Hand

in Question
1. Why did the Australian government give protection to the Australian car industry after
World War 2?
A. Government gave protection to the Australian car industry after World War 2 for number of
reasons. The major reason was to create jobs as car industry would create thousands of jobs.
Furthermore during the war it was really hard for government to import military vehicles and
equipment, so a local car manufacturing industry such as Holden was essential for Australias
production of military vehicles and defense equipment. In addition many other technologies
and industries were linked to car industry in Australia such as tyre-manufacturers, iron industry
and many more so protection of Australian car industry also meant protection of these other
industries and technologies which ultimately protected jobs in Australia.

2. Give reasons for the decline in Holdens share of car sales in Australia from over 40% in 1958
to 15.2% of total sales in 2006 and finally the shut down in 2017. What impact will the
shutting down of Holden have on the economy?
A. After 1960s competition started to enter Australian car industry. Even though importing cars
was expensive; importing cars in pieces was not. So American, Japanese, British and European
car manufacturing industry started making cars in Australia which ultimately lead to Holdens
grip in Australia to loosen. Furthermore rising Australian dollar made imported cars cheaper
which again made competition stronger for Holden. In addition Holden cars were
manufactured completely in Australia where the wages are relatively higher rising Holdens
production costs compared to that of its competitors who imported their cars. In addition,
Holden could not reach economies of scale due to their limited market. The shutting down of
Holden will negatively impact Australian economy as it would lead to significant job losses
raising unemployment. Furthermore it would be governments responsibility to restructure
jobs for people who previously worked for Holden which would raise their costs too.

3. Why has the Australian government stopped giving protection to the car industry?
A. High Australian dollars makes international export less competitive which makes Australian
export of cars more expensive. Furthermore rising petrol prices directs customers to buy
smaller and economic cars, However focus of Australian car industry such as Holden has always
been to produce premium cars, so ultimately they end up producing cars that consumers do
not demand.

4. Does Australia have a comparative advantage in the production of cars? Explain your
answer.
A. I do NOT think that Australia has competitive advantage in producing cars. Because high
Australian dollar make it more expensive to export cars which is a big disadvantage for
Australian manufactured cars. Furthermore high Australian salaries increases manufacturing
costs significantly again disadvantaging car production in Australia. Even though Australian
manufactured cars might be premium cars compared to imported cars, in current market
where petrol prices are raising and other expenses are also increasing, people demand
economic and fuel efficient cars. All these factors contribute to Australian car manufacturing
industrys lack of comparative advantage in car production.