An unfair playing field – the state of our car industry, by FAPM

[Road_Warrior]

The automotive industry is the foundation of manufacturing, leading the sector in research, design, engineering and countless outer areas. But it is under severe threat amid increased global competition on an unfair playing field. Federation of Automotive Products Manufacturers (FAPM) National Vice-President Mark De Wit assesses its prospects.

In recent years, about 1m vehicles have been sold every year in Australia. In 2011, Australia only produced 14% of all vehicles sold in this country. Five years ago, this was around 20%, ten years ago around 30%, and 20 years ago it was 53%. What has changed?

Various self-proclaimed experts claim we’re not making cars that people want. This is nonsense. Of the five platforms built in Australia (Commodore, Cruze, Falcon, Territory and Camry) in 2011, four were in the top ten best-sellers. However, in 2011 the volume of that top 10 equated to just 295,212 cars. So even if we built every one of those top 10, domestically produced cars would still only represent 29% of total sales.

Adding in export production, we made around 220,000 cars in 2011. That represents a ratio of total production to total domestic sales of 22%. Of the 1m cars sold in Australia, the remaining 86% are imported, with almost all coming from just four countries: Japan: 44%; Thailand: 21%; South Korea: 20%; and Germany: 10%. Now consider the production-to-sales ratios for these countries:

• Japan: production of 8.4m vehicles versus sales of 4.4m (190%).
• Thailand: production of 1.5m versus sales of 800,000 (188%).
• South Korea: production of 4.7m versus sales of 1.5m (318%).
• Germany: production of 5.9m versus sales of 3.2m (185%).
In fact, almost every other car-making country has a production to-sales ratio exceeding 50% with most in triple digits, compared with our score of 22%.

The ‘T’ word

Any car imported into Australia carries an inbound tariff of 5%, falling to zero if we have a free-trade agreement with that country (as with Thailand, the USA, and next year Malaysia). Unfortunately, however, this isn’t reciprocated.
If Australia exports a car to Japan, there is a 10% tariff, a 5% consumer tax, and technical roadblocks that make it virtually impossible for foreign cars to get regulatory approval for Japanese roads. An Australian car sent to South Korea faces a 10% tariff, a long, hard registration process, and an unwritten rule that anyone buying imported cars will probably be subjected to a tax audit. If we send a car to Germany, there’s a 10% tariff and a 19% VAT (which isn’t applied to EU-built cars) – a total of 29%, versus the 5% for German cars here!

Finally, Thailand sends 180,000 vehicles a year here, with zero tariffs under its free-trade agreement with us. Logically, we should also be able to send cars to Thailand tariff-free, and we can. However, there is a ‘duty’ to be paid dependent on engine size, which for Aussie-made cars is between 50% and 80%.

The exception is the USA, with a 2.5% import tariff on passenger cars. However, the majority of profits for North American producers come from their production of large numbers of pickup trucks like the F150 Ford or Chevy Suburban. If you want to import a pick-up into the USA, it attracts a 25% import tariff. Uncle Sam protects its Golden Goose.

Twenty years ago, when our production-to-sales ratio was at 53%, tariffs for cars imported into Australia were 32% (down from a mid-1980s peak of 57.5%). They’ve been falling rapidly ever since, dropping to 10% in 2005, and 5% in January 2010. During that period we have also seen the emergence of lowcost countries as auto-producers. Aussie-made cars face the following obstacles in these countries:

• India: 60% tariff + duty of up to 50%.
• Russia: 48%.
• Brazil: 35%.
• Malaysia: 30%.
• China: 25% tariff + 18% VAT.

These countries are all now importing cars to Australia (at 5% or even zero). Importantly, a country like China – the world’s second-largest economy and the largest auto-producing nation (18 million cars/trucks produced per year and growing) – is seen as an ‘emerging’ player in automotive and can therefore justify a levy of 43% on imported cars.

Helping hands

Annual investment from the Government into the Australian auto sector hovers around $500-$600m per annum. With 23m people in Australia, that equates to $18-25 per person per year of taxpayer money to help attract investment into auto production here. Certain sectors of the press have chosen to label these investments as ‘hand-outs’. However, this economic support requires the sector to more than match these investments, so it’s not all one-way, hence the term co-investment.

Moreover, $18-25 per person is actually extremely low. In Germany the amount is $95 per person; in the USA it is $260; while France supports its car-makers to the tune of $150 per person per annum.

The fact is, Australia not only has the lowest effective tariff rates in the auto-making world, but it also has the lowest government co-investment per capita. With an Australian dollar now 4045% higher than its historic average of $0.72 to the USD, making imports more competitive and hampering exports, it’s pretty obvious why Australian-produced vehicle volumes are in decline.

The net effect is that we have the most open auto market in the world. More vehicle brands and models are on sale in Australia than in any other country – at last count the total was 64 brands with over 240 model variants (up from 48 brands and 97 models 20 years ago). In the USA, they sell about 14m vehicles a year, from only 33 brands. That’s 14 times our sales but half as many brands!

[Road_Warrior]

Things need to change –– but how?

Levelling the playing field

Let’s start with tariffs. Reducing tariffs to zero is fine, provided everyone else is doing the same. but clearly they are not. Following the GFC, many nations froze their tariffs, and some (like brazil) actually raised them to offset the effect of their high currency.

Asides from cutting some slack for genuinely emerging countries, in a small market like Australia, tariffs should at least be reciprocated. If it is 29% for us to get an Aussie car into Germany, then Germany should incur the same cost for its cars in Australia. Let’s not have free-trade agreements, but fair-trade agreements.

Some might argue that this just raises the price of cars for Australians. Well, yes it does – for imported cars. It doesn’t if you buy Australian – and that is the point. Meanwhile, for those determined to buy from overseas, a 5% tariff increase on a $35k car is a $1750 increase, which pales into insignificance compared with the savings from the Aussie dollar appreciating 40% in the last five years.

If we then continue to buy 850,000 imported cars, an average tariff increase of 5% (back to 10%, like most other mature auto-making countries) on an average $35,000 car would raise government revenue by around $1.2bn, which could help fund improving automotive co-investment.

The likelihood of the Government altering the tariff system is slim, but there are three other things that can be done.

1. Government fleets
The Federal, State and Local Governments, and fully funded government bodies purchased 60,000 vehicles in 2011. Of these, only 19,772 were Australian-made. About 44% of vehicles procured by the Federal Government were locally manufactured. The State Governments in Victoria and South Australia scored better at around 70%, but New South Wales, Queensland and Western Australia were poor at 32%, 20% and 17% respectively. Worst of all were local councils, at 16%.

Why is this? Is it the price, or environmental concerns? No. It costs no more to purchase a Holden Cruze than a Hyundai i30 or Mazda 3, or to buy a Falcon EcoLPi, Toyota Camry or Holden Commodore than a Honda Accord or Hyundai Sonata, so it is not price. And local products are now just as Green as any imported car – we now make LPG Falcons and Commodores, diesel Cruze and Territory, Hybrid Camry, four-cylinder Falcons.

There are some special-purpose vehicles that we don’t make here. For example, police in the Northern Territory need full 4WD-capable vehicles, but at a generous estimate these may make up 25% of the 60,000 total procured. So at least 45,000 government-procured vehicles a year should be locally made. With 220,000 vehicles produced here, an increase in government fleet purchases from 20,000 to 45,000 cars would see an 11% improvement in Australian production. Our industry would kill for that. And an 11% volume increase would create thousands of jobs.

2. Safety
Of the 1m vehicles sold here in 2011, approximately 300,000 did not meet the Five-Star ANCAP safety rating, but every Australian-made car does. According to Department of Infrastructure estimates, road accidents cost Australia $18bn per year. So let’s put a penalty on new cars that don’t satisfy the ANCAP criteria – perhaps $2500 for each star below Five Stars, so a Three-Star vehicle would attract a $5000 levy.

This would discourage purchases of less safe vehicles. And just a 5% improvement in accident costs would save almost $1bn per year, alongside the revenue generated from the levy. It would also have the potential effect of shrinking the number of brands and models as people move to safer (potentially local) models.

3. Gaseous fuels
Australia is a net oil importer. Many experts forecast petrol will be around $6/litre in Australia by 2020. yet Australia is sitting on the 12th-largest natural gas reserve in the world. If we converted every car in Australia to run on compressed natural gas (CNG), our own current known reserves would last 90 years. And the current equivalent per litre cost is 19-26 cents.
CNG is not LPG, which is derived from oil and is liquefied (hence the ‘L’). The only downside with CNG is that it takes up more space than petrol or LPG. Compared with petrol, CNG delivers 40% less (CO2 ) 80% less CO, and 90% less NO. It requires less maintenance, is quieter and safer. between 1996 and 2011, the number of CNG cars in the world rose from 1m to 14.8m – the market is growing. Many buses in Sydney already use CNG, as are cars and taxis in India, brazil, Argentina, China and Iran, and trains in the Napa Valley in the USA.

But we can’t just flick a switch and move to CNG. We need to get people in Australia used to using gaseous fuels. The technology has come a long way. The LPG Falcon is more powerful than its petrol brother and I would defy anyone to tell them apart in smoothness or refinement – it also costs less to run than many small four cylinder cars.

The Government should offer huge incentives for gaseous fuel cars. It can be justified under the Green banner, as even LPG is far cleaner than petrol. The incentive should be two-fold, with a large rebate – perhaps $5000 – for dedicated factory-fit, gaseous-fuel vehicles, and an FbT exemption. The net effect of these two things would be a major shift toward gaseous fuel vehicles.

And here’s the good bit for Australian industry. Of the 64 brands and 240 models sold in Australia, the only two dedicated factory-fit, gaseous-fuel cars are the LPG Falcon and the LPG Commodore – both, of course, Aussie made. So we boost production volume, create more jobs, and get a greener outcome.

The relatively minor cost to the Government could be covered by revenue generated by the safety levy or a tariffs initiative. We then need to shift government research funds toward CNG technology. Given our natural reserves, becoming a global leader in CNG technology and a niche export producer of CNG vehicles would tap into large export markets. We have to build industries and business not just around the skills and passion of the people, but around our strategic advantages as a country – and we are sitting on one in CNG.

Keeping frogs afloat

The consultant and author Alistair Mant famously described complex interdependent systems as behaving like either bicycles or frogs. You can systematically pull both of them apart, and later you can systematically put them both back together. The bicycle will work again, but the frog won’t. Once it’s gone, it’s gone.

Like that dismantled frog, it would be virtually impossible to rebuild the automotive industry in Australia if it were to collapse, given the long lead-times, high capital investment, and most importantly the expert knowledge base required. As the foundation of manufacturing and provider of tens of thousands of jobs, the automotive industry is vital to the country’s economic wellbeing. We must all fight to keep this industry afloat, and help save this frog! www.fapm.com.au

[mr smith]

That should be front page on every big name newspaper not the weekend footy results.

[Road_Warrior]

The Australian automotive industry - by the numbers (source: FCAI current as at 7 September 2012)

1,008,437 More than one million motor vehicles were sold in Australia in 2011

109,067 Almost 110,000 motorcycles, ATVs and scooters were sold in the same period

9.4% Vehicle sales for the first eight months of 2012 are up 9.4% (62,738 units) compared with sales for the same period in 2011, with a YTD total of 728,047

64 There are 64 automotive brands in the Australian market

110,000 There are more than 110,000 businesses in the Australian automotive sector

$160 billion Annual turnover in the Australian automotive industry exceeds $160 billion

$10 billion The industry pays more than $10 billion in tax to Australian governments each year

51,931 At May 2012, almost 52,000 people were directly employed in Australia’s three vehicle manufacturers, dozens of importers and thousands of related component manufacturers

278,127 At Feb 2012 nearly 280,000 people were directly employed in motor vehicle and parts manufacturing, wholesaling, retailing and automotive repair and maintenance

$3.3 billion The Australian automotive sector exported around $3.3 billion worth of vehicles and components in 2011

$668 million The automotive industry is the largest contributor to manufacturing research and development in Australia, investing around $668 million in 2009-10

7.6% Passenger vehicles contribute 7.6% of Australia’s greenhouse gas emissions

20% The average new vehicle emits 20% fewer CO2 emissions than in 2000, and just a fraction of nitrous oxide and particulate matter

75% Up to 75% of vehicle components are recycled or re-used

3.5% The effective average tariff rate is 3.5%, taking Free Trade Agreements into account, down from over 30% in the 1990s

[Brazen]

Im starting to think that tariffs are too low here.

[Brazen]

Are there online petitions that we can start? Perfect timing with an election approaching.

[joolz]

Originally Posted by Brazen

Im starting to think that tariffs are too low here.

Ive known this for a very long time. But if we were to raise them its labelled as "protectionism" Thats the whole reason other countries have higher tarrifs/import taxes/duties to protect their own industry....
If tarrifs were raised in Australia that tax could then be passed onto the Australian automotive industry to keep jobs going.
Maybe thats just too simple to be done..

[Brazen]

If a first world global superpower like Germany which manufacturers 5.5 million cars a year has a 29% tariff on the little Australian car industry and we only have a 5% in return - something has gone stupidly wrong.

[Charliewool]

Originally Posted by mr smith

That should be front page on every big name newspaper not the weekend footy results.

Dead bloody right it should..
This excellent view doesn't just address the problems, it gives viable and reasonable solutions to what I see as the final nail in the coffin for manufacturing in Australia.
If Ford, GMH, and Toyota cease actual home turf manufacturing the repercussions are going to be catastrophic for virtually ALL industry here!
The beginning of the end, and an issue that should be at the very top of government priorities.
If our auto industry does fold, as well as hundreds of small businesses, suppliers etc, tell me WHERE these people and their technical knowledge are absorbed..
Jim's mowing?
Read the bicycle and the frog analogy.. If we let manufacturing go, it ain't coming back.. EVER!!!!

[Auslandau]

Originally Posted by mr smith

That should be front page on every big name newspaper not the weekend footy results.

Also agree. I just hope people read what is written above as it is very telling in a good layman's way of explanation.

[XP6]

Here bloody here

[Agile]

[QUOTE=Brazen;4699880]If a first world global superpower like Germany which manufacturers 5.5 million cars a year has a 29% tariff on the little Australian car industry and we only have a 5% in return - something has gone stupidly wrong.[/QUOTE


You have got that right. As the SA Senator, Nick Zenaphon puts it, Australia is the "free trade Taliban". Stupidly , fundamentalist. Add to that a basically STUPID population, producing some even stupider politicians and what you get is what you deserve. As a country we are doomed. Why ? Because Australia is the '" TOO Lucky Country". We have had it TOO GOOD for too long. Very negative but true
Rant over.
For the time being.

[bobthebilda]

Originally Posted by Charliewool

If our auto industry does fold, as well as hundreds of small businesses, suppliers etc, tell me WHERE these people and their technical knowledge are absorbed..
Jim's mowing?
Read the bicycle and the frog analogy.. If we let manufacturing go, it ain't coming back.. EVER!!!!

AAAAAAAARRRRRRRRRRRRGGGGGGGGGGGGGHHHHHHHHHHHHHH the world is falling apart.

Did you analyse the figures at all.

51,931 At May 2012, almost 52,000 people were directly employed in Australia’s three vehicle manufacturers, dozens of importers and thousands of related component manufacturers

- now they are have grouped alot people into this total - Importers? related component Manufacturers? (not suppliers). All these people are not reliant on the local manfacturers or their suppliers

Australia is currently heading towards making approx. 180,000 to 200,000 cars this year. Normal productivity is 15-18 cars manufactured per worker per year. At a most generous breakdown, no more 15,000 Australians are employed by the local car manufacturers and their suppliers. Doesnt Australia handout 40,000 457 visas each year. We protect low skilled assembly jobs, and then import others to work in the high paying resource area.

But you are right, Holdens own advice to redundant workers is that they should become lawn mowers, hairdressers or aged care workers.

[2011G6E]

Won't ever happen...Australia was long ago fooled into signing treaties and agreeing to world trade agreements based on a fantasy "level playing field" world that just doesn't exist.

Even if we try to support our industries internally, the world trade courts threaten us heavily...remember several years ago an upholstery manufacturer that looked like going to the wall, and the government simply tried to give them some tax breaks to keep their doors open? International forces threatened the government here with all sorts of sanctions and penalties if they did this.
Look at farmers...everywhere from the USA to Europe heavily subsidise their farming sector, but if Australia even tries to do something, the international trade mobs descend like vultures saying we can't do it.

We gave up our sovereignty long ago when it comes to this sort of thing...

[mik]

Originally Posted by 2011G6E

Won't ever happen...Australia was long ago fooled into signing treaties and agreeing to world trade agreements based on a fantasy "level playing field" world that just doesn't exist.

Even if we try to support our industries internally, the world trade courts threaten us heavily...remember several years ago an upholstery manufacturer that looked like going to the wall, and the government simply tried to give them some tax breaks to keep their doors open? International forces threatened the government here with all sorts of sanctions and penalties if they did this.
Look at farmers...everywhere from the USA to Europe heavily subsidise their farming sector, but if Australia even tries to do something, the international trade mobs descend like vultures saying we can't do it.

We gave up our sovereignty long ago when it comes to this sort of thing...

It might be time our pollies grew a pair and told them to go jump.

[302 XC]

Originally Posted by Charliewool

Dead bloody right it should..
This excellent view doesn't just address the problems, it gives viable and reasonable solutions to what I see as the final nail in the coffin for manufacturing in Australia.
If Ford, GMH, and Toyota cease actual home turf manufacturing the repercussions are going to be catastrophic for virtually ALL industry here!
The beginning of the end, and an issue that should be at the very top of government priorities.
If our auto industry does fold, as well as hundreds of small businesses, suppliers etc, tell me WHERE these people and their technical knowledge are absorbed..
Jim's mowing?
Read the bicycle and the frog analogy.. If we let manufacturing go, it ain't coming back.. EVER!!!!

What gets me, the manufacturing in Australia has been goin down the gurgler for many many years ,and its only now that the big car makes are looking at closing do people sit up and take notice .....
Wether we are a new car buyer or not, we are all to blame for the dismal manufacturing in this country
We all buy that cheap import tellie,the import other electrical goods,nearly 90 % of all households are filled with imported ,usually cheap rubbish
We should all cop a boot up the backside for letting this country go to the dogs
The aussie mentality of "she be right mate ", well we will be buying everything offshore ,while other countries will be goin "She be right mate"as they shaft us nice n hard

[Road_Warrior]

Originally Posted by 302 XC

What gets me, the manufacturing in Australia has been goin down the gurgler for many many years ,and its only now that the big car makes are looking at closing do people sit up and take notice .....
Wether we are a new car buyer or not, we are all to blame for the dismal manufacturing in this country
We all buy that cheap import tellie,the import other electrical goods,nearly 90 % of all households are filled with imported ,usually cheap rubbish
We should all cop a boot up the backside for letting this country go to the dogs
The aussie mentality of "she be right mate ", well we will be buying everything offshore ,while other countries will be goin "She be right mate"as they shaft us nice n hard

The truth is - and I was having this discussion on the weekend with some farmers who are facing the same sorts of issues - that this has all been a long time in the making.

This country has been subjected to bad policy which has driven government decision making for a generation. Seemingly innocuous policy or even legislative changes 15 years ago arent going to start causing problems overnight; these things take years to develop. We are now at the crunch point where the full effects of these changes are being realised and people are losing out, big time. Can it be reversed? I don't know.

These sorts of changes were easy to push through when a constituency is more interested in populist issues like refugees, the footy, the housing boom and whatever else is filling the 6pm news at the time. Whilst the masses are whipped into a hysteria with something else, it is easy for a government to do its dirty work while no one is watching.

[ryeman]

I don't think the Tele's likely to miss anything!

[jamess]

I think the luxury car tax hits a few German imports...it doesn't seem to be in the figures above?

[janddbone]

I would think the situation is workable as it is. However, how about the Commonwealth hand that 5%tariff they collect, (Around $1Billion) straight to the car manufacturers every year instead of pocketing most of it.... That should help straighten things out.. While it is protectionist, it sounds most reasonable to me.

[BHDOGS]

if the government brought in a new tax on cars imagine the uproar us people get it as we love cars and want them to survive its the fat slobs who slink around who will roar and grumble about there right to cheaper cars like always its the idiot masses that ruins it for the rest of us.

[Elks]

John Button must be so proud.

[Cabbage]

Great post, a little perspective. On face value, the fact that local councils buy only 16% locally made vehicles is disgusting, they should have their noses pulled. I work for a Federal Government department and we have a policy buying only Ford, Holden or Toyota unless its a specialised vehicle.

[last fairlane]

Just a couple of thoughts
with the CNG issue
Brisbane city council has over one thousand buses
that are running on CNG
and also they are manufactured here in Brisbane so thats a bonus
also Mack trucks and Volvo trucks are built in Brisbane
the other thought is how does New Zealand cope
with only imports
where do they stand on imports from Australia
and from Asia Europe etc
thanks
John

[EB#]

Thanks for the opening posts there Road Warrior. It certainly paints the picture
in a few, very clear paragraphs.

I have a couple of questions though, for those with better economic knowledge than me.....

Given the state of these very one-sided import tariff figures, are there other elements at
play in the political dealings with these other countries? ie Do certain agreements
exist with regard to the supply of Australian commodities such as wheat, rice, iron-ore
or coal, for example, that are a trade-off for the low auto tariff on imports? Has the Aus
government dealt itself into a bad corner that has wins in other areas, but badly hits the
auto industry?

Surely there are wheels within wheels, so to speak, in this big trade machine?

[ryeman]

Lamb, beef,wheat etc?
Probably cos we OWN those industries as opposed to the auto manufacturers.
V sadly.

[aussie muscle]

Originally Posted by Brazen

Im starting to think that tariffs are too low here.

If we put tariffs up, then so will the other countries, like china, meaning we don't get ahead. like what happened with international air traffic (we threatened higher restrictions on USA flights and they counter-threatened with restrictions on Qantas).

[WPR1]

Plus:
- Governments should only buy Australian built cars
- The buying public should realise what great Aussie built cars we have before they are gone! - drove a Euro the other day and my GT is twice the car that is for similar money
- With the amount of cars salary sacrificed these days I have often thought the Government should give an FBT concession to Australian built cars

[phillyc]

Originally Posted by aussie muscle

If we put tariffs up, then so will the other countries, like china, meaning we don't get ahead. like what happened with international air traffic (we threatened higher restrictions on USA flights and they counter-threatened with restrictions on Qantas).

I think you missed the point. We have lowered ours, they have either left theirs as is, raised them or brought in other measures to discourage imports.

Australia are fools. We are killing our national prosperity both current and future. It doesn't get any more even than reciprocosity. Treat them as they treat us. You know, a fair go. Equal treatment.

If you want an 80% import duty on vehicles over 2 litres etc, then we'll do the same back. That Ranger, HiLux will now cost you $60k. Yes Thailand, i'm looking at you.

Want to import a Hyundai or Kia or GM Holden? Hello this is the ATO calling about your tax audit this year. Yes Korea, i'm looking at you.

Want to import a Toyota. Hmm, can you come visit the RTA/RMS. We need to ask if you really need that vehicle and if you do buy it inspect your vehicle. Ensure that it is roadworthy and compliant with our regulations. Yes Japan, i'm looking at you.

These countries are looking at Australia and thinking, you idiots.

With such a small population, Australia needs all the help it can get to compete. At least making it a truly equal playing field will do that.

[Eaturbo]

I've had a gut full of the 2 main Australian political parties. Put the inport tarif back up to 15%. This will allow the locals to manuafacture the Cruze and Focus and sell it at a profitable price say $21990 for the base model instead of the $19990 they have been for 10 to 12 years. The extra 15% tarif will mean that the importers cars will still sell for a similar price. This will give the locals the ability to sell there cars for $20990 if need be to give them the upper hand on price. $2000 means nothing to me over 5 years and if it keeps local cars in production than go ahead, but the importers need to be charged a tarif to make it fair.