AUTOMOBILE INDUSTRY OUTLOOK:
Task: Your task for this assignment is to analyse the current state of the Australian automobile industry and discuss its future prospects. You will also investigate the impact of government policy on this industry.
Your assignment will be influenced by two recent government initiatives: its 2008 review of the industry and its subsequent industry policy proposal. (See 'Review of Australia's Automotive Industry, Final Report July 2008' and 'A New Car Plan for a Greener Future 2008' that are available on e-Communities under Learning Resources.)
ASSIGNMENT GUIDE:
There are five parts to this assignment.
Part 1—Background:
The background should be a brief descriptive comment on the current state of the Australian automotive industry. It will include comment on the state of the global automotive industry and its impact on Australia's industry.
Part 2—Government policy:
Analyse the potential impact of the Australian Government policy on the Australian automotive industry. Two key policy initiatives will be analysed: tariffs and subsidies.
a) Tariffs:
The government decided to continue with Australia's long-standing tariff reduction timetable and further reduced tariffs on passenger motor vehicles and parts from 10% to 5% on 1 January 2010.
i) Your task is to analyse the impact of tariffs using conventional demand and supply diagrams. You are required to identify the impact on consumers and producers, the prices they pay and receive and the quantities they buy and sell.
ii) Using these same diagrams illustrate how the impact might vary according to different demand and supply curve characteristics.
iii) Combine your analysis to evaluate the impact of a reduction in tariffs from 10% to 5%.
iv) Based on your analysis, outline your views on the government's decision to reduce tariffs 5%.
b) Subsidies:
The government has also determined to continue to provide extensive assistance to the industry totaling $6.2 billion over 13 years.
i) Although the assistance is not in the form of a direct subsidy on the sale of each vehicle, analyse the impact of these subsidies (as though they were a conventional subsidy on the sale of an individual motor vehicle paid to the producer) using conventional demand and supply diagrams. Identify the impact on consumers and producers, the prices they pay and receive, and the quantities they buy and sell.
ii) Repeat your analysis assuming the subsidy is paid to the buyer of the motor vehicle. (This approach was adopted by China for motor vehicles, and by Australia for first home buyers as part of their respective stimulus programs in 2009.)
iii) Based on your analysis, outline your views on the government's decision to continue to provide assistance (equivalent to subsidies) to the automotive industry.
Part 3—Australian market trends:
Complete a graphical and statistical analysis of industry data to identify trends and generate projections. The data is provided on e-Communities under Learning Resources.
Undertake your analysis using Excel, in accordance with the textbook and Study Guide approaches.
a) Using the data provided:
i) Plot motor vehicle sales (quarterly, 1994 to 2009).
ii) Plot motor vehicle prices (quarterly, 1994 to 2009).
iii) Examine each plot for possible seasonal patterns.
iv) If a seasonal pattern is evident then modify the data use one of the methods provided in the textbook to adjust for the seasonal pattern.
Part 4—Market Power of Australian motor vehicles industry
Using the data provided in the report, how large do you think is the market power of the Australian automotive industry? And what type of competition is the Australian automotive industry facing? How far is it from a perfectly competitive market, and which of the assumptions of perfect competition are violated in the automotive industry? What do you think can increase the market power of the Australian automotive industry?
Part 5—Future industry prospects:
Evaluate the future prospects of the Australian automotive industry.
REFERENCE MATERIALS:
The reference materials available on Unit 201 e-Communities under Learning Resources are:
- 'Review of Australia's Automotive Industry', Final Report July 2008.
- 'A New Car Plan for a Greener Future', Commonwealth of Australia, 2008.
These documents are taken from the following website:
https://www.innovation.gov.au/Industry/Automotive/Pages/AutomotiveIndustry.aspx
The data file provided on e-Communities under Learning Resources contains data series taken from taken from the Australian Bureau of Statistics and the Reserve Bank of Australia. The initial rows in the data columns contain the information on each series that is found in the original sources. You will notice that the information includes reference to longer periods and monthly frequencies for some series. This is of no consequence for your analysis as all data have been trimmed to the same period and frequency (i.e. quarterly from Mar 1994 to Dec 2009).