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Economics References Committee - 10/03/2015 - Future of Australia's automotive industry

GRIFFIN, Mr Jim, National President, Federation of Automotive Products Manufacturers

KIWAN, Mr Mounir, General Manager, Federation of Automotive Products Manufacturers

REILLY, Mr Richard, Chief Executive, Federation of Automotive Products Manufacturers

[13:44]

ACTING CHAIR: Welcome. Thank you for appearing before the committee today. I invite you to make a brief opening statement should you wish to do so.

Mr Reilly : I will make a statement on behalf of the federation. On behalf of the FAPM board members, I would like to thank the committee for the opportunity to appear before it today. The Federation of Automotive Products Manufacturers is the peak industry body representing Australia's automotive-component manufacturing sector. The federation was formed in 1958 and has about 85 member companies employing many thousands of people. Our organisation has members in all sizes of companies, from multinational companies to larger Australian companies to many small and medium sized enterprises. We are the only body that totally and only represents these manufacturers.

Australia's automotive sector is currently undergoing significant structural change. The committee is fully aware that all three vehicle manufacturers have announced their intention to cease vehicle manufacturing in the years ahead. I will not go into that in any more detail. Our industry is currently on the path of contraction. Local vehicle production was down 21 per cent in 2014 from 2013, from 211,529 vehicles produced in Australia by the three vehicle assemblers down to 174,508 vehicles. As you would expect in an industry that relies on volume production, this contraction has created—and continues to create—enormous stress on the components-manufacturing side of the industry. Vehicle production continues to decline, flowing on to the component-manufacturing sector, which is itself altering production schedules to meet reduced demand from the vehicle assemblers. This is impacting on employment and cash flow within the sector.

The automotive supply chain is pursuing opportunities of diversification and globalisation in both automotive and non-automotive manufacturing. This is a hard and long road. The suppliers are experts in making automotive components. Trying to design and develop new components in new industries and pursue sales opportunities takes effort, time, cash and management commitment. It is a long, hard road. I should hasten to say, however, that some suppliers are doing better than others in the implementation of their diversification strategies. Mr Griffin can enlighten you on his experiences with diversification, presently.

We are, in effect, an industry in distress. Where do we go from here? FAPM considers that the Australian automotive industry is well positioned to be a global centre of automated new manufacturing; however, steps need to be taken while the local supply chain and associated infrastructure is largely intact. We need to continue to work on the state of our supply chain and work with it to assess what changes companies could make, in regard to diversification or expert activity, to become sustainable, determining whether any alliances in the form of merger or acquisition activity can create the required scale to drive success and, given the status of our companies at the moment, understanding the detail of their legal and commercial obligations.

FAPM strongly recommends that government support for diversification activities by automotive suppliers should continue as a key industry strategy. Some of the key areas where we think government should be supporting our industry, to ensure an efficient and viable transition of skills and experience from the automotive production process to the broader manufacturing sector, include: engineering-design services, after-market manufacturing in automotive, investment in niche motor-vehicle producers, investment in supply-chain technology development, global automotive trade task force and global integration of engineering capability.

We would argue that this support is vital to ensure an orderly transition to a future environment where no large-scale car manufacturing is occurring in this country. The decisions by the vehicle manufacturers to cease manufacturing by 2017 make it even more imperative that the government accelerate its support for automotive suppliers to diversify their activities into new markets and innovative products. The benefits of automotive suppliers diversifying into new markets or non-automotive products include minimising the adverse impacts of adjustment on the community, particularly the loss of high-value jobs; retaining key automotive capability in Australia; and disseminating automotive-industry technologies and expertise into other advanced manufacturing and service industries.

We have presented a number of our views on how the Automotive Transformation Scheme might be altered to cater for the diversification, investment, research, development plans and supply-chain companies in the coming years. FAPM believes it is imperative that the ATS program continue through to 2020, as planned, and we are very pleased and heartened by the government's announcement today.

You may be interested to know that work is currently being sought in global-supply chains by companies in Australia, but the uncertainty surrounding the longevity or otherwise of these key government programs has made quoting for business problematic in the past. Governments of all persuasions have contributed funds to the automotive sector to assist in the transition to a new era.

FAPM considers that the Automotive Diversification Programme should continue, even after the scheduled closure of the vehicle manufacturers, as the remaining automotive suppliers adapt their operations to a business environment that will have changed dramatically within a short time-frame. We do have concerns, however, as to the limitations of its eligibility criteria and what constitutes eligible expenditure.

Post-2017 some automotive suppliers may potentially be providing components to local niche businesses or contract manufacturers. It is also envisaged that with the support of the Automotive Diversification Programme the Automotive Transformation Scheme, and other federal and state programs, more local automotive businesses will be accessing global export markets, including those businesses in the important after-market sector of our industry. Under these circumstances, it is realistic to anticipate that the rationalisation and diversification process already underway in the automotive supply chain will continue over the coming years.

We are of the firm view that our automotive components sector can still play a role in the development of our industrial base, going forward. We urge the Senate to look at further work within the industry. This work includes pulling out all stops to design a soft landing for the automotive-components industry, providing facilitative support for companies seeking to be proactive regarding diversification opportunities, including higher value-added manufacturing and engineering services, and potentially diverting $200 million of the anticipated or expected $800 million ATS underspend—if that does occur—into supercharging the diversification program or developing a Fraunhofer concept, focusing on the development end of R&D, and fully exploring opportunities for the Australian automotive industry based on manufacturing and engineering services business models being deployed globally. It is also in identifying the vision the government has for the future of manufacturing and advanced manufacturing in Australia.

A number of Australian based component manufacturers have already recognised that their business viability depends on them becoming integrated into global automotive markets and/or diversifying into non-automotive business sectors. FAPM has yet to make a written submission to the inquiry. This is just a tiny issue and we will look to submit it presently. I am happy to take questions from the committee. Thank you.

CHAIR: Thank you, Mr Reilly. Would you care to comment a little further about the government's announcement today, particularly in relation to the underspend that you referred to?

Mr Reilly : That was written prior to this announcement, or the vast majority of it was. It is fair to say that there is less R&D being done in the automotive component-manufacturing sector than there was previously, given the state of the volumes I just described, and less investment being made at the current time. So we would expect there would be an underspend on the ATS program. What the quantum of that is, remains to be seen, I speculated. That is not all underspend, I might add.

Senator EDWARDS: The $200 million that you speculated, how did you come at that figure?

Mr Reilly : That was just a figure where we said that we could take some funds from the ATS. We just settled on a $200-million figure. That is not related to today's announcement at all, no. That is not an underspend figure, as such.

Senator EDWARDS: I just wonder how everyone keeps coming up with these round figures of $100 million, $200 million and all that around the place. That is fine.

Mr Reilly : It is just a high-level figure, that is all, at this stage.

Senator KIM CARR: While you have a submission to this particular inquiry, you did present a detailed submission to the Automotive Transformation Scheme Amendment Bill inquiry. I am going to rely on that a fair bit, and I look forward to your submission here. Is it your view that the automotive industry in this country will survive?

Mr Reilly : The three vehicle manufacturers are going. That is an enormous part of the industry, of course. I do not think all the component manufacturers will survive, no. Where we are at the moment is that some have already said they are going to cease manufacturing once their customers leave Australia. The industry will rationalise and will diminish. We are not going to be looking like we are now in a few years hence.

Senator KIM CARR: Will the industry survive?

Mr Griffin : I think it will. It will be a different-looking industry. It will be doing different things. It may not be producing large-scale mass volume of products. It may well be more involved with R&D. It may be involved with project management and program management. It may be an industry whereby the expertise that has been developed over the last 70 years is now exported and placed around the world, and it will also infiltrate other markets and bring those skills into other areas. It will live on.

Senator KIM CARR: I will give you an example, Mr Griffin. Today we were at the company you were associated with for many years, DCI, and recently moved to another company, which has partnership with that company, I understand.

Mr Griffin : Yes.

Senator KIM CARR: The management there is absolutely convinced they will be able to survive. They will be a different type of company but they will survive. So whatever we say, we are arguing then about the scope and the scale of the automotive industry in the country. The purpose of this inquiry is to establish what we can do to advance those capabilities and to make that industry as prosperous and as successful as possible. I ask you to address those particular matters in your submission. My second question goes to the experience internationally. Are you familiar with what happened in England?

Mr Griffin : Yes.

Mr Reilly : Yes.

Senator KIM CARR: For the committee's benefit, could you explain in general terms what you understand to have happened and where the British automotive industry is today.

Mr Griffin : The British automotive industry was basically on its knees. It was dead and buried. It had been given up and all levels of support had been taken away from it. There were plant closures and job losses right across the country. But at a given point in time, it was recognised that the skill base, the technology and the manufacturing infrastructure that it represented was far too important to lose. So there was a change of heart and funds started to be provided. There was a strategic plan put in place which saw the resurrection of the English automotive industry from a manufacturing, production, engineering and design development perspective to where—today, I think they are one of the largest growing sectors outside China with regard to where they are going. I think in the next 12 months they will build something in the order of 2.5 million vehicles in the UK. They do benefit from the fact that they are only 26 miles across the English Channel from Europe where there is a substantial volume base. But ultimately, there was a strategic vision, plans were put in place and it was resurrected.

Senator KIM CARR: What happened in that? Did the British industry change? Did it seek to take out new types of business opportunities? For instance, did it go for high-end niche product development?

Mr Griffin : Absolutely, it is transforming even as we speak. Yes, it has. But having said that, it still has the grassroots production capability. It still has added new plants and new vehicle assembly output. But yes, the infrastructure, the supply chain within England has come up the food chain somewhat. You are seeing a fair amount of work in lightweight composites, things that are very closely linked to the aerospace industry and picking up on the heritage of what England has done in that sector—as well as motorsport. They are putting to use a lot of those skills.

Senator KIM CARR: Aftermarket—those types of areas are now being explored more thoroughly.

Mr Griffin : I cannot talk to aftermarket, but certainly from an OE perspective, yes.

Senator KIM CARR: Is it a bipartisan political question in the United Kingdom these days?

Mr Griffin : Given the actual structure of the government, there is a fair amount of differing views coming into policy development. I believe it is. I think it has generally been seen and accepted that it is absolutely critical that the manufacturing expertise that the automotive industry provides is maintained.

That leads me onto a point that I was going to raise when you were speaking before. Maybe this debate needs to start thinking about changing the focus from an automotive industry, from 'Is the automotive industry going to survive?' What we need to ask ourselves is: is Australia going to maintain the highly advanced manufacturing and engineering industry which just so happens to have been building cars for the last 70 years? Are we going to let that highly skilled manufacturing, engineering and R&D capability leave these shores? Maybe we do not package in the context of an automotive industry but in the context of a highly advanced and skilled manufacturing and engineering capability. That is what I think we need to preserve.

Senator KIM CARR: I take you to your areas of direct expertise. You have been participating in a lot of trade missions. You have been discussing new investment proposals with a range of proponents. Is it your view that any of those types of activities are likely to see new automotive investment in this country?

Mr Griffin : The challenge that is presented to automotive component suppliers is that there is a global want to have the component manufacturers as close to the end-using assembly plant as possible. I have just recently come back from the United States, and the new rule of thumb with some of the big three in America is that there is 25-mile radius around the plant and if you are not making the parts within that 25-mile radius then they want to see a plan that will get you within that 25-mile radius.

Senator KIM CARR: Like warehousing?

Mr Griffin : Warehousing, or doing the value added or final assembly—a solution to that issue. Given that we are in the antipodes, and a long way from anywhere, when we are trying to patch into global supply chains that 25-mile radius becomes a bit of a challenge. Therefore the Australian components sector needs to come up with another value proposition, it needs to come up with another reason people want to buy from us. Now, our quality is very, very good. Engineering expertise, R&D, and design are very, very good. Our cost base, competitively, as far as the world is concerned, has been a problem for us. There has been massive improvement in productivity over the course of the last 20 years, but the cost base has been a problem to us. With the currency coming back to where it is now, we are getting relief; we are getting a normalisation, which helps us to offset that commercial discrepancy. However, moving up the food chain with regard to the capability of the industry and thinking differently about what the products are that we sell and what we go out and sell is I think part of the transitional aspects that the industry is embracing now. And I think that given the support and given, for instance, some changes in the eligibility criteria of ATS, some much-needed assistance would be given to companies to succeed in the region.

I was the chief executive of Diver Consolidated up until December this year, and I am glad to hear that you visited the crew out there. I now work for Multimatic Inc, which is a global automotive player, and I have responsibility for our expansion in the Asia-Pacific and ASEAN region. But what I am very, very keen about and proud of is the fact that I have also been given a bit of a responsibility for seeing whether I can infiltrate the Multimatic purchasing and global supply chain with a few Australian suppliers. That is just our company, but there are many other companies that, given the right guidance, given the right direction and given the right connections to the Australian supply chain will embrace what we have here. They will see that what we have here is very valuable.

Senator KIM CARR: Perhaps I can turn to what it takes for the Commonwealth to facilitate, to help you achieve those types of objectives. In the FAPM submission to the bill's inquiry you made a number of recommendations, particularly 2, 3 and 4, which go to changes in the scheme. My first question is, can all of that be done by regulation? Or is there a requirement for change in legislation?

Mr Reilly : Our understanding is that it just regulation; it does not need a change of legislation.

Senator KIM CARR: So, it is not a big deal.

Mr Reilly : I do not think so.

Senator KIM CARR: It does not even require parliamentary approval, other than that it is a disallowable instrument?

Mr Reilly : Correct.

Senator EDWARDS: It is the only way we can get things done in this parliament, anyway.

Senator KIM CARR: If it is a bad regulation we can disallow it, so don't get too carried away. If there was actually bipartisan approach from this committee to make recommendations, it could be done by regulation. Is that your submission?

Mr Griffin : Yes.

Mr Reilly : Yes.

Senator KIM CARR: Could you outline what other changes you are looking for in the ATS at the moment by way of regulation?

Mr Reilly : I think there are a number of things we are looking for, depending on whether today's announcement potentially changes some of those. Having said that, we are in transition as an industry. So, as I said, there is probably a little less R&D being done and perhaps a little bit less investment being done, so we are looking at things to try to encourage firms to come into the scheme and access the funds that are there to make their businesses stronger to sustain themselves so that they do have a chance of sustaining themselves post-2017, when the vehicle manufacturers cease manufacturing cars—things like allowing quarterly payments, which improves the cash flow of moneys coming into a business rather than having the 12-quarter rolling average and funds coming in only at irregular periods. We think that is something that could be looked at in more detail, and abolishing the five per cent sales cap to reflect the reducing industry production volumes. We think that is now an anachronism; it does not need to be in there. Let's get rid of it. Let's sit down as an industry, sit down as a government and sit down as a group of stakeholders with the vehicle manufacturers, the supply chain and government and say, 'Where are we now?'

It was put in place back when you were the minister, Senator, but things have changed since then, so let's look at what is in the actual legislation and regulations and see where we are as the industry and what we can change to improve it from where we are sitting now that those decisions have been made by the car companies. One of the big things we think we should be looking at that is currently ineligible for ATS is for a supply chain company to claim R&D or investment expenditure that they may incur doing work for an overseas OEM—original equipment manufacturer—car company. That is currently ineligible. We think now that given the status of our industry we should be opening that up. If an Australian company up in Broadmeadows is doing some work for Tata in India, or whoever, then that should be eligible, we think, because they are actually doing work. They are doing R&D; they are making investments in Australia. Yes, it is for a vehicle manufacturer overseas, but that is business; that's life. It is a global industry, and we need to get over that and we need to look at other ways that we can sustain ourselves and sustain our countries in Australia. So, there are a couple there.

For post-2017 we have some ideas as well to try to sustain our businesses going forward and, as Jim said, looking at advanced design and engineering services and making some of the things that we are doing in Australia eligible for the ATS that currently might not be. We are very open to looking at our brothers in the aftermarket post-2017; we think that is a very important thing—

Senator KIM CARR: We are talking about Australian manufacture here, are we?

Mr Reilly : We are, absolutely. I am not sure what Stuart is, but certainly we are looking at anything in the aftermarket, Australian manufacturing, very much so—after-sales production and support. We as the industry and certainly FAPM are looking at the viability, the possibility of niche vehicle manufacturing in Australia—Magna Steyr, Mahindra, Reva and all those. And I know that governments as well as other people have made submissions and met with various companies as well—not positive at this stage. But people have done a lot of work in this space over the last couple of years, looking for opportunities to sustain our side of the industry particularly. The vehicle manufacturers want to sustain us as well, of course. I know they are doing a lot of work with automotive component manufacturers and I know are spending a lot of money in various companies as well, to sustain their production so that they can make sure that their production is not hindered at all out to 2016 and then 2017 for Toyota and Holden.

Senator KIM CARR: Finally on that issue, do you think there is a proper understanding amongst component manufacturers of the national interest provision of the current ATS—for instance, that there have been new applicants to the scheme but there were four companies that left the scheme? There were three new ones, and four that left. Do you think they understood the national interest provisions?

Mr Reilly : Probably not.

Senator KIM CARR: Probably?

Mr Reilly : Well, there is no need. If they are in and they are eligible, there is no need for them to know about those provisions as such. Most companies that are in there now do their own—they make their investment, they put their claims in on a quarterly basis and they get paid.

Mr Griffin : It would be interesting to understand why the firms left the program, as was alluded to by representatives of the Victorian government. The confidentiality restrictions—

Senator KIM CARR: Yes, that is right.

Mr Griffin : Even as the peak industry body, we cannot even get a list of who the registrants are.

Senator XENOPHON: I have a follow-up question on Senator Carr's line of questioning. Is it the case that despite what appears to be an encouraging announcement on the part of the government today that unless the regulations are changed the funds particularly from 2017-18 onwards will atrophy because, under the current criteria, the money simply cannot be spent?

Mr Griffin : That is correct. The scheme will be significantly undersubscribed—massively undersubscribed—from 2017 onwards because of the criteria.

Mr Reilly : The three vehicle manufacturers will have gone, of course, and an Australian component manufacturer can be eligible to claim under the ATS only if they are actually developing components or making investments to sell to a domestic vehicle manufacturer—just about by definition. There is still money there, though. That is the point. And that is the conversation we need to have. The government might have a view on that, of course, but I think we as an industry need to have a view on that as well, because we are trying to sustain our industry. We are looking at advanced manufacturing and we are looking at a whole range of other things, but if there are moneys allocated already in that particular scheme, then I think we should have a really serious conversation about it and about how that money is best spent.

Senator XENOPHON: Can you indicate whether the government has said that they are willing to change the regulations to accommodate the dramatically changed landscape?

Mr Reilly : Not at this stage, no. I know that today's announcement is positive, but we have been arguing against that removal of funds for close to two years now. FAPM has not had conversations with the government about potential changes to the regulations at this juncture.

Senator KIM CARR: There is no cabinet decision to back up the changes today. Very few people have had a conversation.

Senator XENOPHON: If the regulations are not changed in accordance with the sorts of changes you have projected in your recommendations 2, 3 and 4, are we looking at a situation whereby most of the component makers will fall over unless there is a change to the regulations and with it a loss of jobs associated with this sector?

Mr Reilly : That is FAPM's view. I think that regardless of the announcement today post-2017 and leading up to 2017 we are in for a period of significant change, significant consolidation and significant loss of employment and business capability. That is our view at this stage. Nothing has changed from that today as such.

Senator XENOPHON: Could FAPM let the committee know when you do provide your written submission whether you had any indications from the government, given today's announcement, of their willingness to change the regulations?

Mr Reilly : We can ensure that our discussions are in our submission, or an update. We can do that.

Mr Griffin : Perhaps I could just add one very important point. We are focusing on changes to the legislation post-2017. It is very important that everyone understands that there is a long lead time in the automotive industry from an R&D perspective to when that activity actually manifests itself in a car going off the line. The decisions about the architecture of the support, the architecture of the scheme and the vision for advanced manufacturing in Australia post the automotive production era need to be made quickly, because unless we get on the bandwagon now and get on to these international global programs now, we are going to miss the boat.

Senator MUIR: Yes, I understand what you were just saying. We do need to be looking at short-, medium- and long-term solutions. What proportion of your membership are actively taking steps to diversify away from OE component manufacturing?

Mr Reilly : Close to all of them would certainly have had that conversation at the management level—'What are we going to do?'—particularly after the announcement by Ford, and then there was a lead time towards the end of 2013 with the announcement by Holden and then Toyota in early 2014. Everyone would have had those conversations—'Where are we as a business? How are we going to go forward? Are we going to go forward? What sorts of products are we going to be developing? Can we sustain ourselves in an environment that does not have mass vehicle production?'—100 per cent; everyone would have been having those conversations. Whether they are being successful in those diversification opportunities is another issue, of course.

Mr Griffin : And for some individual firms the strategy might just be that they would turn the lights off and go home. That may well be the case.

Senator MUIR: Yes, I was about to say: you just said 100 per cent; I actually was not quite sure whether it would be 100 per cent, but the next question would have been, why are some component suppliers not actively seeking diversity?

Mr Reilly : Just for clarity, 100 per cent would have had the conversation, but, as Jim said, some would have gone nowhere. We are only here to supply our customers. In fact, a couple of multinationals have already made announcement that once their customers leave Australia they will leave Australia as well. That is public information.

Mr Griffin : Yes, these larger firms that are only here because the car makers are here.

Senator MUIR: Specifically for that purpose, and they are happy to shut down once that manufacturer is gone.

Mr Reilly : That is right.

Senator MUIR: In your opening statement, you mentioned the niche market, and you mentioned it a bit further on, including the modelling from the UK. For the record, could you explain what a niche market may look like in Australia?

Mr Reilly : Senator Carr alluded to some earlier on. FAPM has had a number of conversations with organisations and individuals who have been looking at the prospect of either developing a car or some sort of vehicle going forward. One of them we have had discussions with around the place have talked about a niche manufacturing of 10,000 to 12,000 vehicles per annum production, for example. The other few I do not think have said that many. That is the quantum that we have been told, in any case, that they are projecting their business case for.

Mr Kiwan : I just want to answer that question as well. It does not necessarily need to mean whole vehicle manufacture. For instance, going back to Senator Carr's example of the UK industry, the UK chose to invest in engines—fuel-efficient, small engines. That was their niche in terms of the global automotive market which supported their components sector. So I do not think it is just about number of vehicles manufactured. It is: what part of the supply chain do you want to concentrate on? We have the auto 2020 Vision, the AutoCRC, list of four areas which are: lightweighting, electrification, intelematics and gaseous fuels. We have already identified those areas that we could compete in globally. So it could be as simple as that.

Senator MUIR: That is the picture I was trying to paint, because it does not necessarily have to be a vehicle that we are manufacturing here; it could be a vehicle that we get over here, and, correct me if I am wrong, may be something that we turn into a military vehicle, by adding extras?

Mr Kiwan : Correct.

Mr Reilly : Although the ones we have been talking to—and we have talked to other people within the industry—are proposing vehicle manufacturing, so that is why I gave that example.

Senator MUIR: Yes. What policy incentives do you think we could introduce to allow growth and development in these areas?

Mr Reilly : From an ATS perspective, because that is where essentially the money is—money is generally required to incentivise a company to do something—we do have some suggestions on changes to the ATS that will be helpful to supply chain companies. But, as Senator Carr was alluding to, by definition we will have to have change to either the act and/or regulations going forward. At the end of 2017, the definitions mean that you fall out in any case. There has to be a real unity ticket within the industry on how we go forward on the ATS post 2017 following today's announcement.

Senator MUIR: I think you have more or less answered my final question. Has the government's announcement this morning that it will restore the ATS settled the key issues for you?

Mr Reilly : It does for a few years, out to 2017, but do not forget that the ATS is supposed to go out to 2021, so there is still $400 million in the 2018-19 to 2020-21 period that is in the ether at the moment. I am not sure what the status of that is, given what we have just been talking about. That is a whole other conversation as far as I am concerned. FAPM has been agitating on the loss of $500 million out of the ATS to the MYEFO of December 2013. The conversation now has to turn to where we go from here, how we sustain ourselves given moneys out to 2017, what industries we have post 2017 and what sort of funds government can allocate to the automotive sector, whichever part of the automotive sector that is, going forward. That is where we are up to now as far as I am concerned.

Mr Griffin : As I mentioned earlier, how do we transition the asset that we have into something new from 2018 onwards?

ACTING CHAIR: Senator Edwards, you now have the call.

Senator EDWARDS: Let's have that conversation now. You have the announcement this morning, which I think everybody welcomes. It gives a bit of clarity around the car makers, some of whom are present in the room listening to your concerns. You have a number of recommendations here in your submission—one through to nine. Have you discussed all of those with the industry minister?

Mr Reilly : The industry minister's office has certainly seen these, yes.

Senator EDWARDS: Some of these make eminent sense and, given that there is a budget for it, you now would be doing what?

Mr Reilly : From now on FHM will be liaising with the government on some of our ideas and we will see how that pans out. But, as I said, the announcement today is a good announcement from the industry's perspective—it is a great announcement. The funds are no longer being removed from the ATS. That is what a number of organisations and individuals have been working on for a number of years. Now I think the questions are: well, what do we do with that? Where do we see ourselves in the post-2017 business?

Senator EDWARDS: But hasn't the minister said that is an issue for you? Now you have the opportunity to make the transition that you want to make, so the conversation where you talk about what you have to have beyond 2017 to 2021 is in your court?

Dr Green : It is now.

Senator EDWARDS: It is now.

Dr Green : We will take it up and run with it, but no-one has come to us and said, 'This is the decision.'

Senator EDWARDS: Well, if you wait for the government to come to you—I had this conversation with the Australian Submarine Corporation a few weeks ago—you are not thinking straight.

Dr Green : No, I understand that.

Mr Reilly : No, Senator, we are not waiting for the government—

Mr Griffin : No-one had come to us to tell us that the announcement this morning was going to happen. We now have that document, we now know where that is and now we are back on it.

Mr Reilly : So we will plan and go forward now.

Senator EDWARDS: So the conversation you referred to about 2017 to 2021 will involve what? Flag it for the minister—he will read the Hansard, I am sure.

Mr Reilly : We will liaise with the minister's office in the first instance and we will liaise with the bureaucracy. We have our ideas, we will get in front of them and we will project our ideas.

Senator EDWARDS: What are your ideas?

Mr Reilly : In the recommendations in the—

Senator KIM CARR: We went through it before—

Senator EDWARDS: Yes—that is fine. So your idea is to get your recommendations up now in light of the announcement this morning?

Mr Reilly : Yes—absolutely.

Senator EDWARDS: Has anything changed in the recommendations 1 to 9?

Mr Reilly : No, not really. It is all predicated on having money in there post 2017, so we—

Senator EDWARDS: So we are all good?

Mr Reilly : No. We will go back and reflect. We think these are solid ideas that we will take to the minister, to the bureaucracy and to the government. We will—

Senator EDWARDS: I agree with you—I firmly agree. But with all those recommendations you are nuancing things around when money comes in—cash flows and all of those kinds of things. He is a sensible guy—a former farmer. He understands cash flow—

Senator KIM CARR: He understands government support!

Senator EDWARDS: He gets it. Obviously, it is all in there for you to go now—I urge you!—to get in front of him as soon as you can.

Mr Griffin : Absolutely, because unless there are changes made to the regulations we will not be able to access the money anyway.

Senator EDWARDS: Apparently that is easy, according to Senator Carr; we can fix that in a heartbeat!

Senator KIM CARR: It can be fixed. This is the problem: you have to have an attitude to want to fix it, not throw people out the door and lose letters when companies approach you for support!

Senator EDWARDS: There is—

Senator KIM CARR: That has happened.

Senator EDWARDS: These fellows are in unanimous agreement that they have a door open to them when they leave this hearing today that was not open to them—

Mr Griffin : Absolutely.

Senator KIM CARR: I am glad you speak for the minister. It is nice to hear.

Senator RICE: Almost following on from that: if you get your recommendations up, we get the money and we then have the money being spent in a sensible way so that it does not all fall over in 2017, what do you see the automotive industry looking like after 2017?

Mr Griffin : It will be a challenge for it to employ the same levels of people that it does today. That is just a reality.

Senator RICE: Do you have a sense of what proportion? What size it would be?

Mr Griffin : It would be irresponsible to speculate on that at this point. Beyond that—

Senator RICE: In your most optimistic—given the skills base that we have—

Mr Griffin : If we can limit the damage to a loss of one-third of the employment base then I think we will have done very well.

Senator RICE: Okay.

Mr Griffin : I think that is being quite fair. There are an awful lot of people in the automotive industry who have worked in the automotive industry for a long time. When you look at the population of the workforce, a lot of those people will now retire. We know that; there is going to be a natural attrition. What is going to be left as far as people who want alternative positions and alternative work, that is what we need to frame. I would then call upon the governments of Victoria and South Australia to work very closely with the feds in order to have a strategy across the three states which do most of the employment.

Senator RICE: Can I just clarify that—if you limited it so that we ended up with an industry that was two-thirds of the current size or one-third of the current size?

Mr Griffin : If it were two-thirds of the current size we would have done very well.

Senator RICE: Done very well—

Mr Griffin : Absolutely.

Senator RICE: In addition, is there an extra capital addition to the ATS, or extra training, that you think is going to be essential to reach that optimum output?

Mr Griffin : Yes, there will be—all of the above. There is transitional training for the workforce in picking up new skills. The capital issue is one that has been very interesting for us, because under some of the existing guidelines the only capital that is actually eligible for compensation is brand-new capital. To be quite frank, we have an abundance of underutilised capital in the industry at the moment—

Senator RICE: Yes—it has to be transforming it.

Mr Griffin : So it is transforming that capital: converting that capital, reengineering it, relaying out the plants and consolidating two plants into one plant. That is the type of support and assistance that needs to become eligible.

Senator RICE: And how about the training requirements?

Mr Griffin : Absolutely—training, pre-skilling—

Senator RICE: Above and beyond what is currently being talked about?

Mr Griffin : The programs that are out there at the moment are pretty good as far as the support the industry is getting around training goes. Retraining has been recognised as something that is pretty pivotal. But, having said that, retraining can also manifest itself at the corporate level. Organisations need to be trained; not so much the people, but organisations need to be retrained and remodelled as well.

I will give the committee an example. The automotive industry supply chain basically sees the customers pick up every product that is made by the suppliers. They have a logistics network which sees the car companies themselves drawing their product from the suppliers via what we call a 'milk run'. When components suppliers are going into new markets, with new customers in new areas, all of a sudden they have to create a distribution capability—a marketing and distribution capability. This is a completely new skill which many component manufacturers do not have, because they have not needed it.

Senator RICE: Right. So they have to be able to outreach, rather than just saying, 'Here I am as a resource'?

Mr Griffin : Correct. So retraining is at the corporate level as much as at the employee level.

ACTING CHAIR: Thank you very much, gentlemen, for appearing before us. Unfortunately, time has got away on us.

Senator EDWARDS: Thank you very much.

Mr Griffin : Thank you.