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Car industry subsidies a waste of money

Simon Cowan | Australian Financial Review | 23 January 2013

Before committing to any future assistance to automotive manufacturers, the government should closely (and publicly) examine what, if any, benefits Australia receives by continuing to subsidise manufacture of a declining product.

Toyota and Holden are considering asking for more government money. Toyota wants funding to bring a new model to Australia for production and Holden is seeking money to revamp an engine facility.

Both would be a waste of taxpayers’ money. After all, it is only 12 months since Holden signed an agreement under which the government provided a $275 million “co-investment” to keep production in Australia until 2022. This apparently covered neither the engine facility nor the 170 jobs that Holden cut in December.

The auto manufacturing industry receives more than $1 billion a year in government assistance, yet few quantifiable benefits seem to emerge.

The largesse given last year didn’t seem to help APV Automotive Components (which went into receivership in April 2012) or CMI (which went into liquidation in May 2012) or Autodom (which went into voluntary administration in November 2012).

More than 1500 jobs have either been lost or are at risk due to bankruptcies across the industry in the last 12 months.

These job losses occurred despite 2012 being a record year for new car sales, up by 10.3 per cent to more than 1.1 million, according to the Federal Chamber of Automotive Industries.

The FCAI data shows that only three of the 10 top-selling cars in 2012 are made in Australia (the Toyota Camry, Holden Commodore and Holden Cruze) and combined sales of these three models fell by 7 per cent from 2011 to 2012.

Worse still, Holden and Ford sold fewer cars in 2012 than in 2011 despite the large overall increase in new car sales (Toyota’s overall sales rose).

More than 70 per cent of passenger cars bought in Australia are either light or small cars. The large-car market represents fewer than 12 per cent of all passenger vehicles and sales in this market fell by 19 per cent in 2012. Despite this, passenger cars manufactured in Australia generally target the medium to large end of the market.

Leaving aside whether it is a good idea for governments to protect industry at all (hint: it’s not), why would a responsible government invest more money in facilities for a rapidly declining segment of the market (like an engine plant making V6 engines for large cars)?

Paul Howes from the Australian Workers’ Union says Australia should remain a country that makes things. This is, at best, half right. What Australia should be is a country that makes things people actually want to buy.

Instead of listening to what the customers want, the automotive manufacturing industry is lobbying for Australian governments to be forced to buy local cars.

The federal government has responded by appointing an auto industry advocate (so at least one new job has come out of all that money) whose role seems to be shaming businesses and state and territory governments into buying unsuitable cars.

While some manufacturing industries are struggling primarily because of the high Australian dollar, the automotive manufacturing industry has always relied on government protection.

If an industry was not competitive when the Australian dollar was at US50¢, it is extremely unlikely to be able to compete now.

The approach to the automotive industry has been an expensive failure: it is failing customers (by producing vehicles they don’t want), it is failing workers (who face an uncertain future and significant job losses) and it is failing taxpayers (who are footing the bill).

It is even failing the government, which must have hoped that signing such large cheques might have pushed job losses in key marginal seats back until after the election.

Simon Cowan is a research fellow at The Centre for Independent Studies.