In its 326-page report on Australia’s automotive industry, the Productivity Commission (PC) has recommended that assistance to both the manufacturing sector and the components manufacturing sector in the form of industry schemes, be abolished as it finds these have not delivered on the promise of kick-starting the automotive industry.
In the Commission’s view, “the policy rationales for industry-specific assistance to firms in automotive manufacturing are weak and the economy wide costs of such assistance outweigh the benefits.”
The PC was originally tasked with looking at all aspects of Australian automotive manufacturing, but changed its terms of reference after all three local manufacturers (Ford, Holden and Toyota) announced they will cease manufacturing by 2017.
The report notes that up to “40,000 people may lose their jobs as a result of the closure of the motor vehicle manufacturing plants and the rationalisation of firms in the supply chain” but says it is “not feasible to make a precise upper bound estimate of the number of people who may lose their jobs” in the wider manufacturing industries.
As a result, the PC has recommended that all federal and state automotive industry assistance (including taxpayer-funded subsidies for car-makers and component suppliers) be abolished – but only after Ford, Holden and Toyota finish manufacturing locally-produced cars by 2017.
“The Commission has considered a range of options for assistance to firms that manufacture components, including extending the automotive new markets program (AMNP) and altering the design of the automotive transformation scheme (ATS), but has not been able to identify an option that it considers would have net benefits to the community,” says the PC report.
“In the case of the ANMP, while it is too early to fully evaluate its performance, there is little convincing evidence of additionality of investment being generated by the scheme, nor of the assisted businesses being likely to achieve longer term sustainability.”
The Commission also considers that, on balance, the provision of industry-specific assistance to component manufacturing firms, beyond that already committed to the end of 2017, would not result in net benefits to the community.
“More generally, governments should not provide any further ongoing or ad hoc assistance, including capital subsidies, to firms in the automotive manufacturing industry beyond that already committed,” says the report.
In its mid-year economic forecast, the federal government proposed cutting $500 million from the ATS each year between 2015 and 2017, reducing the fund’s total coffers by more than half between now and 2020.
Senior industry figures have warned that although Ford is committed to manufacturing the Falcon and Territory until October 2016 (and Toyota and Holden have promised to keep building cars until 2017), cutting government subsidies before 2017 would put in jeopardy many already-struggling parts makers, potentially accelerating the demise of Australia’s car-making industry.
In the report, the PC makes the point that the government should repeal the ATS but only after the end of local production in 2017, no replacement be made to the Green Car Innovation Fund after the final payments are made in 2014-2015, and also calls for the discontinuation of the ANMP at its scheduled closure in 2015-2016.
Chief executive of the Federation of Automotive Parts Manufacturers, Richard Reilly, says the maintenance of federal assistance levels prior to the May budget would not only reduce the number of industry redundancies but allow suppliers more time to diversify the skills on their workforces.
“Reducing funding of the ATS by 66% in 2015 will have serious implications for the continued operations of many firms within the automotive supply chain”, he says.
“The ATS has been an integral part of the business planning processes and quoting mechanisms of companies for many years. To reduce the funds available mid-stream leaves companies in the supply chain vulnerable to more competitive international pressures.”
However, federal industry minister Ian Macfarlane indicated that the ATS would be cut as announced in May.
“The Commission’s report includes a full assessment of the factors that have impacted on car manufacturing in Australia and includes nine recommendations. The Government supports, or supports in principle, the majority of the Commission’s recommendations,” he says.
The funding positives
Recently, the Australian Government announced industry funding for the automotive industry, which includes the $155 million Growth Fund which is made up of five elements that are designed specifically to assist workers, businesses and local communities impacted by the decision from GM Holden and Toyota to end local manufacturing by 2017.
Currently, the $20 million Automotive Diversification Programme is open for applications to assist suppliers to diversify into other sectors.
Meanwhile, automotive workers will receive personalised skills assessment and assistance to identify new jobs under the $30 million Skills and Training Programme and the $60 million Next Generation Manufacturing Investment Programme is being finalised.
The Growth Fund also includes a $15 million boost to the Automotive Industry Structural Adjustment Programme and a $30 million Regional Infrastructure Programme.
The Government is also preparing a National Industry Investment and Competitiveness Agenda, to focus on long-term issues relating to competitiveness, productivity and job opportunities in the industries of the future.
The PC also recommended the removal of the 5% tariff on imported vehicles after local manufacturers close their doors, suggesting “more efficient sources of government revenue with which to replace these measures”.
Such a move should in theory make all imported new vehicles either slightly cheaper or better equipped.
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