Car assembly in N.Z.

Press, 25 January 1979, Page 16

Car assembly in N.Z.

New Zealand’s motor industry assembles a wide range of makes and models of cars. Does New Zealand need to have so many models assembled in the country? That is one of the longstanding points of discussion about the industry. Between 70 and 80 models are turned out by eight assemblers.

The total market for new cars which the Government appears to want, and which the industry appears to accept, is 65,000 vehicles a year. Judged from the point of view of production, 70 to 80 would seem to be a lot of models for a small market. It would be possible for far fewer assemblers to produce sufficient cars to meet New Zealand’s needs Already one of the problems within the industry is that the plants have more capacity than is required by the market.

Something of the discussion, which has been going on for a long time between the Government and the industry, surfaced on Tuesday when the Minister of Trade and Industry, Mr AdamsSchneider, answered questions from a broadcasting reporter. For many months the Government has been trying to get a study of the car assembly industry under way. All talks have become bogged down on the terms of reference. The eight assemblers have 14 plants. The people who work in these, together with the employees in the industries supplying parts and materials, number at least 10,000. Social and economic problems are therefore as much a part of the discussion as decisions on management, control, and marketing.

Perhaps it is not even realistic to expect the members of the industry to sit down to devise ways of changing their business. If, say, three plants could produce all the cars needed for New Zealand, who is going to decide which three should do the job? Would a majority of the assemblers bow out of the industry, or accept the regulation of what models they produce? It is surely unlikely that any group of firms within the industry could make such decisions.

Even if the industry accepted enforced change, would the public be better off? The customers are likely to measure the merits of change solely by a reduction in prices, or at least by evidence that prices have been restrained. There is probably no other way to measure the results. Some authorities in the industry argue that the economies of scale which might bring about a reduction in prices can be found only in production runs of 100,000 or more. Since this figure exceeds by far the size of the whole market for all models the question of scale would be dismissed as irrelevant if the argument is correct.

The Government uses taxation both to govern the size of the market and the size of the cars that it wants the customers to prefer. The Government has in mind the cost of importing parts for assembly and the cost of the imported fuel consumed. This taxation magnifies any change in the production costs. Although a Government may adjust tax levels at any time, the effect of any economy in production is important.

The claims and counter claims about the car assembly industry in New Zealand need to be sorted out. That should be possible. But there is little reason to suppose that, without strong pressures from competition, the industry will reform itself at will. If the Government really wants an inquiry into the car assembly industry it will have to take most of the initiative itself. The argument may be raised that New Zealand does not need a car assembly industry at all. That view is not easily accepted, partly because of the dislocation to a major industry, but also because of the engineering and other services related to the industry. New Zealand is trying to broaden, not restrict its industrial base. This policy, however, does not preclude some benefits coming from a rationalisation of car production The main question is: should ch • ges be enforced? Even the consumers may need a lot of persuading that Government-enforced change is desirable.