Introduction to Economics                                 Lesson 09 / 08


The Motor Car

The invention and development of the motor car, [aka the automobile], is undoubtedly one of the more significant events in economic history.  It is a subject on which many people have profound convictions and one capable of producing strong emotional reactions from various points of view. 

To consider the economic effect of the motor car in any detail would require several volumes.  In a lecture of this duration and nature it is possible, therefore, merely to refer to and discuss briefly some of the more manifest effects, particularly as they apply in the modern world.



Credit for the invention of the motor car, often referred to in its early days, for obvious reasons, as the horseless carriage, is generally given to the German, Karl Friedrich Benz, who produced the first working vehicle driven by an internal combustion engine in 1885.  Previously a number of vehicles had been invented in various countries using electricity or steam as the driving force.

Before the motor car, personal transportation within cities generally required walking, bicycling, traveling by rail, riding on the back of an animal, such as a horse, or sitting in a carriage pulled by one.  For many people, the motor car provided an advantageous alternative.  Unlike a horse, it did not require saddling before use, or resting.  It also solved the manure problem.  In particular it freed the individual from the need for proximity to fixed rail transport in order to move around, and greatly increased his or her ability to choose where to live and to work.

Once invented, the motor car moved quickly from being a toy for the wealthy and mechanically inclined, to a widespread middle class necessity for everyday use.  Entreprenuers such as Henry Ford in the USA and William Morris, [later Lord Nuffield] in the UK led the way in their respective countries in establishing its production as a  significant new industry.  Centres such as Detroit in the USA and Coventry in England became major cities.  Similar developments occurred in other industrialized nations.

The closing decades of the last century were marked by the consolidation of many nations’ leading car makers into a few national brands, with the tendency for these then to develop even further into a relatively small number of major multinational companies.  Conversely the present century is seeing the development of a number of new car makers, particularly in Eastern Europe and the emerging nations of Asia and Latin America.

General Motors, the biggest producer for most of the C20 has now been edged into second place by Toyota, and American production of motor cars generally has ceased to exceed that of the rest of the world.   Of the world’s 20 biggest car making companies 7 are Japanese, 3 American, 3 German, 2 French, 2 South Korean, 1 Italian, 1 Russian and 1 Indian


Some Effects of the Motor Car

  • The introduction and development of the motor car greatly promoted and empowered individual autonomy, particularly that of women, enabling people to travel far and wide to live, work and shop.
  •  The design and structure of cities was revolutionized; streets and roads were required to be wider and to be used primarily as thoroughfares rather than as places of social interaction, sprawling suburbs developed providing cheaper and more salubrious housing, single use zoning became possible and shopping and entertainment centres were located at the edge rather than in the center.
  • Encouraged the construction of highways thereby opening up the countryside and diminishing regionalism.
  • Created a major cause of premature violent death and increased personal injuries.
  • Caused significant atmospheric pollution and traffic congestion..


Present Problems

There are a number of problems presently besetting the motor car industry, particularly in the West, including

  • The spiraling price of petrol and diesel, the overwhelming choice of fuel in the present generation of motor cars.
  • The parlous financial situation of many of the Western carmakers, particularly the American, saddled with unsustainable employee entitlements.
  • The looming worldwide economic uncertainty.
  • A growing intellectual and political reaction against what is perceived as the culture of the motor car; wasteful of resources, destructive of the environment, and anti-social.


There are presently 3 major carmakers operating in Australia, Toyota, GM Holden and Ford, each of which is foreign owned.  Their activities play a major part in the economies of at least 2 states, Victoria and South Australia.  In 2007, Australia produced 283,348 cars and 51,269 commercial vehicles, a slight increase on the previous year.  By way of contrast, China produced 6,381,116 cars and 2,501,341 commercial vehicles, an increase of 22%, South Korea 3,723,482 cars and 362,826 commercial vehicles, up 6.4%, and the USA 3,924,268 cars and 6,856,461 commercial vehicles, down 4.5%

The Australian industry was built on government protection.  Currently there is a tariff on imported cars of 10%, due to fall to 5% in 2010.  There is, however, a variety of other government assistance, both State and Federal, such as to cause the Productivity Commission to estimate total government aid to the industry in 2007 at $1.1 billion.

The relevant debate over the years has largely been between those whom one could call the economists, typified recently by the Productivity Commission, and those whom one could call the lobbyists, typified by the automobile chambers of commerce and various relevant unions.  Whilst the lobbyists have contended that it was essential for Australia to have an operating viable car making industry the economists have pointed out that it would be considerably cheaper for the nations’ taxpayers if cheaper imported vehicles were permitted, thereby enabling more people to afford cars and in the process expanding the overall workforce actually involved in the automotive industry in servicing and maintaining the expanded volume of motor cars.  In recent years the economists seemed to be winning.

In February the Federal government announced a comprehensive review of the industry, to be conducted by Steve Bracks, the former Labor Premier of Victoria rather than the Productivity Commission.  This month the Federal government announced a $35 million grant to Toyota, matched by a $35 million grant from Victoria, to fund the production by Toyota in Australia of the Prius hybrid car.  Commentators have suggested that protection for the industry is about to be revived.  Economically, that would be unfortunate.


                  David Sharp

                   24 June 2008




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