GM's lesson of the day: there's no room for sentiment in business
The nation mourned yesterday at news that General Motors is killing off Holden. Listening to grown men breaking down in tears on talkback radio yesterday afternoon, it was hard not to get caught up in the sorrow of it all; hell, my first two cars were Holdens.
GM said it was because no-one's buying them and the market's no longer viable. A shaken and angry Scott Morrison responded with criticism that after taking more than $2 billion in taxpayer subsidies, GM let Holden wither on the vine. Whatever the scenario, the business case is clear: GM is exiting from right-hand-drive markets - and with that decision, 600 local jobs will be lost and 185 Australian dealerships wound down.
Of course ScoMo is going to be upset, and sentiment has nothing to do with it. The Morrison government is having a devil of a time trying to create jobs and encourage business investment; this is the kind of blow Australia's job sector can do without.
(At this point, it's worth talking about coronavirus for a moment. As Treasurer Josh Frydenberg prepares for the May budget, he'll be sweating bullets in anticipation of the impact of the epidemic on Australia's economy.)
The push me, pull you of jobs, wages and consumer sentiment
It seems fitting in light of GM's announcement to recall the words of auto parts company, Bapcor chief exec Darryl Abotomey's words from last week, as the company behind Autobarn announced first half results. "The underlying confidence of shoppers is very low. You can see the wave starts when we run a catalogue sale or promotions."
Consumer sentiment is low because we're worried about job security and have less money in our pockets, as cost of living creeps higher and wages stagnate. This isn't just an Australian thing; GM is consolidating its global operations because people aren't buying cars. The two-plus years of month-on-month new auto sales in Australia is happening all over.
ME Bank released its latest Household Financial Comfort Report results last week, showing a starker gap in sentiment between city and regional households. Meanwhile, the DFA Household Finance Confidence Index has been below neutral since April 2017, is currently sitting at a depressing 81.4 per cent, and is yet to show the impact of bushfires and coronavirus.
The Reserve Bank and Morrison government are both keen on Australian businesses to start investing again and create jobs - but if consumers aren't spending, that's a big ask. We're halfway through earnings season and, while Macquarie is upbeat with a "it could've been worse" outlook, Goldman Sachs has pointed out the emperor is stark-bollocks naked, and nearly half of companies that have so-far reported did not meet earnings targets.
The real engine room of our economy however, is small business - more than 3 million businesses that employ 7 million-plus Australians. This blog is a revelation on the state of SMEs in Australia - for example, more than 9 out of 10 of these businesses makes less than $2 million a year, and close to half have been trading for less than four years. Businesses most likely to fail are in transport, financial services, real estate and construction.
These businesses need access to funding to improve SME success rates - but small business loans are still hard to come by. Given small businesses employ approximately 55 per cent of all Australians in jobs, that's a quandary.
So...tax reform?
We came into the new working week yesterday under a barrage of stories calling on the Morrison government to end the tax reform drought.
NSW Treasurer Dominic Perrottet and the eponymous author of the ten-plus-year-old Ken Henry tax review have delivered the ol' one-two punch, arguing inaction on tax reform for over a decade is holding us back. To improve people's prosperity, they argue, Australia's "broken" tax system needs an overhaul.
The AFR agrees; it has dedicated today's The AFR View to an eloquent lambast on the dangers of holding off on reform until, as they say, the deck is burning. With Perrottet and Henry both criticising the Morrison government for introducing stealth taxes that have eroded household wealth at a time when Australia really, really need consumers to start spending again, it's hard not to be sympathetic with their point of view.