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Tuesday, 29 May 1984
Page: 2013


Senator BUTTON (Minister for Industry and Commerce) —by leave-The decision to establish a passenger motor vehicle industry in Australia was made in the 1940s. Since then, the industry has been subject to numerous changes of fortune and, more recently, to changes in government policy designed principally as responses to particular crises which have arisen. This Government is firmly committed to the continuance of a viable motor vehicle manufacturing industry in Australia. It is an industry which employs a large number of Australians, which has nurtured managerial and engineering skills, and which contributed significantly to gross domestic product.

The Government recognises the need for industries with a good future, competitive both here and internationally. Inevitably, as in all industrialised countries, there will be in Australia changes in the structure of industry, with some industries declining and new industries developing with sound prospects for future growth. There are also industries already established such as the manufacture of passenger motor vehicles which, given the right policy environment and commitment from the industry itself, can become increasingly competitive, stable industries and a strength rather than a weakness in the Australian economy. It is the Government's task to facilitate the process of change, and to ensure that it is accomplished with minimum disruption and cost.

In looking to such a future for this industry, the Government is hampered with the mistakes of the past. It is, for example, a trite observation to say that there are too many manufacturers in Australia. It is a fact of life which has to be taken account of. In the 1950s and 1960s, the industry had two or three dominant manufacturers, each producing a relatively large volume of cars. In the early 1960s, Australia had a skilled, viable and relatively competitive automotive industry. Operating behind a tariff wall of 35 per cent for both imports and components, the local industry produced three models which held most of the local market. The local market operated as a volume base for significant export activity, particularly in the South East Asian region. In the early 1960s , General Motors-Holden's Ltd exported over 30 per cent of its product.

The competitiveness of the industry has declined a great deal since that time. An important source of the competitive slide of the Australian industry was external to Australia. During the 1960s and 1970s, the Japanese car industry's competitiveness improved dramatically against the vehicle manufacturing industry of all vehicle-producing countries, not just Australia's. But there is more to the decline of the Australian industry than the prodigious achievement of the Japanese. There is much for which we are responsible ourselves, and so much, fortunately, which we can do to improve the situation ourselves. Government policy since the mid-1960s has been increasingly characterised by short term crisis containment, lack of direction and inward-looking policies.

In summary, the result has been an industry which has had rising levels of protection and declining levels of performance-circumstances which are costly to the taxpayer and damaging to the industry itself in terms of its morale, prestige, security of the work force and capacity to plan ahead. The community is entitled to expect that over a period the industry will adjust to a reversal of the process I have just referred to, and that there will be an improvement in performance at less cost.

Throughout the difficult process of considering this industry, the Government has consulted widely with the various interests involved, and has sought, and obtained, their views. The issues and the relationships between the various sectors of the industry are complex, and we are conscious that no prescription for change and the development of a new sense of purpose and direction can receive universal approval. Nor are there any text-book solutions for an industry with the history of this one, and with the consequences which flow from the fact that it is almost entirely foreign owned. The process of changing direction, however, is not assisted by ill-informed speculation based on nothing but political, journalistic or other expediencies suggesting on the one hand rising costs to the Australian consumer, or dire employment consequences if any change occurs.

In the course of the process of consultation to which I referred, the Government in October last year appointed a Car Industry Council comprising representatives of the various sectors in an attempt to solicit industry solutions to the problems which have to be faced. I am grateful to those who participated in the work of the Car Industry Council which provided a valuable avenue for consultation, communication and exchange of views between government, union and employer participants. I believe it was the first stage in replacing the pessimism and lack of direction which had come to permeate the industry, with some optimism and sense of common purpose. While on the Council there was widespread agreement on the nature and extent of the industry's problems, there was much less agreement on the methods of solving them. In an industry which embraces a number of very diverse interests, which is severely fragmented and in which the desire to advance particular sectional goals is inevitable, it is not surprising that agreement could not be reached. The need for a long term direction was, however, keenly felt at the Council. In its report submitted to the Government on 14 December last year, the Council proposed:

. . . that the Government announce an industry goal. The purpose of such a goal would be to give notice to the industry of the direction in which the Government wishes it to go. Individual participants in the industry would then be able to make forward plans, in consultation with government, which they knew to be in harmony with the Government's long term aims for the industry.

The industry goal would involve 'a target for the industry to reach, and a strategy to reach it'.

There are a number of principles which have guided the Government in considering an appropriate strategy:

1. There must be a process of adjustment over a period of years. In an industry with long lead times, predictability and stability of policy are essential. This is even more important during a period in which significant structural change is expected to occur.

2. The need to concentrate on the strengths of the industry with a view to encouraging exports.

3. The encouragement of rationalisation and cost reduction.

4. The necessity for greater integration of the Australian industry.

5. The encouraging of greater Australian equity in, and participation in, the management of foreign-owned companies, as well as increased autonomy of local operation.

If the strategy is implemented with firmness and commitment, the local manufacturing industry should be considerably more efficient in the 1990s than it is today. That efficiency should be reflected in a lower cost disability against the world industry; an ability to compete without quota restrictions on imports; lower real prices for locally manufactured vehicles; stability of employment in the industry; an industry which has concentrated its efforts towards its strengths, and is not only more competitive against imports, but also an active exporter; and, finally, an industry which displays greater unity of purpose, integration of functions and management, and technical co-operation between the components and vehicle manufacturing sectors.

In order for the industry to achieve these aims, major changes in industry structure, relationships and practices will be necessary. If these changes occur there is, in the Government's view, no reason why the industry should not be manufacturing at about the same level as it is today, in an environment of stability and purposefulness. If the changes help the industry towards greater success in export activity the volume, use of capacity, and employment in the industry will improve even further. I turn now to the major policy measures to be implemented by the Government:

Short Term Measures

A number of measures will be introduced to help stabilise the industry in the short term, and to enable it to meet the challenge of gradually reduced restrictions against imports. As from tomorrow, certain passenger cars currently classified as varients or 4-wheel drive vehicles, and therefore attracting a lower rate of import duty, will be brought under the passenger motor vehicle plan and attract the same rate of duty. Normal agricultural 4-wheel drive vehicles and forward control vehicles will not be affected by this process. Quota arrangements, as adjusted for the inclusion of specific categories of variants and 4-wheel drive vehicles brought under the plan, will be continued. This will avoid the possibility inherent in the previous Government's policy of sudden shocks to the industry and will give some stability and predictability. The quota for completely built up imports in 1985 will be 110,000 vehicles, a figure which includes some 20,000 vehicles formerly classified as variants and 4 -wheel drive vehicles and referred to above. Plan manufacturers will each be allocated 6,000 imports. The export facilitation scheme will be amended so that Australian skill levels are protected, and to ensure that the extension of export facilitation beyond 7 1/2 per cent will not be prejudicial to the orderly development of the industry.

Price Reductions and Gradual Removal of Quota Restrictions against Imports

To ensure that over a period the efficiency gains which the Government expects from the measures outlined in this statement are passed on to the consumer, the penalty tariff on cars imported outside of quota will be gradually lowered.

The Government will encourage efficiencies in the import sector by gradually deregulating the current method of going from 150 per cent in 1985 to 125 per cent in 1992. This Government will be phasing the penalty tariff from 100 per cent in 1985 down to 57 1/2 in 1992. This will mean that by 1992 a car entering the country outside quota will do so at the same tariff rate as one within quota , and quota restrictions will cease to have any effect.

Automotive Industry Authority

An Automotive Industry Authority will be established to act as an honest broker in the industry, monitoring the activities of, and consulting with, industry participants to encourage consensus and action consistent with the Government's policy objectives. It will act as a catalyst to promote desirable change, improve integration, co-ordination and effectiveness. The Authority will report regularly to the Government and the Australian people on the competitiveness of the industry.

Reduction in Model Lines

An important function of the Authority will be to facilitate the Government's aims of achieving a contraction in the number of model lines provided by the Australian industry, and a corresponding increase in the volume of each. Such a development, along with standardisation of components, can achieve much in terms of efficiency. Features of the industry by 1992 should thus include the production of six, or fewer, model lines compared to the current 13; a concentration on vehicles and components in which the Australian industry has the least cost disability and substantial volume of demand; and increased sharing of models between manufacturers on a rebadging basis.

In early 1988, the Government will give special consideration to the Authority' s annual report for 1987 in relation to the progress made to date by, and the proposals by manufacturers for model rationalisation and to the success in achieving efficiencies in component production. In the light of that report and of the Authority's recommendations, we shall consider whether additional measures are needed to hasten rationalisation.

Labour Adjustment

Because this industry has, during the last 10 years, been subject to sharp reductions in employment, and for reasons elaborated on elsewhere in this statement, the Government has decided to designate the industry for the purposes of the labour adjustment training arrangements scheme, the LATA scheme.

The Import Sector

The Government will encourage efficiencies in the import sector by gradually deregulating the current method of allocating base quota. The Government believes that the market share of an importer by 1990 should be a result of that importer's competitiveness in the local market. It should not be determined in large part by their performance in 1974-nearly 15 years before, when quotas were first imposed. Accordingly, the Government will phase in a system in which all quota are put to tender.

It is possible for a tender system of this kind to be disruptive either because it is brought in too quickly or because a particular importer seeks to corner all, or most, of the available quota. The Government will not tolerate predatory behaviour and has sought and obtained assurances from the major importers. The phasing in of a tender quota will be over four years.

Assembly at Low Local Content

Assembly operations with low local content bring little to this country. The import price of a full pack of components is often very little different from the import price of the assembled vehicle, and the assembly operation takes little skill, is uneconomic, and feasible only with a very high level of assistance. We have therefore decided to reduce considerably, over the next few years, the effective rate of protection given to pure assembly operations. The concessional rate of duty on packs imported by assemblers will move up from 35 per cent to 57.5 per cent by 1988.

We have decided also that the 15 per cent imported content allowance-and additions thereto gained by export facilitation-currently used by manufacturers to import duty-free components, may be used by them to import components or cars . Under such an arrangement, manufacturers would be able to import fully a proportion of vehicles they would otherwise assemble here while maintaining an 85 per cent company average. The major benefits would be: Reduced costs and lower prices for those companies able to use this option; increased demand for higher local content vehicles competing with vehicles which have been removed from production. This facility, if utilised by a manufacturer, should be introduced in an orderly way to minimise any possible disruption.

Design and Tooling

I have emphasised the Government's desire to encourage the best aspects of the Australian industry, and to enhance its skill and technology. The Government will give positive assistance to the design of components or vehicles, and has decided over the next five years to allocate up to $150m aimed at the developing automotive products competitive in the domestic and international markets. Full details of this scheme will be announced shortly. Benefits will accrue to the tooling industry from fewer vehicle models with longer production runs and from a greater emphasis on indigenous design. The Government will also co-operate with the South Australian Government in examining the feasibility of establishing an industry consortium jointly to produce tooling used in the manufacture of motor vehicles and components. It is an obvious example of an activity where co-operation rather than competition should provide considerable benefits to the industry as a whole, and the suggestion has received favourable reaction from several manufacturers. It will have our support.

Ownership and Control

Over the years the Australian motor vehicle industry in all its parts has been marked by a very high degree of foreign ownership and control. This has brought some benefits, not only in terms of investment and technology transfer but also by way of greater integration of the Australian and the world car industries. The fact remains, however, that decisions made in overseas boardrooms can profoundly affect the local industry and work against its best interests. The Government desires to see greater Australian participation in ownership and control in all sectors of the industry, and greater participation by Australians in the management, at all levels, of overseas-owned companies operating here. In any corporate restructuring the Government would expect proper opportunity to be given for Australian equity and control, and it will instruct the Authority to bear these aims in mind in promoting rationalisation.

Transfer Pricing

Suggestions have been made that both vehicles and components are being imported into Australia at f.o.b. prices substantially below equivalent prices at home or into other markets. An integral part of any move to tariff only protection must be action to ensure that the Australian industry will be competing against fair prices in the domestic market. Accordingly, the Government will require the Automotive Industry Authority to monitor prices in Australia and overseas. If unfair pricing practices are suggested by the monitoring, procedures will be established for dealing with them.

In addition, if the local content scheme is to work and be seen to work effectively, it must operate according to fair prices. This is an area where we are not satisfied that previous governments have done all that they could. Because of that, starting in 1985, plan producers will be required to provide the administering Authority with a complete cost breakdown by individual functional components of component packs actually landed in this country. This will be required to be done on an ongoing basis. The plan will be amended also to empower the Minister, on the advice of the Authority, to seek justification of component prices where there are reasons to make such a request.

Intent of Policy

These are the essential elements of government policy in respect of this troubled industry. They are designed to provide a framework in which the industry can develop with a sense of purpose and vision. They are designed to provide short term assistance to the industry to help it to face up to a process of orderly adjustment with a view to attaining greater efficiency and stability. They are designed to reduce the cost to the community and the disruptions to the industry and its employees which have occurred over the past decade. They are designed to allow an important manufacturing industry in Australia to show that it has the capacity to adapt and do well in the domestic and international markets. There are a number of other more detailed aspects of the Government's proposals which will be dealt with in separate documents, although some aspects such as those requiring consultation with New Zealand under the close economic relations trade agreement remain to be settled.

The proposals outlined above are predicated on the fact that two of the most important considerations in the success of a motor industry are volume and continuity, both in vehicle manufacture and the component sector. The proposed reduction in the number of model lines is aimed at achieving this result. By the early 1990s the Government expects to see no more than three vehicle manufacturing groups operating in this country. The least disruptive way in which this can be brought about is by consortium and co-operation arrangements between existing manufacturers to preserve their operations in this country. Government policy will facilitate this. Improvements in the competitiveness of the components industry can be expected to flow from changes such as increased economies of scale made available through model reductions and co-operation between vehicle manufacturers; increased use of standardised components and common technical standards by all manufacturers; improved technical integration with customers; and greater stability of ordering from customers. The Government will again be actively promoting these objectives.

Employment

I turn now to the question of employment, which is a matter of prime concern to the Government, and a subject of much ill-informed speculation. The motor vehicle industry in the past 10 years has been subject to severe reductions in employment, which have been largely related to the success or otherwise of the respective manufacturers in the market. In the last ten years employment has reduced in the vehicle manufacturing sector by 11,000. In 1983 employment by one company alone reduced by approximately 3,000. In December 1983 I was informed by GMH that as a result of substantial financial losses incurred by that company, it was its intention to reduce its work force by a further 3,500 to 4,000 employees. This advice was confirmed three weeks ago. Earlier this year I was informed by Mitsubishi that as a result of substantial losses incurred by that company, it was its intention to reduce its work force by approximately 150. A recent announcement by that company confirms this intent. On the other hand, Nissan Motor Corporation is about to employ nearly 200 more workers as a result of increased used of capacity in building Pulsar vehicles for GMH.

If the intentions referred to above are carried out, they will take place irrespective of any action by this Government. They are a direct result of the chronic instability in this industry, represented by too many manufacturers producing too many models in a small and highly competitive market which in recent years has had no opportunity of expansion into exports. This Government is concerned to provide long term stability, the capacity to expand and to provide secure employment. Inevitably, however, there will be reductions in total employment levels in this industry by the 1990s. This is a pattern which has characterised industries of this kind throughout the world, and each of the manufacturers in Australia has confirmed the view that Australia will be no exception to this process. If there is an improvement in the competitiveness of the industry, however, the employment situation will be much better. This is the challenge which the industry faces and which the Government is concerned it should meet. If it does so, then the prospects for stable employment in the future, albeit at a reduced overall level, will be enhanced.

In the short to medium term, the policies which I have referred to above should give the industry an opportunity to improve its volume and to stabilise employment. The longer term situation will depend very much on an improvement in competitiveness accompanied by some reduction in overall employment. For this reason the government has designated the industry as one to which the labour adjustment training arrangements-LATA-scheme applies. This scheme is aimed specifically at providing retraining assistance for workers retrenched from designated industries. It is proving to be an effective tool for structural adjustment, and has been well accepted by eligible workers. Trainees, who receive a special benefit of $46 a week over and above unemployment benefits, have undertaken a wide range of vocational courses to upgrade and improve their skills.

Conclusion

The broad outline of the Government's proposals for this industry is not negotiable, although in an industry of this kind there is always room for minor adjustments and improvements during a major program of change. In the course of this plan the Government expects co-operation from the industry, and if it is not forthcoming, it has methods at its disposal, such as acceleration of the reduction of penalty rates or denial of access to imports to plan producers, to ensure that the intent of the plan is carried out. The Government will certainly act if there are attempts to subvert the intent of the plan by importers or manufacturers. There is every reason to believe, however, that there will be co- operation in seeking to achieve the goal referred to earlier in this statement. The industry is aware of its shortcomings and aware that it has many difficulties to overcome, and has embarked on a series of initiatives to reduce its disabilities. One such initiative is the government-assisted project which commenced in late 1983 under the direction of the Federal Chamber of Automotive Industries and with the co-operation of the manufacturers, which is designed to achieve standardisation of motor vehicle components. This work is likely to achieve substantial savings to the industry by 1985.

Similarly, vehicle manufacturers and component manufacturers have worked together over the past year towards a supplier evaluation program designed to improve the price, quality and supply of automotive components and to standardise quality control mechanisms. Each of these initiatives has been fully supported by the Government. These commendable initiatives could well be the forerunner in Australia of what the Europeans refer to as 'co-operative competition' which, simply stated, means joint ventures, the development of consortia for production purposes and to utilise capacity fully, and the reduction of costs by standardisation of methods.

Some signs of confidence are returning to the industry. In recent weeks the Ford Motor Co. of Australia Ltd has signalled its intention to expend more than $41m to install an aluminium casting and machinery centre in Geelong. Other manufacturers have acquired plants in the component sector. These are expressions of confidence in the future, and are matched by the genuine efforts being made to improve efficiencies. But that future is much more in the hands of the industry than the Government. It must make new initiatives and difficult adjustments. The Government has laid down a policy framework within which the industry can modernise and progress. The Government has confidence it can do so. The community is entitled to see that it does. I move:

That the Senate take note of the statement.