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Wednesday, 27 May 2009
Page: 4570

Mr ZAPPIA (7:16 PM) —I rise to speak in support of the Car Dealership Financing Guarantee Appropriation Bill 2009. It is another example of the Rudd government acting swiftly and decisively to support another sector of the community which has been negatively affected by the global economic downturn.

In January 2009, the OzCar special purpose vehicle was established by the government to support interim funding to car dealerships. The OzCar SPV is designed to provide critical wholesale floor plan finance to eligible car dealerships so as to ensure that the departure of GE Money Solutions and GMAC from the Australian market and the liquidity challenges confronting Ford Credit does not result in the closure of hundreds of otherwise viable car dealers across Australia, resulting in thousands of job losses.

The car dealer SPV will be a trust that will raise capital by selling securitised assets to the four major banks, under the cover of a Commonwealth guarantee where necessary. The capital raised will be made available to eligible car dealers through participating financiers for a period up to 12 months. The car dealer SPV will provide wholesale floor plan financing only to eligible dealers. It will not finance any retail operations, capital loans or real property loans. To be eligible for possible wholesale financing under the SPV, a dealer must satisfy the following basic conditions.

The dealer must currently be financed by an exiting financier, that is, GE Money Motor Solutions or GMAC; the dealer must currently be a new car dealer or a mixed dealership selling both new and used cars from the same business or is currently a dealer in new motorbikes, boats, caravans, trucks and commercial vehicles with wholesale floor plan finance provided by GE Money Motor Solutions or GMAC; the dealer must demonstrate that the dealership is a viable business consistent with the usual commercial lending criteria of recognised finance providers; they must be able to present up-to-date, accurate and comprehensive information on all aspects of the business as may be required by recognised and participating finance providers. Dealers who secure finance through the SPV will be subjected to regular audits consistent with best practice industry standards.

 Car dealers will in the first instance apply for wholesale floor plan financing from a participating financier of their choice. The financier will make a commercial decision as to whether they have the willingness or the capacity to finance the dealership from their own resources. If a participating financier cannot accommodate the dealership, yet the dealership satisfies the overall eligibility criteria for SPV financing, the financier may arrange finance for the dealership through the SPV.

The SPV will not be providing any subsidised finance to any eligible car dealer. The cost of finance from the SPV will be market based and reflect current developments in the Australian and global capital markets. Car dealerships generally cannot remain in business without a viable floor plan financing arrangement.

Credit Suisse is acting as program manager of this special purpose vehicle, with Perpetual Trustee undertaking the role of trustee. A number of other high profile service providers, including Standard and Poor’s, Deloitte, Liberty Financial and Allens Arthur Robinson, are providing the necessary supporting roles, ensuring the utmost scrutiny and accountability of the scheme. The Australian government will be providing a Commonwealth guarantee on the subordinated notes issued by the SPV to ensure that Australia’s leading banks are able to provide sufficient capital for the SPV.

Much of the automotive industry around the world has been in crisis in recent years. For many manufacturers, particularly those in the United States, the global financial crisis has caused a major upheaval to the automotive manufacturing sector. Chrysler Corporation filed for chapter 11 bankruptcy protection on 30 April 2009. Both General Motors and Ford are having to reassess their operations.

There has been a sharp decline in car sales worldwide because of the global financial crisis. The second half of 2008 saw the most savage contraction of demand for new cars since the Second World War. Compared to the same period 12 months earlier, car sales in December 2008 fell by 36 per cent in the United States, 22 per cent in Japan and 16 per cent in France. In China and Brazil—both rapidly growing emerging economies—previous quarters of strong growth became sharp declines in the last quarter of 2008.

I would like to quote Mr Sergio Marchionne, CEO of the Italian car manufacturer Fiat, because I think it shows just how dire the situation in the global automotive industry is. Fiat has experienced a near miraculous revival in recent years and the company is seen as one of the strongest and most stable in the global auto industry. Fiat recently acquired 20 per cent of Chrysler. When describing the current industry situation, Mr Marchionne said:

What we are seeing is unprecedented. I have never seen the failure of so many systems at once.

That statement from someone who understands the industry effectively highlights the significant and serious situation the industry is in. What is happening overseas with car manufacturing regrettably has a profound impact on car manufacturing here in Australia, particularly for Australia’s three local manufacturers, Ford, Toyota and General Motors Holden. Production by the Australian automotive industry peaked in 2004 at around 412,000 vehicles. This fell to around 324,000 vehicles in 2008 and, with current negative trends in monthly production figures so far this year, we can expect another significant decrease in production for the year 2009.

In South Australia, my home state, Mitsubishi has closed its manufacturing operations with around 1,500 people losing their jobs from the Tonsley Park and Lonsdale plants. At its peak, Mitsubishi employed around 5,000 people in South Australia and supported thousands more working in the supplier industries.  We have also seen a downsizing at the GMH plant at Elizabeth, with employment numbers falling in recent years from around 4,500 employees to a current level of around 3,000 employees, as a direct result of the global economic downturn which caused the drop in sales and subsequently a drop in production. The 3,000 employees at GMH have also lost overtime earnings as the plant moved to a single-shift, two-crew operation in April 2009. Also of concern is that since 2004 there has been a shift in sales away from locally produced vehicles. Even in the years when there has been a strong growth in new vehicle sales the percentage of vehicles sold, that were manufactured in Australia, has declined.

Automotive production, like all manufacturing, is directly linked to sales. The global economic crisis has had a direct effect on consumer spending and automotive sales. Sales of new vehicles in Australia fell in April 2008 by 24 per cent compared to the previous year. Sales year-to-date for new vehicles have fallen 20 per cent compared to the previous year. Sales have also been affected by the withdrawal or retraction of wholesale funding to automotive retailers. In particular, the withdrawal of GMAC Finance from the Australian market has had a serious impact on car dealers.

There are three specific financing firms for retailers that this bill addresses: GMAC, GE Money Motor Solutions, both of which have exited the Australian market completely, and Ford Credit, which is facing significant liquidity pressures that impact its ability to lend to Australian car retailers. All three of these firms have American parent companies that are experiencing difficulties because of the global economic crisis.

GMAC is the automotive finance business of General Motors. GE Money is part of General Electric, a large American multinational firm that owns a range of media, technology and financial services. Ford Credit is part of Ford Australia. I understand that the government has received assurances from Ford in the United States that Ford Credit will remain in Australia and continue to support the Ford dealer network, and I welcome that assurance. Both General Motors and Ford have manufacturing plants here in Australia, so in many cases it is locally made cars that are being financed by these firms. It is in the United States, where the global economic crisis began, that the crisis is having a devastating impact on many established companies. The effect of the global economic crisis on the parent companies of these automotive finance firms here in Australia has resulted in car retailers having difficulty in accessing finance. So what is happening in the US is directly affecting what is happening here in Australia. It is this funding gap that this proposal seeks to address.

Since the withdrawal of finance by GMAC and GE Money, around 60 per cent the auto dealers have secured alternative funding arrangements. Without these funding arrangements, two serious consequences result from the fall in auto sales. Firstly, manufacturing declines and car manufacturers already struggling are placed under further stress and more jobs are lost. Secondly, local auto retail businesses that are also being squeezed by the economic downturn simply cannot survive. Local businesses close and the ripple effect exacerbates already struggling economies.

This is particularly so in rural and regional areas. Many auto dealers in rural and regional areas are unable to access alternative finance relationships because of their volume of sales. These are businesses that have already been negatively impacted by other factors affecting rural and regional Australia, such as drought and flooding. The closure of a car dealer not only has a direct impact on the economy of the local community, but it adds to the costs of locals who in turn are forced to travel further distances for their motor vehicle services and repairs.

The financial difficulties for the car manufacturers in America have already had a devastating impact on their own dealers. Just weeks ago Chrysler cut 789 of their dealers, that is 25 per cent of their total. At the same time GMH advised 1,100 of its own retailers that their franchise agreements would not be renewed, and they expect to cut another 500 dealers in the months ahead. The global economic downturn has led to the closure of nearly 2,000 US car dealerships from these two brands alone with the loss of thousands of jobs. It is imperative that the Australian government does everything in its power to prevent a similar situation arising here in Australia.

I understand that several Mitsubishi dealers within Australia have been unable to access alternative financing since the closure of GMAC and GE Automotive. These dealers have been provided with temporary finance arrangements by Mitsubishi Motors Australia Ltd, but I understand that these arrangements expire at the end of June. These dealers who are currently unable to access alternative finance would benefit from this very measure. It is critical, therefore, that this legislation passes quickly through parliament and therefore provides dealers with the much-needed finance that they will be requiring in order that their businesses remain viable. I seek leave to continue my remarks later.

Leave granted; debate adjourned.