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Tough times in automotive industry

Senator Kim Carr said the automotive industry is struggling against the odds during his speech at the Manufacturing Futures Conference — Perspectives on the Automotive Industry, held in Melbourne yesterday.

Carr, the Minister for Innovation, Industry, Science and Research, delivered the keynote speech at the Melbourne Park Function Centre yesterday, speaking to delegates from the automotive manufacturing industry all around Australia.

Carr said the increasing competition for low-cost manufacturing teamed with rising fuel costs, along with concern for the environment, were all impacting the automotive industry’s bottom line.

A transcript of his speech follows:

”These are tough times for the automotive industry — not just in Australia, but in the US and other places as well. We are all familiar with the impact of increasing competition from low-cost producers, but there is more to it than that.

“Rising fuel prices and environmental concerns are changing the way people think about motoring. The United States seems to have reached the tipping point when petrol approached US$4 a gallon. US vehicle sales had already fell from 17 million in 2006 (according to the Census Bureau) to 16 million in 2007 (according to the trade press).

“General Motors predicts sales will be lucky to top 14 million this year. Vehicle-miles travelled fell in 2007 for the first time since 1980, and they have continued falling through the first six months of 2008. (FHWA) In Australia, vehicle sales for August were down 12 per cent compared to the same month in 2007 — although sales for the year to date are still in line with last year’s.

“No one is suggesting the motor-car is dead, but what these figures do tell us is just how dramatically consumer sentiment has shifted, and how urgently the industry needs to reinvent itself.

“The Australian Government sees a strong future for the automotive industry in this country and we stand ready to work with car makers and component suppliers to achieve that. At the same time, we recognise that business as usual isn’t good enough.

“Things have got to change. No one should be daunted by this. Today’s car industry is radically different from the car industry of twenty-five years ago — more innovative, more productive, more outward-looking and more competitive. It is no stranger to change.”

Carr suggested a number of ways to transform the automotive industry.

“The transformation of the industry in the 1980s owed much to the car plan drawn up by John Button. Now it’s time for a new car plan. This is an absolute necessity. If we can’t agree on a plan for the industry, we won’t have an industry. That’s why we’ve been so keen to talk with the industry’s top domestic and international decision-makers.

“We’ve already had visits from the global chiefs of Toyota and Ford, and we’ve invited Rick Wagoner of General Motors — whom I met when I visited Detroit in June. With luck, Mark Reuss will help us get him out here soon. Our first message to the industry is that we want to keep it here. We want it to thrive.

“We want it to be part of a growing manufacturing sector which is tightly integrated into global markets and supply chains.

“It is no accident that the prime minister has been directly involved in our discussions with the industry to date. This is a measure of how seriously the government takes the sector’s future here. The message coming out of our meetings so far is that the car and component makers broadly agree with what we are trying to do. Everyone recognises that we have to work together on this.

“To make the industry sustainable in the long term we need to tackle the twin challenges of climate change and increasing competition for oil head on. That will require a lot more innovation and a lot more investment. We have to start building greener cars — cars which consume less fuel and produce fewer emissions.

“In his World Environment Day speech, the prime minister highlighted measures the government is taking to help Australian families and businesses make the transition to a low-carbon economy. These include measures to reduce the environmental impact of transport — like the $500 million Green Car Innovation Fund and the Green Car Challenge. We’ve already advanced $35 million from the fund to bring production of the hybrid Camry to Australia.

“As the prime minister said on World Environment Day:

‘Australia needs a car industry that uses frontier technologies to increase fuel efficiency and reduce greenhouse emissions. Australia needs a car industry clever enough and farsighted enough to make motoring more affordable to working families and less costly to the planet.’

“This is the path the industry needs to be on. And when I say the industry, I mean the whole industry — not just the three car makers, but the 200-odd component suppliers as well. You can’t have a healthy car industry without a healthy components sector, and there are clear signs that the Australian components sector is in distress.

“According to Steve Bracks ‘anecdotal evidence suggests that up to one-third of the 200 Australian automotive component firms could be at risk of exiting the industry over the next few years’.

“And when key suppliers go under, production lines shut down. That’s why we are looking for solutions that will work for the whole supply chain.”

Carr also outlined the Bracks review of the automotive industry which was released last month.

“The Bracks review of the automotive industry released last month proposes one possible set of solutions. Steve’s recommendations challenge the assumptions that have underpinned the industry in recent times. These assumptions need to be revised in the light of new circumstances — especially the rising cost of money, the rising cost of fuel, and the rising value of the Australian dollar.

“The three headline recommendations are:

• first, that we should replace the Automotive Competitiveness and Investment Scheme with a new and retargeted Global Automotive Transition Scheme to support research, development, design and export, and extend support from 2015 to 2020

• second, that we should bring forward the Green Car Innovation Fund and double it to $1 billion if it’s successful

• and third, that we should reduce the passenger motor vehicle tariff from 10 to 5 per cent by 2010, making Australian car tariffs the third lowest among major automotive-producing countries.

“I’ve been saying all along that tariffs are a second order issue, and recent developments have only reinforced that view. The Australian dollar doubled in value against the US dollar during the seven or so years between the early days of ACIS Stage One in 2001 and mid-July this year. In the two years to mid-July it rose 31 per cent. Since then it has fallen 17 per cent — including 5 per cent in the last week.

“Despite that, the dollar is still 69 per cent higher today than it was at its low-point in early 2001. These currency fluctuations have had — and will continue to have — a much bigger impact on price relativities than the tariff.

“Steve also recommends:

• a short-term restructuring fund to help the automotive supply chain improve economies of scale

• increased support for developing capabilities in the components sector through programs such as Automotive Supplier Excellence Australia, run by the AutoCRC

• including road transport in an emissions trading scheme

• negotiating more free trade agreements, particularly with the Gulf States, ASEAN and South Africa

• appointing automotive ambassadors to increase access to overseas supply chains

• harmonising state and territory passenger motor vehicle taxes

• and establishing a new Automotive Industry Innovation Council.

“Steve Bracks has delivered a comprehensive and thoughtful report that provides a basis for informed policy choices. The government will make its response shortly. What we want above all is additionality — the assurance that whatever public dollars we dedicate to this industry will make a demonstrable difference.”

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