Auto Industry Rescue Package Attractive to Asian Car Makers

13 Nov 08

Key unions and industry groups have hailed the federal government's car industry package, saying it will save tens of thousands of jobs, but it may also have the effect of making Australia's car makers ripe for take over by the large Asian companies.

Prime Minister Kevin Rudd has outlined its $6.2 billion car industry package, which includes an extra net $3.2 billion on top of $3 billion already committed.

The Green Car Plan will feature an expanded $1.3 billion Green Car Innovation Fund which will provide Australian car companies with the opportunity to receive Government funding to design and sell environmentally friendly cars.

The Innovation Fund will see the Australian Government match industry investment in green cars on a $1 dollar to $3 dollar basis over a ten year period from 2009.

It will buffer the industry against tariff cuts and fund research on environmental car design.

The Australian Manufacturing Workers' Union (AMWU) said the plan, provided crucial investment for the industry amid global economic turmoil.

AMWU national secretary Dave Oliver said the government's package delivered much-needed investment "to maintain ... the heart of the Australian manufacturing sector".

"While the government has not committed to maintain tariffs, this package delivers many of the other measures that unions have been calling for.

"The vehicle and component industry is the driver of research and development and employs over 65,000 people directly in Australia and an additional 250,000 in the supply chain of jobs dependent on the industry," Mr Oliver said.

Car parts makers have also praised the rescue scheme, saying it will help encourage investment in the struggling sector.

Federation of Automotive Products Manufacturers (FAPM) president Zoran Angelkovski said the package would help drive major changes needed to keep the industry going, by boosting international competitiveness and a shift to environmentally friendly car production.

"The new policy sends a positive signal to Australian and international firms that Australia values its automotive manufacturing industry and wants to attract new investment, particularly in research and development and in sustainable products and manufacturing processes," Mr Angelkovski said in a statement.

He said it was pleasing the new Green Car Innovation Fund would be open to component manufacturers and said FAPM would "enthusiastically support" the new Industry Innovation Council.

The plan has also been welcomed by the Federal Chamber of Automotive Industries (FCAI), which says it will ensure future innovation in the sector.

"These measures provide a significant vote of confidence in the future of the Australian automotive industry," FCAI chief executive Andrew McKellar said in a statement.

"The industry endorses this strong policy response and acknowledges the extensive and effective consultation the government has undertaken during the review process."

But since the Rudd Government's announcement, some are worried that the funds could end up overseas.

Tim Wilson, a director with the Institute of Public Affairs, said: "There is a real danger that all the Government subsidy money is just going to pay for former GM employees in the US.

"GM has had an ongoing problem for years of an under-funded pension scheme and our money could go to fill the black hole in their pension, in addition to . . . jobs being under threat at home."

But there are even more problems faced that are not immediately apparent in that the Rudd billions on the table for research and development must be matched by company money, but the US situation is so serious that the potential for that investment to take place at Holden and Ford Australia may be rather bleak given the strife they are in.

GM's directors have publicly said it might not have enough cash to last another nine months.

This also leaves the Australian operations vunerable to take over by the big Chinese and Indian car manufacturers.

With Holden's US parent company GM on the brink of bankruptcy, the Australian operation may go the way of Land Rover and Jaguar, the former British companies that were bought out by India's Tata Group in recent months.

Automotive commentator John Mellor said: "Holden could wind up in the hands of GM's Chinese partner, Shanghai Automotive Company, and Ford Australia's operations could wind up under the ownership of Tata Motors."

The other two US car giants, Ford and Chrysler, also are in dire straits and, if they fail to convince the US Government they are worth saving, or want to raise some quick funds, their overseas divisions are likely to go up for sale immediately.

"Our car-making facilities are world class," said Mr Mellor. "The Chinese or Indians would love to get their hands on them as part of a partial or total takeover, especially if they felt they were getting (them) at something of a distressed value."

So while industry groups and unions have welcomed the boost to the local industry by the Rudd Goverment, it may not achieve the expected results. The package is designed to stimulate investment in the local industry, but which region that investment comes from remains to be seen.

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