Australia ‘lost’ its auto industry. Canada plans to keep ours with record subsidies. Who’s right?

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Once upon a time, Australia and Canada both had big automobile manufacturing sectors. The industries were both born a century ago, nurtured through adolescence by quotas and tariff walls, and thereafter enticed to stay home through a steady diet of taxpayer subsidies.

Two similar paths – and then they split. Australia cut the subsidies, and the industry left. Canada is today taking subsidies to undreamed heights, with more than $30-billion promised to just two manufacturers.

Which country chose the right path? Canada’s Liberal government says Canada. No surprise there. But Australia’s Labor government also says Canada.

Is that the correct answer? Maybe not. But first, some history.

In 2013, General Motors’ Australian subsidiary, Holden, held its hand out for yet another handout. Holden was an iconic Australian brand – like Bauer, CCM and Tim Hortons rolled into one – but in the first 12 years of this century, it had received the equivalent of nearly $2-billion in government assistance. Treasurer Joe Hockey was not eager to write another cheque.

Building cars in Australia had been a shrinking business since the 1990s, and Holden was one of two companies left. It wanted more cash, but was also being coy about how long it would stick around. An exasperated Mr. Hockey said that the company had to “come clean” and “be fair dinkum.”

“Either you’re here,” he said of the company in Parliament, “or you’re not.”

Holden decided that it was not. Toyota also decided to stop making cars down under.

A generation ago, Australia built half a million vehicles a year. In 2010, it built a quarter million. Today, it builds none.

Canada’s story was similar to Australia’s. Until it wasn’t.

Just like Australia, our industry was protected through much of the 20th century. Just like Australia, manufacturers once had to locate here to access to the local market. Just like Australia, we eventually took down the tariff walls. Just like Australia, our governments long believed that they had no choice but offer financial support – for building a new factory or retooling an old one – to keep the industry from going walkabout.

Both auto sectors also came under additional pressure in the early 2010s, as the two currencies were driven up by a commodity boom that made exports less competitive.

In response, Australia’s centre-right Liberal-National Coalition government cut the cord a decade ago. The response this year from Canada’s Liberal government, and Ontario’s Progressive Conservatives, has been the opposite: an exponential increase of taxpayer support. In return for building two electric-battery factories, Volkswagen VWAGY and Stellantis STLA-N/LG are in line for a shower of taxpayer backing.

Last Tuesday, I moderated a panel at the Australia-Canada Leadership Forum. The panelists were François-Philippe Champagne, Canadian Minister of Innovation, Science, and Industry – the man signing those cheques – and Kristy McBain, Australian Minister for Regional Development, Local Government and Territories.

I asked them about the two countries’ approaches. Ms. McBain said the end of Australian vehicle manufacturing had happened under a government of a different stripe, and that she regretted it. She described it as a mistake. She basically endorsed the Trudeau government’s approach.

And she wasn’t speaking out of turn. The Australian Labor government, elected in 2022, has extensive industrial strategy spending plans.

Labor’s platform says that the country “has suffered nearly a decade of policy drift since the Liberals goaded the car industry to leave.” In response, it is standing up the “National Reconstruction Fund,” valued at 15-billion Australian dollars ($13.4-billion), as “the first step in Labor’s plan to rebuild Australia’s industrial base.”

The may include the car manufacturing. With talk in the air of subsidizing a new, electric-vehicle industry, what Australia does tomorrow could look a lot like what the Trudeau government is doing today.

But will the return on investment for either country be positive?

On the plus side for Canada, we have advantages over Australia. The latter had a small, standalone car industry, oceans away from anywhere. A multinational, just-in-time supply chain was impossible. Exporting was slow and expensive.

Canada’s auto sector, in contrast, is a cog in the North American supply chain. Windsor is next to Detroit; Ontario is next to the U.S. Midwest. Thanks to proximity and policy, we don’t really have a Canadian auto industry – we have pieces of a much bigger North American industry.

At the same time, however, there’s no law that says you need to build cars in order to have a high standard of living. Denmark and Norway don’t make cars, and they’re two of the most prosperous places on Earth. And despite the downsizing of auto manufacturing, Australia’s productivity – the value of economic output per person – has recently grown faster than Canada’s.

The Canadian Liberal pitch is that subsidies are going to lock the industry in: Once a battery plant is here, it’s here for good. That sounds like hope over experience. Future Canadian finance ministers could find themselves as exasperated as Mr. Hockey of Australia – asked to pay this year for what they thought they’d already bought last year and the year before, and stalked by a growing sense that next year will bring more of the same.