Australian Car Industry – When in a hole stop digging

At Jo Nova’s unthreaded there is a debate going on about Australian car industry. Started up in the post war era, it is currently going through a crisis. In fact, despite large subsidies, it is collapsing. The major messages I want to get across are:-

  • Learn from other countries. Britain in the 1970s for instance.
  • When in a hole, stop digging. If the car industry is failing, throwing money at it might win a few votes, but damage the economy.
  • Australians have the energy, and entrepreneurial skills, in abundance to create new wealth-generating opportunities.
  • Australians (like other countries) are being crippled by the short-sighted hand of Government, who should recognize that do not have the skills, nor the incentives required to create an industrial policy that is of net benefit to the country as a whole.

On making a new start and learning the lessons of Brazil

To successfully start a new car company is virtually impossible in the modern world. In recent decades the successful ones have been in China, but with the help of, and by copying, established marques. Outside of China, there was Proton of Malaysia. There original car was a 1984 Mitsubishi Lancer. That end of the market you do not want to get into – high subsidies and reliant on cheap labour. The last major car company start-up was (I believe) Honda.
Then there are niche markets. McLaren is doing well in the UK, but a midget and building on its F1 base. As the majority of F1 cars are made around Silverstone, it had an advantage of a skilled labour pool and (most importantly) the engineering and design skills.
The alternative is to do what Brazil did. For years it did not allow any imports. There were four foreign car companies building in Brazil (Fiat, Ford, GM and VW). The quality was shocking, models were decades older than Europe and the the companies colluded. VW built a variant of the Ford Escort and the Beetle came off Ford production lines. In 1994, they opened up to imports, but with a 25% import tax. Very quickly 70-80% of the market was imports. So the Brazilians stuck a 70% tax. The response over a decade was for more foreign companies to open assembly plants. Then came Mercosur – the “free-trade” zone covering most of South America. Now there are plants from Renault, Mercedes (mostly the A-class), Audi and Volvo amongst others.
The major problem of taking this route is the restriction of choice. The Mercosur market (including Brazil, Argentina and Mexico) is a number of times bigger than Australia, and last time I looked, had a more limited choice and higher prices than in Europe.
Learn for Australia what the biggest businesses did in the 1980s. Stick to what you are good at. Let the market develop in Australia based on its comparative advantages. That is farming (which you have developed from low margin sheep farming to high margin wine production) and mining. Then there is tourism as well, so long as you don’t let your government tax air travel.
In the longer term there are spin-off industries. In Britain we don’t have much manufacturing, but we have some of the world’s best designers. Oil production is declining, but a disproportionate amount of global off-shore technological expertise is around Aberdeen.
The mistake of most people to associate wealth with making actual things. It is not. Wealth is about creating greater value than the inputs. Assembling everyday, easily reproducible, objects adds very little value, so is confined to the poorest countries. For instance textiles in Bangladesh, or assembly of commodity items in China. The real wealth comes from new ideas, or taking existing processes and doing them more efficiently and/or effectively than anyone else. That is staying ahead of the game.

A readable primer on the economics is Israel Kirzner’s “Competition and Entrepreneurship.”

When in a hole, stop digging. Lessons of the British Experience

Andrew McRae is torn between ending the subsidies and letting the car industry fold.

Hi Andrew,

I can see why you are torn between Government Industrial policy and letting free markets work. I finished high school and went to university during the early Thatcher years and saw both sides. In the 1970s one of the most famous British cars was the MG Midget – a tiny two seater sports car. There were huge protests when production was stopped, with each car costing twice the selling price. Like most of the cars produced in Britain it was unreliable, particularly when compared with the Japanese competition. The country subsidised many industries, spending 5-8% GDP on subsidies. We tried to get into the computers – and failed. The one bright spot was Concord, developed with the French. A phenomenal technological achievement, it cost £4bn (A$40bn+ in todays money) and the few made were virtually given away. It was a case study in how an original government project at low cost with high rewards switches to the opposite. When mooted in the mid-50s, it was to cost £80m with a market for hundreds of planes.

One thing that you must not lose sight of is the existing workers in your car industry. In Britain in the 1970s there were millions employed in manufacturing, whether the car industry, steel, shipbuilding, engineering, or technology assembly lines. Another 250,000 jobs were in coal mining. Many who were made redundant in their 50s never got jobs again. Many others only obtained lower paid unskilled work. There is still incredible bitterness towards the whole Thatcher legacy. But the fault lay not with ending “industrial policy”, with its ever-growing subsidies, but in starting it in the first place. It is the same principle as for the carbon tax. Even assuming the theoretical case was true, the people least qualified to implement the policy are the politicians. Not because they cannot hire the best experts to devise a policy. It is for business and a carbon tax to work you need to make changes, which will hurt people. In manufacturing you need to continually cut jobs and change. With an “optimal” policy to reduce CO2 emissions some jobs need to be destroyed (to get huge benefits) and people suffer hardship. Politicians who are so openly ruthless get voted out pretty quickly, even though they are doing the best for the country. The best long-term interests of the country are the biggest vote losers, if those politicians are advised think short-term and are advised by spin doctors. Yet the interests of a modern developed country are in providing the structures to enable the future wealth-creating opportunities to develop. Australia is probably the pre-eminent example of a country for this to happen, as there are many people with vision, ability and the passion to make things happen, along with the ability to take risks. The crippling disability that they need to overcome is the risk-averse dead-hand of government who cannot see beyond the next set of opinion polls.

Manchester rejects Conjestion Charge

At 12am today we found out the results of the referendum on the £2.8bn package. With 53% of the electorate voting in the postal ballot, 78.8% voted against the proposal. This is the comment just posted on Iain Dale’s Diary,


It is worth taking a look at what this means for government policy generally.

Greater Manchester Transport paid £10m to put the package together, along with £3m spent on publicity. A majority of local politicians were strongly in favour, with most of the rest sitting on the fence.

The package was a good example of how the government views policy. It seems to have been devised to justify a particular favoured viewpoint, so was going to be biased from the outset.


Criticisms are

1)  A forecast of increasing growth in Manchester, with many of the new jobs in the city centre.

2) An overestimation of the effectiveness of a congestion charge in moving people onto public transport.

3) A failure to look at the total costs and benefits of the move, including the time taken in travelling, or the interests of commuters from outside the borough.

4) Figures pulled out of the air, such as “30,000 jobs will be lost” or “only 10% of people in Greater Manchester will pay the charge”

5) The use of threats – it is all or nothing. I wait to see if the government really carries out that threat, or just waits a period and introduces the Metrolink – the big ticket item – piecemeal.

6) Failure to publicise the budgeted 5.5% annual increase in congestion charge revenues to 2041, or that it would continue long after the £1.2bn loan


We should look to the local politicians to recognize that they have gone way out of line with popular opinion, and learn from this.


My own view is, as a (slightly manic) Beancounter, is that we should have independent, scrutiny of policy proposals, to see if they are of net benefit to society. Maybe the revised proposals should go through this filter.


I should be pleased, but instead am saddened. The government has expended a huge effort on a policy that is not only flawed, but completely out of line with what people think. Local politicians who have strongly backed this scheme should reflect, and admit that they got the mood wrong. It is unlikely to much affect the outcome of the local elections, as most politicians backed the proposals to some greater or lesser extent, and few wholeheartedly opposed the package.


POSTED TO Iain Dale’s Diary on the same subject.

Depairing Liberal said a few hours ago.


“That’s right Iain, far better for everyone to sit in ever-growing traffic jams for longer and longer every night. The last thing we need in our cities is considerably improved public transport, cleaner air and healthier people.”

It is true that congestion charging supplies a solution in the short-term. The Manchester scheme relied on the congestion charge (average £3 a day) to reduce peak time traffic flows by 15-20%. With reduced traffic flows the traffic would speed up. Peak time traffic was estimated to speed up by 30% for cars and 12% for buses. The problem is that in London & Stockholm, peak-time traffic did decrease by this amount initially, but 2 years later it was back to the levels it was before the conjestion charge was introduced. As I explained on my blog, people adjust their expenditure to afford the more desirable option. In Manchester, this is travelling by car. In a wealthy country most people can adjust their expenditure to afford the £650 (average charge) to £1200 per year (maximum charge) by renewing their car less often, or by driving a cheaper vehicle (currently we do no have the cheapest vehicles possible – they do not sell. So there is plenty of room to go down market.) The public transport option is to spend much longer travelling, with the longest journey times in the worst weather (as fair-weather public transport users jump in their cars when it rains, or it is cold, as occasionally happens in Manchester) and much of the extra time spent waiting or walking.

But in Manchester, part of the solution was to implement some bus lanes on dual carriageways, such as the A34 (Kingsway). If a significant reduction was not achieved by the congestion charge, some congestion will get worse not better.

On the environmental impact, the worst pollution was caused by buses. Central Manchester around the bus terminus (Piccadilly Gardens) is the 2nd worst place in Britain for carcinogenic pollution. The best way to spend a few hundreds of millions would be to fit the dirty old buses with some sort of filters, or replace them with new ones.

The whole package was dotted with useful ideas, but in totality the costs far outweighed the benefits. It was a complex package where the authors did not consider the question “Does society as a whole benefit from this proposal?”

Manchester Confidential and the Conjestion Charge

Just posted the following Rant to Manchester Confidential, located here.


..“ On the Congestion Charge. It may have gone on too long, but the truth has yet to come out. Three brief points

1)The proposals assume accelerating economic growth for the region, with a lot of the new jobs concentrated in the City Centre. This was done pre-credit crunch.

2)The conjestion charge revenue increases of 5.5%; a year to 2041. There is a tax bombshell here.

3)The new bus services will only happen if they are commercially viable. The demand will not be there. Why? First there will not be the commuters. Second, the conjestion charge is less effective at causing people to move to public transport than assume. Third, the plans assume 55%; of those who do switch to public transport will use the bus. This is an exaggeration.

Analysis of Tif Manchester “facts” on wevoteyes website

The Wevoteyes website has a page . It 8 facts listed, but no fictions. That is strange, but, in the interests of clarifying the debate, let us have a look some of the facts. If I get any of this wrong, please comment and I will clarify in the interests of obtaining an accurate picture of the proposals.


9 out of 10 people won’t pay the congestion charge when it starts in 2013.”

This should be clarified. It is the people in Greater Manchester who will not pay the charge (so excludes people who live outside the county but work in the centre). As minors or adults without a driving licence are also people, it includes them, but this is misleading. A more relevant figure is the families who have at least one regular peak-time driver. Or, to be political, the proportion of registered voters who will pay the charge.


“10 out of 10 will get a radically improved transport system across Greater Manchester.”

This is true. But the biggest and most expensive benefit – the metrolink – is localized to less than half the population. The most general benefit of more bus routes and more frequent services, is dependent on the usage. If they are not viable then they will be withdrawn by the bus operators.


This will only happen if you vote YES.

Again this is true. The package will be withdrawn. However, would the government cancel the biggest benefit – the metrolink, when they are trying to spend their way out of recession? Or, like the European Constitution, will it reappear in a modified form, or piecemeal by the back door? It may be better for Manchester if the plan is sent back to the drawing board, so that a more objective and balanced appraisal can be carried out. Please see the previous posting.


“Is designed to only hit traffic hotspots”

Using two peak time rings is an ineffective way of doing this. Some of the peak times are not dealt with, such as the afternoon school run (except for a few yellow buses). Some of the congestion in Greater Manchester is not touched, such as the Motorways, or outside the A6. Many of the worst places are at junctions, which will not be included. Also there is considerable seasonal variation. Car usage is higher in the winter, on cold wet days than in the summer. If there is a charge, this could exacerbate the variation as people try to reduce their costs. In other words, fact is just about the intentions, not about the outcome.


‘There’s no Plan B. If we vote NO in December the money goes back to Government, all £3 billion of it.’

This is mostly a more dogmatic re-statement. Also, it is a false statement, as the total investment is less than £2.8bn, including £313m for the congestion charge investment. The central government is only providing, £1.5bn of this, £1.2bn is to be funded by the congestion charge and £100m is from other sources. The full £2.8bn includes contingencies, so will only be “achieved” if there is an overspend.

Anyway, the full and permanent withdrawal of the £1.5bn funding may not occur. The Prime Minister, in a response to a question tabled by Manchester Withington MP John Leech, said If Greater Manchester came back with a revised proposition, we would need to assess it on its merits.”This is quoted from the Crains Business Manchester website

Update 24.05.2013

The “wevoteyes” fact vs fiction can be viewed at the useful wayback machine site

“Wevoteyes” – No Costs and Questionable Benefits of Tif Manchester

The website has totally ignored the costs has made some questionable claims of benefits of Tif Manchester.

I will deal with some of the costs that are left out, and then look at the validity of the claimed benefits. In so doing I hope to add to the understanding of the package, to get the best solution for society as a whole.

If I have got anything wrong please let me know and I will correct or clarify that aspect. If you disagree send in a (clean) comment and I will post it.


The Costs of Tif Manchester.


  1. The £1.5bn government grant is not a free gift. It costs the taxpayer and responsible government should show the stream of benefits exceeds this cost.
  2. People who continue to drive at peak times will pay the charge and thus have their living standards reduced.
  3. People who switch to public transport network to avoid the charge will have living standards reduced.
  4. People who aspire to use the luxury of car travel might have this opportunity cut off due to the charge. The Congestion Charge will create a Transport Poverty Trap. That is an income barrier to what many view as the more comfortable and convenient form of transport.
  5. A lot of the payers of the charge will live outside the Greater Manchester Boundary. This includes a disproportionate number of business decision-makers.
  6. Occasional peak time car drivers will have to pay a higher charge.  This may make Manchester appear less welcoming and more expensive to outsiders.
  7. A substantial portion of the revenue from the congestion charge will be from fines (towards the foot on page 3). It is the occasional travelers who will be hit hardest.
  8. The Congestion Charge revenues are planned to rise by 5.5% a year to 2041. Please find this on page 10 section 5.1 of the funding proposals at This could either be from increasing charges, or by having new charging areas, or by having a two-way charging, or by extending the definition of peak time.
  9. People living close to the boundaries may have parking restrictions outside their houses to stop people avoiding the charge. Those living by the interchanges, such as East Didsbury, may also be adversely impacted.


The Questionable Benefits


The six benefits of the Congestion Charge as listed at I quote them here, in italics, with comments below, as they appeared on Sunday 9th November.

“You may not have to pay the congestion charge but you will benefit from the £3 billion investment that it will deliver for Greater Manchester.”

One. There will be new and better bus routes right across Greater Manchester.

Two. There will be new and extended Metrolink routes to the airport and town centres across the city.

Three. There will be more seats on trains and better, safer stations and platforms.

Four. There will be integrated, electronic ticketing allowing you to travel affordably and easily, anywhere in Greater Manchester.

Five. There will be more cycling provision, yellow school buses, park and ride schemes and if you do drive, it’ll be a faster and quicker journey to work.

Six. Our air quality will improve and we’ll see a cut in our greenhouse gas emissions.”

It is not £3bn of investment. See my earlier posting as to why this is the case.

One. Maintaining those bus routes will depend on the viability of those routes. If there is not the forecast number of passengers then they will be withdrawn. The Tif Manchester proposals both over estimate peak time commuters and over-estimate the long-term impact of the congestion charge. As the bus is usually the slowest form of transport, then it will suffer most from these error estimations.

Two. The extensions to the metrolink is the major plank of the investment. There is a strong political reasons why I believe that this work will not be cancelled if the public votes no on December 10th. That, is statements made recently by the Chancellor of the Exchequer and the Prime Minister that they are attempting to spend their way out of recession. I do not believe that the government will cancel a major investment program with some known direct benefit for the economy, and then rush to make expenditure elsewhere. I think it would do long term damage the Labour party’s standing in one of their major heartlands. In the absence of a clear statement to contrary, it is safe to assume that this investment will not be cancelled, or even delayed.

Three. There is already investment in stations and in trains, as usage of the railways has been increasing. Unless the government categorically states that they will block any more investment if the bid is turned down, then we can assume it is not dependent on the bid.

Four. Why cannot they introduce this independently of the bid?

Five. The number of yellow school buses under the bid is fairly small. However, the leader of Stockport Council, Councillor Dave Goddard, has contested this number. For drivers, the benefits of traffic speeds will depend on how many other drivers abandon their cars for public transport. This is likely to be less than predicted, as blogged here. It will also depend on the reductions in road space for new bus lanes, (such as on Kingsway?), or the slowing down of traffic, (such as on the Mancunian Way), or the blocking of road at entry points to the charge zone (e.g. the North Side of Wilbraham Road?).

Six. The environmental benefits are likely to be small. The Tif Paper estimates this at £44m per year, but, this may be extremely optimistic and is unsubstantiated. The worst pollution blackspots may not be much improved until we abandon the dirtiest buses.



Follow up


Further to point two about the political reasons, please see the on Prime Minister’s response to a question by John Leech MP, as reported on Crain’s Manchester Business. Seems that there is a get-out clause, so a no vote will not mean “absolutely no new Metrolink”


Clarifying the Stockholm Experience

The South Manchester Reporter published an article in October on the Stockholm experiance of congestion charging (here). This was largely based upon the article.

There were those who doubted the effects of the Stockholm situation. I have written to the South Manchester Reporter the following:



I would like to clear up a quibble concerning the impact of the Congestion Charge scheme in Stockholm. Andreas Krohn of the Stockholm Chamber of Commerce claimed that traffic volumes were 1% higher, whilst  Manchester City Council Leader Richard Leese claims there was a 20% reduction.

Both are right, as after 6 months traffic volumes were 20% lower, but after 2 years they were 1% higher than before the charge was introduced. A similar pattern occurred in London. The reason is that people view car travel as a luxury. The car is usually quicker and more convenient and more comfortable than public transport (when you include walking and waiting). Over time people will adjust their expenditure to afford that luxury.

In my view, to maintain the targeted reduction in peak time traffic of 15% to 20% would require huge increases in the charging rates from the current £5 maximum. This could be between £10 to £20 per day by 2020. That would be great from the point of revenue to pay for subsidies, but a massive reduction in living standards for those with no alternative but to drive.


The rebound effect, of people adjusting their expenditure to a new situation is something not taken into account by the forecast model. Instead it views people as automatons who react in predictable ways to changes in the environment around them. In the short term, statistically this may appear to be true, but in the longer term people adapt. This is a rich country, where most of the population are able to change their expenditure priorities in a response to changes in the environment around them. When new technology comes along many switch at great expense to that technology such as for iPods, DVD Recorders or Nintendo Wii. They also adjust their expenditure and lifestyle to changing conditions, such as finding a partner, making a family, (or to family break-up) or moving to a new job. Yet many of these people who have a large amount of income that can be moved between types of discretionary expenditure, may not find they have much available time. Working families for instance, whether with one parent or two, may value the extra time and flexibility that a car can provide in saving on childcare, moving the children to after-school activities, whilst trying to do a full-time job. Using public transport with its greater unreliability, inflexibility and (usually) greater travel time will cause problems. Even though the Tif package looks at these issues, the result of a congestion charge may significantly lower the living standards of these families, or cause the making of substantial sacrifices to quality of life.

Follow up – The above letter was published in the letters page of the South Manchester Reporter on 6th Nov 2008

A Silent Withdrawal

Strange that when I searched Google through Virgin Media or Tiscali with ‘Congestion charge revenues’ or ‘Manchester Congestion Charge’, it no longer comes up with the sponsored link for


 Sponsored Links:

Find out the FactsCongestion charge? Not until £3bn is invested in public transport



It is not just the false claim that has disappeared, it is the whole sponsored link. On Virginmedia or Tiscali it does not not appear in the top 30 as a normal link. More folks read this blog than I realised, or maybe the folks at Stop the Charge picked upon the same issue.


There is still a claim the is not entirely true. Try searching ‘GM Future Transport’


First result is


1.                             Manchester Congestion Charge – GMPTA – TIF

How the GMPTA will spend up to £3 billion on improvements to public transport, partly funded by a weekday peak-time only Manchester congestion charge.  


The problems with this are


1. The £3bn is just £2.77bn.

2. This includes a contingency, so will only be achieved if they go overspent.

3. It also includes £313m for the introduction of the congestion charge, which is not expenditure on public transport.


This leaves around £2bn for public transport if the authourities stay within budget.


PDFs are included below.


Congestion Charge – Major Policy Shift, or False Claim?



The pro-congestion charge has made what appears to be a false and misleading statement through their Google advertising.

In fairness to the public, they should either

1)    Make a full admission and apology to the mistake on the front page of their website, and immediate withdrawal of the offending statement.

2)    Admit that this is major policy change in that congestion charging will only be introduced if they go at least £1bn, or 50% overspent on their published plans.


The Offending Statement


When I Google “Congestion Charge Revenues” within the search box I get



Sponsored Links:

Find out the FactsCongestion charge? Not until £3bn is invested in public transport


This is also found through and, probably, any other UK website that has a Google search box.




There are two ways of considering this

a)    That this is a false statement.

b)    That this is a true statement, and a major policy change.


This is a false statement as


1. The total package is £2.8bn, not £3bn.

2. This includes £313m for the congestion charge scheme. This is not investment in public transport, but a means of both funding the investments AND of winning customers for the new public transport services. That only leaves £2.5bn for investment in public transport.

3. The package includes a large amount of contingency. It is only if they go overspent that they will reach the amount.

4. On the website it says “Up to £3 billion spent on public transport improvements – at least 80% in place before congestion introduced”


This is true only if the authourites plan to make payment before the contractors finish the work, they will not have spent the budget. Normal practice is to only make final payment once work has been fully completed and inspected. Often on building work, a retention is kept back to make sure any faults in the construction that become evident when the facilty is operational are rectified. If this is true, then the audit commission should be got involved, as it would be an imprudent application of public funds.


Major Policy Change


The statement “Congestion charge? Not until £3bn is invested in public transport” is true if


1)    There is a major change in policy. To me this implies we will only get the congestion charge if investment goes so massively overspent that it eats up the not only the contingency, but at least £1bn or 50% more than planned.(1) However, such a massive policy change would need to call on at least £900m of extra government funding, so would have to be re-submitted to tif.

2)    The investment in public transport also includes all UK government expenditure(2) on transport. Then they can introduce the expenditure straight away. However, for the statement to remain meaningful it would both be misleading and render the statement “Up to £3 billion spent on public transport improvements – at least 80% in place before congestion introduced” untrue and that should be withdrawn with full admission.



Note (1)

The tif package – figures
Total package 2,800
Less Contingency -500   Estimate
Less Congestion package -300   Rounded down
Claimed Net Package 2,000
% overspend to get to £3bn 50%
80% of the package 1,600  

Note (2)


Whilst Chancellor of the Exchequer, Gordon Brown established the convention that any UK government expenditure is investment. I therefore follow the convention so as not to create confusion amongst the political classes.

Waste Recycling – Nappies this time

Just finished knocking out a couple of manic notes on waste, just to see this blog on the cost & benefits of nappies from the ASI. Like with the Manchester Conjestion Charge, it illustrates how properly looking at an issue, can provide a different answer to simply justifying the popular view.

When my kiddlewinks were babies, we used disposables. Here time was a factor, as well as avoiding a stinking job. However, again like the conjestion charge and recycling, people’s time is not valued. How long before some bright spark suggests that the truely green way is to hand wash in cold water and carbolic soap, and then putting it through a mangle? Need a strong bleach though, as the environmentally-friendly sorts do not work.   



Flaw in the analysis of flaws

Further to my previous blog on the 30th September, I misintepreted the figures on the first of the two flaws.

This was with a comparison of two projections from the submission.


Figure 71 – Reference case:Difference in people Crossing the inner ring (2005 to 2016) p.241
Highway Bus Rail Metro-link Total Pt
Entering Regional centre 2,300 -1,300 1,300 4,000 4,000
Crossing Inner Charging Ring 8,400 -1,700 1,400 4,000 3,700
Figure 72 – TIF Package:Difference in people Crossing the inner ring (2005 to 2016) p.242
Highway Bus Rail Metro-link Total Pt
Entering Regional centre -3,300 5,800 2,100 2,400 10,300
Crossing Inner Charging Ring -6,400 7,200 2,300 2,800 12,300

I took the two tables to be separate forecasts. As such, there are fewer passengers using the Metrolink if it is extended, than if it is not.

However, on closer reading, figure 72 is the changes projected over and above the situation in Figure 71. Therefore the extension to the Metrolink, with lines to the regional centre will lead to an increase in those travelling on Metrolink by 2,800 at peak times.

The second flaw, looking at the impact of people switching from cars to buses is unaffected.

Further analysis is to be found in the next blog.