In 2002, the Howard government unveiled a car plan to ensure that Australia remained a car-making country for another decade. It offered the industry a compromise: we will keep subsidising you until 2015, at diminishing levels, but with no commitment to any support beyond that.
It was a gamble, later overtaken by an even bigger policy gamble, as the federal government and Reserve Bank persuaded themselves that Australia had entered a new age of so much mineral wealth that it no longer need worry about preserving manufacturing or other trade-exposed industries.
The government and the Reserve sat back and watched as the Australian dollar climbed relentlessly higher, making our producers less competitive in global markets. Other countries used a range of strategies to hold down their currencies: intervening in the markets, lowering interest rates almost to zero, regulating capital flows, capping key exchange rates, and using quantitative easing to flood the market with money. Australia just did nothing.
In 2002, Australia's low dollar made it a cheap place to produce goods and services. Of the 34 advanced countries, the International Monetary Fund estimates, our average cost of production ranked 22nd, similar to that of poorer European countries such as Spain and Cyprus.
Now, the IMF says, Australia has the third-highest cost of production in the advanced world, behind only Norway and Switzerland. There are a range of reasons: as a country, we have felt no sense of crisis and no need for painful reforms to lower costs and lift productivity, as most of the advanced world has.
But most of the deterioration in our competitiveness is due to the overvalued dollar. We have made ourselves a high-cost location. If that lasts, many more manufacturers will follow Ford out the door - including most of the car industry.
The problem is not the carbon tax, which adds less than $200 to the cost of an Australian-made car's cost. Coalition plans to cut $500 million of support from the industry would add far more to costs.
