mentioned here. The author alone is solely responsible for the content of this presentation. Page 2

The Problem: A cluster around the automotive industry existed for 100 years, now in 2017 totally disappearing in Australia. Metro Melbourne and Adelaide have been impacted heavily. Where to from here? Page 3

Productivity • Vehicles assembled: 210,000 • R&D share of sector: 12.1% (1.5 CDN) • GDP Contribution: A$3.1B Labour Cost • Earnings/Year: A$72,000 • Compensation Cost: 92% of US at PPP Even with Continental Drift, Transport Costs are a Killer! SOURCE: Jim Stanford (2017) “When an Auto Industry Disappears: Australia’s Experience and Lessons for Canada”, Canadian Public Policy , Vol 43, No S1, S57- S74. See Table 1, 2, 3 ; Figure 2 Haisken-DeNew | Tuesday, 25 July 2017 Page 4

Tip of the Iceberg: Company Where End Job Losses Death of the Auto Industry = Death of these Cities? Altona, Port Oct Toyota 2600 Melbourne 2017 VIC Employment Losses to Big 3 • Primary Loss: 6,700 Port Phillip Oct • Supply Chain Loss: 25,000 of 40,000 /Mel VIC, Holden 2900 60 of 117 Tier 1 Firms Elizabeth 2017 SA Multiplier Effects • Supply Chain Employment Losses Geelong, Oct Broad- • Losses concentrated geographically Ford 1200 meadows 2016 • Supply Chain could be 300m away VIC SOURCE: Simone Fox Koob, The Australian 2 Feb 2017 “Automotive aftermarket apocalypse set to cost 25,000 jobs“; Wikipedia; Australian Automotive Aftermarket Association, May 2015,The Future Australian Automotive Manufacturing Industry Supplementary Submission to the Senate Standing Committee on Economics Haisken-DeNew | Tuesday, 25 July 2017 Page 5

“Full” Impact of Loss of Auto Industry • Worrall & Spoehr (2014): Net loss of 200,000 jobs nationally to 2018 Permanent loss of $29 billion of GDP • Net job loss: 100,000 in Victoria; 24,000 in SA, rest outside • J ob growth rate VIC/SA “effectively halved” through to 2018 • Survey of Firms: Impact to Northern Suburbs of Adelaide SA - 33% reported at least some risk of closure, - 40% believed they would have to shed staff, - Profitability would be negatively affected: in retail (53%), manufacturing (45%), construction (44%) SOURCE: Worrall, L., Spoehr , J., The Future of the Automotive Transformation Scheme: Submission to Senate Standing Committee on Economics. Australia’s Innovation System, 2014. Adelaide: Australian Workplace Innovation and Social Research Centre, the University of Adelaide. (Innovative Manufacturing CRC) Haisken-DeNew | Tuesday, 25 July 2017 Page 6 Page 6

You’re Fired! Economic Journal 2009 Firm Closures Clearly Negative • Self Esteem • Financial • Reorganisation • Role Models • Human Capital • Women SOURCE: Sonja C. Kassenboehmer and John P. Haisken-DeNew (2009) “You're Fired! The Causal Negative Effect of Entry Unemployment on Life Satisfaction” The Economic Journal Vol. 119, No. 536, pp. 448-462. Haisken-DeNew | Tuesday, 25 July 2017 Page 7

Want to Work Fulltime: Full Time Displaced Autoworkers Part Time Holden “About Me” Survey (Aug 2014) Casual Self Vast majority want to Voluntary work fulltime! Exit SOURCE: Holden Aug 2014 “About Me” Survey Haisken-DeNew | Tuesday, 25 July 2017 Page 8

Education of: 0.5 0.4 Displaced Autoworkers 0.3 0.2 0.1 Holden “About Me” Survey (Aug 2014) 0 • Affecting metropolitan areas in VIC/SA Year 9 Year 10 Year 11 Year 12 • Likely representative of industry • Half high school attainment 0.5 • TAFE Certificates 0.4 0.3 0.2 These people are 0.1 0 employable! SOURCE: Holden Aug 2014 “About Me” Survey Haisken-DeNew | Tuesday, 25 July 2017 Page 9

Desire to Use of Skills: Displaced Autoworkers Holden “About Me” Survey (Aug 2014) Yes • STRONG Preference to continue to use your existing qualifications/certifications No or trade in future employment These people want to use their skills! SOURCE: Holden Aug 2014 “About Me” Survey Haisken-DeNew | Tuesday, 25 July 2017 Page 10

Interest in IT Skills: Displaced Autoworkers Holden “About Me” Survey (Aug 2014) Yes • STRONG Interest in gaining or advancing skills in computer software, No packages, systems or processes And they want to learn new IT skills! SOURCE: Holden Aug 2014 “About Me” Survey Haisken-DeNew | Tuesday, 25 July 2017 Page 11

HILDA Panel at Melbourne Institute • Of the people currently not working, what is probability person’s last job was in MMC? Employment prospects MMC SAME AS ANY OTHER INDUSTRY • HILDA 2001-2015 • Given a person was MMC last period, what is probability person is employed this period? • Men/Women ONLY 0.2 %-PT LOWER • Mining/Manufacturing/Construction • Simple Probit: Re-employment • What is the probability of working in MMC, given that you had lost your MMC job in People from MMC are previous period? employable, versatile, want ABOUT 44%, BUT 2015 ALMOST 10% LOWER. to work SOURCE: Own calculations, HILDA Survey; http://melbourneinstitute.unimelb.edu.au/hilda Haisken-DeNew | Tuesday, 25 July 2017 Page 12

Maintaining Skilled Work Force in VIC/SA Pro-Active Policies/Incentives • Firm providing active support to workers to re-enter a job market they last looked at years ago How to make that transition best? SOURCE: Own pictures, visit to Holden, Elizabeth SA, May 2017 Haisken-DeNew | Tuesday, 25 July 2017 Page 13

What new growth industry could use the skill set of the existing car workers in Melbourne and Adelaide? “Smarter Energy” Some examples in Canada, NOW Page 14

Fuel Mix Contributing to Total Primary Energy Supply, 2005 Australia Lagging Behind Renewable OECD in Clean Energy Nuclear Changing Composition of Energy Use Gas • Need to Burn Less Coal! Petroleum • Better use Electricity Capacity! • More Renewables! Coal 0 10 20 30 40 50 Australia OECD SOURCE: Ross Garnaut (2008) The Garnaut Climate Change Review , Chapter 7, “Australia’s Emissions in a Global Context”, Fig 7.6 Haisken-DeNew | Tuesday, 25 July 2017 Page 15

Per Capital Emissions: Energy Use Per Capita Greehouse Gas Emissions Tonnes CO 2 (2005) Tonnes CO 2 World Avg World Avg (2005) OECD Avg OECD Avg (2005) Australia (2006) Australia 0 5 10 15 20 25 30 0 5 10 15 SOURCE: Ross Garnaut (2008) The Garnaut Climate Change Review , Chapter 7, “Australia’s Emissions in a Global Context”, Fig 7.1; 7.4 Haisken-DeNew | Tuesday, 25 July 2017 Page 16

Brown and Black Coal Very Intensive Use Coal has many bad externalities SOURCE: http://www.energymatters.com.au/energy-efficiency/australian-electricity-statistics/ Haisken-DeNew | Tuesday, 25 July 2017 Page 17

World Price of COAL External Volatility • Exports • Main Input for Energy SOURCE: http://www.indexmundi.com/commodities/?commodity=coal-australian&months=180 Haisken-DeNew | Tuesday, 25 July 2017 Page 18

World Price of N-GAS External Volatility • Main Input for Energy • Int’l SOURCE: http://www.indexmundi.com/commodities/?commodity=natural-gas&months=180 Haisken-DeNew | Tuesday, 25 July 2017 Page 19

Price of Domestic Solar Dropping 2012-17 Future • Price decline • Low variation • Plan-ability SOURCE: https://www.solarchoice.net.au/blog/solar-power-system-prices Haisken-DeNew | Tuesday, 25 July 2017 Page 20

Australia’s NEM (National Electricity Market) • NSW, QLD, SA, TAS and VIC • NEM supports 19 million residents World’s Longest AC system: 40,000 km of lines • NEM supplies 200 TWh (200,000,000 MWh/a) • Household Pricing : simple price points like peak and off-peak • BUT Wholesale Market: Price depends on market and environmental conditions • Heatwave can cause price to skyrocket Can rise from $100/MWh to $12,000/MWh SOURCE: http://www.energymatters.com.au/energy-efficiency/electricity-demand-price/ Haisken-DeNew | Tuesday, 25 July 2017 Page 21 Page 21

Energy Demand Wholesale Mkt Predicted and Unexpected VICTORIA • 12 noon – 6am • Price $80-$160 MWh HIGH PRICE VOLATILITY SOURCE: http://www.energymatters.com.au/energy-efficiency/electricity-demand-price/ Haisken-DeNew | Tuesday, 25 July 2017 Page 22

Energy Demand Wholesale Mkt Predicted and Unexpected SOUTH AUSTRALIA • 12 noon – 6am • Price $70-$140 MWh HIGH PRICE VOLATILITY SOURCE: http://www.energymatters.com.au/energy-efficiency/electricity-demand-price/ Haisken-DeNew | Tuesday, 25 July 2017 Page 23

A NEW “SMARTER ENERGY” INDUSTRY - Growth Industry - City Jobs: Producer/Consumer - High-Tech Embedded Jobs - Clean Air - Education & Human Capital Page 24