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Australian Car Industry Subsidies Worth Keeping

Posted: November 5th, 2013 | Author: | Filed under: Auto News | Tags: , , , , , , , , | Comments Off on Australian Car Industry Subsidies Worth Keeping

Are Government Subsidies Wasted on a Dying Industry?With car production volumes falling to 5 year lows, and on a steady decline, the big question on the lips of auto industry insiders has got to be Are Government Subsidies Worthwhile. Is  it truly worth forking out billions of dollars to sustain an industry that is seemingly on it’s way out?

The Federal Chamber of Automotive Industries – FCAI – reckons they are, it thinks a report showing dire economic consequences if the car industry collapses in Australia will change many people’s views, and hopefully give a final answer to a question that has hung like a noose over Australia’s car-making industry.

The report was compiled for the FCAI by the Allen Consulting Group and Monash University researchers. Automotive production is at close to half the level it was in 2008 when Australia turned out 320,000 cars, this year however the industry might produce as few as 180,000 units.

The standard, and seemingly logical, argument that Australian tax payers shouldn’t be propping-up US companies almost entirely negates the 40,000 strong workforce involved directly in car-making and almost the same again in ancillary industries, it also fails to take into account a contribution close to $25 billion a year to the nations economy ::::

FCAI says propping-up is a plus

The FCAI report concluded that the economy was $21.5 billion better off because of government subsidies to the car industry and nearly 40,000 jobs would be lost if car makers pulled out of Australia this decade FCAI chief executive Tony Weber said even it was surprised by the findings.

“When you compare the level of assistance provided by the Government, which is less than $500 million a year, the benefit for the economy is extremely large so this is very conservative modelling,” Mr Weber said.

The report said losing the automotive industry would hit the nation’s GDP by $7.3 billion. Mr Weber said Adelaide and Melbourne would be devastated by ensuing job losses.

“In Adelaide there’ll be 6,600 less jobs and in Melbourne there’ll be 33,000 less jobs,” he said.

The FCAI said it would use the report as the basis of its submission to the Productivity Commission, which is reviewing the car manufacturing sector and due to hand down its report at the end of March.

The modelling worked on a scenario where Australian automotive manufacturing ended over a two-year period from 2017 to 2018.

Government assistance to automotive manufacturing equates to about $18 per person, deemed a very low figure by international standards. A $21.5 billion return equates to $934 per person in benefit.

If Australia lost its automotive manufacturing:

  • GDP would shrink by $7.3 billion by 2018.
  • Billions in foreign direct investment would cease, as head offices directed investment to other automotive manufacturing countries, like Korea, Mexico and Brazil.
  • Employment losses in Melbourne would equate to some 33,000 jobs in 2018 and about 6,600 in Adelaide. These jobs would eventually return in both cities, but with lower real wages. The employment levels would not return until about 2027 for Melbourne and 2025 for Adelaide.
  • The economies of Adelaide and Melbourne would be devistated, with gross regional product – GRP –  shrinking by up to 1.4 percent and it is likely GRP will be lower than preclosure levels until the end of 2031, while unemployment could rise by 1.5 per cent.
  • These impacts do not include the spill-over effects, including to advanced manufacturing or automotive research and development.

(source: Federal Chamber of Automotive Industries report, the full report is below, or available from scribd.com)

Are Australian Car Industry Subsidies Worth Keeping?

Industry analyst John Spoehr, of the Workplace Innovation and Social Research Centre at Adelaide University, said the modelling used for the report was conservative and the loss of jobs for a state such as South Australia was likely to be double that outlined in the Chamber’s report.

He said there also were many components suppliers which would not survive any closure of Holden’s manufacturing operation in northern Adelaide.

“There is no level playing field out there in the international auto industry, so it is a reality that if you’re going to be a player in automotive manufacturing you have to supply support to it,” Mr Spoehr told ABC. “It is important that you forge a new deal if you like with manufacturers which offers a clever assistance package that works to transform the industry, diversify the industry and assure that it’s here for the next 100 years.”

South Australian Manufacturing Minister Tom Kenyon said the report made clear the Federal Government needed to take a decision about further backing for the car industry before the Productivity Commission review was completed next year.

“The Federal Government needs to step up, they need to stop being obsessed with the Productivity Commission report,” Mr Kenyon said. “You don’t need that report, you know that the economy will be in a hole to the tune of $21.5 billion because they weren’t prepared to spend $500 million, it’s ridiculous.”

Federal Finance Minister Mathias Cormann said the Government would not be making any rushed decisions about car industry support.

“In the lead-up to the last election we were very clear as to what our approach would be in relation to government support to the car industry,” Mr Cormann said. “We flagged that we would be conducting a Productivity Commission inquiry which is now underway, the terms of reference out there. We are going through a proper, orderly, methodical process. The Government will make decisions in the right way at the right time.”

Production has been on a down hill slide since 2007:

Australian Auto Production Numbers

GM Australia’s Growing Loss

Automaker General Motors Holden reported a full year loss for year ending 2013, blaming the costs on restructuring its business. Holden says it made a net loss of $152.8 million for the year, after writing down its manufacturing business to the tune of $226 million.

Revenue dropped from $4.3 billion to $4 billion due to lower sales of its Commodore and Cruze models. South Australian Premier Jay Weatherill said he was in negotiations with Holden on the future of $275 million in state and federal grants.

Flow-on for Parts Makers

SMR Automotive has confirmed up to 90 jobs will go from its Lonsdale plant in southern Adelaide, as some production is moved to Thailand. The car components manufacturer says it will reduce the number of contractors, offer voluntary redundancies and other staff will retire.

SMR makes components such as rear view mirrors and indicator lights for Holden, Ford and Toyota. It blames factors such as the high Australian dollar and high manufacturing costs in Australia for its production changes.

The company says it remains committed to Australia, despite decline in the local vehicle production industry.

Australian Made! US OWNED?!

The US Government has a considerable investment in the Australian car industry, via it’s holding in US behemoth General Motors,  the US government currently holds 32 percent of GM’s common equity.  ”The government remains a reluctant shareholder and intends to dispose of its investment as soon as practicable, with the dual goals of achieving financial stability and maximizing returns to taxpayers,”said former auto czar Ron Bloom in September 2011 to a  government committee on Oversight and Government Reform.

Several documents published by Wikileaks in September 2011 gave shocking insight into the state of the Australian auto manufacturing industry at a time when it was going through upheavals following Mitsubishi’s decision to abandon its local manufacturing arm in favour of becoming a full importer.

One leaked document showed that Ford Australia had rejected offers of Australian government help to develop a left-hand-drive version of the Falcon sedan and Territory suv, turning down potentially lucrative export earnings. Another revealed that Holden’s parent, General Motors, left its Australian branch to fend for itself as the US car-making industry collapsed in debt after buyers, spooked by the impact of the global credit crunch, shied away from showrooms.

Another leaked document revealed that after decades of strong exports, Holden now saw itself as a niche player in the US market, exporting police vehicles and muscle cars rather than passenger vehicles.

 

source: fcai
source: abc
source: scribd
source: cablegate


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