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Gearing up automotive policy for the twenty first century: address to the Federal Chamber of Automotive Industries, Canberra



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ADDRESS BY SENATOR T H E H O N P E T E R C O O K _ MINISTER FOR INDUSTRY, SCIENCE & TECHNOLOGY

TO THE FEDERAL CHAMBER OF AUTOMOTIVE INDUSTRIES

CANBERRA 2 MAY 1994

"GEARING UP AUTOMOTIVE POLICY FOR THE TWENTY FIRST CENTURY"

Let me start by saying a few words about the White Paper which the Prime Minister will deliver on Wednesday.

I had hoped the White Paper would precede this dinner.

That would have allowed me to talk in greater detail than I can this evening.

In one sense, we've got the cart before the horse.

But I think there are some important messages I can leave you with tonight.

Industry policy features prominently in the White Paper.

As indeed it should.

After all, the major share of jobs growth must come from business growth.

The Government wants to put in place a framework whereby industry and Government can form a forward looking partnership.

The framework should allow for future policy development.

And the partnership should enable business to plan for the longer haul.

The two key objectives to industry policy are simply stated:

• to build competitive firms and

• to build a competitive environment in which those firms can flourish

When we are talking about a competitive environment, that's not restricted to the domestic economy.

I think Mike has already made the point clear enough - it doesn't matter how competitive your product is if you can't get access to the market.

Your world class product faces significant barriers particularly in Asian markets.

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Industry and Government need to work together to remove those barriers.

I will come back to this theme a little later.

The Government has a deep-seated desire to provide long term job growth and rising living standards for all Australians.

This lies at the heart of the White Paper.

It lies at the heart o f industry policy more generally.

A competitive domestic environment is essential to long term industrial success and employment generation.

And this is why the White Paper will place a strong emphasis on continued microeconomic reform.

After all, if Government expects industry to achieve best practice, industry has every right to expect that Government also adopts best practice.

Industry must be supported by world's best practice infrastructure and institutional arrangements.

So I think Mike Quinn is right on the money when he says that both industry and Government must be more innovative.

Government has set itself the goal o f building a competitive environment.

It must also do what it can to help build competitive firms.

This is why the White Paper will have a strong focus on building competitiveness at the firm level.

At the end o f the day, we want to create an environment that encourages the development o f a new breed o f firms -

• firms with a high degree o f trade orientation

• firms that utilise best practice

• that benchmark against the world

• that constantly innovate

• firms that are customer driven

• and that focus on the higher value added areas

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• firms that are marked by their rapid take-up o f new technologies and underpinned by their strong links with our research institutions.

So what does this mean for the automotive industry?

Clearly, the automotive industry is a vital component o f our industry infrastructure.

It is key to our manufacturing base.

And as we all know all advanced economies boast a vibrant manufacturing sector.

Your industry exhibits the very characteristics that the Government wants to promote in all industries across the board.

Competitive advantage in a national economy depends on the capabilities o f individual firms.

But it also depends on the linkages between these firms and the opportunities that result.

The automotive industry plays a crucial role in the development and diffusion of advanced manufacturing technologies throughout Australian industry.

It also leads the way in management practices.

The automotive industry is a major user of the products o f other industries.

This means that growth in the automotive sector translates into growth in many other industry sectors.

And that's why the Government is committed to maintaining and growing a viable automotive industry.

At the same time, the Government understands the enormous challenges facing the industry.

Other Governments in our region recognise the critical role that an automotive industry can play in developing a broader manufacturing capability.

The prospect o f a rising dollar in the coming years is another important factor to consider.

The Car Plan devised by John Button has played a crucial role in bringing the industry to where it is today.

The Plan has provided critical support for the industry to adapt quickly and efficiently.

Nevertheless, the Government recognises that the adjustment process has been hard and the White Paper has been prepared with this in mind.

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It recognises that we need to consolidate on what's been achieved to date.

I think it is essential that we develop a shared vision o f the sort o f industry we would like to see in place at the turn o f the century.

This vision should encapsulate the characteristics of a world competitive industry.

For me, it would be an industry

• based on manufacture rather than assembly

• vertically integrated, with a strong supplier base

• an industry focused on high value added activities with strong links to our technology infrastructure

• an industry which draws its competitive advantage from Australian ingenuity and innovation

• a provider of highly skilled jobs which employ our best people

• an industry with rising export sales

• and an industry integrated into the booming markets o f Asia.

That's the pitch, so what action can we take?

O f course, the strategy we're all most familiar with is the Car Plan which was drawn up by John Button back in 1983.

The plan had three key policy objectives

• to increase productivity

• to enable the industry to compete with imports at reducing levels of Government assistance

• and to provide consumers with access to an affordable and high quality product

These objectives have stood the test o f two policy reviews.

This reflects the Government’s recognition that the industry needs long lead times.

Business planning also demands policy predictability and consistency.

Government set the industry a formidable task and industry responded.

We have seen the rationalisation o f manufacturing units, models and assembly facilities.

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Last year automotive exports totalled $1.5 billion.

And earlier today, the Prime Minister was down in Melbourne for the launch o f the two millionth engine exported from Australia.

The automotive industry is emerging as an efficient manufacturer and exporter of world class vehicles and components.

Critics may well try to diminish the impressive export gains the industry has made by pointing to the growth of imports.

Let me make a few points here.

1. There is no doubt that the competitive position o f the industry is now much stronger than it was ten years ago.

2. The government and the industry expected and intended that both imports and exports would increase as the industry internationalised and specialised.

3. The industry is still adapting to a more open environment, and its focus needs to stay clearly on increasing productivity and export-orientation.

Against this backdrop, I believe it is timely that Government re-examine its relationship with the automotive industry.

The aim should be a partnership based on outcomes.

The Government is committed to maintaining the assistance framework set down for the industry to the Year 2000.

I can't give precise details now - these must await the White Paper on Wednesday - but there will be an early review o f the post 2000 arrangements, with a decision to be made well in advance o f the year 2000.

There is a continuing role for Government in working with the industry to monitor performance against mutually agreed objectives.

But the more critical need is to address fundamental industry development and business environment issues which impact on the industry’s performance and long term viability.

We're talking about a whole raft o f priorities, some that I've already touched upon:

• microeconomic reform

• market access

a skilled and flexible workforce

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• a world class supplier base and access to new technologies.

In tackling these issues, I believe there is scope for the Government to adopt a more strategic and integrated approach to working with the industry.

By sitting down together, Government and an industry can identify key areas requiring reform.

The Government can also work with individual firms, or groups o f firms, to build competitive advantage at the firm level.

I'm talking o f support to accelerate adoption o f world’s best practice, to build the linkages between firms and our technology base, and to better integrate our government policies.

In this regard, I should warn Mike Quinn that he will soon be getting a letter from me proposing that we establish a working party to address microeconomic reform issues as they impact on the automotive industry.

If the Government is to adequately address specific issues it needs information - the industry must build a case and I am keen that we work through this together.

And I am prepared to get personally involved in this issue.

Where the issues are firm specific, we can address them on that basis.

Substantial acceleration in the use o f enterprise agreements is also necessary.

Labour productivity growth underpins a higher rate o f economic growth.

The Government wants to work with the industry to accelerate the achievement of world’s best practice and to maximise flexibility and multi-skilling in the workplace.

There are a range o f options which might be explored.

These include literacy training, and training for smaller suppliers who want to introduce enterprise agreements.

We may also need to refocus government programs to meet industry specific training needs and address emerging skills shortages.

As you know, creating and maintaining competitive advantage is not always clear cut where local firms are closely integrated into a global industry and ownership o f the product resides overseas.

Given that we don’t have the advantage o f a large domestic market, maintaining our place in the global industry is a significant challenge.

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If we are to develop a sustainable industry with the capacity to remain competitive with lower levels o f assistance, then the keys to our competitive advantage must be our people and our technology base.

One area where I think the industry is missing out is the 150 per cent taxation concession on research and development.

Some firms in the automotive industry are not taking full advantage of the tax concession.

Accordingly, my Department and the Industry Research and Development Board, will develop a guideline for the automotive industry which clarifies eligible expenditure under the concession.

The White Paper will also contain a number o f broad initiatives designed to ensure our technology infrastructure has adequate resources.

The aim is to meet industry's needs for both technology and skilled employees.

In the White Paper, the focus on industry programs will be largely generic in nature.

Nonetheless, it will be possible to focus program support on industry specific issues.

Utilising program funding to improve the competitiveness o f supplier chains in the automotive industry by supporting the uptake o f technology is one possibility.

The third point that Mike made in his introduction related to the aging o f the Australian car fleet.

The implications for investment, profitability and employment are obvious.

This is a complex issue and there are no simple solutions.

I must say there are practical difficulties in trying to reduce the age o f the car fleet in the current economic environment.

I would like to give this some further thought.

One possibility would be to pursue the question o f uniform re-registration procedures in each State through the Council of Australian Governments.

This is something I've asked my Department to examine.

Tonight, I have made some specific commitments in terms o f how we might address issues such as microeconomic reform..

From my discussions with individual companies, I recognise there are a broader range o f issues which require attention .

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As I mentioned at the beginning o f my remarks, market access can be a major stumbling block.

And opening markets is a key ingredient o f good industry policy.

In the medium term, there is no reason why the automotive industry won't continue its strong sales into the developed country markets o f Europe, Japan and the US.

But, as Mike mentioned in his introduction, there are enormous markets in the booming Asian economies.

While in the longer term your industry will see greater integration with markets in Asia, I don't see any good reason why we should wait for the long term.

To this end, the Government wants to w ork with the industry to negotiate improved market access on a bilateral basis.

I understand the Australian Exporters Group will be putting together an export strategy for the industry.

It will be helpful if the industry can tell us which priority markets we should target.

We can then negotiate market access on a bilateral basis.

I know I have covered a good deal o f ground tonight but I thought it important to set out the Government's thinking in some detail because the automotive industry is so important to our national economy.

The White Paper will give you some further indications o f the Government's intentions with regard to your industry.

On that tantalising note, let me finish my formal comments.

But before I sit down I have one final and particularly pleasant task.

And that is to present the Federal Chamber's Life Membership Award to Bernt Schlickum, Managing Director o f Mercedes-Benz Australia.

Bernt joined Daimler Benz in Stuttgart in 1969 as an assistant to the Board for domestic sales.

He first came to Australia in 1975, spending two years here as sales promotion manager.

After working in the United Kingdom and the Middle East he had the good sense to come back to Australia in 1981 and was rewarded for his good judgment by being made Director o f Operations and Deputy Managing Director.

In 1984, Bernt was appointed Managing Director o f Mercedes Benz Australia.

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And soon after that, he became a Member o f the Chamber's Executive Committee and served the Chamber as Chairman o f the Importers Group and Vice President.

He has been a strong and outstanding advocate for the Chamber, particularly in the area o f sales tax.

Bernt lobbied strongly prior to the last Budget for amendments to improve the application o f the luxury car sales tax - amendments that were subsequently put in place by the Government.

Bernt has also recently been appointed as Chairman o f the Australia-German Chamber o f Commerce.

Life membership o f any organisation is not an honour bestowed lightly and I am sure you would all agree that Bernt is a most worthy recipient.

Bernt, on behalf of your fellow members o f the Federal Chamber, I am delighted to present you with this life membership award.