Illustration: Chen Xia/GT

Australia seems well on the road to becoming the first major country to totally abandon car manufacturing.

This is the likely outcome of government determination to stop all financial assistance to the industry, part of a plan launched upon election last year to slash across-the-board spending by ditching a wide range of previously state-supported programs covering industry, education and public welfare.

Earlier this month, the Productivity Commission revealed preliminary details of a final report due out at the end of March on the car industry's future. The main conclusion: it is globally uncompetitive and the government should stop wasting money - eliminate all forms of subsidies and protection and insist companies slash their costs instead.

To the union movement, that was to be expected from a right-wing government hostile to any public program that smacks of socialism.

The largely right-wing mass media hailed the move as a welcome sign of the emergence of a true "free market" - an argument I totally reject.

The closest parallel to Australia I can think of is Britain, where bad management (meaning government, as the industry was largely nationalized) and a militant work force threatened to end all car manufacturing.

The situation was turned round in the 1980s by the intervention of Japanese companies (Honda, Nissan and Toyota) to create a Europe-wide success story. Admittedly, the Japanese got heavy government subsidies to persuade them to take on the task and have more than repaid the investment.

Car manufacturing in Australia was long handicapped by a small population base and no ready export markets.

In the 1960s, the only indigenous manufacturer was Holden, along with a modest operation by Ford Motor Company. Imports satisfied much demand.

Now, that situation is repeating itself. Purse-conscious Australians are again turning to imports as domestically made cars price themselves out of the market through soaring production costs (and, for exports, a strong Australian dollar).

Currently, there are three producers - Ford, Holden, in a joint venture with America's General Motors (GMH), and Japan's Toyota. Ford plans to halt production in 2016 and GMH in 2017.

Toyota was supposed to announce its decision later this year, but obviously decided not to wait after the Productivity Commission insisted the company and its trade unions slash wages and conditions of workers.

However, I don't think this is very reasonable. The government seems to want Toyota to pay the same sort of wages as those offered to workers in China and Thailand, for example. Given the high cost of living in Australia, that would be tantamount to creating widespread poverty among the working class.

The subsidies really do not involve a great deal of money, but arouse a lot of heat. In 2012, for example, the previous Labor government caused a furor by announcing an injection of A$200 million ($179 million). The amount doesn't seem to be the issue; rather, it is a public perception that the auto industry is a "bottomless pit."

The companies insist they give value for the money they get. For example, in the past 12 years, GMH has received A$2.2 billion in federal government handouts. It defends this by saying it has spent A$32.7 billion in Australia over the 12 years, including A$5.9 billion on wages and A$21 billion on suppliers, helping create jobs. Ford has offered similar arguments.

Such arguments don't seem to cut much ice with those in charge of the country now, however.

Yet, international experience suggests closing down an industry such as car manufacturing has broad implications for the overall economy that cannot be ignored.

The sector involves a vast network of small companies producing specific components, some with Chinese investment, so hardships will be widespread. This was clearly shown in Britain, where the closure of a car manufacturing plant devastated the entire local community.

In Australia, the blow would fall in a concentrated way on the two southern cities of Melbourne and Adelaide. In the former, union officials say 30,000 jobs would be lost.

Also important is that car manufacturing has been an important developer of technical skills among workers that have benefited a larger community, such as defense, rail, mining and aerospace, for example.

It all suggests the old adage "penny wise, pound foolish" that Australia may soon regret.

The author is a lecturer with China Foreign Affairs University. bizopinion@globaltimes.com.cn