CAR CRASH THE FIRST OF THREE TSUNAMIS ON THE WAY

[IamInACT]

Hi all!

have not been around for a while ... can't believe that in 4 days it will be 4 years here in beautiful Canberra.

An interesting article in today's The Australian Newspaper in the business commentary section which talks about 2015 - 2017 being tough years for employment and the middle class.

I'm interested in the thoughts of you folks that are in Australia on the article

Thanks in advance

Regards

Terence

Now is the time to work out your survival strategy

Robert Gottliebsen, Business Spectator.

BETWEEN 2015 and 2017 Australia is going to be hit with three unprecedented tsunamis. They will fundamentally change the nation and affect middle-class salaries over a wide area, the sharemarket (particularly banks and retailers), plus dwelling prices in many places. These are just a few vulnerable points.

Clearly this will be an unfolding situation. Today all media outlets are full of just one tsunami: in the motor industry. If anything they have understated its devastation because it will happen about the same time that the vast gas, coal and iron ore construction projects are wound down.

As the tens of thousands of White and blue-collar workers from mining-industry suppliers etc are stood down from these projects, they will seek jobs elsewhere.

As they do, they will be hit not only by the motor tsunami but a third tsunami in retail, which will rival the first two. The first two tsunamis were always going to hit retail, but by imposing crazy shift allowances, the swing to online trading is going to accelerate. A large number of retail workers are going to either have their hours cut back or be retrenched and it will all happen in the 2015-17 period. And guess what? In 2016, it will be an election year.

Australia has never encountered anything like three tsunamis at once in its post-war history. Un fortunately, neither Tony Abbott nor Bill Shorten understands the magnitude of the three tsunamis. They soon will, but it’s now too late. They are coming and it’s time for ordinary Australians to pre pare for these events and head for higher ground. The biggest blows will be in Victoria, South Australia, Queensland and Western Australia, but NSW will not escape.

For investors, three of the biggest areas will be executive salaries, the value of businesses and the blows to banks and re tailers and their shares.

The main offsetting factor will be the massive Chinese investment in Sydney and Melbourne real estate development. There will be a huge glut of well-qualified and experienced middle managers from mining projects, retailers and those related to automotive. They will include accountants, engineers and people managers.

If you are involved in the tsunami industries of mining investment, auto or retail, at least consider jumping ship now. But in many cases — particularly auto — your retrenchment pay will be so high that you will be forced to stay on to the end.

In mining investment you may be on such a high pay level that you also can’t afford to jump early. Save hard and go for a job at Roy Hill if it goes ahead.

If you can jump ship, look for employment in an area that is less vulnerable to the tsunamis and don’t be frightened to take a pay cut.

If you are in a relatively safe area, stay there and try to enhance your position. Do not press hard for pay rises unless you are certain that you are indispensable.
In simple terms, next year there are going to be people to replace you who will sell their services for a far lower price than you. And they may be better than you.

The effect on the value of many businesses will be devastating. A large number of the motor parts companies have foolishly signed retrenchment deals that mean that all the equity in1 flows to the workforce rather than the banks or shareholders. The owners will be wiped out but banks will also incur losses.

Currently few balance sheets include retrenchment as a contingent liability. The losses the banks will suffer will cause them to be much more cautious in lending to businesses that have long-serving employees. Business values will therefore fall.

Be prepared to buy cheap assets (not the staff involved) and rearrange the operation on the basis of a series of independent contracts with minimal conventional employment. Given our rigid industrial relations laws independent contracting is the way of the future. This will be a very different Australian society.

Most public servants are probably safe but once the reduction of executive and other salaries ex tends through the community, public servants will be affected too.
Look for areas of the public service that are less prone to reductions. The public service is the highest tree in the land. Do not take redundancy packages.

Clearly, the three tsunamis will make servicing inflated mortgages very difficult. Where will there be employment growth? Here is my list, but it is not exhaustive: health and aged care services; tourism (Particularly Chinese visitors); dairy; infrastructure building; security; delivering parcels; clever marketing; picking overseas markets where scale is not important; and accounting. I am sure there are many more.

The three tsunamis will mean that we will see more people find a way to lift their wealth and a much larger group of people on lower incomes. The middle class will be greatly reduced This has been happening in the US for some time. The tsunamis mean that we will catch-up with the US. Look for work and investment in operations that are supplying the top or bottom income parts of society. The middle class is where the hits will take place.

Interest rates will fall but the consequent lower dollar will lift inflation, including the price of cars. I think banks are in for a harder time than is currently expected because of the effect the three tsunamis will have in dwelling and business values outside areas of Chinese investment

And we have to hope that there will not be a fourth tsunami: lower commodity prices, which would devastate our tax revenues.

Robert Gottliebsen is a columnist for Business Spectator. Visit businessspectator.com.au

[DanieR]

Terence unfortunately I agree with the shocking news as published in the article. It is however always better to be prepared and as proactive as possible.

The fact is South Africa also has some tsunamis coming, and each person will have to decide where they can best manage the impact of these new challenges we will be facing.

[chzaau]

I think the problems in South Africa are more political then economic at this stage. Australia in my view has an economic problem.

I would not be surprised if Toyota and Holden move some of the manufacturing to South Africa to be honest. Given the old Airport in Durban is supposed to be turned into another harbor, it would not surprise me that Toyota is going to find that a very nice addition to there production facility.

Which is worse or better for South Africans, not sure what to say. What I think anybody can deduce is Australia will go through a dip, how much, for how long and how painful it will be is unknown. Cost are to high in Australia so either things must collapse to a more sustainable level or it must take a stagflation scenario of many years of no inflation, no increase etc, but that has not worked for Japan.

[Bronwyn&Co]

Yes I agree, we are in for a bumpy ride. I think we are all facing a drop in our standard of living. I am concerned about house prices. Others will be concerned about their Super. I think it's best to cut back on extra spending now.

[AndreaL]

I would not be surprised if Toyota and Holden move some of the manufacturing to South Africa to be honest. Given the old Airport in Durban is supposed to be turned into another harbor, it would not surprise me that Toyota is going to find that a very nice addition to there production facility.

Would it surprise you to know that in the Global CEO Survey: 2013 Country Manufacturing Competitiveness Index rankings Australia is ranked 16/17th and South Africa 24/25th?

The most competitive countries being China, India, Brazil, Taiwan, Germany etc. I doubt that would happen given South Africa's geographical location and South Africas production costs are 20% higher than Europe and 40% higher than China or India.

Also, there is hardly a country manufacturing cars that isn't receiving huge government assistance ( I noted another thread where some questions were asked re the Australian government bail outs of the automotive industry).

It has been the view of some

that the MIDP has largely benefited vehicle manufac

turers at the expense of consumers.

Flatters (2008) argues that the MIDP has given vehi

cle manufacturers well over R100 billion in

benefits, however the scheme has cost consumers at

least R200 billion. Subjective evidence of

this can be found in Flatters & Netishitomboni (200

6) where they quote a competition

commission study which recently found that South Af

rican vehicle prices are 14% higher on

average than in the European Union. This would tend

to support the claim that South African

consumers have been the ones that have lost out on

car prices.http://www.kznded.gov.za/Portals/0/Should%20the%20motor%20industry%20receive%20a%20bailout.pdf

[Bronwyn&Co]

The constant strikes and union action in SA should be enough to discourage investors, unfortunately.

[AndreaL]

The constant strikes and union action in SA should be enough to discourage investors, unfortunately.

One of the documents had RSA listed as the highest country for labour disputes...........we tend to forget that. We are historically linked to Asian markets and I can't see that changing and I don't think it is a bad thing either.

[chzaau]

AndreaL and Browyn&Co what is your view regarding the recent Toyota decision to invest 1bn into there Durban plant. They will invest more if the component park goes ahead.

The Chinese 80bn investment in Modderfontein in Nov last year.

Edited February 13, 2014 by chzaau

[AndreaL]

That is for the African and possibly European market, specifically the Corolla? In 2010 South Africa accounted for 0.61% of worldwide vehicle manufacture, which is quite small, but my point is that the industry there is also being propped up by the government to the tune of between 100 and 200 billion to keep the sector going.

I believe that about 36 000 are employed in the industry there, it's sort of making me wonder if the analysts that called for the Australian government to carry on doing the same here, might be right...........................is it cheaper to invest in the industry and keep people in work than to have people possibly long term unemployed, needing re-trained etc..................I'm not sure how the figures stack up.

What industry is the Chinese investment in Modderfontein?

[chzaau]

http://www.iolproperty.co.za/roller/news/entry/chinese_to_build_new_York

[Donovan83]

http://www.iolproperty.co.za/roller/news/entry/chinese_to_build_new_York

"'It will become the future capital of the whole of Africa,' Dai said. 'This will be on par with cities like New York in America or Hong Kong in the Far East.'"

Wow, that's rounding up.

[Bronwyn&Co]

http://www.iolproperty.co.za/roller/news/entry/chinese_to_build_new_York

Chzaau that is the first I've read about that (it's also my old stomping ground near Edenvale, Eastgate, Elma Park etc). For us it would be absolutely fantastic from a business perspective because we sell equipment used in steel construction. Thanks for the link!

I am not familiar with the car industries any more but I would be happy to hear about any new or expanding industry which creates jobs in South Africa.

I do think there is a perception that labour unrest causes difficulties in doing business in SA though.