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Wednesday, 27 May 2009
Page: 4547

Mr MARLES (5:25 PM) —I rise to speak in support of the Car Dealership Financing Guarantee Appropriation Bill 2009. When the global economic crisis came upon us last year, two car financing companies ended up leaving the Australian market as a result of the global credit crunch. One was GE Money Motor Solutions and the other was GMAC, the auto financing business of General Motors Corporation. Between these two financing companies, about a quarter of the wholesale floor plan finance was supplied to new car dealerships within this country. In addition to these two car financing companies leaving the Australian market, Ford Credit also reported serious liquidity issues. This presented an enormous difficulty to car dealerships around Australia. In fact, it is fair to say that it is impossible for a car dealership to survive without a viable floor plan financing arrangement in place.

So, as a result of that, the Rudd government acted very swiftly to deal with what was a very serious problem for this particular segment of the economy. We dealt with this swiftly, as we have dealt with the global economic crisis swiftly throughout the entire Australian economy. On 5 December last year the Treasurer announced that a special purpose vehicle-financing vehicle would be created to deal with this situation, and on 2 January this year this special purpose vehicle, known as OzCar, was established as a trust. The point of OzCar was to provide liquidity to car dealerships so that they would be able to put in place wholesale floor plan financing arrangements in order to provide finance for the purchase of cars.

Car dealerships within this country are a critical segment of our economy. If we look at the auto industry as a whole, it employs something in the order of 66,000 Australians. When you consider that a large proportion of those vehicles which are made in Australia are also sold and used in Australia, then you see the significance of retail car dealerships within the entire economy. It is a particularly important sector of the economy within regional Australia.

My electorate of Corio covers Geelong, where we have long been known as a car town. Indeed, to be more specific, we have been known as Ford town. Ford has played a significant role in Geelong since the 1920s, and this is not just through the making of cars or through the employment of car-manufacturing workers but also through the enormous contribution that Ford makes to the town in which it is based, such as Geelong. As one example of that, Ford has been the long-term sponsor of the Geelong Football Club. Indeed, that sponsorship arrangement between Ford and the Geelong Football Club represents the single longest sponsorship arrangement in world sport. That says something of how significant a company like Ford is to a place like Geelong.

But it is not just those people who are involved in the manufacturing of cars in Geelong—and there are many thousands who are employed by Ford in that endeavour. In addition to that, we also have in Geelong the largest new car Ford dealership in Australia, Rex Gorell Ford, which has been in business for 24 years. Indeed, the Rex Gorell Group itself employs 320 Geelong workers.

The Gorell family are a long-time established family within Geelong; their roots in our city go back to the mid-19th century. Not only do they contribute to Geelong through being a major employer within our region but, indeed, the Gorell family and in particular Rex Gorell have been leading citizens within our community and have made generous contributions of their time and effort to many aspects of the Geelong community. Rex Gorell Ford is just one dealership, and there is just one person in charge of that dealership, but it represents how important car dealerships are to a place like Geelong and it represents how important car dealerships are as a segment of the Australian economy.

So, with that in mind, the special purpose vehicle OzCar is playing a very important role in ensuring that this segment of the economy survives a very difficult period of time. It works in the following way: OzCar is a special purpose financial vehicle which will be managed by Perpetual Nominees and Credit Suisse. It will work closely with both the Commonwealth Treasury and the four major Australian banks, ANZ, the Commonwealth Bank, Westpac and the National Australia Bank.

OzCar will provide finance in the following way. The four major banks will purchase securities from OzCar and these securities will all have a AAA rating under the Standard and Poor’s rating system. They will have that rating by virtue of a guarantee provided by the Commonwealth government. That guarantee was provided on 23 December last year by a deed of guarantee. Through the funds raised in this way, OzCar can then provide finance to eligible dealerships to ensure that these dealerships have in place a wholesale floor plan financing arrangement. This provision will be in place for 12 months.

At the outset, it needs to be said that the car dealership sector of our economy have dealt very well with GE and GMAC leaving the Australian market. Indeed, a very large proportion of the financing which was previously covered by GE and GMAC has now been covered by other finance providers. It is a credit to the car dealership sector that they have managed to put those arrangements in place. But, nevertheless, OzCar will still be needed, particularly in relation to Ford Credit.

This will not be, in any sense, a blank cheque for those car dealerships. Very significant prudential parameters will be put in place around the way in which this finance will be provided. First of all, in order to be an eligible car dealership you need to have previously had in place a car financing arrangement through either GE Money Motor Solutions, through GMAC or through Ford Credit. The finance that will be provided by OzCar will only be provided to wholesale floor plans.

Auditors will be put in place to monitor the stock management systems of any car dealership which seeks to avail itself of finance through OzCar. While there will be no guarantee fee associated with the guarantee provided by the Commonwealth, while there will be no guarantee fee charged in the pricing of this finance—and there will not be a fee charged, because it is important not to place any additional pressure on these loans and on consumers in what is already a stressed part of our market—and that fee will not be part of the charging system, finance will be issued at a price with sufficient income and reserve buffers to meet any losses. In addition to all of that, dealerships will need to demonstrate that they are viable dealerships in order to avail themselves of finance through OzCar.

All of those prudential parameters which are placed around the providing of finance from OzCar to these dealership are being put in place so that there are significant protections upon the public purse and so that the situation arising where the guarantee may come into place hopefully does not occur at all. But, in any event, these parameters are being put in place to avoid the risk of the guarantee ultimately needing to be called upon.

The specifics of this bill in the context of this initiative provide for the appropriation for any claims that are made as a result of the guarantee which is given by the Commonwealth government in relation to the securities which are issued by OzCar to the four major banks. Of course, that guarantee is critical in this whole package in order to attract the AAA rating of Standard and Poor’s. In providing for this appropriation, there is not a specific limit established within this bill. The extent of any claims on the public purse will obviously depend on the extent to which the guarantee is called upon where any loans that are issued by OzCar are not fulfilled. So it is impossible to state exactly what appropriation, if any, will ultimately be required. But the contingent liability associated with this is estimated to be $550 million. That equates to 45 per cent of the remaining GE and GMAC loan books and 85 per cent of the Ford Credit loan book.

This is a very significant initiative. It is one that was put in place very rapidly and very efficiently in order to deal with a crisis that was imposing itself on a very important segment of our society. Were a situation to have occurred such that significant numbers of car dealerships found themselves in a position where they were unable to trade, that would have resulted in a significant loss of employment throughout the economy, particularly in regional areas such as Geelong. So it is very much to the government’s credit that it was able to act as quickly as it did, similar to the way in which it acted quickly in dealing with this global economic crisis more broadly. The government acted swiftly in providing security in our economy through the bank guarantees and the various stimulus packages, and this has provided a means by which we have been able to guide our economy and our society through a very difficult time.

This is an important initiative for a very critical sector that is already doing it tough. The year-to-date figures for car sales in Australia through April this year show that 276,935 vehicles were sold, compared to sales of 347,514 vehicles through April last year. That is a difference of 70,579 cars or a decline in sales over that period of 20.3 per cent. This is a sector of our economy that is already doing it tough as a result of the global economic recession. It is very important that it does not receive a double blow through the credit crunch which is at the heart of the global economic recession. This bill plays an important part in a very important initiative to ensure that this sector does not receive that double blow. For that reason, I commend it to the House.