Australian Automotive Industry Review - The Bracks Report

[russellw]

Having had some time to finally digest the full 160 page report from the Bracks review of the Australian Automotive Industry it is time for some commentary on this document that will potentially form the backbone of Government policy over the next 10-15 years.

Those who are old enough will remember the plan set down by John Button in 1984 that set the previous road map for motor industry development and while it made excellent economic rationalisation at the time I suspect that history will not view it kindly in the longer term from an Australian industry viewpoint.

By way of a brief history lesson there were three cornerstones to the Button plan.

1. A gradual reduction in tariffs and other forms of protectionism for the Australian manufacturers - on the plus side this led to a wider choice of more affordable cars from the global arean but on the negative side it placed the local industry in the somewhat precarious position it is now in.

2. Platform rationality - this led to the stunningly unsuccessful model sharing arrangements that saw Nissan badged Falcon Utes and Toyota Camrys sold as Holden Novas, the most successful of which was the Mazda 323 / Ford Laser shared platform.

3. An overhaul in industrial relations policy - probably the most successful of the three given the somewhat terrible state that Australia was in at the time.

There were 140 odd submissions to the 2008 review - the table below looks at the key players within the industry and their responses to the terms of reference.



Worth noting are the following:

1. Both bodies that purport to represent the motorist (AAA and NRMA) favoured tariff reductions along with either a reduction in or the complete removal of the ACIS funding currently made available to the local manufacturers by way of import credits. Neither of them supported preferential Government purchases of local vehicles and the AAA wanted carbon emissions set at 140 g - the current voluntary target is 222 g by 2010.

2. The FCAI, which purports to represent the industry as a whole, once again proved itself worthless by presenting both a for and against view on the question of tarrif reductions (it has to support both the importers and the local industry); managed to waste a page bleating about Government purchases but stopped short of having an actual opinion and neglected to make any comment about Free Trade Agreements. It really is a difficult gig trying to serve two masters with opposing needs.

3. The submission from the FAPM is well worth a read - it is about the only one that showed any actual innovation and creative thought and although the recommendations would never get off the ground they make good, solid sense.

Most of the rest followed the lines you'd expect with various industry groups pushing their own barrows and quite a few ranting about things that were well outside the terms of reference.

Not that the final report actually appears to have addressed all the terms of reference either but the main findings are summarised below.

1. Reduction in tarriffs

The report favoured the reduction in import duty to 5% effective from 2010. The rationale behind this seems to be a mix of singing the Rudd song (free trade for all la, la) and the rather naive view that because we said we would some years ago, we should.

Comment: The simple 5% (effectively 5.5%) reduction, even if passed on by the importers, is not going to have a massive impact on the cost of a new car - it makes an entry level Hyundai $800 cheaper and perhaps reduces a Mazda 6 by $1,500 but this can only add to the competitive pressure on the local industry and I cannot see it as being a good move in either the short or long term. It is certainly NOT an incentive for the local manufacturers to continue making massive capital investments when their last few years have resulted in substantial losses in their business operations.

2. Changes to FBT and State taxes

The major thrust of this recommendation was to amend the FBT calculation method in order to discourage people from deliberately traveling sufficient kilometres to move into the next band (surprisingly the figures supported the argument that this is really done) and there was a new matrix with smaller steps between each level to discourage that behaviour.
There were no hard suggestions about the State taxes except to suggest a rationalisation of them.

Comment: Hard to argue with either of these although no mention was made of the LCT which had been canned in almost every submission. Pity that these reviews are always political appointments and thus they tend to mirror the will of the Government at the time. I accept the view presented by the majority of respondents that the LCT implementation pojt is too low, that the formula used to index it is sheer rubbish and that a whole range of cars that could hardly be described as luxury are now caught up in that net thus reaping the Government a substantial bonus. Indeed the LCT was originally introduced to protect local vehicles but many of them are now caught in that same net.

3. ACIS Funding

The report recommended that the current arrangement be replaced by a global transition scheme that would provide assistance to the industry as a whole in becoming more competitive. There was noit a lot of detail about how it would work but it seemed to be based around the recommendations in the submission by CSIRO which wanted to link funding to business transformation processes.

Comment: The current structure of the ACIS fund and it's artificial caps and access for only some segments of the industry generated a lot of commentary and one can't help but feel that it fell into the too hard basket for Bracks et al. That the scheme needs a major rework is beyond doubt but I have little faith that the proposal in the Bracks report will do anything other than build a different bureaucracy to replace the existing one.

4. Carbon Targets / ETS

This one seems to have been neatly sidestepped with a lot of rhetoric about international and domestic policy and the need for us to do whatever is right - without actually defining what "it" is.

Comment: We have a current Government policy that seems to see us as leaders in our region - thus we will happily add to the cost of producing our vehicles via carbon trading credits or some other harebrained scheme in order to meet a threat about which there is (as yet) no global consensus as to whether it even exists. Obviously the Thais, Koreans and Chinese can all have a laugh about this as they continue to avoid those cost burdens.

5. Government Purchasing

The report generally supported State and Federal governments at leas not actively excluding the locally manufactured cars as some have done with their 4 cylinder only policies but it also adds the rider "as long as they are environmentally competitive" which provides a nice out for any that don't wish to.

Comment: It was noted by a number of submissions that Government sales by the local manufacturers had dropped significantly as a matter of policy within some State and Federal Departments. It's something you don't see in almost any other country and it really should be mandatory here in those sectors where there is a suitable locally produced vehicle.

6. Green Car Investment Funding (GCIF)
The report supported an earlier than planned introduction of this initiative and a doubling of the available funding from $500m to $1bn.

7. Free Trade Agreements (FTA)

While there were no direct recommendations the general thrust of the report encouraged the negotiation of further FTA's - it specifically mentioned Japan, Korea and the Middle East as likely barrier free trading partners.

Comment: Frankly this one scares me. If we get another one as bad as the one negotiated with the Thailand Government then we can kiss the local industry goodbye. In this agreement the net benefit to Thailand over the last 3 years has been $3.5bn and imports form that country have grown by more than 100 % - in return they placed a local barrier to trade by placing a punitively high tax on vehicles over 3 litres thus effectively shutting our local manufacturers out. If we are simply going to have one way FTA's then we either need better negotiators or we should forget about them. Unfortunately it is another part of the Rudd "warm and cuddly in Asia" policy so we can simply expect to get screwed some more. I guess we'll get used to it in time.

In summary the report lacks innovation, seems to pander heavily to current Rudd policy and seems beastly careless whether we have a viable local manufacturing industry or not.

I suspect the move from Ford today in reducing the workforce by 350 had been delayed pending some forlorn hope that the report might actually have some substance - although past experience would have said otherwise.

That we will see more layoffs from the manufacturers and their component suppliers would seem inevitable but just how long their overseas masters are prepared to sink capital investment into a shrinking (for them) market is anyone's guess. My guess is not too long for two of them when the parent companies are hurting badly too - especially when the bulk of their range is already fully imported anyway and the costs of being an importer are much lower at both the capital and operational levels.

Given the current trends we would want to hope we don't ever have to be involved in another global conflict - we'd have no real manufacturing capacity or skills with which to make the tools of war although I am sure we could buy plenty of Korean made ones if we had to.

Me, I'll at least be able to remember the golden age of manufacturing in Australia and the pride with which we viewed the "stuff" we made here.

Cheers
Russ

[Serial_Fool]

So is this the Labour parties view on what needs to be done with the Australian Car Industry, the disadvantaging of the local manufacturers and providing a bigger incentive for imports?

Dark days ahead for Ford, espesially since one of the best engineered cars in Australia (FG) isn't selling as it should, even in comparison with the Commodore range.

[irlewy86]

Depressing.

It scares me that Bracks ignored DFAT's submission regarding the tarrif's.

AMWU were ambitious as always.

[Raptor]

Thanks for the summary Russ

Like you I'm old enough to remember the Button plan and the massive changes that ultimately brought about. I believe it did play a part in making the local product world class. Today we have Falcodores that are held up by their US parent companies as examples of best-of-breed and if it wasn't for other external factors they would now probably be developing the next generation of mid/large RWD sedans for global consumption. Unfortuntely it has left the local industry with expertise and prime products for a rapidly declining market sector.

Like many others I was hoping for more than is apparent from the Bracks report. I suspect the days of local auto design/manufacture in this country are sadly coming to an and.

[snakeoil]

Thanks Russ

god stuff dude

Cheers

[HUNTER8]

It doesn't matter what happens. Simple fact is, if everyone bought a falcon or commodore rather than an imported car then none of this would be an issue. We didn't buy Magna's so what happened?