Steve Bracks' final recommendations for the Australian automotive industry were submitted to Senator Kim Carr last week. Among his recommendations -- and undoubtedly the most provocative -- was the reduction of the current tariff on imported vehicles from 10 per cent to five per cent, with effect from January 1, 2010.
Holden was quick to speak up on behalf of the three remaining local manufacturers when Chairman and MD, Mark Reuss, said: "We applaud the panel in recommending longer term transitional arrangements, but cutting tariffs would fundamentally erode our ability to compete against other nations for future investment."
It's apparent Holden harbours doubts that local manufacturing -- and particularly local manufacturing for domestic sales -- can remain sustainable with a five per cent tariff. And there's reason to believe the proposed date is too soon for the manufacturers to adjust to the new status quo.
With the reduction of the tariff to five per cent, Australia's import tariff is the third lowest in the world, among economies with an automotive production capacity.
Just prior to the release of the report last week, the Carsales Network interviewed Andrew McKellar, Chief Executive of the Federal Chamber of Automotive Industries (FCAI). Since the rumours were already doing the rounds that the Bracks report would recommend a reduction in tariff, we asked McKellar whether that would leave importers and manufacturers at loggerheads?
"There are differences of view," McKellar said. "I wouldn't over-emphasise those differences, because I think the local manufacturers acknowledge that there will be future tariff reductions. The question they would ask is 'what comes with that and what drives that process'?
What comes with that tariff reduction (the 'carrot' for the local manufacturers) is a series of recommendations that the Federal Government:
- Improve access to global markets for exporters through free trade agreements and other trade negotiations,
- Ensure that all states and territories harmonise vehicle design legislation with the ADRs (Australian Design Rules),
- Ensure that ADRs do not hinder exporters' access to global markets by restricting vehicle design,
- Draw up a threshold agreement at CoAG (the Council of Australian Governments) that Australian governments will support the local manufacturers by buying Australian-made vehicles,
- Engage in dialogue with states and territories through CoAG to harmonise stamp duties, vehicle registration fees and compulsory third party insurance with a view to reducing the average age of the Australian parc,
- Enable improved economies of scale for the automotive industry supply chain through a restructuring fund of $60 to $80 million over two years, thus reducing costs to parts suppliers and vehicle builders,
- Include road transport in the emissions trading scheme,
- Increase the ex-factory LPG rebate from $1000 to $2000 for new-car buyers,
- Bring forward the start date for the Green Car Innovation Fund to 2009,
- Increase funding for the Green Car Innovation Fund from $500 million to $1 billion,
- Extend the Green Car Innovation Fund beyond the current proposal of an initial five-year term
The Bracks report further recommends that the current ACIS (Automotive Competitiveness and Investment Scheme) program be reformed as the 'Global Automotive Transition Scheme', an NGO aimed at supporting and encouraging automotive research, development, design and export, as well as overseeing the restructure of the industry supply chain.
To the casual observer, the recommendations don't seem to have any immediate effects, other than to lower the prices of imported cars in about eighteen months' time -- and even that is not certain, if the Aussie dollar happens to keep sliding.
Historically, importers have tended to add features to a car's standard specification rather than reduce price, so there's another reason why a tariff reduction won't necessarily lead to lower-priced imported cars. It would hurt resales for those cars sold at the higher tariff rate.
The recommendations in the Bracks report are actually quite far-reaching. Take, for example, the LPG rebate increase for vehicles built in the factory to run on LPG. Suddenly, the E-Gas Falcon is $1000 more attractive on price and will be more appealing still from next year, when it gains stability control (more here). The increased rebate also paves the way for Holden's Commodore with its own, upcoming dedicated LPG fuel system (more here).
Harmonisation of state vehicle design legislation with the ADRs would take the sting out of one contentious issue for both importers and manufacturers, following Victoria's announcement that it would go it alone in insisting on stability control fitment for all new cars (more here).
On the face of it, the recommendations concerning the Green Car Innovation Fund seem utterly arcane, but the Fund is an innovation that will hopefully provide some massive incentives to make the local manufacturing industry sustainable.
The Fund will be a little like the ABC TV program, 'The New Inventors', inviting the car companies to compete for funding with the most innovative and commercially viable ideas. As a consequence, the incentive will be there for car companies to strive with the most imaginative solutions to reducing automotive industry's carbon footprint and reducing fossil fuel dependency.
Andrew McKellar, ahead of the report's release, spoke of the need for a green vision that would be 'sustainable' -- sustainable for both the environment and the local industry.
"Ensuring that the Australian car industry is able to take the next step towards becoming a green car industry -- that's got to be one of the fundamental objectives of the plan.
"But in doing so, it can't be delivered in such a way that it becomes an overriding objective that ties the industry in knots.
"We are one of only a dozen or so countries that have the full capability -- from early design right through the process to the eventual production. In that context, being one of so few countries, we need to ensure that we have the overall conservative dynamics to continue to attract investment."
Conservative business dynamics attract investment, but so too will innovative research and development. On that front, the report's recommendations appear to be on the right track.
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