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Industries Assistance Commission - Reports - Motor vehicles - Import restrictions, 31 October 1975


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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

1975— Parliamentary Paper No. 273

Industries Assistance Commission Report

MOTOR VEHICLES IMPORT RESTRICTIONS

31 OCTOBER 1975

Presented by Command 5 November 1975 Ordered to be printed 11 November 1975

THE G O V E R N M E N T PRINTER OF AUSTRALIA CANBERRA 1976

Printed by Authority by the Government Printer of Australia

INDUSTRIES ASSISTANCE COMMISSION REPORT -

MOTOR VEHICLES - IMPORT RESTRICTIONS

THE HONOURABLE THE SPECIAL MINISTER OF STATE

I am directed by the Commission to forward its report on "Motor Vehicles - Import Restrictions" made in accordance with your reference of 9 July 1975 under Section 23 of the Industries Assistance Commission Act 1973.

I am also directed to indicate that the release of the report as soon as it is printed would not, in the view of the Commission, be likely to result in any damaging speculation.

(A.E.S. Davey) Secretary

3 November 1975

For the purpose of the inquiry and report on this matter,

in accordance with Section 19 of the Industries Assistance Commission

Act 1973, the powers of the Commission have been exercised by:

D.L. MCBRIDE COMMISSIONER

P.D.J. ROBINSON ASSOCIATE COMMISSIONER

MOTOR VEHICLES - IMPORT RESTRICTIONS

TABLE OF CONTENTS

Page

1. OVERVIEW OF ISSUES AND RECOMMENDATIONS 1

2. EXISTING ASSISTANCE MEASURES 9

The 85 Per Cent Local Content Manufacturing Plan 10

3. MEETING GOVERNMENT OBJECTIVES 14

The Targets 14

The Role and Operation of the Manufacturing Plan 14

Bringing about structural change to

improve the economic and marketing

base of the local industry 15

Safeguarding jobs 16

Managing change 17

4. VIABILITY OF THE MANUFACTURING PLAN 18

Protection for Participants Against Imports 19

Competition from c.b.u. imports 20

Competition from c.k.d. imports 32

Operation of Producers Participating in the Plan 33

Flexibility of participating companies 33

Uneven incidence of the plan 37

Character of production 40

Number of plan participants 41

Long-term Policy Options 43

Modified levels of assistance 43

Modified conditions of the manufacturing plan ^6

MOTOR VEHICLES - IMPORT RESTRICTIONS

5. THE ENVIRONMENT OF CHANGE 52

Uncertainty in the Industry 52

Market developments 53

Sales tax reductions and imposition of quotas 67

in perspective

Coping with Change 68

Short-term Policies 70

Light Commercial Vehicles 74

6. CONCLUSIONS AND RECOMMENDATIONS 75

Conclusions 75

Recommendations 80

APPENDICES

1. Terms of Reference

2. Details of the Commission's Inquiry

3. Terminology and Abbreviations

4. Requests and Suggestions

5. Tariff Provisions

6. The Vehicle Manufacturing Plan

7. Employment Projections

8. The Market

MOTOR VEHICLES - IMPORT RESTRICTIONS

1.

1. OVERVIEW OF ISSUES AND RECOMMENDATIONS

On 9 July 1975, the Special Minister of State asked the

Commission to inquire into and report on the question of continuation

of the import restrictions currently applying to passenger cars and 1 light commercial vehicles.

These restrictions, which were imposed from 1 February 1975, limit

import clearances of passenger and light commercial vehicles during 1975.

They were introduced as part of a package of measures to counteract the

possibility of substantial unemployment in the industry in January 1975.

The Government was alerted to that possibility in mid-December 2 1974 when GM-H announced that 5,000 to 6,000 employees would be retrenched

in January. Ford and Chrysler also advised that they would retrench 1,650

employees and about 1,000 employees respectively. The reasons given were

the weakening demand for passenger motor vehicles at the end of 1974, very high

stockholdings of both locally produced and imported cars at that time and

the upsurge in imports of vehicles during 1974.

The Government concluded that about 10,000 jobs in the vehicle

industry and about the same number in the component and materials supplying

industries were at risk and announced short-term measures aimed at boosting

demand and reducing imports. As a result, GM-H agreed to defer retrenchments

for at least three months while Ford and Chrysler agreed to defer their

retrenchments for at least one month. The measures taken by the Government were:

. Imposition of quotas on import clearances of completely built-up

(c.b.u.) passenger and light commercial vehicles during

1975. Clearances of passenger vehicles and derivatives thereof

were to be limited to about 90,000 units and clearances of

other light commercial vehicles (excluding four wheel drive

vehicles) were to be limited to the levels attained in 1974.

Quotas were to apply from 1 February 1975.

* See Appendices 1 and 2 for the terms of reference and details of the Commission's Inquiry.

^ See Appendix 2 for abbreviations of company names used in this report.

Other abbreviations and terminology are listed in Appendix 3.

MOTOR VEHICLES - IMPORT RESTRICTIONS

2.

. A reduction in sales tax on passenger vehicles from

27.5 to 15 per cent and on commercial vehicles

from 15 to 5 per cent, for three months, after which

rates would be restored gradually to the former levels.

. The repeal of a decision to tax the imputed value to

employees of the use of company cars.

In evidence to the Commission, the Department of Manufacturing

Industry said that it regarded import restrictions as a short-term measure.

There was, it said, a clear distinction between the Government's long-term

policy initiatives for the passenger motor vehicle industry and the

short-term measures. The distinction was expressed in the following terms. '

"The long-term policy arrangements envisage the stabilizing of

imports of fully assembled vehicles at a level no higher than

20 per cent of the market. The measure designed to achieve

this is the tariff ’trigger1 mechanism, under which increased

duties apply when imports of completely built-up passenger

vehicles exceed 20 per cent of total passenger vehicle

registrations. The Government introduced this tariff

mechanism during 1974. Before it had time to take effect,

however, a situation of urgency arose which necessitated

direct and immediate restrictive action by way of import quotas.

In the longer term, however, the tariff provisions are intended

to stabilize imports at the desired level".

The Government's action was precipitated by a combination of factors,

some related to general economic conditions in Australia and abroad and some

more deeply embedded in the nature of the industry itself. These factors,

some of which are short-term and some long-term, include:

. Shortages of manufactured parts and products which were experienced

in Australia and internationally in late 1973 and early 1974

and which led to order back-logs in both the domestic production

and import pipelines.

MOTOR VEHICLES - IMPORT RESTRICTIONS

3.

The subsequent weakening of demand for motor vehicles

which contributed to a rapid build-up of stocks of finished

vehicles and aggravated the employment situation. .

The changing structure of demand for motor vehicles, including

the continuing transfer of consumer preference from medium­

sized cars to smaller models.

The competitive advantage of small imported vehicles

over similar locally-produced vehicles.

The pervading, but unquantifiable, impact of inflation

and economic recession on consumer demand in Australia -

combined with unprecedented competition for the consumer

dollar from other major purchases such as colour television,

motor boats, caravans, home improvements and overseas

holidays.

The additional effect of inflation, common to most

countries,in accelerating the price of vehicles, the price

of petrol and other costs of motoring.

Uncertainty about the future of the domestic motor vehicle

manufacturing industry arising from circumstances surrounding

the Commission's report on the industry and the Government's

formulation and implementation of a new policy for the industry.

The need to restructure operations in Australia to become

more competitive and to adapt to the provisions of the

Government's manufacturing plan.

The increasingly evident downturn in employment opportunities

and the accompanying pressure on the Government to adopt measures

aimed at avoiding or minimising retrenchments.

3 Passenger Motor Vehicles, Etc. Report, signed 10 July 1974; and referred to throughout this report as"the previous report on the industry."

MOTOR VEHICLES - IMPORT RESTRICTIONS

4.

. The extent of excess capacity in the motor vehicle

industry in Australia and throughout the world.

There appears little doubt that various problems will cause

recurring concern during the next few years. This seems inevitable

when a substantial reorganisation of the motor vehicle industry must

be undertaken at a time when the industry itself and the economy

in general are less able to cope with change than in more buoyant

times.

It is also hardly surprising that an industry of such

complexity, currently faced with economic, social and industrial strains

and subject within Australia to a constant series of changes in the

framework within which it is expected to operate, should be sceptical

about the latest policy initiatives aimed at ensuring its survival.

All three local producers currently operating under the conditions of

the manufacturing plan (GM-H, Ford and Chrysler) argued that greater

quantitative restrictions on imports than currently apply were necessary 4 5

to achieve the Government's objectives. A number of witnesses

expressed their concern about the conditions of the manufacturing plan·,

particularly the future developments they saw as likely to result from

them.

4 Witnesses' requests and suggestions in respect of the form and level of assistance for motor vehicles under reference are set out in Appendix 4.

5 John Lysaght - totally inadequate from point of view of the steel industry. (See transcript of the public inquiry p .30.)

Ford

GM-H

Chrysler

Motor Producers

VBEF

AAESDA

FIA

see no way of achieving Government objectives under the plan (p.69). '

expressed concern about a number of rules of the plan (p.121, p.126).

complementation issue requires a lot of clarification (p.169).

plans do not provide a viable working basis for the industry (p.2D8)-opposed to current 85 per cent plan, (p.329).

do not support the plan (p.384).

opposed to the 85 per cent local content scheme (letter of 20 October 1975).

The Commission's recommendations in this report are made in the light of

the Government's stated long-term goals for the development of the industry and its

decision to implement a manufacturing plan to promote those goals. The Commission

has not canvassed the goals in this report. It notes, however, that the levels

of assistance needed to achieve them are very high in relation to assistance

provided to most other Australian industries. It makes no comment on whether

in the very long term (that is, after ten years), it would be desirable to

encourage a high degree of national economic dependence on an industry which

is becoming increasingly internationalised and which is, on the basis of

present techniques, labour intensive to an extent that may provide Australia's

regional neighbours with a significant comparative advantage.

While the Commission has not re-examined whether a manufacturing

plan is the most appropriate policy to achieve the Government's goals,

it has been necessary to examine the current plan to determine whether

any of its provisions would hinder the achievement of those goals. The

Commission believes that an examination of the plan is essential if it is

to meet its terms of reference since, unless the plan has a reasonable

prospect of success, quite different recommendations with respect to

import restrictions would have to be considered. The approach taken in

this report reflects this view - first, the efficacy of existing

assistance measures has been assessed; and second, where problems

have been identified, the desirability of modifications to existing

measures, including the use of import quotas, has been examined.

It is evident that current assistance measures are complex.

In some respects they are ambiguous or in conflict with*the achievement

of the Government's long-term goals for the industry. They are also

inequitable, particularly as between existing manufacturers and new

plan entrants. The Commission believes, however, there is a reasonable

prospect that the Government's objectives could be realised with some

modification of current plan provisions.

The modifications recommended by the Commission are aimed at

providing a more equal opportunity for both new and existing participants

MOTOR VEHICLES - IMPORT RESTRICTIONS 5.

MOTOR VEHICLES - IMPORT RESTRICTIONS

6.

to compete for a share of the market on the basis of their relative

efficiency. This contrasts with the present situation where new plan

participants receive effective assistance as high as 120 per cent

compared with 60 per cent for existing manufacturers. j ,

h

The Commission has based its analysis and recommendations on j

the expectations of an early commencement of local manufacture by Nissan

and Toyota as new plan entrants. The viability of the plan significantly

depends on such participation.

With Nissan and Toyota there will be five manufacturers

operating under the plan, all competing for a relatively small domestic

market. This will undoubtedly create competitive pressure which in the

short term will be accentuated by the currently depressed state of the

market. No improvement in demand is expected until well into 1976 and

no marked improvement until 1977. The Commission would consider it

quite contrary to the Government's longer term objectives if further

assistance was sought to overcome such difficulties, either through

a request for more protection against imports, or by special concessions

to particular participants to offset their competitive disadvantage.

An essential element of the plan is change. This is generally j

recognised as necessary to achieve the Government's long-term goals for

the industry. The change is associated not only with a lower local content

requirement (on a company basis) but also with the planned entry of Nissan

and Toyota. There must be a continuing process of evolution in employment

patterns, in the job structure of individual companies, in the number, size and )

location of component suppliers and in the geographical distribution of the industry.

In these circumstances loss of particular jobs will be inevitable. This does not

mean that current assistance measures cannot maintain employment levels in the I

industry in the long term. The emphasis of the Government's goals is the longer tern!

efficiency of the local industry. This would establish the conditions for ’

relatively stable and secure employment. The cost of achieving

The Commission's demand projections from 1975 to 1985 are included in a separate paper which is available on request.

MOTOR VEHICLES - IMPORT RESTRICTIONS

7.

this objective will be the loss of some existing jobs. This is

mainly a short-term problem.

In order to minimise the short-term employment problems in

the present climate of uncertainty, the Commission considers that

the adjustment could be somewhat delayed until the economic climate

and the demand for motor vehicles improve. At the same time, the

Commission considers that the industry's confidence should be bolstered.

Consequently it will recommend that existing import restrictions on

passenger motor vehicles continue until the end of 1976 and that the

tariff remain at 45 per cent until the end of 1977. By the end of

1977 the Commission believes that the restructuring of the industry

should be well under w ay, and demand much more buoyant.

The Commission considers that continued imposition of quotas

on import clearances of light commercial vehicles is an unwarranted

additional cost on users which cannot be justified on assistance or

employment grounds. Their removal is unlikely to have any significant effect.

The major effect of the Commission's recommendations would be

a more stable and equitable framework for the future development of the

industry. Unless modifications are made to the plan now, future changes

will be necessary,involving considerably greater cost. The Commission

believes that its recommendations provide a more positive and clearer

direction for the local industry. They would minimise, employment

disruption, reduce uncertainty, and would provide a reasonable prospect

that the Government's objectives for the industry can be met.

The recommendations do, however, result in a continuation of

the very high level of assistance provided the industry. This is

equivalent to an effective rate of about 60 per cent for existing

plan participants, and a net subsidy equivalent of about $4,000 per

annum for each employee (including employees of component suppliers).

If the adjustments to the industry envisaged by the Government are

achieved, the industry should be well placed to compete at the long-term

tariff rate of 35 per cent. This is equivalent to an effective rate of

about 45 per cent.

MOTOR VEHICLES - IMPORT RESTRICTIONS

8.

Finally, the Commission is particularly concerned with the'

heavy cost which the consumer is being asked to bear. This cost can only be

justified if it leads to a restructuring of the industry such that the

price of its product is more comparable with that of efficient producers

in other parts of the world. A policy of very high permanent protection

to safeguard the existing industry cannot succeed because there is

no way such an approach could safeguard the ultimate resource of the

industry - customers willing to buy and able to afford Australian

built cars.

MOTOR VEHICLES - IMPORT RESTRICTIONS

9.

2. EXISTING ASSISTANCE MEASURES

Apart from quantitative import restrictions applying during 1975,

the Australian production of motor vehicles under reference is assisted by

the following complex arrangement of duties and duty concessions on imports

of c.b.u. vehicles, completely knocked down (c.k.d.) vehicles and components.

. C.b.u. passenger vehicles are dutiable at 35 per cent,

subject to a higher tariff of 45 per cent applying when

c.b.u. vehicle imports have exceeded 20 per cent of

registrations. (The higher rate has applied since these

measures were introduced.)

. C.k.d. passenger vehicles are dutiable at 25 per cent,

subject to an increased tariff applying when the rate on

c.b.u. vehicles is 45 per cent. A concessional duty

rate, however, applies to imports equivalent to production

in 1974 plus a growth factor of 3 per cent per annum. The

concessional duty rate and the date from which it applies

is:

January 1975 1.1.76 1.1.77 1.1.78 1.1.79

27.5% 30% 32.5% 32.5% 35%

For imports in excess of the specified limit, a duty of

45 per cent applies.

. C.b.u. and c.k.d. light commercial vehicles, other than

derivatives of passenger vehicles, are dutiable at a General

rate of 26 per cent. Commercial derivatives of passenger

vehicles are dutiable at the same rate as passenger vehicles,

currently 45 per cent for c.b.u. vehicles and 27.5 per cent

for c.k.d. vehicles.

These two rates of duty and the mechanism to determine which of them should apply is referred to in this report as the trigger tariff mechanism. The higher rate applies when imports of c.b.u. vehicles exceed 20 per cent of the market calculated on the basis of a

12 months moving average of import clearances.

MOTOR VEHICLES - IMPORT RESTRICTIONS

1 0 .

. Automotive components are dutiable at various rates,

predominantly 25 per cent.

. Duty concessions on imports of c.k.d. vehicles and components are

available to participants in the 85 per cent local content

manufacturing plan. Existing plan participants receive a basic

entitlement of duty-free entry on imports equivalent to 10 per cent

of the wholesale value of passenger motor vehicles and their

derivatives produced in Australia. New participants receive duty

concessions equivalent to 25 per cent of the wholesale value of

vehicles entered under the plan phasing down over 4 years to 10 per

cent of the wholesale value of vehicles produced in Australia.

Additionally, duty concessions to a maximum of 5 per cent by value

of a company's Australian production of automotive products may

also be granted in return for export performance of Australian 7

producers under approved complementation arrangements. The

balance of imported components, if any, is dutiable at 25 per cent.

. Producers of a wide range of components are eligible, under

component programs, for by-law concessions on the imported content

of these components subject in some instances to a given level of

local content being maintained in their production. The local

content requirement is predominantly 95 per cent with provision

for it to be phased down to 85 per cent over two years. For some

components the requirement is lower.

The 85 Per Cent Local Content Manufacturing Plan

The 85 per cent local content plan, subsequently referred to in this

report as either the manufacturing plan, or simply as the plan, is a

program of duty concessions which are available to plan participants who

agree to a number of conditions. The basic condition is the achievement and

maintenance of 85 per cent local content on a company basis on the

wholesale value of all vehicles produced by the participating company in

Australia. There are, however, a number of qualifications to this

7 Complementation is an arrangement by which a certain value of exports is exchange for an equal value of imports. An approved complementation arrangement entitles a company to import automotive products duty-free up to the f.o.b. value of automotive exports exclusive of imported content.

MOTOR VEHICLES - IMPORT RESTRICTIONS

11.

requirement, and there are also other conditions which must be met,

principally:

Imports of raw materials (e.g. steel) are not regarded

as imported content. (Because they are used in making

components, they count as local content).

For components entered under component manufacturing

programs the reduction of local content in those components

to 85 per cent must be gradual.^ As long as the specified

minimum local content level (usually 85 per cent) is

attained, such components count as 100 per cent local content

when purchased by a vehicle producer.

For a four year phase-in period from 1975 to 1978, re­

sourcing to imports of components for incorporation in

vehicles with local content currently in excess of g

85 per cent must be gradual.

Approval from the Department of Manufacturing Industry is

required if a company wishes to revert to overseas sourcing

of a component previously sourced in Australia.

During the phase-in period, certain yehicles may be produced

by existing plan participants (GM-H, Ford and Chrysler)

outside the manufacturing plan provided such production is

progressively reduced. (By-law concessions may not be

applied to components imported for vehicles outside the plan.)

The local content requirement will be reduced on the following basis: from 1.1.76 90 per cent minimum local content from 1.1.77 85 per cent minimum local content.

During 1975 vehicles previously entered under the 95 per cent local content plan may revert to 93 per cent with subsequent re-sourcing of 2 per cent per year. Vehicles entered under the previous 85 per cent local plan may revert by 2 per cent per year. See page 4 of Appendix 6 for further details.

MOTOR VEHICLES - IMPORT RESTRICTIONS

12.

New entrants may participate in the manufacturing plan on

the basis of individual vehicles during a four year phase-in

period. During this period, local content must be

progressively increased to meet the minimum 85 per cent local

content requirement.

Over the phase-in period, new entrants may produce vehicles

outside the manufacturing plan subject to the Government

being kept informed of progress towards 85 per cent local

content on any such vehicles.

The Government may require new entrants to meet other conditions

decided on a case-by-case basis. Relevant matters taken into

account could include: the extent to which the proposed

operations will make a rational use of existing resources;

location of proposed manufacturing activities; and the extent

to which those activities will contribute to exports under

complementation arrangements. In a news release of 6 May 1975

covering the possible entry of Toyota and Nissan to the

plan, the Minister for Manufacturing Industry said -

"The automotive industry in South Australia has

modern but significantly under-utilised production

facilities especially in the Chrysler foundry

machine shop and engine assembly plant. In

addition both General Motors Holden and Chrysler

have body stamping and assembly facilities in the

state as well as facilities for manufacture of

certain components.

It follows that the Australian Government is unlikely

to approve any proposal from a prospective new

manufacturer unless it will contribute to efficient

and economic use of under-utilised facilities. This

might be achieved through a variety of commercial

arrangements eg. supply contracts, joint venture,

output sharing, management agreement or combinations

of these. The Government's main objective is to see

MOTOR VEHICLES - IMPORT RESTRICTIONS

13.

that the presently under-utilised facilities are

fully employed and that in the long term the

arrangements made contribute to the more efficient

use of Australian resources".

. The Government has indicated, for example, that it will require

new entrants to cast and machine 4 cylinder engines in

Chrysler*s South Australian facilities. To achieve this

requirement, the Government has proposed a consortium

consisting of at least Toyota, Nissan and Chrysler with the

Government itself participating. The stated aim of the

consortium is to ensure that maximum economies of scale are

achieved in the local manufacture of 4 cylinder engines. Its

formation will also reduce substantially the capital cost of

an engine plant to each of the participants. The Government's

financial contribution to the venture is envisaged to be about

25 per cent of the cost.

Further details of the tariff provisions relating to the

goods under reference, and the manufacturing plan, are given in Appendices 5

and 6.

MOTOR VEHICLES - IMPORT RESTRICTIONS

14.

3. MEETING GOVERNMENT OBJECTIVES

The Targets

The major reasons for the Government's decision to implement its

motor vehicle manufacturing plan and support it with initiatives such as

the proposed engine consortium can be summarised as:

. the need for structural changes to improve the

economic and marketing base of local industry

with consequent advantages to consumers and the

economy generally;

. a desire to safeguard the jobs of Australian

workers; and

. a desire to keep structural change within

manageable limits.

The Role and Operation of the Manufacturing Plan

A manufacturing plan is essentially a contract between the

Government and the plan participants. Companies participating in the motor

vehicle manufacturing plan agree to conduct their operations in accordance

with the stated conditions of the plan. These are designed to ensure that

participants achieve an average local content level of 85 per cent in the

range of vehicles they produce, thus assisting the retention of high

employment levels in both the vehicle and component manufacturing industries.

In return, the Government has undertaken to ensure that a major share of

the Australian motor vehicle market will be available to participants.

The policy measures designed to support the Government's side of

the contract operate primarily through the duties imposed on c.b.u. and c.k.d.

imports. The trigger tariff mechanism (which raises the duty on c.b.u.

imports from 35 per cent to 45 per cent when they exceed a certain level)

10

See press statement number 366 of 14 November 1974 issued by the Prime Minister.

MOTOR VEHICLES - IMPORT RESTRICTIONS

15.

is intended to restrict imports to 20 per cent or less of the local market

while the duties on c.k.d. vehicles and components are aimed at

restraining the market share achieved by assemblers. If these measures

are successful in ensuring that the major share of the market is reserved for

plan participants, the Government's objectives will be met in a number of

ways. These are discussed in the remainder of this section.

Bringing about structural· change to improve the economic

and marketing base of the local· industry.

The fundamental need for significant change within the industry

is generally accepted. This need was emphasised in the Prime Minister's

statement of 14 November 1974 on assistance to the Australian motor vehicle

industry.

The plan is intended to promote change to a more efficient industry structure

as follows:

. Previous plans under which the bulk of local production

was carried out required a local content of 95 per cent

for vehicles produced at a volume exceeding 25,000 units

per annum. The reduced requirement of 85 per cent local

content will allow a more rational sourcing of components

to replace those with the higher cost disadvantages.

. Local content of 85 per cent is to be achieved on a company

basis, thereby giving participating manufacturers the

flexibility to choose the pattern of production which is

most appropriate to their operations and which minimises their

costs.

. The plan is also stated to encourage cost savings through

the achievement of scale economies by means of common sourcing

of components and the complementation provisions. In this

regard, the Government has appointed a consultant

MOTOR VEHICLES - IMPORT RESTRICTIONS

16.

to work with the industry in promoting the use of common

components. It also appears that the discretionary

powers in regard to approval of new plan entrants,

including the location of their engine plant, are to be

used to promote this and other cost saving arrangements.

. Within the framework of the plan, market forces will

bring pressure to bear on all participants to maximise

efficiency as a means of remaining viable.

Safeguarding gobs

The human cost of constant disruption in the industry due to

changes in the framework within which it operates cannot be over-emphasised.

A plan that remains stable and viable in the long term is therefore

essential if job opportunities within the industry are to be retained or

upgraded. But maintaining high employment levels in a changing industry

and safeguarding individual jobs are two different things. New job

opportunities in South Australia do not precisely counterbalance jobs

eliminated in Queensland; new jobs in a high capacity foundry operation

do not automatically provide opportunities for those retrenched from a

stamping shop. If the industry is to become more competitive against

imports, there will be a loss of jobs in the more inefficient sectors of the

industry; if its improved efficiency brings it a greater share of a

growing market, there will be more jobs and increased job stability in many

other sectors.

As this report indicates, the Commission believes that the plan,with

some modification, should lead within three to five years to higher levels of

employment in the industry. It is not possible, however, for the type

and number of job opportunities created to be fully complementary to the jobs

being lost. Over a period, the plan may safeguard or even raise overall employment

levels, but it cannot, by its very nature, safeguard all existing jobs.

MOTOR VEHICLES - IMPORT RESTRICTIONS

17.

Managing change

Aspects of the plan which are expected to keep changes within

manageable limits are:

. phase-in arrangements, both for existing plan

participants and new plan entrants, so that each

participating company, the industry and the

economy generally have more time to cope with

change;

. discretionary powers which can be used to compel or

induce a course of action by participating companies thought

to be desirable (for example, provisions on reversion,

conditions of entry for new entrants, discretion to impose

penalties for breaches of plan conditions); and

. the statement that, to provide a stable framework

within which the industry can confidently plan, the

manufacturing plan and the supporting duty rates and

trigger tariff mechanism are to apply for 10 years.

A balance must be drawn between coping with change and the

need for change. The cost of preventing or delaying change is the

abandonment or deferral of the achievement of longer term goals. The

cost of uncontrolled change may be the short-term aggravation of unemployment.

MOTOR VEHICLES - IMPORT RESTRICTIONS

1 8 .

4. VIABILITY OF THE MANUFACTURING PLAN

For the manufacturing plan to be successful, thereby helping

to ensure that the Government's objectives are met, three basic criteria

must be satisfied :

. First, the level of industry assistance associated with the

plan must be sufficient to enable the more efficient plan

participants to compete with companies operating outside

the plan. Such assistance is provided by duties applying

to imports of c.b.u. and c.k.d. vehicles and components,

together with the duty concessions on components which

are available to plan participants.

. Second, the plan must promote a restructuring in the

activity of participants which is economically sound.

It should facilitate, rather than frustrate, the growth of

the more efficient plan participants. One way of achieving

this objective is to provide a similar level of assistance to

all participants so that each has the opportunity to improve

its market share on the basis of its relative efficiency.

. Third, the conditions of the plan must provide a stable

framework within which plan participants can make decisions

concerning their long-term operations. To satisfy this

criterion, plan rules must be easily understood and not

subject to frequent change.

In any assessment of the likelihood of the plan achieving its

aims it should be viewed as a complete package and considered in the context

of all relevant assistance measures. It should not be considered merely

as a collection of unrelated rules each designed to achieve a specific

purpose. Individual rules may inter-act with other rules or with the

framework of assistance to produce a result contrary to the broad intent of

the plan. The more often the rules are altered ,the more likely they are

to lose sight of the overall objectives. This is illustrated by the history

MOTOR VEHICLES - IMPORT RESTRICTIONS

19.

of the motor vehicle plans over the last decade, particularly in

relation to the introduction and eventual withdrawal of the small volume plans.

Special conditions were formulated to encourage suppliers whose market

share was relatively small to engage in low content assembly rather than

importing c.b.u. vehicles. The conditions applying to small volume assembly

resulted in a very high level of effective assistance and had the result of

encouraging a proliferation of models produced under the small volume plans.

This distortion was achieved at the expense of the more efficient high

volume high content producers.

In the remainder of this section, the Commission examines the

way in which various aspects of the manufacturing plan and associated

assistance measures, when examined in the context of the overall operation

of the plan, meet the three criteria outlined earlier.

Protection For Participants Against Imports

Protection for participants against imports is provided by

tariff assistance. Irrespective of the incidence of the plan's provisions

on new or existing producers, it will only succeed if the duties on imported

vehicles are sufficient to ensure that plan participants remain competitive

in the domestic market. The Commission's assessment of the likely effects

of existing rates of duty on competition from c.b.u. and c.k.d. imports

follows.

1! Passenger Motor Vehicles, Etc. Report, Industries Assistance Commission, p.p. 135-137.

MOTOR VEHICLES - IMPORT RESTRICTIONS

20.

Competition froma.b.u. imports

The Department of Manufacturing Industry said in evidence

that the long-term policy arrangements are intended to stabilise c.b.u.

imports at no more than 20 per cent of the market.

Several witnesses said that the long-term duty rates would not

keep imports at this level. GM-H, for example, stated that "tariffs

alone have not achieved this objective", despite its expressed belief

to the contrary in November 1974 when the Government's long-term policy

was announced. This change in attitude was explained by GM-H on the

grounds that imports (both of c.b.u. and c.k.d. vehicles) have taken a

considerable share of the market and that recent inflation in Australia

has been higher than in some other countries.

Ford stated that a "45 per cent duty will not prove effectively

protective against Japanese imports and will not control imports to 20

per cent of the market". Ford based its conclusion on three points:

• a comparison of prices for local and imported vehicles, adjusted

to allow for specification differences;

. the expectation of faster cost increases in Australia

than in Japan; and

. 45 per cent has not prevented high import levels in the past.

In Chrysler's opinion, at a duty rate of 45 per cent on c.b.u.

vehicles, "there would be a considerable influx of these units, possibly

higher than that which applied prior to the restrictions". Inflation in

Australia was given as the reason for the anticipated increase in imports.

All three manufacturers were asked what rate of duty would be

required to restrict imports to less than 20 per cent of the market. GM-H

and Ford said they could not estimate such a figure. Chrysler stated

that, although the break-even rate was about 45 per cent, a rate of about

55 per cent would seem to be necessary to discourage imports.

MOTOR VEHICLES - IMPORT RESTRICTIONS

21.

In stating their views about the efficacy of a rate of duty

of 45 per cent, all three companies referred to the level of imports

late in 1974. Until mid-November 1974 the rate of duty was 34 per cent.

It was then increased to 45 per cent but the Commission believes that,

because of lags In ordering from overseas, the latter rate had little

impact before quotas were applied. When a duty of 45 per cent last

applied (before 19 July 1973) imports accounted for no more than

14 per cent of the market.

Nissan (Aust.) and AMI stated that duties alone would not

satisfactorily restrict imports to less than 20 per cent of the market,

although AMI subsequently said that a duty of 45 per cent should achieve

this. Importers of Mazda vehicles submitted that a duty of 45 per cent

would hold their sales to present levels and may in fact result in a

slight advantage to local vehicles. Fiat claimed that, at a duty of

45 per cent, their product was at a disadvantage in the Australian

market and that such a duty would restrict all imports to about 20 per cent

of the market.

In its assessment of the likelihood of c.b.u. imports being limited

to 20 per cent of the market, the Commission has considered the arguments

of witnesses. It has also considered the past performance of the industry,

evidence of cost and price disadvantages provided to the Commission during

this and the previous inquiry, together with an assessment of the possible

effects of the continuation of the Government's long-term assistance measures.

Trends in Import Penetration

Historically, 20 per cent of the market is a very high level of

imports as the figures in Table 1 demonstrate.

MOTOR VEHICLES - IMPORT RESTRICTIONS

22.

Table 1 - Share of the Market Held by Imported C.B.U. Passanqsr Vehicles

1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1 9 7 5 ^

Domestic Market (000 vehicles) 332 306 335 368 400 412 417 405 459 474 256(b!

C.b.u. Imports (000 vehicles) (c) 26 21 33 49 38 42 52 35 66 124 59(CJ

Share of market (per cent) 8.0 6.9 9.8 13.4 9.5 10.3 12.4 8.5 14.3 27.7 22.7

Assistance

to the 1 ocal industry against c.b.u. imports

Tariff < ----------------------452-------------------------------- |

Other Motor Vehicle Plans providing some small additional assistance to

high content, high volume production but considerable additional

assistance to low content, small volume assembly operations.

During 1973 and 1974, the plans relating to small volume

operations were gradually phased out.

(a) 6 months to June 1975

(b) Exceeds recorded registrations in 1975 due to delays in recording registrations for statistical purposes.

(c) These figures relate to sales of c.b.u. imports. The ratio of c.b.u. imports to registrations can give a distorted picture of the extent of sales penetration by c.b.u. imports because of short-term stock build-up. In 1974, for example the ratio of c.b.u. imports of passenger vehicles to the total domestic sales of passenger vehicles was 29.8 per cent. Source: ABS and evidence.

Two points are noted in relation to Table 1.

First, the Commission believes that the remarkably high ratio of

imports which occurred in 1974 was due to an unusual combination of

circumstances. A detailed analysis of the 1974 situation is given later

in this report but, in summary, the Commission does not believe that it

validly represents a trend of the future.

Second, the extent of potential import competition in previous

years is not disclosed by the table. This is because imports of c.b.u.

vehicles would certainly have been much higher in past years had not

Nissan and Toyota set up assembly operations in Australia.

MOTOR VEHICLES - IMPORT RESTRICTIONS

23.

Table 2 shows the extent of Import competition taking imports

of c.k.d. vehicles into account. From this table it is apparent that a

tariff of 45 per cent would restrict imports of c.b.u. vehicles to

20 per cent of the market only if Nissan and Toyota continue to assemble

or commence manufacturing a large proportion of their vehicles in Australia.

Table 2 - Share of the Market Held by Imported C.B.U.

and C.K.D. Passenger Vehicles (Per Cent)

Type of Vehicle 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975(a)

C.b.u. Imports 8.0 6.9 9.8 13.4 9.5 10.3 12.4 8.5 14.3 26.1 23.0

C.k.d. Imports 10.9 9.0 9.9 9.7 14.8 18.5 17.6 20.5 20.8 17.3 24.7

Total Imports 18.9 15.9 19.7 23.1 24.3 28.8 30.0 29.0 35.1 42.4 47.7

of which

Nissan, Toyota (b) 4.7 6.2 8.5 10.3 10.2 11.1 12.6 14.1 17.9 19.9 22.6

(a) 6 months to dime 1975

(b) Share of the market held by imports of c.b.u. and c.k.d. vehicles by

Toyota and Nissan

Source : ABS and Evidence

Price Disadvantages 1

From the price information received in respect of locally produced

and imported vehicles at the previous inquiry, the Commission compared the

ex-factory prices of most locally manufactured or assembled vehicles with

the landed duty free (l.d.f.) prices of comparable, or at least competitive,

imported vehicles. (By using l.d.f. prices in its comparisons, the

Commission included the protection afforded local manufacturers by overseas

freight costs in its assessment of the industry's disability.) Comparisons

were made by adjusting prices of locally produced vehicles to include the

same levels of specification and equipment as overseas vehicles and to

reflect reasonable profit and overhead margins. For some vehicles,

comparisons were possible with almost identical models made by associate

MOTOR VEHICLES - IMPORT RESTRICTIONS

24.

companies overseas. The results of these comparisons are summarised

in Table 3.

Table 3 - Price Disadvantages for Locally Produced

Vehicles Under Reference (Per Cent)

Category Japan Europe

Small light 40 - 65 (a) - 40

Large light 25 - 50 5 - 2 5

Medium 20 - 35 (a) - 20

Upper Medium (b) 40 - 85

Light commercial and 4-wheel drive (c) 55 - 75 (b)

(a) advantage

(b) not available

(c) 4-wheel drive vehicles are not under reference at this inquiry

Source: Passenger Motor Vehicles, Etc. Report, Industries Assistance Commission,

p .82 .

From the limited amount of information supplied to the Commission

during the current inquiry it appears that the competitive position of locally

produced vehicles against c.b.u. imports from Japan is now about the same as

at the time of the earlier study in April 1974. A number of vehicles of

European origin were found to be imported, to Australia at f.o.b. prices

considerably below stated current domestic values. Despite this practice,

which also existed at the time of the previous inquiry, European vehicles

appear to have become less price competitive in the Australian

market.

At the previous inquiry, despite high disadvantages calculated

on the basis of l.d.f. and ex-factory prices, retail prices were found

to be reasonably comparable. This was explained by the observation

that margins taken through the distribution chain for some imported

vehicles were higher than those taken on locally produced vehicles.

Margins available to dealers at the retail level were similar for

both imported and local vehicles, suggesting that the additional mark-ups

on imported vehicles were taken by importers and/or distributors. At this

inquiry Ford presented current retail price data which had been adjusted

to reflect the Company's view of the value to the consumer of different

vehicle specifications. The adjusted prices showed advantages, after

payment of duty, of from 5 to 13 per cent on most light cars in favour of

Japanese vehicles.

Price disadvantages are offset to some extent by the advantages

of local supply and brand loyalty. As the dealer networks of the major

Australian producers are larger and more widespread than those of

importers, they are believed to confer some advantage to locally manufactured

vehicles. In addition, vehicle users in Australia have traditionally demanded

a medium category vehicle designed for local conditions and, while this

preference may be weakening^ its continuing benefit to local manufacturers

is apparent. The benefits of design for local conditions also apply to large

light vehicles which have been designed or substantially modified in Australia.

Established local manufacturers derive some additional advantage from their

previous dominant position in the market and users' loyalty to their

products.

Assessment of Possible Future Developments

The Government's stated expectations are that its policy initiatives

provide a basis on which the competitive position of the local industry can

be improved. They do so first by allowing existing plan entrants an

opportunity to reduce their cost disadvantages and second by enabling new

manufacturers with moderate assistance requirements to begin production.

. Existing plan entrants

In the past, the strong competitive position of the existing plan

participants (GM-H, Ford and Chrysler) has largely stemmed from their

strength in the market for medium category vehicles. In this segment, the

local manufacturers'price disadvantages are generally less than 35 per cent.

MOTOR VEHICLES - IMPORT RESTRICTIONS

25.

12

See Appendix 8 for a discussion of market forces.

MOTOR VEHICLES - IMPORT RESTRICTIONS

26.

Plan participants need to contain cost Increases on medium category

vehicles not so much because of the need to hold their share of this

market against imports but to keep medium category vehicle prices

competitive with smaller cars.

The relatively low price disadvantages on medium category

vehicles arise largely from their high volume production in Australia.

Any decline in the market for medium vehicles generally or in demand for any

company's model could therefore lead to an increase in costs. The

manufacturing plan should, however, permit manufacturers to contain cost

increases by reduction in the existing high levels of local content achieved,

and by greater use of components common to a number of vehicles.

In the light sector of the market, existing plan participants face

high levels of disability both against imports and against vehicles which

might be manufactured by new plan entrants. Consequently, they would be

unlikely to increase their share in these sectors of the market with locally

produced vehicles unless they are successful in reducing costs. The

manufacturing plan enables them to do so by reducing local content on light

vehicles; by assembling light vehicles at lower than 85 per cent local

content and achieving a weighted average local content of 85 per cent by

manufacturing medium category vehicles at a higher level of local content;

and/or by greater use of components in common with other manufacturers or with

other models within their own range. (In relation to component commonality,

Ford stated that while some commonality had been achieved, it was unlikely

to be adopted on a wide scale for major components. GM-H submitted

evidence of the extent to which common components are used in its Holden and

Torana models.)

Changes in the size and composition of the market will also have

implications for the likely performance of existing manufacturers. Growth

in the light sector will permit increased production volumes and therefore

reduced costs. Decline in the medium category of the market, on the other

hand, will reduce the flexibility of companies in respect of sourcing

components for their light vehicles. Loss of market share as a result of

the benefits conferred upon new plan entrants by the conditions of the

manufacturing plan will also have a direct effect on manufacturers costs.

In the longer term, Increases in the costs of labour relative

to capital costs could be expected to worsen the competitive position

of Australian producers because of the higher level of automation

in overseas plants with the consequent higher labour/output ratio

for Australian producers.

. New plan entrants

Nissan and Toyota are the companies most likely to become new

plan entrants, both having notified the Government of their intention

in writing.

Information supplied in this and the Commission's earlier

inquiry, indicates that, for Nissan and Toyota, the cost of local

manufacture at 85 per cent local content with an annual volume of 50,000^®

units would be approximately 40 per cent greater than importing the

equivalent c.b.u. vehicle.

This estimate is based on the "scale" cost penalties associated

with the local sourcing of various materials and components for a vehicle

produced at annual volume of 50,000 compared to that for a vehicle at

annual volume in excess of 400,000. The estimate also makes an allowance

of 45 per cent as the extent to which local production costs exceed costs

in Japan for reasons other than scale.

The disadvantage on a locally produced vehicle is contained to

about 40 per cent for a number of reasons:

KOTOR VEHICLES - IMPORT RESTRICTIONS

27.

13 This calculation is based on duty free entry of components (including body panels) and local manufacture of engines.

. Under the existing definition of local content, the

requirement of 85 per cent local content allows about 25 per cent

of the domestic value of the c.b.u. imported vehicle to be imported

This means, in effect, that about 30 per cent by value of a full

c.k.d. kit can be imported without impairing the ability of the

company to achieve 85 per cent local content.

. Imported content can be so chosen that the components imported

are those for which the cost disadvantages of local production

are greatest.

. There are savings on freight costs.

Japanese manufacturers would, by sourcing panels from Japan,

retain any market advantages stemming from the ability to undertake

relatively frequent model changes. Because of the nature and extent

of their import sourcing, they would also be cushioned to some extent

should local costs increase faster than costs in Japan.

Should the Japanese manufacturers achieve a volume on a

locally manufactured vehicle in excess of 50,000 units per year, or if

the costs of bought-in local components reflect the economies of higher

scale production (eg. as could be the case in common sourcing of some

components by a number of local manufacturers), their cost disadvantage

would be correspondingly smaller. On the other hand, if two vehicles were

to be produced locally by each manufacturer, a larger total volume, probably

of the order of about 70,000 to 80,000 vehicles per year, would be required

to contain the cost disadvantage to that for one vehicle at a volume of

50,000 per year.

The allowance to cover the cost disabilities arising from

non-scale factors may also be too high. This was the non-scale

disability against producers in Japan estimated in the previous inquiry.

It covers disabilities such as higher Australian costs of materials

and labour which would be incurred by all Australian manufacturers including

Nissan and Toyota. It also includes differences in the

MOTOR VEHICLES - IMPORT RESTRICTIONS

28.

efficiency of management arising through sound employer - employee relations,

appropriate stock holdings and efficient plant layout. To the extent

that the operations of Nissan and Toyota in Australia achieve efficiency

in these areas reflecting the situation in Japan, the calculations above

over-state the disadvantages of local production against c.b.u. imports.

The Commission sought evidence from Nissan and Toyota about the

level of protection required to equate the cost of imported vehicles and

vehicles produced locally under the plan. Nissan provided estimates

which showed that a duty of 45 per cent would be an equalising duty.

The calculations undertaken by the Commission cannot be a

replacement for a thorough feasibility study such as could be undertaken

by Nissan and Toyota. However, the Commission considers them sufficiently

reliable to conclude that Nissan and Toyota would appear to be viable as

local manufacturers. An underlying assumption to this conclusion must

be that, subject to maintaining an overall local content level of 85 per

cent, Nissan and Toyota are free to organise their production on

strictly economic grounds.

MOTOR VEHICLES - IMPORT RESTRICTIONS

29.

The foregoing discussion clearly demonstrates that the decisions

of Nissan and Toyota about their participation in the manufacturing plan

are critical to any assessment of the effectiveness of duties of 35 per cent

and 45 per cent under the trigger tariff mechanism in limiting c.b.u. imports

to about 20 per cent of the market. ,

If Nissan and Toyota enter the plan as manufacturers, the Commission

believes that the plan could be viable, with imports of c.b.u. vehicles

restricted to a relatively small share of the market. Excluding 80 per cent

of imports by Toyota and Nissan (on the assumption that they comprise the

models which will be manufactured in Australia), the share of the market held

by c.b.u. imports in 1974 was 18 per cent and, in the first half of i975, it was

16 per cent.

MOTOR VEHICLES - IMPORT RESTRICTIONS

30.

On the basis of Nissan and Toyota each manufacturing two

vehicles locally, the Commission has p r o j e c t e d t h a t about 19 per cent

of the passenger vehicle market will be supplied by c.b.u. imports in 1 5 1980, of which plan participants will.account for 8 percentage points.

This is illustrated in Figure 1. The implications of such a market

structure are that, in the longer term, the lower rate of 35 per cent

will be the operative rate of duty.

Figure 1. Projected Composition of the Market for

Passenger Motor Vehicles in 1980

c ,-k.d.

local manufacture

Nissan) Toyota)

Nissan) Toyota)

— 5 8 ---

1980

Plan participants

Plan participants

71--

Total Market 474,000 vehicles

Plan Participants 53% Other 47%

550,000 vehicles ; Plan participants 831 Other 17"

^ See Projection 3 in Appendix 7.

15 For 1974, the term plan participants covers only GM-H, Ford, and Chrysler; for 1980 it also includes Nissan and Toyota.

MOTOR VEHICLES - IMPORT RESTRICTIONS

31.

The Commission expects that,while the lower level of

assistance will provide adequate protection for all plan participants

against import competition, there may be short-term problems

experienced by some plan participants. However these will

be primarily internal to the plan rather than relating to the

pressure from external sources. Any increase in the long-term

level of protection from Imports provided to participants in the

plan will do little to solve these types of problems.

If Nissan and Toyota decide to remain outside the plan,

however, the conclusion as to the likelihood of the Government's

objectives being achieved is entirely different. These Japanese

companies could adopt a number of courses of action, for example

they could continue as they are at present assembling vehicles

outside the plan and importing,or they could revert entirely

to importation of c.b.u. vehicles. The prospects for assembly

outside the plan are considered below. Based on statements made

in evidence at both this and the previous inquiry about their

desire to ensure continuing access to the Australian market,

it is unlikely that Nissan and Toyota will revert entirely

to import of c.b.u. vehicles. Should they do so, however, the

achievement of the Government's objectives appears most unlikely

and a reassessment of the Government's plans and policies would

probably be inescapable. ,

Competition from o.k.d. inports

Assembly from c.k.d. kits is a relatively inefficient operation.

The total process involves additional handling of components in the export

country, special packaging, and assembly of the car in Australia. There

are freight savings, compared to freight costs on a c.b.u. import, but these

are largely offset by the costs of packaging the c.k.d. kit.

At the earlier Commission inquiry, the evidence showed that for

c.k.d. assembly to be as economic as importing the equivalent c.b.u.

vehicles, a tariff on the c.k.d. kit at least 10 percentage points lower

than the tariff on c.b.u. vehicles was necessary. The Commission sees

little prospect, with a duty differential of only 10 percentage points,

of assemblers other than Nissan and Toyota greatly expanding their share

of the market.

For Nissan and Toyota the duty differential on c.b.u. and c.k.d.

imports makes assembly from c.k.d. kits less economic than imports of

c.b.u. vehicles. The cost advantages arising from their scale of operation

in Japan give Nissan and Toyota the potential, however, to increase their

market share on the basis of a c.k.d. operation at long term duty rates.

While the rate of duty on c.b.u. vehicles is 45 per cent,

unrestricted assembly is discouraged by a rate of duty on the c.k.d. kit

equal to the rate on the c.b.u. vehicle. Assembly limited by a tariff

quota (on the number of c.k.d. kits imported), however, is assisted by a

differential of 17.5 percentage points reducing to 10 percentage points

over a four year period corresponding with the phase-in period for the plan.

Under these conditions, should Nissan and Toyota not enter the plan, they

would be unlikely to exceed their c.k.d. tariff quota and could be expected

to source the balance of their market requirements as c.b.u. imports. This

would be likely to result in a significant increase in c.b.u. imports

as their market share increased.

The production and employment effects of Nissan and Toyota’s

participation in the Australian market on this basis are examined in

Appendix 7.

MOTOR VEHICLES - IMPORT RESTRICTIONS

32.

With Nissan and Toyota adopting a strategy of both c.k.d. and

c.b.u. imports, the implications for the Government's policy objectives are

similar to those under a c.b.u. imports only situation. Nissan and Toyota

have similar opportunities to increase their market share to the point where

total c.b.u. and c.k.d. imports would account for over 30 per cent of the

market. For the manufacturing plan to work as intended and for the

manufacturers' share of the market to be reserved, higher tariffs would

be required in the long term while in the short term revised quotas taking

account of both c.b.u. and c.k.d. imports would be necessary.

Operation of Producers Participating in the Plan

This section has so far examined the question of whether the

Government's assistance measures provide sufficient assistance to ensure

that the major part of the Australian market is supplied by passenger

vehicles produced under the plan. On the assumption that such is the

case, the pattern of production that could be expected to result under

the conditions of the plan is now considered.

Flexibility of participating companies

A number of the plan conditions considerably reduce the flexibility

of participating companies and affect their ability to make decisions on

rational grounds. The more significant of these restrictions are:

. the local content phase-down conditions for

existing high content vehicles

The plan prohibits a sudden reduction in local content to 85 per

cent on vehicles currently produced at local content above 85 per cent.

This has two effects. It is inequitable in that it restricts the flexibility

of existing plan participants in re-sourcing high cost components. It

encourages them to commence short-term assembly operations in order to take

advantage of duty concessions accruing from the manufacture of their high

content vehicles.

MOTOR VEHICLES - IMPORT RESTRICTIONS

33.

MOTOR VEHICLES - IMPORT RESTRICTIONS

34.

. the requirement that reversion to import sourcing

of components previously sourced locally must be

approved

The plan cannot succeed unless existing high content

manufacturers are able to reduce their cost disabilities by re-sourcing

those components on which there is the greatest local disadvantage.

Uncertainty about whether reversion on particular components

will be approved inhibits business planning. Where reversion is not approved,

plan participants are asked to bear the cost of assisting component

manufacturers with high assistance requirements. Even where

reversion is approved, the unpredictable time delay in obtaining approval

can frustrate the logical timing of change.

Participants are extremely critical of this aspect of the plans.

GM-H, for example, made the following comments in evidence:

"External Sourcing of Components

There is the question of approval to overseas sourcing of components.

At the hearings of the earlier Inquiry into passenger motor vehicles, we described the 'no reversion'clause as the most telling disadvantage of the previous Government Motor Vehicle Plans. We described the control imposed by

the older 'no reversion' clause as excessive and one which deprived the industry of vital flexibility.

The only consolation under the old system was that if a company chose to go ahead with a resourcing decision without Government approval, then the worst that could happen was that full duty might have to be paid on the

imports.

The 'no reversion’ clause principle has been carried on in clause 11 of the new Motor Vehicle Plan which obliges a company wishing to resource overseas to make application to the Department of Manufacturing Industry.

Clause 11 reads -

Ά company wishing to revert to overseas sourcing of a component previously sourced from Australian manufacture shall make application to the Department of Manufacturing Industry who will process it in

consultation with the Department of Police and Customs'

MOTOR VEHICLES - IMPORT RESTRICTIONS

35.

The next passage is also of real interest. It reads:

'Approval will generally be given readily to resourcing proposals which conform with Plan requirements as to local content levels. However, there may be circumstances under which the company will be required

to vary its resourcing program in conformity with the Government's objectives for the industry'

We can only interpret the words "will be required to vary its resourcing program" as meaning that the resourcing would be prohibited - which makes the new clause more restrictive than the old 'no reversion' clause which at

least permitted freedom of choice in the final "yes/no" decision.

Our experience to date has not borne out the claim that approval will generally be given readily to resourcing proposals which conform with Plan requirements as to local content levels".

The Commission is aware of the potential effects of reversion on the

present high levels of unemployment in the economy. It is also aware, however,

of the effects that non-reversion will have on employment in the industry by

denying existing manufacturers the opportunity to reduce costs and become

more competitive with importers and new plan entrants. On balance, the

Commission believes that short-term employment considerations justify caution

as far as reversion decisions are concerned but that these considerations

should do no more than delay the initial impact of reversion to imported

components. The ability to re-source high cost components overseas as soon

as economically practicable is fundamental to the success of the plan, to the

long-term viability of existing plan entrants, and thus- to employment.

. discretionary case-by-case conditions imposed

on entry to the plan by new manufacturers

If the objective of this provision is to ensure the most efficient

use of existing resources, then it could be expected that normal market

forces - the need to contain costs and remain competitive - would work to

bring this about. If, on the other hand, the objective of this provision is

1

achievement of other goals (such as the Government's location policy), the

potential cost of such provisions is the threatened viability of the plan

entrant. The danger of intervention in both cases is that if normal

commercial incentives are insufficient, it is likely that the Government will

subsequently be confronted with pressure for increased assistance. The Commission

adheres to the views expressed in its previous report that where the Government

wishes to promote industry development in particular locations it should do so

through a system of uniform incentives.

. complementation provisions

MOTOR VEHICLES - IMPORT RESTRICTIONS

36.

Uncertainty regarding the application of these provisions, arising from

their discretionary nature, considerably inhibits the business planning

necessary to take advantage of them. That such uncertainty exists is

obvious from evidence, and from the conflicting conditions of the

complementation provisions which are quoted below:

"Criteria

33. In submitting complementation programs for approval,

applicants will be required to demonstrate that

complementation would

(i) lead to the benefits of economies of scale

i

(ii) promote greater specialisation in the production

of components

(iii) encourage common sourcing of components

(iv) ensure that changes in employment take place at a

manageable rate whilst encouraging such resources

into areas of greater technological skills in

engineering and design

(v) improve the prospects of continuing benefits

through reciprocal trade.

MOTOR VEHICLES - IMPORT RESTRICTIONS

37.

Approval

34. Each complementation program is to be approved

in advance by the Department of Manufacturing Industry

in consultation with the Department of Police and

Customs and other Departments as appropriate."

Uneven incidence of the plan

Broadly, the plan provides the greatest opportunity for two types

of producers: those existing producers who can achieve high volume sales

of medium category high content vehicles, and potential entrants who are

able to source imported content from Japan. In addition.existing

participants who can source imported content from Japan would have an

advantage over those who cannot.

Those producers who are able to achieve high volume sales of high

content vehicles have the best opportunity to re-arrange their production

with a view to reducing cost disabilities because of the trade-off available

to them of either reducing local content achieved on these vehicles, or

maintaining a local content level higher than 85 per cent on these vehicles and

using their imported content allowance to source duty-free c.k.d. kits.

Compared to existing or potential participants importing

components from Europe, a plan participant with the ability to source from

Japan is able to import a greater quantum of components for any local content

level. Included among these components could be body panels, thus allowing

frequent model changes and the accompanying market benefits, without the

costs associated with such changes where production scale is relatively low.

The plan provides very significant assistance over a four year

period to new entrants while they gradually increase the local content on

their vehicles. The assistance is provided by the by-law concessions on

imports which are granted in accordance with the following schedule as long

as the specified local content levels are achieved.

MOTOR VEHICLES - IMPORT RESTRICTIONS

38.

Table 4 : Concessions to New Plan Entrants

At start Local content By-Law Concessions

of year (per cent) (per cent)

1 62% 25 )

) plus

2 70 20 )

) complementation

3 75 20 )

) concessions

4 80 15 )

) (maximum 5 per cent)

5 85 10 )

Source: Evidence The level of assistance provided to local content by such

concessions is demonstrated by the estimates in Table 5.

Table 5 : Effective Rate of Assistance to New Plan Entrants (a)

Local Content 62.5% 70% 75% 80% 85%

Rate of Assistance (b) 119% 89% 80% 69% 61%

(a) These calculations are based on a tariff rate of 45 per cent on c.b. u. imports and make no allowance for concessions under any complementation arrangement.

(b) The effective rate of assistance shown is that applying to both in-house production and bought- in components.

Source: Evidence Such high assistance discriminates against existing plan participants.

Ford estimated the concessions to new plan entrants would provide a retail

price advantage of about $200 on a $3000 car in the first year of this

phase-in arrangement. Estimates by the Commission, based on a large light

car with a wholesale price of about $3600, showed that the retail price

advantage would be more than $200. When considered along with restrictions on

content reductions by existing participants, assistance of this magnitude

will provide new entrants with considerable scope for eroding the market

share of existing participants.

Both potential new entrants to the plan were asked to comment on

the concessions which would be allowed to them. The AMI witness would not

do so but the witness for Nissan Aust. justified them on the grounds that

existing manufacturers received high, but unknown, benefits under the

previous plans. Nissan Aust. claimed that if they are to be required to

increase local content, they also should receive additional but clearly

specified assistance to do so.

The Commission accepts that a build-up of local content must be gradual

but believes that there is no case for such generous by-law concessions.

It is true that high levels of assistance were provided to new plan

entrants during the introduction of the Government's earlier manufacturing

plans in 1964. This situation, however, was quite different to that currently

prevailing in that all plan participants were new entrants.

Nissan and Toyota have already benefitted considerably from the high

level of assistance provided by their entry to previous small volume plans.

Such assistance considerably enhanced their ability to increase their market

share at the expense of longer established manufacturers. To provide further

assistance against those manufacturers seems inequitable.

In any event there is no evidence to suggest that, after payment of

duties on imported components, new entrants would have significantly higher

costs than they would have as plan participants achieving 85 per cent local

content given similar sales volumes.

In the Commission's view, by-law concessions for new plan entrants

would be more equitable if they were set at the same level as concessions

for existing participants,irrespective of the level of local content they are

required to achieve over the four years as they progress to 85 per cent. It

is important, however, that no restrictions be placed on the number of vehicles

that new plan entrants can market in the transitional period provided that

overall local content levels are maintained.

MOTOR VEHICLES - IMPORT RESTRICTIONS

39.

MOTOR VEHICLES - IMPORT RESTRICTIONS

40.

Character of production

Several witnesses argued that one effect of the plan would be

the eventual phasing out of body pressing in Australia, the consequence

of which would be th e loss of high technology jobs in the industry

and difficulties for the steel industry.

Ford, for one, presented this view:

"The required content level of 85% does not require body panel manufacture if a local engine is used. The importation of panels will permit new manufacturers more

flexibility to model change as the high fixed costs of body tooling will be absorbed by high overseas volume.

On the other hand, local manufacturers have adopted a high degree of unique local design in locally manufactured passenger and light commercial vehicles and must amortise

the tooling and other fixed costs over a far smaller volume. Local manufacturing of bodies would not therefore have the same capability to remain competitive in model changing with new manufacturers who are not stamping panels locally.

The existing manufacturers will therefore eventually evolve to overseas design to permit them to import body panels. This de-escalation of local design and stamping will cause a reduction in the higher technologies of styling, engineering, drafting, pattern and tool making with no chance of these skills being absorbed in other areas of the motor industry. It will prove difficult to absorb them in other industries at

their existing skill levels."

John Lysaght also submitted evidence in respect of panel pressing

by local manufacturers and pointed to the serious consequences any reduction

in the number of panels pressed in Australia would have for its Westernport

plant. Other basic material suppliers to the automotive industry, such as

Comsteel and A.N.I., presented similar views.

Cost studies undertaken by the Commission during the previous

inquiry indicate that the cost penalty of low scale stamping operations is high.

For example, unit costs were found to be 74 per cent, 37 per cent and 22.5 per

cent higher than m.e.s. at the 50,000, 100,000 and 200,000 unit scales of

operation respectively. This suggests that low volume stamping is not

economic in Australia and reversion by low volume producers would be an

attractive proposition.

GM-H and Ford could not, however, be considered as low volume

producers. GM-H, in particular, has achieved considerable volume in

stamping, not only because of the market volume of the Holden vehicle, but

also because it has adopted a policy of maximising the number of panels

common to the Holden and Torana vehicles. It seems likely that the scale

disadvantage on stampings by GM-H would not be greater than 20 per cent,

and in this event either reversion on other higher cost local components

or use of duty credits accruing through maintaining high content on medium

category vehicles for importation of c.k.d. vehicles seems more likely.

The same conclusion appears valid for Ford, at least on its Falcon range.

In addition, local producers have invested heavily in stamping plant, and

it would not seem to be economic to dispose of this equipment for some time.

To some extent also, the marketing of an Australian designed vehicle would

offset the disadvantage of less frequent model changes.

Humber of plan participants

Should Nissan and Toyota enter the plan, there would be, initially,

five local manufacturers operating under the plan.

Competition should be intense. Evidence given at the Commission's

hearings suggests that Nissan and Toyota will each apply to enter two vehicles

under the 85 per cent motor vehicle plan. This evidence together with

evidence of other plan participants' intentions points to 10 light cars

being manufactured in Australia. Obviously the light car market will be

very competitive, and will also have an influence on the medium car market.

Competitive pressures within the market are likely to result in considerable

structural adjustment with the probability that all five plan participants will have

some difficulty continuing as viable plan manufacturers. Both Ford and GM-H stated

in evidence that a market the size of Australia's could not support five

manufacturers . _________________ __ _______ _____ ____________________— — ----------—

MOTOR VEHICLES - IMPORT RESTRICTIONS

41.

16 minimum efficient scale. For discussion, see previous report.

One way in which structural change will occur is for the

more competitive local producers to gain at the expense of those less

competitive. It is important, if the community's resources are to be

used efficiently and if there is to be a prospect for reducing the assistance

needed by the industry to maintain any given employment level, that this

process of change be allowed to take place. Measures to support ailing

manufacturers by denying the more efficient manufacturers the right to

earn an increased market share will only weaken the ability of the

local industry to compete with imports.

MOTOR VEHICLES - IMPORT RESTRICTIONS

42.

Long-term Policy Options

As already stated, the Commission does not intend to canvass the

Government's stated long-term goals for the industry or the decision to

implement a manufacturing plan to promote those goals except insofar as they

have implications for assessment of the need for short-term assistance

measures. The Commission has concluded from the foregoing discussion that,

considered broadly, existing measures do have a reasonable prospect of

achieving the Government's objectives in the longer term. In the remainder

of this section therefore, the report looks at possible modification to

these measures which may further assist in the achievement of the objectives

for the industry or which overcome problems inherent in the present measures,

thus reducing the necessity for any increase in assistance. (Measures

necessary to deal with short-term problems are considered in Section 5.)

Modifications are considered in two parts - modified levels of assistance

and modified conditions of the manufacturing plan.

Modified levels of assistance

Higher tariffs

In the Commission's view, tariffs higher than 45 per cent on c.b.u.

imports would not help achieve the Government's long-term goals for the

industry, particularly its objectives of increased efficiency. The cost of

existing tariff protection is already very high in terms of its potential for

maintaining and encouraging inefficient resource allocation, and in terms of

its effects on consumers. Higher tariffs would simply mean higher costs (see

Table 6) with all that implies for future demand in a relatively small market.

MOTOR VEHICLES - IMPORT RESTRICTIONS

43.

Table 6 - Estimated Assistance to Plan Participants

Tariff rate (per cent) 35 45 50 60

Effective rate (per cent) 46 61 69 83

Net subsidy equivalent $m 193 256 290 349

Source: Evidence

The estimated level of assistance corresponding to a tariff of 45 per cent

is equivalent to about $4,000 per annum for each employee of plan participants

and their suppliers.

(a) Based on duty concession for 10 per cent of the vehicle's value, and a duty of 25 per cent on the imported balance. (b) Effective rate to in-house production and bought-in automotive components. (c) Based on plan production of 375,000 vehicles with an average l.d.f. value

of $2,000.

Benefits which could be expected to flow from higher tariffs are

far from obvious. If Nissan and Toyota manufacture in Australia, their

assistance needs will be lower than existing tariffs and should ensure that

the industry as a whole remains competitive under such tariffs. If Nissan

and Toyota decide not to manufacture in Australia, significantly higher

tariffs on c.b.u. imports would be likely either to lead to an expansion

of their assembly operations or would induce them to change their intention.

Higher tariffs would also offer an inducement to other suppliers to

manufacture or assemble in Australia. The probable result in the long-run

would still be considerable change within the industry, exaggerated by the

direct and indirect effects of the activities of companies which set up

behind the tariff wall but which would be unable to compete with other local

producers.

High tariffs on both c.b.u. and c.k.d. vehicles would, initially at

least, encourage uneconomic production of components in Australia that may not

be viable in the long run. This in itself would be a source of continuing

pressure for more assistance to the industry with consequent implications

for development of other industries. High tariffs on c.b.u. vehicles and low

tariffs on c.k.d. vehicles and components would Induce a major shift away

from high content manufacture to assembly operations.

The existing level of assistance to assembly operations is shown in

Table 7.

MOTOR VEHICLES - IMPORT RESTRICTIONS

44.

Table 7 - Effective Rate of Assistance to Vehicle Assemblers

(per cent)

Assistance While Tariff Quota Operates --------------------------------- --------

No Tariff Quota

Vehicles Under Tariff Quota Other ---------------------------------- Vehicles;

1975 19 76 1977 1978 1979 1980

Tariff on c.b.u. imports ! 45 45 45 45 45 45 45 35

Tariff on c.k.d. kit 127.5 30 32.5 35 35 35 45 25

Effective r a t e ^ ; 60 56 52 48 48 48 36 41

1

(a) Based on local content of 45 per cent.

Source: Evidence

MOTOR VEHICLES - IMPORT RESTRICTIONS

45.

The Commission believes Chat a higher level of assistance should not

be provided to assemblers than the longer-term assistance available to plan

participants. The VBEF argued that motor vehicle assemblers, particularly

Renault and Motor Producers, should not be phased out through the operations

of plan manufacturers because they are to the fore in promoting worker welfare

and encouraging worker participation in the industry. The Commission considers

that research should be conducted into methods of improving industrial

relations throughout the industry. More would be achieved for the industry

and the community in that way than by the indirect method of a high level of

assistance to those employers whose industrial relations are at the present

time relatively good.

Quantitative import restrictions on a continuing basis

Quantitative import restrictions, which currently apply as short-term

measures of industry assistance, are import quotas on c.b.u. vehicles and a

tariff quota on c.k.d. vehicles.

In many respects the effects of such protection are similar to

the effectsof high tariff protection. There is a cost to consumers in terms

of higher prices for imported and locally produced vehicles, a consumer cost

in restriction of choice and extended waiting lists for imported vehicles

and a cost in terms of efficient allocation of the community's resources.

There are also equity considerations in respect of quota administration.

Where quantitative restrictions are set at a level which results in the same

local production as a given tariff rate, the actual costs of assistance are

also similar. There are, however, reasons in principle for preferring high

tariffs to quantitative restrictions.

While it is possible to measure the amount of assistance afforded by

a tariff, a feature of some forms of quantitative restriction, notably quotas,

is the difficulty in measuring their protective effect. A quota may disguise

rate of assistance which the community would reject as being unacceptably

high were it provided by means of a tariff or subsidy.

Tariffs result in a redistribution of income from consumers

to local producers and the Government. With quantitative restrictions,

there is still a redistribution from consumers to local producers but

part of the redistribution from consumers to Government, which could

MOTOR VEHICLES - IMPORT RESTRICTIONS

46.

be expected from equivalent tariffs, can accrue as windfall gains either to

local importers or foreign exporters or both.

Quantitative restrictions have other disadvantages. They are more

expensive to administer than tariffs. The basis for allocation of quotas

must be subjective and can result in considerable inequities. Import licences

are frequently allocated to importers on the basis of past market shares, and

potential importers with new products which may accord with consumers' changing

tastes may therefore be unable to gain access to the market. Finally,

quantitative restrictions may provoke retaliation by Australia's overseas

trading partners.

For all these reasons, the Commission believes that continuation of

quantitative restrictions over a long period would be even less desirable than

higher tariffs. The restrictions would have a considerable cost potential with

little prospect of national benefit. If Nissan and Toyota decide to manufacture

locally, quotas or higher tariffs would appear to be unnecessary. If Nissan and

Toyota do not manufacture locally, the quantitative restrictions that would seem

necessary to guarantee local producers 20 per cent of the market would have the

effect of denying consumers the vehicles which past trends have shown they want

in increasing numbers, and would reduce the need for the existing manufacturers

to improve their competitive position.

Modified conditions of the manufacturing plan

A number of modifications to the manufacturing plan were suggested

in evidence; these and others seen as desirable by the Commission are

discussed below.

Modification of Assistance Provided to New Plan Entrants

This has been discussed earlier in the report under the heading

"Uneven Incidence of the Plan". There the Commission detailed the inequities

contained in the greater by-law concessions allowed to new plan entrants and

the likely effects of retaining those concessions. Its conclusion was that ,

unless the concessions were reduced, the Government's objectives of safeguarding

employment and managing change could not be achieved. The Commission believes

therefore that by-law concessions for new entrants should be similar to those

available to existing plan participants. New plan entrants should still be

required, however, only, to achieve the local content levels already specified

MOTOR VEHICLES - IMPORT RESTRICTIONS

47.

in the plan.

Reversion Provisions

These provisions have also been discussed earlier in the report where

the Commission concluded that the success of the plan depended on existing

manufacturers being able to re-source components on which the cost disadvantage

was greatest. The rule as it now stands is potentially damaging to the viability

of these companies faced with competition from imports and from new plan entrants.

The Commission believes that the long-term Interests of the motor

vehicle industry would be best served by the abolition of the existing

reversion provisions. The deferment of this action for one year is

suggested for short-term reasons.

Complementation Provisions

Most producers criticised the element of uncertainty inherent in the

conditions governing eligibility for complementation concessions.

The Commission believes that not all complementation arrangements

are necessarily in Australia's best interests. Some may merely be disguised

export subsidies. Consequently, there is some justification for a

case-by-case approach to determining eligibility for concessions.

To overcome the problem of uncertainty, yet to retain the facility

to encourage complementation that can be shown to be in the nation's interest,

the Commission suggests that full duty concessions be available under the plan

without the need to pursue complementation arrangements. The existing policy

on complementation could be maintained with the added condition that one of the

tests of the desirability of any complementation proposal must be its likely

effect on the overall viability of the manufacturing plan.

MOTOR VEHICLES - IMPORT RESTRICTIONS

48.

Under this proposal, plan participants which achieve 85 per cent local

content on a company basis on vehicles produced locally would pay no

duty on imported components. One effect of this amendment would be a

slight increase in the available effective protection. This can be

illustrated as follows:

Effective Rate of Protection

Tariff Rate on c.b.u. vehicles

45% 35%

61% 46%

64% 47%

Exports

10% by-law applying■

15% by-law applying

GM-H stated that, apart from the complementation provisions,

the plan discourages exports. It said:

"A change in the local content formula now presents the anomalous situation wherein the production of exports is a disadvantage content-wise to the vehicle manufacturer.

Under the old formula the local content of vehicles produced for domestic use was calculated in accordance with the prescribed formula and the value of any vehicles produced for export was added into the sale price column only, i.e. the

total value of export vehicles was considered to be local content. This resulted in a slightly better local content reading because the imported content of the domestic vehicles was being expressed as a percentage of a larger figure.

With the advent of the new Plan, the formula was changed. We have been advised that the reason for the change was that the previous treatment of exports was regarded as a hidden or disguised incentive for exports and that all such indirect

means of assisting exports h.'■a to be eliminated.

MOTOR VEHICLES - IMPORT RESTRICTIONS

49.

The new formula requires values of exports to be shown in the same way as vehicles produced for domestic consumption. The imported content is shown in the appropriate column and the

F.O.B. value is shown in the column where the lowest wholesale price is shown for domestic units.

In those cases where the price (F.O.B.) of an export unit is lower than the lowest wholesale price of a comparable unit produced for domestic sale, it is a disadvantage, content-wise to produce the vehicles for export.

This is particularly true of CKD packs where the value of imported content assumes much larger proportions than normal as the export price does not include increments for assembly labour, commercial expense etc.

The new formula not only took away any previous advantage, but actually went further and tipped the scales drastically in the opposite direction. It is now a distinct disadvantage content- wise, to produce for export and, therefore, a dis-incentive to the

achievement of the improved economies of scale which can flow from export development.

We do not believe that this was the Government's intention".

For exports which are not the subject of a complementation

arrangement, the Commission believes that plan participants should have

the option either of including production for export under the plan

in accordance with existing provisions or excluding such production

from the plan altogether. Exports excluded from the plan would then

benefit from the normal draw-back provisions which apply to exports

of any products. This modification would overcome the disincentive

arising from the present provisions. '

MOTOR VEHICLES - IMPORT RESTRICTIONS

50.

Treatment of Materials

The rules of the manufacturing plan provide, as did previous plans,

that imports of basic materials are not regarded as imported content. Witnesses

argued that this rule discriminates in favour of the local sourcing of

automotive components at the expense of local sourcing of basic materials

such as steel.

The logic for not regarding imports of basic materials as Imported

content is presumably that the plan is designed to assist the local vehicle

industry. The steel industry, on the other hand, is protected by the tariff

on steel. Thus the situation is merely one of one level of assistance for

steel but a higher level of assistance for automotive components. If locally

sourced steel were to be counted as local content and imported steel not,

then the effect would be that steel sourced by the vehicle industry would

be assisted at a significantly higher level than steel sourced for other

applications.

One way of viewing the situation is to regard both Imported and

local steel as local content. The penalty on import sourcing is the tariff,

the penalty on local sourcing is the higher cost of local steel. Provided

the protection afforded local steel by the tariff is greater than any price

disadvantage there is little incentive for imported steel to be preferred

by motor vehicle producers. The question of assistance to the steel industry

is currently under inquiry by the Commission.

Consequently, the Commission sees no need for modifying this aspect

of the plan.

Local Content of Components

The present arrangements under which the cost of bought-in components

is treated as 100 per cent local content by the vehicle producer as long as the

components incorporate a certain level of local content (ranging from 100 per

cent to little more than mere assembly of a component in Australia) give

rise to inequities as between vehicle manufacturers and between component

manufacturers. Vehicle manufacturers which produce components "in-house”

can claim as local content only the cost of locally-purchased materials

and manufacturing costs, A vehicle manufacturer buying-in the same

component with a similar level of local content can claim the total

cost of that component as local content in his vehicles. The inequities

for component manufacturers arise from the differing levels of local

content and the differing by-law concessions allowed on imports of

materials for incorporation in components.

The Commission believes that these inequities should be overcome

and that local content of components should be determined on the basis

of the cost to the vehicle producer less the value of any parts imported

by the component manufacturer. It is noted that the provisions of the

manufacturing plan which apply to components are to be reviewed during

1977 and the Commission suggests that this matter should be considered

as part of that review or earlier if deemed appropriate by the responsible

departments.

MOTOR VEHICLES - IMPORT RESTRICTIONS

51.

MOTOR VEHICLES - IMPORT RESTRICTIONS

52.

5. THE ENVIRONMENT OF CHANGE

In the preceding section the Commission concluded that, with

some modification, existing policy measures to assist and control the

development of the industry can contribute to achievement of the

Government's objectives in the longer term.

They will do so, however, only if they operate in an environment

conducive to change. That environment should be one in which the industry

can have confidence in the Government’s policies, and in which the

Government can feel confident that the economy can cope with the change which

must occur.

This section examines the need for short-term measures to promote

an environment in which the Government’s long-term policy measures can

work. The Commission received considerable evidence about the factors which

have been short-term influences on the motor vehicle industry. From an

examination of this evidence, it has concluded that there are some continuing

problems which could jeopardise the re-organisation of the industry and thus

the success of the Government’s policy measures. The problems stem from two

basic factors: the degree of uncertainty in the industry and the ability

of the economy to absorb changes in the structure of the industry.

Uncertainty in the Industry

Except for those relating to the total market, the Commission’s

comments on this aspect are confined largely to passenger motor vehicles,

as they were the subject of the majority of the evidence. Light commercial

vehicles manufactured in Australia are primarily derivatives of passenger

vehicles while imported light commercial vehicles, although to some extent

competitive with local vehicles, tend to be specially designed for commercial

applications. Light commercial vehicles are specifically considered later

in this section.

MOTOR VEHICLES - IMPORT RESTRICTIONS

53.

The present uncertainty in the motor vehicle industry appears to

stem largely from developments in the market since the beginning of 1974. It

also reflects the wider influences which have affected the industry throughout

the world in this period. These include the 'oil crisis', rapidly inflating

costs and, more recently, lower utilisation of capacity and reduced markets.

Furthermore, this period in Australia saw the formulation and announcement

of the Government's policy for the industry’s future. The significant

market developments are considered below.

Market developments

Motor vehicles are large expenditure items whose purchase may be delayed

by intending purchasers. The market for them is characterised by pronounced

cyclical fluctuations reflecting the replacement cycle and the influence of

general economic conditions.

In the period from 1972 to mid 1975, there was strong growth in sales

up to the last quarter of 1973, a substantial decline in that quarter due

largely to supply problems, followed by recovery through to about September

1974. In late 1974 and January 1975 the market again declined. Abnormally

high sales were recorded in February, March and April 1975 influenced by

Government sales tax reductions with a tailing off of this effect accompanying

the gradual return to previous sales tax levels. This is illustrated in Figure 2.

Figure 2 - Registrations of Passenger and Light Commercial Vehicles

*000 Vehicles per Month

60

50

40

30

_______ Seasonally adjusted

-------------------Actual

__________________ |_____________________________________ I_____________________________

J A S O N D J F M A H J J a S 0 li d j f h a m J J A $ 0

1973

Source: ABS

1974 1975

90

75

60

45

30

15

0

MOTOR VEHICLES - IMPORT RESTRICTIONS

55.

This pattern of demand was not matched by market supplies

as can be seen from Figure 3. Towards the end of 1973, local production

was unable to keep pace with demand and consequently stocks were

reduced to a very low level. Production and imports overtook demand in

1974 with the result that stocks built up quickly in that year. During

1974 the accumulation in stocks (ie. the increase in the level of stocks)

amounted to about 74,000 passenger motor vehicles and about 12,000 light

commercial vehicles, representing about 15.6 per cent and 16.7 per cent

respectively of sales of each vehicle type for the year. The

contribution of vehicles by mode of origin to this stock build-up is

shown in Table 8 where the significant contribution of imported vehicles

is apparent.

Table 8 - Stock Accumulation of Passenger Vehicles»By Mode

of Origin - 1974

(000 Vehicles)

Imported Vehicles

Locally Produced Vehicles Total

Manufactured Assembled

Sales 124 282 68 474

Imports 164 164

Production (a) 321 76 397

Exports (a) 13 13

Stock accumulation (b) 40 26 8 74

As percentage of Sales (%) 32 9 13 16

(a) Includes a small number of c.k.d. kits

(b) Imports and Production (net of Exports) less Sales

Source: ABS and Evidence

MOTOR VEHICLES - IMPORT RESTRICTIONS

56.

All types of suppliers - local manufacturers, local assemblers

and Importers - experienced Increased stockholdings. This is demonstrated

in Tables 9 and 10 which relate to the overall operations of the three

types of suppliers. A comparison of Tables 8 and 9 indicates the extent

to which imports by assemblers contributed to the stock build-up. Of the

40,000 vehicle increase in stocks of imported vehicles, assemblers accounted

for 22,000 vehicles, most of which were imported by Nissan and Toyota.

Table 9 - Stock Accumulation of Passenger Vehicles, By Type

of S u p p l i e r ^ - 1974

(000 Vehicles)

Importers Manufacturers Assemblers^ Total

Sales 66 288 119 474

Importers 83 6 74 164

Production (c) 321 76 398

Exports (c) 13 13

Stock accumulation (d) 17 26 31 74

As percentage of Sales (%) 26 9 26 16

(a) Includes stocks held by distributors and dealers for each type of supplier

(b) Assemblers market both c.b.u. imports and vehicles assembled locally from c.k.d. kits

(c) Includes a small number of c.k.d. kits

(d) Imports and Production (net of Exports) less Sales

Source: ABS and Evidence

MOTOR VEHICLES - IMPORT RESTRICTIONS

57.

Table 10 - Stocks of Passenger and Light Commercial Vehicles as

a Percentage of Average Monthly Sales in 1974

1 9 ? 3 1 9 7 4

1 9 7 5

J k 5 0 N U J W A N J J A S 0 H 0 j F M A M J

M a r .v - f d c t u r e t s 1 3 1 6 ' 8 21 21 1 2 1 4 1 9 21 2 4 2 5 27 3 2 33 31 4 4 51 49 5 0 3 5 1 9 1 2 11 1 0

A s s e m b l e r s 2D 2 0 1 3 15 1 2 1 0 8 9 8 1 3 1 4 1 3 Λ 9 2 3 2 4 3 3 41 5 8 5 2 4 3 3 0 2 3 29 2 4

I t n p c r t P T s 7 4 5 7 4 5 4 4 5 5 9 6 9 9 1 9 1 6 22 2 6 1 7 1 3 1 8 1 2 1 6

Source: ABS and Evidence

The proportion of total domestic sales of passenger motor vehicles

satisfied by locally manufactured vehicles declined dramatically in the

second half of 1974 but has recovered to some extent in 1975. There has also

been a marked upturn in the market share held by locally assembled vehicles

in the first half of 1975. (See Table 11).

(a)

Table 11 - Market Composition by Mode of Origin^ } for Passenger

Motor Vehicles

(per cent)

1 9 7 3 1 9 7 4 1 9 7 5

O r i g i n 1 9 7 2 1 9 7 3 1 9 7 4 J A s 0 s D J F A M J 3 A S 0 fi 0 J F M A M J

L o c a l l y

M f r d . 71 65 5 5 5 3 6 0 61 5 9 63 6 5 5 8 6 4 5 6 5 7 5 4 5 ? 5 0 5 1 5 3 3 8 4 2 4 7 3 7 5 4 5 2 5 0 5 0 51

L o c a l l y

A s s e m b . 2 0 2 0 1 6 21 22 21 2 2 2Q 2 0 1 6 1 8 21 21 n 2 0 21 2 0 22 2 2 21 2 0 1 6 2 5 2 9 2 8 30 2 9

I m p o r t e d

8 1 4 2 8 2 0 1 8 1 8 1 9 1 5 1 5 2 6 1 9 2 1 2 2 2 4

2 3 2 9 2 9 2 5 4 0 3 8 33 4 7 22 19 2 3 1 9 20

(a) Based on wholesale sales

Source: ABS and Evidence

MOTOR VEHICLES - IMPORT RESTRICTIONS

58.

Local manufacturers predominantly market vehicles produced in

Australia with a high content although there has been a recent tendency

towards increased supply of vehicles assembled from imported c.k.d. kits

or of imported c.b.u. vehicles. Consistent with movements in the market

share for locally produced vehicles, the share of the market held by the

local manufacturers also declined in the second half of 1974 and recovered

in 1975. The decline in 1974 was moderated towards the end of the year by

Chrysler’s increased sale of c.b.u. and c.k.d. vehicles. Also, the

recovery in 1975 was reinforced by the increased emphasis on assembly of

c.k.d. vehicles by all local manufacturers.

(a)

Table 12 - Market Composition by Type of Supplierv for Passenger

Motor Vehicles

(per cent)

1 9 7 3 ' 1 9 7 4 — ^ 1 9 7 5 --------

O r i g i n 1 9 7 2 1 9 7 3 1 9 7 4 J A S 0 N 0 J F M A H J J A S 0 N 0 J F M A M J

M f r s ( b ) 7 5 6 8 59 6 2 6 6 6 9 6 5 6 9 7 4 6 5 7 3 6 7 7 0 6 3 6 7 61 62 6 3 4 8 5 4 61 4 3 63 6 5 5 9 62 63

A s s e m b l e r s 1 9 27 2 5 2 8 2 4 1 9 2 2 2 0 1 6 2 0 1 6 2 2 21 2 4 21 2 4 2 4 2 3 3 2 2 7 2 3 3 2 2 3 2 2 31 2 6 2 5

I m p o r t e r s 6 Ϊ 0 14 1 1 9 1 2 11 11 1 0 1 5 11 11 1 0 1 3 1 2 1 5 1 4 1 4 21 1 9 1 6 2 6 1 4

1 3 1 2 11 1 2

(a) At wholesale level

(b) Includes Leyland

Source: Evidence

MOTOR VEHICLES - IMPORT RESTRICTIONS

59.

These developments in the market during 1974 and 1975 are due to

a number of factors which are considered below:

, failure to anticipate the market down-turn

Suppliers to the market, both local producers and importers,

apparently failed to predict market developments, in particular the down­

turn in the market from September 1974. Local producers maintained their

production at a fairly constant level from February through to October 1974.

In November there was a slight cut-back, but significant reductions were

effected only in December and January. It appears that local manufacturers

may have banked on a continuation of the market levels prevailing during

the first half of the year with the fall-back position that, if they had

miscalculated, stock levels would be substantially cut back during the

Christmas shut-down. Importers also contributed to the stock build-up.

They seem to have placed their May-August orders on the basis that then

current sales levels would be maintained but by the time the imports were

landed they were faced with a market which had declined substantially.

. supply problems in 1974

Supply problems in 1974 were of two contrasting types. In the

first half of the year neither local producers nor importers were able to

obtain sufficient supplies to satisfy the demand for their products. In

the second half of the year, demand turned down as increased supplies became

available as a result of orders placed months earlier.

The substantial run down of stocks in 1973 and early 1974 was

partly due to shortages of materials and components which in turn limited

manufacturers' production volumes. Ford, for example, stated that "Component

shortages were prevalent through the industry... due to supplier strikes and

some episodic supplier limitations". GM-H spoke of "acute material shortages,

the result of the spending boom of late 1973 which caused industry wide

shortages” . As a result of these supply problems, the time required to

satisfy a customer order reached 51 working days for GM-H, and two to three

MOTOR VEHICLES - IMPORT RESTRICTIONS

60.

months for Ford early in 1974. The supply problems were largely overcome

by mid-1974 and unfilled orders were reduced to low levels while stocks

had returned to about normal levels.

Importers had a similar experience, being unable to meet the

demand in the first half of 1974 and consequently arranging for increased

shipments, only to have them arrive at a time when the market was

declining. Witnesses gave evidence of delays of from three to five months

between placement of orders and receipt of vehicles from Japan, and somewhat

longer delays on vehicles from Europe. This lag, when considered along

with shipping difficulties experienced in 1974, helps explain the rapid

build up of stocks by assemblers and importers and their inability to react

quickly to the slump in demand.

. qiotas

The imposition of quotas in January 1975 reduced the ability of

some importers to supply the market for their vehicles. Honda, Alfa Romeo,

AMI and Chrysler stated that there was excess demand for their products

and indicated that their stocks had been reduced to very low levels.

In general, however, quotas seem to have had little direct

influence on the supply of imported vehicles to the market, partly because

of the effect of the higher rate of duty imposed in November and partly

because of the size of stockholdings at the beginning of the quota period.

Assemblers also have had the option of increasing their production of

assembled vehicles to meet demand.

In 1973 importers achieved a 10 per cent share of the passenger

vehicle market; in 1974 a share of 14 per cent. Stocks held at the

beginning of 1974 together with allowable imports of 45,000 vehicles during

1975 would allow sales up to 14 per cent of the 1975 market forecast.

MOTOR VEHICLES - IMPORT RESTRICTIONS

61.

In 1973 assemblers achieved a 23 per cent share of the passenger

vehicle market; in 1974 a share of 27 per cent. Stocks of c.k.d. and c.b.u.

vehicles, together with allowable c.b.u. imports of 32,000 vehicles and

imports of c.k.d. vehicles within the tariff quota limit would allow sales up

to 37 per cent of the 1975 market forecast.

. sales tax measures

The large increases in sales in the months of February, March

and April 1975, and the sales pattern for the following five months can be

largely explained by the reduction in sales tax which was later gradually

restored to its previous level. As a consequence, sales of vehicles were

brought forward from future periods with the result that sales are now

abnormally low and can be expected to remain so for some months.

. the relative strengths of competing market suppliers

Many influences determine the relative strengths of competing

market suppliers. The significant changes in their relative competitive

positions over the recent past and the reasons for those changes are

examined below.

Some assessment of changes in the relative competitive position

of suppliers can be made from comparisons of price and cost movements.

Retail price comparisons for broadly competitive vehicles are summarised in

Table 13. Prices used are generally those for base models.

MOTOR VEHICLES - IMPORT RESTRICTIONS

62.

Table 13 - Comparison of Retail Prices of Competitive Passenger Ca) Vehicles by Market Category and Type of Supplier

(Index: Cheapest car in category - 100)^

Category/Type of Supplier Dec. 1973 June 1974 Dec. 1974 Aug. 1975

Small Light

Local manufacturers 121 125 115 107-110

Assemblers 110-125 114-118 107-110 103-106

Importers - Japan 100-114 100-118 100-115 100-111

- Europe 132 122 125 114-126

Large Light

Local manufacturers 104-107 117-120 105-108 104-105

Assemblers 99-135 101-129 86-116 101-119

Importers - Japan 100 100-121 100-119 100-119

- Europe 129 114 125

Medium

Local manufacturers 95-107 100-114 100-116 100-111

Assemblers 110-127 110-112 104-123 116-125

Importers - Japan 105 116 116 109

- Europe 112 112 121 128

(a) See Appendix 3

(b) The base vehicle selected is the cheapest in each category in August 1975.

Source: Evidence

While only broad conclusions can be drawn from the retail price

information in this table, the results suggest that the competitive position

of local manufacturers worsened between December 1973 and June 1974 but

subsequently improved. Since mid-1974 local manufacturers seem to have improved

their competitive position at the retail level in all categories and against

MOTOR VEHICLES - IMPORT RESTRICTIONS

63.

all types of competition except medium vehicles imported c.b.u. from

Japan, the category in which their price disadvantage is least. Imported

vehicles of European origin have become consistently less competitive over

this period despite a number of these vehicles being exported to Australia

at prices up to 60 per cent below stated current domestic values in the

countries of origin.

These price trends could be expected to reflect relative cost

increases in Australia and the countries of export, together with move­

ments in exchange rates and duties. Since the beginning of 1973, there

have been substantial changes in the Australian $-Japanese Yen exchange

rate. It is very unlikely that these changes merely offset relative

changes in the costs of vehicle manufacture in Australia and Japan.

In July 1973 the tariff was lowered from 45 to 34 per cent and

was restored to 45 per cent in November 1974. GM-H presented a table in

evidence indicating the combined effects of exchange rates and tariffs on

the landed cost of an imported Japanese vehicle since the beginning of

1973. Rates of inflation in Australia and Japan were also provided. The

GM-H evidence has been updated and included in Table 14, which shows

variations in the cost in Australia of 100,000 yen of goods exported from

Japan.

Table 14 - Changes in C o sts of Imported Japanese Motor Vehicles

Adjusted to Include the Effects of Japanese and Australian Inflation

Cost in material Australia of 100,000 Yen of motor vehicle exported from Japan

Consumer price

(including relative inflation effects )

Exchange Australian Tariff rate(Yen-At) S Rate

Duty $

Cost plus Duty $ Index (a)

Austral i a (fc)

December 1972 354 282 45% 127 406 10G 103 100 100

Hay 1973 369 271 45% 122 353 3-6 138 132 102

July 1973 371 270 34% 92 362 85 139 135 93

August 1974 446 224 34% 76 300 73 136 127 73

September 1974 386 259 34% 88 347 85 146 127 34

November 1974 390 256 45% 115 371 91 145 132 103

February 1975 390 256 45% 115 371 91 146 135

June 1975 388 258 45% 116 374 91 152 141

October 1975(c) 378 265 45% 116 384 94 133

Sources : (a) Japanese Domestic Consumer Price Index (aV Croups) - EcC'O'i: 'JatisMcs ''Vlr.!/ issued ί y the Bank of Japan. ,

(b) Australian Consumer Price Index (All sroups, -(c) This line calculated by the Commission. All o'her i· -,r-i-:o- =.u::lie: : ,·

MOTOR VEHICLES - IMPORT RESTRICTIONS

64.

The observed trend in the cost index of goods from Japan helps to

explain the increased competition from c.b.u. vehicles reflected in the

reduced share of the market supplied by locally produced vehicles towards the

end of 1974. On the basis of recent movements in this index, however, there

was an improvement of about 25 per cent in the competitive position of local

producers in the period between August 1974 and October 1975.

The Commission received recent unit costings for a number of locally

produced vehicles. It also received details of changes in the f.o.b. and

c.i.f. values of various imported vehicles. From late 1973 to August of this

year, cost rises for locally manufactured high content vehicles were generally

of the order of 50 to 60 per cent while rises in the f.o.b. price of c.b.u.

vehicles imported from Japan were mainly in the range of 35 to 55 per cent.

Increases in the f.o.b. price of imported vehicles have tended to be infrequent

but substantial when they have occurred (especially when compared with price

rises for locally produced vehicles).

Cost information provided by manufacturers for this inquiry relates

to production volumes considerably below those on which costs were based at

the previous inquiry. One company indicated that current costs would be

reduced by 8 per cent at its optimal level of production. Overseas

manufacturers are known to have also experienced increased costs through lower

capacity utilisation, but the extent of such cost increases is not known.

. trends in market segments

For a number of years the popularity of medium category cars

relative to light cars has been declining. Since the beginning of 1973 that

trend has accelerated. These movements are shown in Figures 4 and 5.

MOTOR VEHICLES - IMPORT RESTRICTIONS

65.

iiigure 4 Trends in the Market for Passenger Motor Vehicles, by Category - 1965 to 1975

T

....

Small and Large Light combined

Medium

Large Light

Small Light

_____ I ______ I ______ I ______ | ______ | ______ I ______ I _____

i 1965 1966 1967 1968 1969 1970 1971 1972

Source: Derived from data published by ABS.

_____l_____ i

1973 1974 1975

Figure 5 Trends in the Market for Passenger Motor Vehicles, by Category,

60

50 _

40-

June 1973 to June 1975

Small and Large Light combined

Medium (incl. luxury/specialty)

30 -

20

Dec. 73

Large Light

' Small Light

___ I _____ j_____ i____ I— J—

June Dec. June

74 7 A 75

Source: „ Derived from data published by ABS.

MOTOR VEHICLES - IMPORT RESTRICTIONS

6 6.

Since medium category vehicles still constitute the major

proportion of locally manufactured vehicles, the trend to light cars has

contributed to the declining market share of local manufacturers. The

decline in the relative size of the medium category segment may itself

reflect a more basic change in the relative competitiveness of locally

manufactured vehicles. Reasons which may explain the accelerated trend to

smaller cars in recent years include increasing petrol prices and the

lower petrol consumption of small cars, the refinements of small cars, and

demographic factors such as reduced average family size.

All witnesses expected the trend to smaller cars to continue but

there was a wide difference of opinion on the future extent of this trend.

Although local manufacturers have re-organised their operations to become

less dependent on the sales of medium category vehicles, their market

strength is still largely based on these cars. Consequently the likely

extent of this trend is for them an unknown of considerable importance.

An examination of the market composition within each category

indicated that during 1973 and 1974, the share of the market gained by

locally manufactured and assembled vehicles was generally declining. This

reflects the increasing competition from importers in that period. In 1975,

however, local manufacturers and assemblers have substantially increased

their share of all vehicle categories, the greatest increases occurring in

the small and large light categories.

In the small light category, much of the gain by local producers

can be attributed to the introduction of its Gemini models by GM-H, thereby

strengthening its competitive position in this category. Ford have also

recently become more competitive in this category with the reversion to an

assembly operation on its new Escort range.

MOTOR VEHICLES - IMPORT RESTRICTIONS

67.

Sales tax reductions and imposition of quotas in perspective

The operation of the sales tax reductions and import quotas brought

about a significant reduction in the level of vehicle stocks. Total stocks

of passenger vehicles at the end of September 1975 were estimated at about

80.000 vehicles of which about 60,000 were held by dealers. This compared

with a total stock holding of about 120,000 vehicles in December 1974 of

which about 70,000 were held by dealers. As a proportion of sales, stocks

now appear to be highest for Nissan and Toyota vehicles. The measures also

resulted in greatly increased sales of local vehicles in the first half of

1975 and thereby averted the threatened retrenchment of employees in that

period. In conjunction with the increased duty rate of 45 per cent, the

quotas have reduced imports from the high levels recorded in the last

quarter of 1975.

These measures have, however, contributed to another set of problems

which remains. First, the increased sales encouraged by the sales tax measures

were made possible by drawing forward sales which would have occurred in the

second half of this year. As a result, they are, and will continue to be, in

part responsible for the sluggish demand forecast for the next few months.

All motor vehicle producers forecast lower sales of passenger vehicles

for the rest of 1975 and also for the first half of 1976. Industry forecasts

of sales for the whole of 1975 ranged between 450,000 and 500,000 vehicles

which involves a decline in sales in the second half of the year to about

200.000 vehicles. (ABS registration data, adjusted to allow for a statistical

processing lag, shows that registrations of passenger vehicles in the six months

to June 1975 totalled about 260,000 vehicles.) For 1976, forecasts ranged

between 442,000 vehicles and 510,000 vehicles, the lack of significant growth

expectations being due to the reduced sales volume forecast for the first six

months of that year. In addition to the pull ahead of demand arising from the

sales tax measures, manufacturers attributed their projections of depressed

demand in late 1975 and early 1976 to the general lack of business confidence

and to high cost inflationary pressures.

MOTOR VEHICLES - IMPORT RESTRICTIONS

68.

Second, by ensuring that imports remain below 20 per cent of the market

quotas have created a situation in which the trigger tariff mechanism should

operate early in 1976. Under this mechanism the rate of duty on c.b.u. imports

would drop to 35 per cent as soon as action could be taken after the publication

of December import and registration statistics. The lower rate would then

apply at a time when the economy generally, and the vehicle market in particular,

is likely to be depressed and before manufacturers have had a real opportunity

to restructure their operations and improve their competitive position. An

increase in imports at that time, prompted by the lower tariff, could damage

the local industry and make more difficult its re-organisation.

At that time also, any new entrants to the manufacturing plan would

be receiving the high assistance provided by the by-law concessions during

the phase-in provisions. These companies would therefore have the opportunity,

through increased volumes of both locally produced and imported vehicles, to

achieve quickly a market share sufficient to support a viable manufacturing

operation in Australia.

Coping with Change

It appears unlikely that economic conditions will have improved

greatly by the beginning of 1976. Unemployment will still be substantial

and the economy's ability to cope with change in the structure of its industries

will remain limited.

Since mid-1974 employment in the industry has fallen considerably.

Over 7,500 jobs in the vehicle manufacturing companies have been lost and

at least that many jobs in specialist component manufacturers are also

believed to have been lost. With a low level of demand projected for the

remainder of 1975 and 1976 there is little prospect of those jobs being

recovered in the near future. If anything, even with a level of c.b.u.

imports no higher than 20 per cent, the situation may marginally worsen.

The Commission has estimated the number of jobs likely to be

created and lost in the motor vehicle and automotive components industries

in the next few years. These estimates ( which are explained in detail in

MOTOR VEHICLES - IMPORT RESTRICTIONS

69.

Appendix 7), are based on the assumption that existing producers

will be able to reduce their local content each year to the specified

minimum level. To the extent that these companies are unable to do

so, the reduction in employment will in the short term, be less than

that forecast. Any long-term delay in the re-sourcing of high cost

components could, of course, threaten the viability of the industry

and lead to far greater employment consequences. The Commission’s

estimates are that,provided Nissan and Toyota enter the manufacturing

plan, employment in the industry will exceed the 1974 level of

employment from about 1979 onwards. There will be little improvement over the

current employment position in 1976 but employment levels should increase

progressively from 1977 onwards as demand recovers and as new entrants

increase their local sourcing of components.

A number of trade unions whose members are employed in the

motor vehicle industry expressed concern about the lack of special

compensation for employees displaced by the restructuring of the industry.

Mr. Townsend of the VBEF stated that "... there has been no attention

given to the development of specific programmes either to manage the

reconstruction of the industry or to compensate our members and the

members of the other trade unions for the costs involved in this

reconstruction". Mr. Townsend also submitted that his members "...

are prepared to co-operate in the implementation of plans which benefit

the whole community provided only that we know what the costs are and the

whole community is prepared to bear the burden of these costs". Mr.

Benjamin of the AAESDA listed the personal and national costs which arise

from any loss of employment opportunities by its members and said"... if

the community wants the benefits of the new motor industry plans, whatever

these may be - they should be told all the facts about the costs involved".

The Commission acknowledges the substance of these views but

believes that machinery already exists under which assistance can be

provided to employees displaced by the restructuring of the industry.

It considers, however, that the Government should make every effort to

ensure that employees who may be displaced by the operations of its policy

for the industry are made aware of the assistance which is available in

such circumstances.

MOTOR VEHICLES - IMPORT RESTRICTIONS

70.

Short-term Policies

Modifications to the manufacturing plan which were discussed

earlier are designed to minimise the adverse effects of the restructuring

of the industry in the longer term. Some, such as the modifications

to the provisions for new entrants, will also have implications for the

short-term situation in the industry. They may not, however, be

sufficient to overcome the uncertainty facing existing manufacturers

and new plan entrants.

The Commission's judgement is that local producers should be

able to hold their share of the market under a tariff of 45 per cent.

As a result of the anticipated demand conditions in the final quarter

of this year and early 1976, there could be production and employment

problems for local manufacturers particularly if the tariff dropped to the

long-term rate of 35 per cent in that period. Because of the importance

of the next two years for the long-term viability of the industry, the

Commission believes additional measures are justified to ensure that

manufacturers, with some degree of confidence, can take all possible

steps to improve the structure and hence the competitive position

of the industry.

A continuation of quotas has been considered as a short-term

measure to assist the local industry and is recommended.

The three existing manufacturers, as well as AMI, Nissan Aust. and

Leyland, sought the retention of import restrictions. The manufacturers

requested that quotas should continue, that they should apply to both

c.b.u. and c.k.d. imports, and that the combined total should not

exceed 20 per cent of the market (Chrysler requested that this be phased

down to 10 per cent by 1979). Nissan Aust. and AMI requested a quota

on c.b.u. imports at about the present level of 20 per cent with no

restriction on c.k.d. imports. Leyland also requested a quota of

20 per cent on c.b.u. imports but requested a new method of allocating

quotas which would have entitled GM-H and Ford to by far the largest

quotas. All companies stated explicitly or implied that the only way

in which 80 per cent of the market could be reserved for local producers

was by import quotas.

MOTOR VEHICLES - IMPORT RESTRICTIONS

71.

The use of import quotas as a long-term assistance measure

would provide the local industry with a degree of insulation from

import competition which, depending on the size of the quotas, could

have adverse effects on efficiency, costs, prices and consumer choice.

Long-term quota restrictions would also be likely to lead to difficulties

with Australia's trading partners especially those with which Australia

has formal relationships under multilateral or bi-lateral trade agreements.

The Commission's objections in principle to the use of quotas

have been discussed in Section 4. Despite these objections, it considers

that the continuation of import quotas, as a short-term measure, has the

advantage of providing local producers with a higher degree of certainty

than would otherwise be the case. A continuation of quotas during 1976

would guard against damaging imports during the period when existing plan

participants are changing their manufacturing and marketing operations.

The level of quota to be recommended is 90,000 vehicles, about the

same level as applies during 1975.

The inequities which accompany the present system of import

licensing will continue and some importers will continue to be disadvantaged.

Suppliers most affected are those with an increasing market share achieved

with imported vehicles during the latter part of the two year period 1973-1974

on which quota allocations were based. Honda, Chrysler and Alfa Romeo

presented evidence which showed that they were in this category. Ford

claimed that its very small level of imports in the base period precluded it

from changing its strategy to include a greater volume* of c.b.u. imports.

MOTOR VEHICLES - IMPORT RESTRICTIONS

72.

Existing import quotas are issued on a monthly basis.

There is no standing provision for any short-fall in one month

to be supplied by clearances in a subsequent month. Importer

witnesses were very critical of this aspect of Import licensing and

requested a more flexible arrangement. The Department of Police

and Customs provided evidence concerning the problems that had been encountered

in this regard and the action they had taken to resolve them:

"-Establishment of monthly import ceiling of CBU passenger

cars and consequent restrictions of licence to a monthly

validity results in:

(i) difficulty in importers making suitable shipping

arrangements to fully utilise quota available

each month. (The department advised that

this problem was later substantially resolved).

(Ii) importations during a monthly validity period

falling below allocated licensing quota -

Ministerial approval was given to carry over

unused monthly balance to subsequent months to

compensate for the difficult shipping position.

(iii) importers being unable to plan ahead.- To minimise

this problem importers were advised in June that

quota allocations for the remaining months of 1975

would not fall below the level of their June allocation.

- an alternative could be a licensing period of 6 months with,

if necessary, restriction as to monthly quantities".

The Commission acknowledges that the continuation of quotas will

prolong the problems arising from their administration. It proposes to

recommend that there be no substantial change in the way quotas are allocated

or to the period for which they are issued.

MOTOR VEHICLES - IMPORT RESTRICTIONS

73.

As part of its additional short-term assistance to the

industry, the Commission recommends that the trigger tariff mechanism

should not operate at the end of 1975 to reduce the tariff to 35 per cent.

The logic of the trigger tariff is that, with the restructuring of

the local industry, a longer term duty rate of lower than 45 per cent

is appropriate. The trigger is the mechanism by which the tariff

can be reduced at an appropriate time. Despite the changes which have

occurred, there has been little fundamental restructuring of the industry

over the last twelve months. The Commission considers that the triggering

of a reduced tariff would be premature and recommends that the trigger

tariff mechanism should not operate before 1 January 1978.

In Section 4, the Commission recommended changes to the

reversion provisions of the manufacturing plan. The process of

reverting to overseas sourcing of components, essential to improve the

competitive position of the industry, is the factor which has the

greatest effect on the component industry in the early years of the

manufacturing plan. To provide some assurance that the effects of

reversion on the activities of component suppliers remain within

manageable limits, the Commission considers that the existing arrangements

for departmental approval of all reversion proposals should continue

until the end of 1976.

Because the Commission believes that a duty of 45 per cent

would adequately assist the local industry against imports, any additional

costs imposed by import restrictions are likely to be relatively small.

Such additional assistance would, however, provide an added safeguard

against imports which, in the short term, may hinder the industry

as it adjusts to accord with the Government's objectives.

MOTOR VEHICLES - IMPORT RESTRICTIONS

74.

Light Commercial Vehicles

The reference for this inquiry also covers light commercial

vehicles having a g.v.w. of less than 2720 kg. Imports of these vehicles

during 1975 are restricted to the level attained in 1974. Of the three

manufacturers, only GM-H made specific mention of light commercial

vehicles in its requests in which it sought to have imports of light commercial

vehicles restricted to 10 per cent of the market. GM-H, which itself

imports light commercial vehicles from Japan, based this request on

the expectation that import restrictions on commercial vehicles would

enable manufacturers to achieve greater production volumes of the commercial

variants of their medium category passenger vehicles. Importers of Japanese

light commercial vehicles requested that quotas be discontinued.

Apart from that presented by Thiess, the Commission received

little evidence relating specifically to the need for quotas on light

commercial vehicles. The quotas were apparently applied to assist local

manufacturers of passenger derivative commercial vehicles. Imported

vehicles, however, are specially designed commercial vehicles powered by

four cylinder engines and for which lower operating costs are claimed.

Thiess stated that imports of Japanese light commercial

vehicles, if removed from control by quota, would have no significant

effect on the local industry. While the Commission believes that

there is a degree of competition between Japanese light commercial

vehicles and local passenger derivative vehicles, it agrees with

the Thiess view that the quotas could be removed without harm to

the local industry and will recommend accordingly. This conclusion

is based largely on the differences in design, application, price and

operating costs between local and imported vehicles. Its acceptance

should ensure that commercial users, whose costs affect other sectors

of the economy, have the freedom to select the type of vehicle which

is most appropriate and most economical for their requirements.

MOTOR VEHICLES - IMPORT RESTRICTIONS

75.

6. CONCLUSIONS AND RECOMMENDATIONS

Conclusions

The Government's long-term policy of assistance to the motor

vehicle industry broadly comprises a manufacturing plan supported by a

tariff of 45 per cent on c.b.u. vehicles which reduces to 35 per cent

when such imports constitute less than 20 per cent of the market over

a twelve month period. Subject to phase-in arrangements, the tariff on

c.k.d. vehicles is to be 10 per cent below the rate for c.b.u. vehicles.

Any assessment of the effectiveness of such assistance, and

hence the policy, depends on the decision by Nissan and Toyota as to

whether they will manufacture vehicles in Australia. Should these

companies decide not to enter the plan, it appears unlikely that the

Government's objectives would be achieved. Because of this and the

Government's repeated public commitment to this policy of assistance for

the industry, the Commission has assumed that the Government will stand

firm in its objectives by ensuring that Nissan and Toyota do not achieve

substantial market penetration without at the same time accepting the

responsibilities of an Australian producer. For this reason, the

Commission has based its conclusions on the assumption that Nissan and

Toyota will soon confirm their intentions to produce locally under the

manufacturing plan.

On the basis of this important assumption, the Commission has

concluded that the Government's policy measures have a reasonable prospect

of achieving its longer term objectives but that provisions of the

manufacturing plan which have the potential to nullify its intentions

should be amended. Recommendations are made on those provisions which:

. provide quite different levels of assistance

to plan participants,

may lead to disruption in the industry

MOTOR VEHICLES - IMPORT RESTRICTIONS

76.

. add to uncertainty, thereby inhibiting

business planning, or

. restrict flexibility of local manufacturers to

restructure their production on the basis of

their economic judgements, thereby weakening their

competitive position both against imports and

other plan participants.

Accordingly, the Commission has recommended amendments to the

provisions relating to by-law concessions for new plan entrants, re-sourcing

of components, complementation, exports and local content of components.

Plan provisions were not explicitly covered in the terms of reference for

this inquiry. Amendments to some of the plan provisions have been recommended,

however, because they have a direct relationship to the industry's need for

short-term assistance and to the likely effects of any such assistance

recommended by the Commission. Behind such amendments is the concern that

certain plan provisions have the potential to cause even greater disruption

in the industry than that which existing and recommended short-term measures

are designed to overcome.

The suggested modifications to the plan will not hamper

structural change and adjustment within the industry; such change is

essential if the industry is to become more competitive with imports at

the lower long-term rate of duty of 35 per cent. The modifications should,

however, ensure that the structural change follows the course most likely

to ensure the continued viability of the industry while remaining manageable.

Employment opportunities will be lost in some areas and created in others

but the Commission believes that its suggestions will minimise the employment

effects of the adjustment process.

While plan modifications alone appear necessary to ensure that

the Government's assistance policies will achieve their objectives for the

industry and no additional assistance appears justified in the longer term,

the Commission believes that problems remain which warrant some additional

MOTOR VEHICLES - IMPORT RESTRICTIONS

77.

assistance during 1976. The problems which gave rise to the measures

announced in January 1975, namely increased imports, high stockholdings

and threatened retrenchments, have to some extent been solved. Imports

have been contained to within the specified level, and this together with

the reduction in sales tax has led to a rapid reduction in vehicle stocks.

Demand has declined in the second half of 1975, however, and is expected

to remain low until mid-1976. The extent of the decline has been

aggravated considerably by the pull-forward effect of the sales tax measures

and general economic conditions. As a result of reduced sales by

manufacturers, employment opportunities within the industry are declining.

The current demand and employment position is also contributing to the

uncertainty which exists among manufacturers about the operation of the

manufacturing plan.

Several of the recommended modifications to the plan should

overcome much of this uncertainty. The Commission believes, however, that

some additional assistance is required in the short term so that plan

entrants, both new and existing, can make their production decisions with

greater certainty than would otherwise be possible. The Commission

recommends, therefore, that import restrictions on passenger vehicles under

reference and derivatives thereof should remain in operation until the end

of 1976; import restrictions on other light commercial vehicles should

cease at the end of 1975. By the end of 1976, economic conditions

generally and demand for passenger motor vehicles in particular are expected

to have improved, thus providing plan entrants with greater opportunities

to undertake the restructuring envisaged by the plan. By this time also,

the strategies of any new participants should have been clarified. The

continued incidence of the 45 per cent duty rate should have established the

competitive position of most importers and the degree of uncertainty in the

industry generally should have been greatly reduced.

The Commission's general objections to quotas as a means of

assistance are spelt out in this report and in other reports including its

Annual Report for 1974-75. Quotas are recommended in this report because

the Commission considers that the current climate of doubt calls for an

MOTOR VEHICLES - IMPORT RESTRICTIONS

78.

additional element of certainty to give the local industry confidence to

proceed with restructuring. As the evidence supports the conclusion that

a rate of duty of 45 per cent provided adequate assistance for local

producers, the costs of any additional assistance provided by the quota

should be small.

The Commission recommends that import quotas on passenger

vehicles for 1976 be maintained at the present level (ie.90,000 units) and

that individual quota allocations, as far as possible, should be the same

as in 1975. Evidence was submitted by a number of companies including

Alfa Romeo and the importers of Honda vehicles that they were disadvantaged

by this allocation because of the change in their operations during the

years on which the quotas were based. The Commission acknowledges that,

under any quota system, inequities in allocation are difficult to avoid.

Evidence suggests that the recommended quota would provide

importers with a reasonable opportunity to maintain their position in the

market without forcing them to accept more than a fair share of the

downturn in the total market. Price comparisons indicate that a number

of importers may be unable to sell all of the vehicles to which they would

be entitled.

The Commission recommends that the higher duty rate of 45 per cent

should apply to passenger vehicles under reference and derivatives thereof

in 1976 and for a further 12 months until 31 December 1977 before the

trigger tariff mechanism becomes operative. This recommendation is based

on a desire to avoid a premature reduction in the tariff before industry

restructuring and improved market conditions have begun to have their

effect on the stability of the local industry.

The Commission is making no recommendation in regard to the

tariff quota on imports of c.k.d. vehicles. It notes, however, that if

its recommendations are accepted tariff quotas will continue until at

least 31 December 1977.

MOTOR VEHICLES - IMPORT RESTRICTIONS

79.

The Commission considers its recommendations and suggestions

provide a positive and clear direction for the local industry. They

would minimise employment disruption, reduce uncertainty and at the

same time provide a reasonable prospect that the Government's objectives

for the industry can be met. They would also provide a similar level

of assistance to all participants so that each has the opportunity to

improve its market share on the basis of its relative efficiency.

MOTOR VEHICLES - IMPORT RESTRICTIONS

80.

Recommendations

The Commission recommends that:

1. Import restrictions on motor vehicles falling

within tariff items 87.02.11 and 87.02.21 should be

continued up to and including 31 December 1976 at a

level of 90,000 vehicles;

2. Vehicles specified in 1 above should be dutiable at a

rate of duty of 45 per cent up to and including

31 December 1977, at which time the trigger tariff

mechanism should be allowed to operate freely;

3. Import restrictions on vehicles under reference falling

Within tariff item 87.02.39 be removed on and from

1 January 1976;

4. The provisions of the Government's manufacturing plan

for motor vehicles be changed in accordance with

recommendations made in Section 4 of this report.

D.L. McBRIDE .Presiding Commissioner

P.D.J. ROBINSON. Associate Commissioner

CANBERRA, AUSTRALIAN CAPITAL TERRITORY 31 OCTOBER 1975.

MOTOR VEHICLES - IMPORT RESTRICTIONS

APPENDIX 1

TERMS OF REFERENCE

On 9 July 1975 the Special Minister of State referred the

following matter to the Industries Assistance Commission for inquiry

and report in accordance with Section 23 of the Industries

Assistance Commission Act 1973:

1. Whether import restrictions on:

(a) motor vehicles of a kind falling within paragraph 87.02.11 or 87.02.21 in Schedule 1 to the Customs Tariff 1966-1974, as proposed to be altered;

or

(b) motor vehicles of a kind falling within paragraph 87.02.39 in Schedule 1 to the Customs Tariff 1966-1974, as proposed to be altered, not being:

(i) rock buggies, dumpers, shuttle dumpers, tailgate dumpers or the like;

(ii) four wheel drive vehicles of a kind used solely or principally in rural or underdeveloped areas;

or

(iii) vehicles having a gross vehicle weight rating of 2720 kilograms or more;

should be continued, and if so, at which level and for

what period of time should such restrictions remain

in force.

2. The Minister also specified the period commencing on

the date of this reference and ending 31 October 1975

as the period within which the Commission is to report

on the matter described above.

MOTOR VEHICLES - IMPORT RESTRICTIONS

DETAILS OF COMMISSION'S INQUIRY APPENDIX 2

The matters covered by the reference were made the subject of public hearings by the Commission which were held at Canberra from the 25 August 1975 to 28 August 1975 inclusive.

Copies of the official transcript of public evidence, and of supplementary public evidence, submitted by witnesses have been forwarded to the Minister.

The names of witnesses who gave evidence at the public hearings and the companies or organisations which they represented are listed in the following table, together with abbreviations used.

Name of Witness and Capacity Name of Organisation or Company ,

in which Appearing __________ Represented_______________________________ Organisation or Company Address

Abbreviation Used_______

Ruggeno Rotondo, service manager Gerard Lazarone, marketing manager

Edward John Benjamin, federal industrial officer

Alexander George Brown, president

Cecil William Strutt, consultant

Ian Russell Lovel, cost accountant

Frederick James Mulally, marketing manager, metal forming division

Alan William Bell, managing director

Alfa Romeo Australia Pty. Limited

The Association of Architects, Engineers, Surveyors and Draughtsmen of Australia

Australian Automobile Dealers Association

Australian Farmers’ Federation

Australian Motor Industries Limited

A.N.I, Australia Pty, Limited

A.W. Bell Pty. Ltd. on behalf of: The Patternmakers' Section of The Victorian Chamber

of Manufacturers

14 Dickson Avenue, Artarmon, New South Wales

Mitchell House, 358 Lonsdale Street, Melbourne, Victoria

464 St. Kilda Road, Melbourne, Victoria

26 Brisbane Avenue, Barton Australian Capital Territory

155 Bertie Street, Port Melbourne, Victoria

14 Parramatta Road, Lidcombe, New South Wales

4 King Street, Oakleigh, Victoria Industry House, 370 St. Kilda Road,

Melbourne, Victoria

Alfa Romeo

AAESDA

AMI

A.N.I.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 2 of APPENDIX 2

Name of Witness and Capacity i n »hich Appearing_________

Clive Marsden Jones, director

Leonard Ernest Horniblow, secretary

Roger Peter Fruen, managing director

Anthony Michael McCutcheon, general manager

Roy Cleon Rainsford, deputy chairman Lawrence Edward Scholz, treasurer/secretary Robert Gary Turnbull, manager, marketing services

Ronald Peter Hose, manager, bar products

Thomas Joseph McMahon, acting first assistant secretary, engineering industries division

Leonard Norman Medaris, senior inspector, appraisements John William Pritchard, chief inspector, research and

development branch

Name of Organisation or Company Represented____________________

Bennett Honda (Wholesale) Pty. Limited also on behalf of: Bennett and Wood Limited

BMW (Australia) Pty. Ltd.

Bryson Industries Ltd.

Campbell’s Motors Pty. Ltd.

Chrysler Australia Ltd.

Commonwealth Steel Company Limited

Department of Manufacturing Industry

Department of Police and Customs

Organisation or Company Address

2 Ralph Street, Alexandria, New South Wales

114 Joynton Avenue, Zetland, New South Wales

478 Malvern Road, Prahran, Victoria

567 Bridge Road, Richmond, Victoria

518 High Street, Preston, Victoria

1234 South Road, Clovelly Park, South Australia

Maud Street, Waratah, New South Wales

Canberra, Australian Capital Territory

Canberra, Australian Capital Territory

Abbrevi at; on Used

Chrysler

Comsteel

MOTOR VEHICLES - IMPORT RESTRICTIONS Page 3 of APPENDIX 2

feme of W i tness and Capacity Name of Organisation or Company

i n which Appeari no_________________________ Represented____________________

Mervyn Charles Deutsher, W.A. Deutsher Pty. Ltd. director also on behalf of:

The Repetition Engineers' Association of Victoria

Luigi Lamprati, research director

Arnold Keith Jordan, assistant director

Robert McKenzie Neave, national car sales manager

Bruce Langton Burton, director of supply Damien Morrell Smith, international traffic and

customs manager

Donald Alfred Smith, company secretary

Eric Noel Clark, director of supply Albert George Kelly, customs manager

William Raymond De Long, director of finance Geoffrey Victor Schumann, analysis manager

Geoffrey Victor Schumann, analysis manager

Federated Ironworkers Association of Australia

Federation of Automotive Products Manufacturers

Fiat of Australia Pty. Limited

Garry & Warren Smith Group

General Motors - Holden's Pty. Limited

General Motors - Holden's Pty. Limited on behalf of: Freeman Motors Limited

Ford Motor Company of Australia Limited

Organi sail or, or Company Address

600 South Road, Moorabbin, Victoria Industry House, 370 St. Kilda Road,

Melbourne, Victoria

188 George Street, Sydney, New South Wales

Industry House, Barton, Australian Capital Territory

Silverwater Road, Lidcombe, New South Wales

173b Sydney Road, Campbell!ield, Victoria

1575 Dandenong Road, Oakleigh, Victoria

241 Salmon Street, Port Melbourne, Victoria

241 Salmon Street, Port Melbourne, Victoria

221 Grenfell Street, Adelaide, South Australia

Abbreviation Used

FIA

Fiat

Ford

GM-H

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 4 of APPENDIX 2

Name of Witness and Capacity in which Appearing

Shinpel Arakawa, assistant general manager George Payers,

general sales manager

James Thomas Smith, managing director

Derek Campbell Lovell, national marketing manager

Frank Ferguson Andrew, director Norron Walker Lawrence, director

Sean Bealey, managing director

Name of Organisation or Company Represented

Honda Australia (Sales) Pty. Ltd.

Jensen Distributors Victoria Wholesale

John Lysaght (Australia) Limited

LeyLand Motor Corporation of Australia Limited

Maranello Concessionaires (Australia) Pty. Limited

Lionel Earl Bainbrldge, chairman Mazda Dealer Association of Victoria

Wallace Warner Meeking, Motor Producers Limited administration manager Peter Emil Rupp, managing director

Tasman Walsh Moore, managing director

Kevin Joseph Cosgrave, managing director Graham Cooper Lewis, manager - sales administration

Motors Pty. Ltd.

Nafco Limited on behalf of 5 Mercedes-Benz (Australia) Pty. Ltd.

Organisation or Company Address

Cnr. Matthews Avenue and McIntosh Street, Airport West Victoria

683 Elizabeth Street, Melbourne, Victoria

50 Young Street, Sydney, New South Wales

332-342 Oxford Street, Bondi Junction, New South Wales

10 Henrietta Street, Double Bay, New South Wales

P.0. Box 220, Nunawading, Victoria

Centre Road, Clayton, Victoria

179 Macquarie Street, Hobart, Tasmania

564 St. Kilda Road, Melbourne, Victoria 12 Dunlop Road, Mulgrave, Victoria

Abbreviation Used

John Lysaght

Leyland

Motor Producers

MOTOR VEHICLES - IMPORT RESTRICTIONS

APPENDIX 3

TERMINOLOGY AND ABBREVIATIONS

Abbreviations used in this report (other than the names of

companies which submitted evidence) are as follows:

Abbreviation Meaning

ABS - Australian Bureau of Statistics

c.b.u. - completely built up

c.k.d. - completely knocked down

f.o.b. - free on board

g.v.w. - gross vehicle weight

l.d.f. - landed duty free

m.e,s. - minimum efficient scale

Nissan - Nissan Motor Co. Ltd., Tokyo» Japan

s.v* - small volume

Toyota Toyota Motor Co. Ltd., Aichi, Japan

Other Terminology

In discussing the vehicles under reference, the Commission

has used categories similar to those used ' by ADAPS Marketing Services

Pty. Ltd. The categories, with examples of vehicles falling within

those categories, are:

Small light passenger - Ford Escort, Leyland Mini, Datsun 120Y, GM-H Gemini, Mazda 808, Honda Civic.

Large light passenger - Ford Cortina, GM-H LH Torana, Toyota Corona, Datsun 180B.

Medium Passenger

Upper medium passenger

Luxury-speciality passenger

Chrysler Valiant, Leyland P76, GM-H Holden, Toyota Crown, Ford Falcon.

Volvo 144, GM-H Statesman, Ford Fairlane.

Mercedes-Benz, Volvo 164, MGB, Porsche.

Light commercials - Derivatives of passenger cars (Holden, Falcon and Valiant), and other light commercial vehicles such as Volkswagen Type 2, Toyota Hi-Ace, Datsun 25 cwt.

APPSiDIX 4

Alfa Romeo Australia Pty. Limited requested that quotas should he

discontinued,

Australian. Partners1 Federation requested that import restrictions on

fully assembled, vehicles "be removed or,if they cannot be removed

entirely, that they should be reduced to the maximum extent possible.

Australian Hot or Industries Limited requested that import quotas

limiting c.B.u. passenger car imports to 20 per cent of the total

registration, should continue and that quantitative restrictions on light

commercial vehicles should not be continued.

The company stated that in the case of passenger vehicles, the quota

should be allocated on a basis along the following linos (pitched to

20 per cent imports):

(a) every manufacturer/importor to be granted a base

annual quota of 2500 units ;

(b) plus 66 2/3 per cent of all manufactured, assembled

and imported u.b.u. units, registered in the previous

year ;

(c) but limited to a maximum of sap' 24000 units for any

one manufaciurer/importer. ‘

(The quota to be on a 6 monthly, and not a monthly, basis.)

A.H’ .I. Australia Pty. Limited recommended that the quota system on

c.k.d. and c.b.u. imports be continued for a further twelve months.

Pa/re 2 of APP1SDIX 4

With regard, to the level of imports, the company considered that the

number permitted should be lowered or should include those vehicles

imported in part by those manufacturers now operating under the 85

per cent weighted average new motor vehicle plan.

Bennett Honda (Wholesale) Pt.v. Limited stated that they did not

believe that quotas should be applicable or would be workable in

the future.

Bl-fv (Australia) Fty. Ltd, requested that import restrictions be

discontinued for fully imported vehicles having a value for duty

in excess of $4-000.

Alternatively, if import restrictions were to be retained for non­

competitive imported vehicles, the company requested that they be

modified as follows:

(a) recalculate quotas to give weight to the competitive

position of the imported vehicle in relation to the

local industry;

(b) increase validity of each monthly licence to three

months; and

(c) alloy additional quota for net; models that are

additions to the range, and not replacements of

existing models.

Bryson Industries Ltd, requested that the market for luxury passenger

cars, the retail selling price of which is in excess of $15000

including sales tax, should not be the subject of import restrictions.

Campbell's Motors Pty. Ltd, requested that import restrictions should

continue, in order to provide a market share for local manufacturers,

preferably two in number. To maintain true competitiveness for price,

variety, quality and innovation the company suggested that a jO per

cent to 35 per cent share of the total passenger car market be allocated

to importers and assemblers.

Page 3 of APPBKDIX 4

Chrysler Australia Ltd, requested that import restrictions for the

goods under reference be continued. It stated that quotas on c.b.u.

units should continue during 1976 and that the combined total of

c.b.u.*s and c.k.d.1s for 197b be a maximum of 20 per cent of the

market and thereafter b e progressively reduced to a maximum of 10 per

cent by 1979·

Commonwealth Steel Company Limited requested that the Commission in

determining import restrictions, should recognise the importance of

automotive steels in the overall economic manufacture of alloy,

stainless and tool steels.

Vi'.A. Deutsher Pty. Ltd, submitted that the relaxation of the current

restrictions applying to the import of motor vehicles into Australia,

under the terms of this inquiry, would be detrimental and harmful to

a great number of Australian manufacturing industries.

Federation of Automotive Products Manufacturers made no formal request

but suggested that a repetition of the import boom of 1974 would be an

absolute disaster for the manufacturers of vehicle components under the

currently depressed condition of the Australian market.

Fiat of Australia Pty. Limited requested that early action be taken to

discontinue the present quota system. However, if quotas were continued

the company requested that some changes be made in the method of allocation·

The company considered that it is not equitable to base quotas on imports

over previous years. It suggested allocating quotas to individual

manufacturers, not based on what they had imported in the past, but to

allow each company a fixed annual quota to keep total imports at the

level desired by the Government. The company also requested that

importers of small volume highly specialised cars not be included in

any quota system if their total annual volume did not exceed 100 units.

Page 4 of APPaiDIX 4

Ford Motor Company of Australia Limited requested that:

(a) import restrictions at a minimum of 20 per cent of the market should

continue to effect the stated Government policy of reserving 80 per

cent of the market for local production as 45 per cent duty will not

restrict imports from Japan,

(b) imports, Tooth c.b.u. and c.k.d., should be a maximum of 10 per cent

of the local market to non—manufacturers, particularly when it is

the Government's intention that there should be more manufacturers,

(o) new entrants to local manufacturing plans should not be permitted to

import c.b.u. or c.k.d. units based on historical import performance

if they are getting the duty concessions incorporated in the plans,

(d) alternatively, as a matter of equity, import quotas for c.b.u. units

should be established for existing manufacturers which enable them to

import the same relative share of to al sales as is represented by

the historically based quotas for new manufacturers, and

(e) quotas should be continued indefinitely as tariffs alone have nevdTr

proved effective, or reliable, in controlling Japanese imports in

any market known to Ford. Changing exchange rates and the higher

relative rate of inflation in Australia make an ad valorem tariff

unreliable.

Freeman Motors Limited requested that the import restrictions should be

continued in respect of c.b.u. passenger vehicles and light commercial

vehicles at the level of 10 per cent of the market in 1976, 1977 and 1978,

and that imports of c.k.d. passenger vehicles be restricted to the level

of 10 per cent of the market in 1976, 1977 and 1978.

Garry & Warren Smith Group sought the continuation of the import

restrictions at least at the current level. The company also requested

that the import restrictions be subject to review bi-annually.

Page 5 of ΑΡίίΗΡΙΧ 4

General Motors—Holden’s Pty. Limited requested that import restrictions

should be continued in respect of:

(i) completely built-up passenger vehicle;'; and.

(ii) completely built-up light commercial vehicles

at the level of 10 per cent of the market * in 1976, 1977 and 1978.

GM-H also submitted that quantitative import restrictions should

replace the tariff quotas which apply in respect of completely

knocked down passenger motor vehicles for assembly in Australia by

non-participants in the motor vehicle plan, and that imports of

c.k.d. passenger vehicles be restricted to the level of 10 per cent

of the market in 1976, 1977 and 1978·

In the case of c.b.u. and c.k.d. quotas, OK—H suggested that

the level be reviewed each year -.jith the objective of determining

whether or not quotas should be ext ended another year - that is,the

review of 1976 would determine whether quotas are to a./ply in 1979.

Honda Australia (Sales) Pty. Ltd, sought the removal of current import

restrictions,

Jensen Distributors Victoria bholgsale sought no restriction;· on the

importation of motor vehicles which do not compete with Australian

manufactured units. 'The company also suggested that a scheme similar

to the one introduced on footwear be implemented, whereby certain

classes of goods and goods exceeding certain f.o.b. prices be

excluded from quota restrictions.

Jelm lysaght (Australia) Limited maintained that the effect on the

employment at, and the viability of, the company’s production plants

shvuld be taken into account in determining future levels of quotas

on imports of c.b.u. vehicles.

* previous year's registrations

P age 6 of AfidlDlX 4

Kellow Falkiner Pty. Ltd, and York Kotors Pty. Ltd, (supported "by Rolls

F.oyce of Aust. Ltd.) requested:

(a) the removal of import restrictions on passenger

vehicles with a f.o.b. value of 317,000

and above; and

(b) that if the Commission were to recommend continuation

of the quotas, they be granted to low volume

importers on an annual rather than a monthly basis. These requests are confined to Rolls Royce cars.

Leyland Motor Corporation of Australia Limited sought a continuation of

the import restrictions for the goods under reference. The c o m p a n y

requested that the level of these restrictions should be set at 20

per cent of the total industry v o l u m e f o r the goods under reference.

The licence to import should be granted to cover a twelve months

period and the phasing of vehicles within the twelve months would

be at the importing company’s discretion.

The company also requested that the period of time for which these

restrictions should be definitively announced be five years.

The levels of ad valorem tariff which were sought by the company are

as follows!

— those on 85 per cent company plans to be allowed

duty free entry of imported components in accordance

with the concessions provided in the rules covering-

entry into the plans;

— the build up to 85 per cent to be over five years

and start at 70 per cent local content;

— the tariff on assembled vehicles to be Ip per cent

lower than that on c.b.u. imports. The planned 10

per cent differential is insufficient to encourage

assembly and only encourages built-up imports; and

Page 7 of AhPhHDIX 4

— all duties to be based on prices of th =

country of export.

The company also made the folio-wing proposals;

— that quotas to import c.b.u. vehicles under

reference should be available only to

companies with a manufacturing involvement

or with contractual assembly agreements in the

Australian motor vehicle industry. As a

definition of this involvement in the

industry, qualification should extend to all

companies which build, assemble, or have built

or assembled for them, any units subject to

current tariffs which are intended for on

road use;

— any of the companies excluded under this

arrangement could be automatically included

by establishing a manufacturing involvement

or contractual assembly agreement in the

Australian motor vehicle industry;

— the method by which quotas would be applied

should not be based on history, but should

be tied directly to involvement in the

Australian motor vehicle industry;

— an equitable system would base each entrant’s

percentage of the quota on his total direct

and indirect workforce employed in motor

vehicle construction as defined. This total

workforce should be applied as a percentage

of the total 'workforce employed in the

industry. This denominator should be used

as the proportion of the quota entitlement; and

Page 8 of A.-P3MDIX 4

— manufacturers and assemblers should be able to

buy components for vehicles produced in Australia

from the most economic source either locally or

overseas, with the recognition that the manufacturer

of the Australian made components should be entitled

to reasonable tariff protection.

Maranello Concessionaries (Australia) Pty. Limited sought the abolition

of import restrictions on the goods under reference.

Mazda Dealer Association of Victoria sought the abolition of import

quotas on the goods under reference.

Mercedes-Benz (Australia) Pty. Ltd, requested that:

(a) existing import restrictions o n m o t o r vehicles

classified under tariff sut>-item 87*02.21 be

abolished with effect from the earliest possible

time after the Commission is required to report;

(b) alternatively, if existing import restrictions

on passenger motor vehicles classified under

tariff sub-item 87.02.21 are retained, then

(i) premium quality c.b.u. passenger

motor vehicles, no suitable

equivalent to vihich. is manufactured

in Australia, be exempt from such

import restrictions;

(ii) the designation ’premium quality*,

and the determination of 'suitable

equivalent', be established by a

minimum threshold price at the

f.o.b. level;

Page 9 of APPEHDIX 4

(iii) from the date of commencement of

exemption, the minimum threshold

price be §A5,500 f.o.b. subject to

review at intervals of not less

than six months, or to immediate

review in the event of revaluation

of the Australian dollar; or

(c) alternatively, if existing import restrictions

on passenger motor venicles classified under

tariff sub-item 87.02.21 are retained, and if

c.b.u. passenger motor vehicles, n o suitable

equivalent to which is manufactured in

Australia, are not exempted from such import

restrictions, then special quota allocations

be made for 'all new' vehicle models such as

the Mercedes-Benz diesel.

Motor Producers Limited felt that urgent consideration should be given

to developing the industry on the lines of the global concepts presently

being implemented with success in other parts of the world. This would

allow Australia an opportunity to embark on a medium and long term

plan to develop its vast resources and become a significant part of

the automotive world rather than a parochial segment facing isolation

with resultant lo:> volume production and the attendant cost penalties.

The company*s concept envisaged the following:

— the selection of suitable automotive components

for manufacture in Australia, whether by

automotive manufacturers or assemblers, or

try efficient component manufacturers, in such

quantities as to be able to enter into export

activities with other countries, and the

possibility of world supply;

Page 10 of APPENDIX 4

— the components need not, but could, be rationalised

amongst themselves. Production volumes of

individually styled components would be sufficiently

large to engender economies of scale ;

— the manufacturer or assembler arranging the

production programme would receive the benefit

of duty free imports on a dollar-for-dollar

basis to the value of exports, or any other

equitable scheme recognising difficulties of

changes in exchange parity, etc;

— no fixed percentage of local content would apply;

— a realistic and continuing rate of duty should be

set on any excess of imports over exports; and

— the removal of growth restrictions.

Motors Pty. Ltd, requested that import restrictions should continue for

the goods under reference for a minimum period of three years in line

with recent decisions reached by the Government to support the local

industry. This should be aimed at maintaining 80 per cent of the

total sales for locally manufactured vehicles with 20 per cent remaining

for imported vehicles- that is, vehicles imported outside the local

content plan.

Nissan Motor Company (Australia) Pty. Ltd, made the following requests.

1. Quota restrictions on c.b.u. passenger vehicle

imports to contain them to a level of 19«9 per

cent of the market — thereby reducing the duty

on c.b.u. passenger vehicles to 35 per cent.

2· With a duty differential of 10 per cent between

c. b. u. and c. k. d. units volume restrictions on

c.k.d. assembly be removed. However, to ensure

that increased c. k. d. assembly volumes do in

fact represent progression towards manufacture

it may be necessary for conditions (e.g.

commitment to 85 per cent local content) to

apply to the withdrawal of restrictions.

Page li of APPaiiDIX 4

3. Reasonable protection be provided for locally

manufactured light commercial vehicles. Where

there is no locally produced vehicle to directly

compete with c.b.u. imports, the company requested

that protection, be at a minimum level.

The Patternmakers' Section of The Victorian Chamber of Manufactures

supported the requests by the Australian motor industry for the

maintenance of quantitative restrictions on c.b.u. vehicles and

a gradual phasing in of the new 85 per cent component content plan.

The section also supported the remarks by the Federation of Automotive

Products Manufacturers for quantitative restrictions on the goods

under reference.

Development Division Premiers Department, South Australia on behalf

of the South Australian Government recommended that consideration

be given to a scheme of quantitative restrictions on c.b.u, imports

which:

(a) during 1976 secures for plan entrants all the

market in excess of 1973 c.b.u. import volume; and

(b) during 1977 to I98O offers gradually decreasing

protection for plan entrants.

Renault (Australia) Pty. Ltd, requested: .

(a) that existing import restrictions on motor

vehicles classified under tariff sub-item

87.02.21 be abolished with effect from the

earliest possible time after the Commission

is required to report;

Page 12 of ΑΡΡΞΙίΟΙΧ 4

(b) alternatively, that if existing· import

restrictions on passenger motor vehicles

classified under tariff sul>-item 87*02.21

are retained, then-

(i) imports of c.b.u· vehicles from Japan

be subject to selective import

restrictions and/or the Australian

Government negotiate an appropriate

•export restraint* agreement with

that country;

(ii) imports of c.b.u. vehicles from all

other countries be exempt from quota;

(o) that those measures of the Government's "new plan to

assist and strengthen the Australian motor

industry", as announced on 20 December 1974»

with respect to production limitations on

locally assembled vehicles f o r a four year

period commencing 1 January 1975» and with

respect to the phase—in over a n identical

period of increased duties on c.k.d. packs,

be cancelled and withdrawn at the earliest

possible time;

(d) that, simultaneously with the widthdrawal of these

measures, the tariff on c.k.d. packs be

reduced to 25 per cent as originally

recommended in the Commission's Report,

July 1974; and

(e) as a means of stimulating and enlarging

employment by Australian manufacturers of

components for passenger and other motor

vehicles, and as a means of providing a

predictable basis on which vehicle producers

can plan capital expansion programmes, an

additional duty concession be introduced on

c.k.d. packs based on pre—determined levels

of local com onentry purchase.

Page 13 o f AFPjSS3IX 4

The Repetition Engineers* Association of Victoria supported the requests

By the Australian motor industry for the maintenance of quantitative

restrictions on c.b.u. vehicles and a gradual phasing in of the new

85 per cent component content plan.

The association also supported the remarks made by the Federation of

Automotive Products Manufacturers.

buttonsMotors (Chullora) Pty. Limited (supported by L.U. Vagg & Co.

Pty. Limited and John A. Gilbert Pty. Limited) requestedb

(a) that import restrictions should continue for all

motor vehicles which do not come within the

category of local manufacture under an 85

per cent local content plan. The company

requested that the Commission outline a

program which would enable Australia to

retain the ability to manufacture motor vehicles

and all the components contained within those

vehicles; and

(b) a 5-10 year plan for the local manufacture and

retailing of motor vehicles in Australia.

The request was based on a concept which envisaged 80 per cent of

the vehicle market being supplied by local manufacture.

Thiess Toyota Pty. Ltd, requested a discontinuation· of import restrictions

in respect of light commercial vehicles imported by them.

The Vehicle Builders Employees' Federation of Australia requested that

no action should be taken which ;:culd deprive Australian workers of

their employment until explicit expression is given to the benefits

and costs inherent i n the new motor vehicle local content ..Ians.

Page 14 of ΑΡΠ21)ΙΧ 4

The Federation also sought the continuation of quotas and, if necessary,

the reduction of quotas on c.b.u. vehicles to protect the jobs of

Australian workers.

Westco Australia Pty. Ltd., Addison Motors (Distribution) Pty. Ltd., K.S.

Brooking Holdings Pty. Limited and KazAa Kotors Pty. Limited requested that

the import restrictions be immediately discontinued.

Winter & Taylor Pty. Ltd, sought a continuation of the current restrictions

on imports of the goods under reference. .

The company also requested that the level of imported vehicle penetration

into the Australian market be limited to a maximum of 20 per cent for a

period, of 2 years, that is, 1976 and 1977 with a review in mid-1977 to

establish whether a continuation of or a change in the level of restriction

is necessary.

J. Wright and Sons (Aust.) Pty. Ltd, recommended that the current import

restrictions should be discontinued for the goods under reference.

The Association of Architects, Engineers, Surveyors and Draughtsmen of

Australia and Federated Ironworkers Association of Australia were both

witnesses at the public inquiry. While neither made a specific request

they both demonstrated concern for those of their members who may be

affected by the restructuring of the industry.

MOTOR VEHICLES - IMPORT RESTRICTIONS

TARIFF PROVISIONS

APPENDIX 5

CUSTOMS TARIFF

Item Goods

87.02 MOTOR VEHICLES FOR THE TRANSPORT OF PERSONS, GOODS OR MATERIALS (INCLUDING SPORTS MOTOR VEHICLES, OTHER THAN THOSE FALLING WITHIN 87.09):

Rates of Duty

General Preferential

87.02.1

87.02.11

- Vehicles, as prescribed by by-law, of a kind operated by self-con­ tained power (other than four-wheel drive vehicles of a kind used solely or principally in rural or under­ developed areas, battery operated vehicles or air-cushion vehicles), being: r-

(a) motor cars; (b) station wagons; or (c) derivatives of motor cars or station wagons:

- - Assembled 35% 35%

DC: 25% CAN: 27.5%

87.02.2

87.02.21

- Vehicles of a kind operated by self- contained power (other than four-wheel drive vehicles of a kind used solely or principally in rural or under de­ veloped areas, battery operated vehicles

or air-cushion vehicles), being:-(a) motor cars; (b) station wagons; or *

(c) derivatives of motor cars or station wagons:

- - Assembled 45% 45%

DC: 35% CAN: 37.5%

87.02. 3 - Vehicles of a kind operated by self-contained power, not being:-(a) air-cushion vehicles; (b) battery operated vehicles

having a gross vehicle weight rating of less than 2720 kilo­ grams; or (c) goods falling within a pre­

ceding sub-item of this item:

MOTOR VEHICLES - IMPORT RESTRICTIONS

TAR IF·" PROVTSTONS (ConV· ) Page 2 of APPENDIX 5

C U S T O M S T A R I F F

Ϊ tftR

87.02.31

87.02.32

Goods

87.02.39

- - Unassembled

-- Of a kind having a gross vehicle weight rating of 10 tonnes or more not being (a) rock buggies, dumpers, shuttle

dumpers, tailgate dumpers or the like; or (b) goods falling within 37.02.31

- - Other

Rates of Ruty

General

) ) ) ) ) ) ) ) )

26%

Not Under

DC: 16%

Preferential

Reference

19%

MOTOR VEHICLES - IMPORT RESTRICTIONS

TARIFF PROVISIONS (Cont'd) Page 3 of APPENDIX 5

NEW ZEALAND RATE SCHEDULE

Item

87.02.11

87.02.21

87.02.39

Goods

All goods

All goods

Convertible road-rail motor coaches

Remainder

N.Z. Rate

19%

19%

1%

m

APPENDIX 6

MOTOR VEHICLE PLAN

PART 1

STATEMENT OF CONDITIONS AND REQUIREMENTS FOR ESTABLISHED MANUFACTURERS

1. NATURE OF THE PLAN

2. BASIC DEFINITIONS

3. GENERAL CONDITIONS

4. PHASING ARRANGEMENTS

5. BY-LAW CONCESSIONS

PART 2

MOTOR VEHICLE COMPONENTS

1. CONCESSIONS

2. PROGRAMS

PART 3

COMPLEMENTATION. CONCESSION

1. DEFINITION

2. PURPOSE

3. OPERATION

4. REVIEW

5„ ADMINISTRATION

6. CRITERIA

7. APPROVAL

PART 4

STATEMENT OF CONDITIONS AND REQUIREMENTS

FOR NEW MANUFACTURERS

1. APPLICATIONS

2. PHASING ARRANGEMENTS AND BY-LAW CONCESSIONS

ATTACHMENTS

A; LOCAL CONTENT FORMULA

B: EXCEPTED COMPONENTS

C: MOTOR VEHICLE COMPONENTS UNDER MANUFACTURING PROGRAMS

Page 1 of APPENDIX 6

MOTOR VEHICLE PLAN

PART I

STATEMENT OF C O N D I T I O N S AND REQUIREMENTS

FOR ESTABLISHED MANUFACTURERS

T he P la n i s e s s e n t i a l l y a p ro g ra m o f d u t y c o n c e s s i o n s

(u n d e r C u sto m s B y - la w s ) a p p l y i n g t o im p o r t e d c o m p o n e n ts r e q u i r e d

f o r t h e p r o d u c t i o n o f p a s s e n g e r - t y p e m o to r v e h i c l e s ( a s d e f i n e d

b e lo w ) i n A u s t r a l i a . C o n c e s s i o n s u n d e r n o r m a l b y - l a w c r i t e r i a

a r e n o t a v a i l a b l e f o r im p o r t s o f c o m p o n e n ts , s p a r e p a r t s an d

a c c e s s o r i e s f o r t h e s e t y p e s o f v e h i c l e s .

2 . T he d u t y c o n c e s s i o n s o f t h e P la n a r e n o t f r e e l y

a v a i l a b l e t o v e h i c l e b u i l d e r s b u t a r e s u b j e c t t o t h e a c h ie v e m e n t

a n d m a in t e n a n c e o f l o c a l c o n t e n t l e v e l s r e q u i r e d u n d e r t h e P l a n .

3 . E ach com pany e n t e r e d i n t h e P la n w i l l b e r e q u i r e d

t o a c h i e v e an a v e r a g e 85% l o c a l c o n t e n t , a s d e f i n e d b e lo w , o v e r

a l l v e h i c l e s b e i n g m a n u fa c tu r e d o r a s s e m b le d i n A u s t r a l i a .

4 . T h e a d m i n i s t e r i n g a u t h o r i t y i s t h e D e p a r tm e n t o f

P o l i c e an d C u s to m s . P o l i c y a s p e c t s o f t h e P la n a r e t h e

r e s p o n s i b i l i t y o f t h e D e p a r tm e n t o f M a n u f a c t u r in g i n d u s t r y .

BASIC DEFINITIONS

5 . Pa s s e n g e r t y p e m o to r v e h i c l e s , f o r t h e p u r p o s e s o f

t h e P la n a r e :

. M otor c a r s ( o t h e r t h a n m o to r c a r s w h ic h a r e

d e s i g n e d e x c l u s i v e l y f o r r a c i n g on c l o s e d

c i r c u i t s ) ;

. s t a t i o n w a g o n s: and

. d e r i v a t i v e s o f m o to r c a r s o r s t a t i o n w a g o n s ,

u t i l i t i e s , p i c k - u p s , p a n e l v a n s o r l i k e

v e h i c l e s , t h a t h a v e e i t h e r a f r o n t en d c o n t o u r

s t r u c t u r e i d e n t i c a l t o t h a t u s e d i n a m o to r

c a r o f a p a r t i c u l a r k in d o r a f r o n t e n d c o n t o u r

Page 2 of APPENDIX 6

s t r u c t u r e an d e n g i n e g e n e r a l l y s i m i l a r t o t h o s e

u s e d i n a m o to r c a r o f a p a r t i c u l a r k in d

o r t h e s t a t i o n w agon v e r s i o n ( i f a n y ) o f t h a t

k in d o f m o to r c a r . (An e n g i n e t h a t h a s h a d i t s

b o r e i n c r e a s e d a n d /o r h a s h a d i t s s t r o k e l e n g t h e n e d

t o i n c r e a s e i t s p o w e r i s r e g a r d e d a s g e n e r a l l y

s i m i l a r t o a n o t h e r e n g i n e u s i n g t h e sam e s i z e

b l o c k an d s i m i l a r b o r e a n d /o r s t r o k e )

6 . L o c a l c o n t e n t - s e e A t t a c h m e n t "A"

GENERAL CONDITIONS

7 . D u ty c o n c e s s i o n s m ade a v a i l a b l e t o e n t r a n t s i n t h e

P la n a r e s u b j e c t t o t h e e n t r a n t ' s p e r f o r m a n c e a n d o p e r a t i o n s

b e i n g i n a c c o r d a n c e w i t h t h e r e q u ir e m e n t s o f t h e P l a n .

8 . T he o n u s i s on e a c h com pany e n t e r e d i n t h e P la n

t o m ake l o c a l s o u r c i n g a r r a n g e m e n ts which w i l l e n s u r e t h a t t h e

l o c a l c o n t e n t t a r g e t i s m e t . C o m p a n ies a r e a l s o r e q u i r e d t o

m ake r e a s o n a b l e a llo w a n c e f o r c o n t i n g e n c i e s w h ic h c o u l d a f f e c t

t h e l e v e l o f l o c a l c o n t e n t fr o m t im e t o t im e ( e . g . i n c r e a s e d

f r e i g h t c o s t s on im p o r t e d c o m p o n e n ts , i n c r e a s e d p r i c e s f o r

im p o r t e d c o m p o n e n ts , m in o r a d j u s t m e n t s t o e x c h a n g e r a t e s ) .

9 . F o r t h e p u r p o s e s o f t h e P la n , im p o r t s o f raw

m a t e r i a l s a r e n o t r e g a r d e d a s im p o r te d c o n t e n t .

1 0 . D u ty o n im p o r t e d c o n t e n t i n c l u d e d i n t h e P l a n , b u t

n o t c o v e r e d b y d u t y c o n c e s s i o n , i s p a y a b l e a t t h e r a t e o f 25%.

11. A company wishing to revert to overseas sourcing

o f a co m p o n en t p r e v i o u s l y s o u r c e d fro m A u s t r a l i a n m a n u f a c t u r e

s h a l l m ake a p p l i c a t i o n t o t h e D e p a r tm e n t o f M a n u fa c tu r in g

I n d u s t r y w h ic h w i l l p r o c e s s i t i n c o n s u l t a t i o n w it h t h e

D e p a r tm e n t o f P o l i c e an d C u sto m s. A p p r o v a l w i l l g e n e r a l l y

b e g i v e n r e a d i l y t o r e - s o u r c i n g p r o p o s a l s w h ic h co n fo r m

w ith P la n r e q u ir e m e n t s a s t o l o c a l c o n t e n t l e v e l s . H ow ever,

Page 3 of APPENDIX 6

t h e r e may b e c i r c u m s t a n c e s u n d e r w h ic h t h e com pany w i l l b e

r e q u i r e d t o v a r y i t s r e - s a u r c i n g p r o g r a m i n c o n f o r m i t y w i t h

t h e G o v e r n m e n t's o b j e c t i v e s f o r t h e i n d u s t r y .

1 2 . I f a t a n y t i m e t h e a d m i n i s t e r i n g a u t h o r i t y c o n s i d e r s

t h e r e q u ir e m e n t s o f t h e P la n h a v e n o t b e e n o r w i l l n o t b e

c o m p lie d w i t h , b y - l a w b e n e f i t s may b e w ith d r a w n i n w h o le on a

p e r m a n e n t b a s i s , o r i n w h o le o r i n p a r t on a te m p o r a r y b a s i s .

In c o n s i d e r i n g w h e t h e r o r n o t t o w ith d r a w b y - l a w b e n e f i t s , t h e

a d m i n i s t e r i n g a u t h o r i t y w i l l t a k e i n t o a c c o u n t a n y

c i r c u m s t a n c e s b e y o n d t h e c o m p a n y 's c o n t r o l w h ic h h a v e c a u s e d

o r c o n t r i b u t e d t o t h e f a i l u r e t o c o m p ly w i t h t h e P la n .

W here t h e b r e a c h c o n s i s t s o f f a i l u r e t o m a i n t a i n t h e r e q u i r e d

l e v e l o f l o c a l c o n t e n t , b y - l a w c o n c e s s i o n s w i l l g e n e r a l l y b e

w ith d r a w n o n a v a l u e b a s i s p r o p o r t i o n a l t o t h e s h o r t f a l l i n

l o c a l c o n t e n t .

- i n t h e r a t i o o f 1 t o 1 f o r t h e f i r s t 3 m o n th s

- i n t h e r a t i o o f 2 t o 1 t h e r e a f t e r .

PHASING ARRANGEMENTS

1 3 . A f o u r - y e a r p h a s i n g p e r i o d w i l l o p e r a t e fro m

1 J a n u a r y 1 9 7 5 .

1 4 . S u b j e c t t o t h e l i m i t a t i o n s i n p a r a g r a p h s 11 an d 15

on r e - s o u r c i n g o f c o m p o n e n t s , e a c h com pany w i l l b e f r e e t o

a r r a n g e i t s own p r o d u c t m ix ( i n c l u d i n g new m o d e l s ) t o a c h i e v e

an a v e r a g e l o c a l c o n t e n t o f 85% o r h i g h e r . A com pany w h ic h i s

c u r r e n t l y a c h i e v i n g an a v e r a g e l o c a l c o n t e n t a b o v e 85% c o u l d

r e d u c e t h a t a v e r a g e b y

( i ) r e - s o u r c i n g som e c o m p o n e n ts o v e r s e a s ;

( i i ) p r o d u c in g a new v e h i c l e w i t h a l o c a l c o n t e n t lo w e r

th a n 85% a n d /o r

( i i i ) i n c r e a s i n g t h e s h a r e o f e x i s t i n g lo w e r c o n t e n t

v e h i c l e s i n t o t a l o u t p u t

Page 4 of APPENDIX 6

1 5 . A l l o w a b l e r e - s o u r c i n g s i n t h e f i r s t y e a r f o r

e x i s t i n g v e h i c l e s (a n d r e p la c e m e n t v e h i c l e s w h ic h a r e

s u b s t a n t i a l l y t h e sa m e )* w i l l b e a s f o l l o w s :

( i ) v e h i c l e s c u r r e n t l y e n t e r e d i n t h e 95% P la n

w i l l b e a l l o w e d t o r e v e r t t o 93% l o c a l c o n t e n t

fro m t h e i r l o c a l c o n t e n t a c h i e v e d i n t h e

D ecem b er q u a r t e r 1 9 7 4 , an d

( i i ) v e h i c l e s c u r r e n t l y e n t e r e d i n t h e 85% P la n w i l l

b e a l l o w e d t o r e v e r t b y 2% fr o m t h e i r l o c a l

c o n t e n t l e v e l s a c h i e v e d i n t h e D ecem b er q u a r t e r

1 9 7 4

I n e a c h o f t h e r e m a in in g t h r e e y e a r s a f u r t h e r 2% o f

r e - s o u r c i n g w i l l b e a l l o w e d f o r v e h i c l e s p r e v i o u s l y e n t e r e d

i n e i t h e r p l a n p l u s , a s may b e a p p r o v e d , s u c h p o r t i o n o f

t h e a l l o w a b l e r e - s o u r c i n g n o t u s e d i n p r e v i o u s y e a r s .

1 6 . A com pany w h i c h , a t 1 J a n u a r y 1 9 7 5 , h a d v e h i c l e s

e n t e r e d i n o n e o f t h e fo r m e r m a n u f a c t u r in g p l a n s an d w a s a l s o

p r o d u c in g v e h i c l e s o u t s i d e t h e p l a n s a n d w h ic h h a d a com pany

a v e r a g e l o c a l c o n t e n t ( e x c l u d i n g CBU im p o r t s ) o f l e s s th a n

85%, w i l l b e p e r m i t t e d i n i t i a l l y t o c o n t i n u e t o p r o d u c e som e

v e h i c l e s o u t s i d e t h e new p l a n . T h a t com pany w i l l b e r e q u i r e d

t o r e d u c e p r o g r e s s i v e l y t h e p r o p o r t i o n o f i t s p r o d u c t i o n

o u t s i d e t h e p l a n on t h e f o l l o w i n g maximum b a s i s :

* T he q u e s t i o n o f a r e p la c e m e n t v e h i c l e b e i n g c o n s i d e r e d

s u b s t a n t i a l l y t h e sam e a s an e a r l i e r v e h i c l e w i l l b e

d e t e r m in e d h a v in g r e g a r d t o t h e f o l l o w i n g f a c t o r s -

( i ) w h e th e r t h e a p p e a r a n c e o f t h e s e c o n d

( r e p l a c e m e n t ) v e h i c l e i s m a r k e d ly d i f f e r e n t

fro m t h e o t h e r v e h i c l e ;

( i i ) w h e th e r t h e am ount o f n ew t o o l i n g u s e d i n

i t s p r o d u c t i o n i s c o n s i d e r e d t o b e s u b s t a n t i a l ;

W h eth er t h e am ount o f r e v e r s i o n i n v o l v e d i s

s u b s t a n t i a l .

(iii)

Page 5 of APPENDIX 6

1 J a n u a r y 1 9 7 5 80%

1 J a n u a r y 1 9 7 6 60%

1 J a n u a r y 1 9 7 7 40%

1 J a n u a r y 1 9 7 8 20%

1 J a n u a r y 1 9 7 9 N i l

and t h e c o m p a n y 's a v e r a g e c o n t e n t w i l l b e a s s e s s e d on

t h i s b a s i s .

1 7 . D u r in g t h e p h a s i n g p e r i o d a n y c k d p a c k s and

o t h e r c o m p o n e n ts im p o r t e d f o r v e h i c l e s p r o d u c e d o u t s i d e t h e

P la n w i l l b e s u b j e c t t o s u b s t a n t i v e d u t i e s an d an y r e l e v a n t

q u o t a a r r a n g e m e n t s .

BY LAW CONCESSIONS

1 8 . A com pany w h ic h i s an a p p r o v e d e n t r a n t i n t h e P la n

an d w h ic h c o m p l i e s w i t h i t s r e q u ir e m e n t s w i l l b e e n t i t l e d t o

c e r t a i n d u t y - f r e e c o n c e s s i o n s , u n d e r C u sto m s B y - la w , on

c o m p o n e n ts im p o r t e d f o r i n c o r p o r a t i o n i n v e h i c l e s p r o d u c e d b y

t h e com pany u n d e r t h e P la n .

1 9 . E ach com pany w i l l h a v e a b a s i c e n t i t l e m e n t , a s

fro m 1 J a n u a r y 1 9 7 5 , o f 10% o f t h e v a l u e o f i t s p r o d u c t i o n

( a s d e f i n e d i n A tta c h m e n t A) o f v e h i c l e s , b o t h b u i l t - u p and

c k d , u n d e r t h e P l a n .

2 0 . I n a d d i t i o n t o t h e b a s i c b y - l a w e n t i t l e m e n t , a com pany

may e a r n f u r t h e r d u t y - f r e e c o n c e s s i o n s u n d e r an a p p r o v e d

C o m p le m e n ta tio n P ro g ra m . ( S e e P a r t 3 ) .

PART 2

MOTOR VEHICLE COMPONENTS

C o n c e s s i o n s

2 1 . C om ponent m a n u f a c t u r e r s w i l l c o n t i n u e t o b e

a c c o r d e d b y - l a w c o n c e s s i o n s on t h e im p o r t e d c o n t e n t o f

c o m p o n e n ts u s e d a s o r i g i n a l e q u ip m e n t i n v e h i c l e s m a n u fa c tu r e d

u n d e r t h e 85% com pany a v e r a g e p l a n .

Page 6 of APPENDIX 6

2 2 . T he b a s i s o n w h ic h c o m p o n e n ts a r e e l i g i b l e t o

b e c o n s i d e r e d a s l o c a l c o n t e n t w i l l c o n t i n u e .

P ro g ra m s

2 3 . No new c o m p o n e n t p l a n s w i l l b e i n s t i t u t e d .

2 4 . C o m p o n en ts w i t h l e s s t h a n 85% l o c a l c o n t e n t

w i l l n o t b e r e q u i r e d t o i n c r e a s e l o c a l c o n t e n t .

2 5 . T he p r e s e n t l o c a l c o n t e n t r e q u ir e m e n t o f c o m p o n e n t

m a n u f a c t u r in g p r o g r a m s w i l l b e r e d u c e d o n t h e f o l l o w i n g b a s i s :

fr o m 1 / 1 / 7 6 90% minim um l o c a l c o n t e n t ,

fro m 1 / 1 / 7 7 85% m inim um l o c a l c o n t e n t .

F o r m a n u f a c t u r in g p r o g r a m s a l r e a d y b e lo w t h e s e l e v e l s t h e r e

w i l l b e n o r e q u ir e m e n t t o i n c r e a s e l o c a l c o n t e n t .

2 6 . The a b o v e a r r a n g e m e n t s ( p a r a s 2 1 - 2 5 ) w i l l b e r e v ie w e d

d u r in g 1 9 7 7 .

PART 3 COMPLEMENTATION CONCESSION

D e f i n i t i o n

2 7 . C o m p le m e n ta tio n i s an a r r a n g e m e n t b y which a

c e r t a i n v a l u e o f e x p o r t s i s e x c h a n g e d f o r an e q u a l v a l u e o f

im p o r t s . F o r t h e p u r p o s e o f t h e sc h e m e c o m p le m e n t a t io n i s

r e s t r i c t e d t o t r a d e i n a u t o m o t iv e p r o d u c t s ( c o m p o n e n ts ,

r e p la c e m e n t p a r t s , f u n c t i o n a l a c c e s s o r i e s , c k d p a c k s

an d c o m p le t e v e h i c l e s ) . T h e r e m u st b e som e l i n k b e tw e e n

e x p o r t s an d im p o r t s a lt h o u g h t h e a r r a n g e m e n t n e e d n o t b e

b i l a t e r a l b e tw e e n c o u n t r i e s o r c o m p a n ie s .

P u r p o s e

2 8 . T h i s c o n c e s s i o n i s s p e c i f i c a l l y i n t e n d e d t o

e n c o u r a g e g r e a t e r s p e c i a l i s a t i o n and h i g h e r p r o d u c t i o n v o lu m e s

i n t h e A u s t r a l i a n a u t o m o t iv e i n d u s t r y , t o p e r m it c o n t r o l l e d

a c c e s s t o lo w c o s t a u t o m o t iv e p r o d u c t s fr o m o v e r s e a s

s u p p l i e r s , an d t o e n c o u r a g e t h e g r o w th o f r e c i p r o c a l t r a d e

i n s u c h p r o d u c t s .

Page 7 of APPENDIX 6

O p e r a t io n

2 9 . T he sc h e m e w o r k s i n a s i m i l a r w ay t o t h e b a s i c

b y - l a w c o n c e s s i o n a v a i l a b l e u n d e r t h e L o c a l C o n t e n t P la n , t h e

d i f f e r e n c e b e i n g t h a t t h e c o m p le m e n t a t io n c o n c e s s i o n i s

earn ed , b y e x p o r t s .

3 0 . An a p p r o v e d c o m p le m e n t a t io n a r r a n g e m e n t e n t i t l e s

a com pany t o im p o r t a u t o m o t iv e p r o d u c t s d u t y - f r e e u p t o t h e

f o b v a l u e o f a u t o m o t iv e e x p o r t s e x c l u s i v e o f im p o r t e d c o n t e n t .

The c o m p le m e n t a t io n e n t i t l e m e n t i s i n i t i a l l y l i m i t e d t o 5%

b y v a l u e o f t h e c o m p a n y 's p r o d u c t i o n o f a u t o m o t iv e p r o d u c t s .

3 1 . W here a u t o m o t i v e p r o d u c t s a r e im p o r t e d u n d e r a

c o m p le m e n t a t io n p r o g r a m t h e y w i l l b e e x c l u d e d fro m t h e

c a l c u l a t i o n s d e t e r m i n i n g t h e l e v e l o f an y im p o r t r e s t r i c t i o n s

o r h i g h e r d u t i e s w h ic h may g e n e r a l l y a p p l y .

R e v ie w

3 2 . The l i m i t o f 5% w i l l b e r e v ie w e d a t t h e e n d o f

1 9 7 6 , a n d e v e r y tw o y e a r s t h e r e a f t e r , w i t h a v ie w t o a

p o s s i b l e i n c r e a s e .

C r i t e r i a

3 3 . I n s u b m i t t i n g c o m p le m e n t a t io n p r o g r a m s f o r

a p p r o v a l , a p p l i c a n t s w i l l b e r e q u i r e d t o d e m o n s t r a t e t h a t

c o m p le m e n t a t io n w o u ld

( i ) l e a d t o t h e b e n e f i t s o f e c o n o m ie s o f s c a l e

( i i ) p r o m o te g r e a t e r s p e c i a l i s a t i o n i n t h e p r o d u c t i o n

o f c o m p o n e n ts

( i i i ) e n c o u r a g e common s o u r c i n g o f c o m p o n e n ts

( i v ) e n s u r e t h a t c h a n g e s i n e m p lo y m en t t a k e p l a c e

a t a m a n a g e a b le r a t e w h i l s t e n c o u r a g in g s u c h

r e s o u r c e s i n t o a r e a s o f g r e a t e r t e c h n o l o g i c a l

s k i l l s i n e n g i n e e r i n g and d e s i g n

Page 8 of APPENDIX 6

( v ) im p r o v e t h e p r o s p e c t s o f c o n t i n u i n g b e n e f i t s

t h r o u g h r e c i p r o c a l t r a d e .

A p p r o v a l

3 4 . E ach c o m p le m e n t a t io n p r o g r a m i s t o b e a p p r o v e d

i n a d v a n c e b y t h e D e p a r tm e n t o f M a n u f a c t u r in g I n d u s t r y i n

c o n s u l t a t i o n w i t h t h e D e p a r tm e n t o f P o l i c e and C u sto m s a n d

o t h e r D e p a r tm e n ts a s a p p r o p r i a t e .

3 5 . A p p r o v a l may b e g i v e n o n t h e b a s i s o f a f ir m

p r o g r a m . I t i s n o t n e c e s s a r y t h a t e x p o r t s a l e s b e a c h i e v e d

i n a d v a n c e o f i m p o r t s .

3 6 . W here q u a n t i t a t i v e r e s t r i c t i o n s a p p ly t o c e r t a i n

c l a s s e s o f im p o r t e d g o o d s , im p o r t s u n d e r c o m p le m e n t a t io n

w i l l a s a g e n e r a l r u l e b e e x e m p te d fr o m t h o s e r e s t r i c t i o n s .

A d m i n i s t r a t i o n

3 7 . A p p l i c a t i o n s f o r b y - l a w u n d e r a p p r o v e d c o m p le m e n t a t io n

p r o g r a m s s h a l l b e d i r e c t e d t o t h e D e p a r tm e n t o f p o l i c e and

C u sto m s.

Page 9 of APPENDIX 6

P a r t 4

STATEMENT OF CONDITIONS AND REQUIREMENTS

FOR NEW MANUFACTURERS

3 8 . T he p r o v i s i o n s o f P a r t s 1 , 2 a n d 3 a b o v e

( s t a t e m e n t o f c o n d i t i o n s a n d r e q u i r e m e n t s f o r e s t a b l i s h e d

m a n u f a c t u r e r s ; m o to r v e h i c l e c o m p o n e n ts ; a n d c o m p le m e n t a t io n

c o n c e s s i o n ) a p p ly e q u a l l y t o o t h e r m a n u f a c t u r e r s w h o se

a p p l i c a t i o n s t o e n t e r t h e 85% P la n may b e a p p r o v e d b y t h e

G o v e r n m e n t, e x c e p t f o r t h e s e c t i o n s o f P a r t I r e l a t i n g t o

p h a s i n g a r r a n g e m e n t s a n d b y - l a w c o n c e s s i o n s .

3 9 . P a r a g r a p h s 4 1 t o 4 5 b e lo w e x p l a i n t h e P h a s in g

A r r a n g e m e n ts a n d B y - la w C o n c e s s i o n s w h ic h w i l l a p p ly t o new

m a n u f a c t u r e r s .

A p p l i c a t i o n s

4 0 . A p p l i c a t i o n s b y o t h e r t h a n t h e e x i s t i n g m a n u f a c t u r e r s

t o e n t e r t h e 85% P la n w i l l b e d e c i d e d b y t h e G o v ern m en t o n a

c a s e b y c a s e b a s i s . R e l e v a n t m a t t e r s w h ic h w i l l b e t a k e n i n t o

a c c o u n t i n t h e c o n s i d e r a t i o n o f s u c h a p p l i c a t i o n s w i l l i n c l u d e

t h e e x t e n t t o w h ic h t h e p r o p o s e d o p e r a t i o n s w i l l m ake r a t i o n a l

u s e o f e x i s t i n g r e s o u r c e s ; l o c a t i o n o f p r o p o s e d m a n u f a c t u r in g

a c t i v i t i e s ; a n d t h e e x t e n t t o w h ic h t h o s e a c t i v i t i e s w i l l

c o n t r i b u t e t o e x p o r t s a n d im p o r t s u n d e r t h e p r o v i s i o n s o f

P a r t 3 - C o m p le m e n t a t io n .

P h a s in g A r r a n g e m e n ts a n d B y - la w C o n c e s s i o n s

4 1 . A p p r o v e d e n t r a n t s w i l l b e r e q u i r e d t o a c h i e v e 85%

l o c a l c o n t e n t i n a c c o r d a n c e w i t h t h e f o l l o w i n g t i m e t a b l e :

A t s t a r t o f y e a r L o c a l C o n t e n t (%) B y - la w C o n c e s s i o n s (%)

B a s i c C o m p le m e n ta tio n

1 ( a ) 6 2 h 25 (b )

2 70 20

3 75 20

4 80 15

( a ) Y e a r 1 c o m m en ces o n t h e d a t e o n w h ic h t h e f i r s t e n t r a n t

i s a c c e p t e d b y t h e G o v ern m en t a s a new m a n u f a c t u r e r .

( b ) T he c o m p le m e n t a t io n c o n c e s s i o n s s e t o u t i n P a r t 3 o f t h e

P l a n w i l l a p p ly t o new m a n u f a c t u r e r s .

Page 10 of APPENDIX 6

4 2 . New e n t r a n t s c o u l d p a r t i c i p a t e i n t h e P la n i n i t i a l l y

o n t h e b a s i s o f i n d i v i d u a l v e h i c l e s ( o n e o r m o r e ) . T h e ir

l o c a l c o n t e n t r e q u i r e m e n t s w i l l b e b a s e d on t h e a v e r a g e l o c a l

c o n t e n t o f a l l v e h i c l e s e n t e r e d i n t h e P l a n . L ik e t h e e x i s t i n g

m a n u f a c t u r e r s , new e n t r a n t s w o u ld b e r e q u i r e d t o a c h i e v e 85%

l o c a l c o n t e n t on a com pany a v e r a g e b a s i s o n a l l v e h i c l e s

p r o d u c e d b y t h e com pany fro m t h e b e g i n n i n g o f Y ea r 5 an d t o

m a i n t a i n i t f o r t h e l i f e o f t h e P l a n . A t t h e b e g i n n i n g o f

Y ea r 5 b y - l a w c o n c e s s i o n s f o r new e n t r a n t s w i l l b e t h e sam e

a s t h o s e a v a i l a b l e t o e x i s t i n g m a n u f a c t u r e r s , t h a t i s , 10%'

b a s i c b y - l a w p l u s t h e c o m p le m e n t a t io n c o n c e s s i o n .

4 3 . D u r in g t h e p h a s in g p e r i o d , a n y c k d p a c k s an d o t h e r

c o m p o n e n ts im p o r t e d f o r v e h i c l e s p r o d u c e d o u t s i d e t h e P la n

w i l l b e s u b j e c t t o s u b s t a n t i v e d u t i e s an d a n y r e l e v a n t q u o t a

a r r a n g e m e n t s .

4 4 . D u r in g t h e p h a s i n g p e r i o d , new m a n u f a c t u r e r s w i l l

b e r e q u i r e d t o k e e p t h e G o v ern m en t in f o r m e d o f p r o g r e s s

to w a r d s t h e 85% com pany a v e r a g e c o n t e n t l e v e l , i n r e s p e c t o f

a n y v e h i c l e s b e i n g p r o d u c e d o u t s i d e t h e P l a n . T h is r e q u ir e m e n t

i s a d d i t i o n a l t o t h e r e g u l a r r e p o r t i n g o f l o c a l c o n t e n t l e v e l s

o f P la n v e h i c l e s w h ic h i s r e q u i r e d b y t h e a d m i n i s t e r i n g

a u t h o r i t y .

4 5 . As a n a l t e r n a t i v e t o t h e p r o v i s i o n s o f p a r a g r a p h s

4 2 t o 4 4 , new m a n u f a c t u r e r s may p a r t i c i p a t e a t a n y t im e d u r in g

t h e p h a s i n g p e r i o d o n t h e b a s i s o f a c h i e v i n g a com pany a v e r a g e

l o c a l c o n t e n t a t t h e l e v e l s p e c i f i e d f o r t h e r e l e v a n t Y e a r .

A com pany w h ic h a d o p t s t h i s c o u r s e w i l l b e r e q u i r e d t h e r e a f t e r

t o i n c r e a s e i t s a v e r a g e l o c a l c o n t e n t i n a c c o r d a n c e w i t h t h e

t i m e t a b l e c o n t a i n e d i n p a r a g r a p h 4 1 . The com pany w i l l b e

e n t i t l e d t o t h e B y - la w C o n c e s s i o n s sh ow n i n t h e t i m e t a b l e o n

c o m p o n e n ts im p o r t e d f o r i n c o r p o r a t i o n i n a l l v e h i c l e s p r o d u c e d

b y t h e com pany i n A u s t r a l i a .

A T T A C H M E N T A of APPENDIX 6

LOCAL CONTENT

1 . L o c a l C o n t e n t F o r m u la

To c o i n c i d e w i t h t h e im p le m e n t a t io n o f a com pany

a v e r a g e l o c a l c o n t e n t p l a n , t h e f o l l o w i n g f o r m u la w i l l b e

u s e d f o r c a l c u l a t i n g t h e a v e r a g e :

(R^ + Rg) - ( Z q + i g )

C = ------------------------------------------ x 1 0 0

W here

C : p e r c e n t a g e com p an y a v e r a g e l o c a l c o n t e n t

o f v e h i c l e m a n u f a c t u r e a n d a s s e m b ly

b y a P la n e n t r a n t

Rp : v a l u e o f v e h i c l e s p r o d u c e d f o r d o m e s t i c

s a l e , i . e . t h e p r o d u c t o f t h e num ber o f

v e h i c l e s p r o d u c e d an d t h e i r l o w e s t

w h o l e s a l e p r i c e *

RE : v a l u e o f v e h i c l e s p r o d u c e d f o r e x p o r t s a l e ,

i . e . t h e p r o d u c t o f t h e num ber o f v e h i c l e s

p r o d u c e d f o r e x p o r t and t h e i r f o b p r i c e s

w h e r e t h e v e h i c l e s a r e e i t h e r b u i l t - u p o r

i n c k d p a c k s

I p : d u t y - f r e e v a l u e o f im p o r t e d c o m p o n e n ts u s e d

i n v e h i c l e s p r o d u c e d f o r d o m e s t i c s a l e s .

I E : d u t y - f r e e v a l u e o f im p o r t e d c o m p o n e n ts u s e d

i n u n i t s p r o d u c e d f o r e jq p o r t.

* D e f i n e d a s t h e l o w e s t p r i c e t o t h e m o s t f a v o u r e d

m e t r o p o l i t a n d e a l e r .

A T T A C H M E N T B of APPENDIX 6

EXCEPTED COMPONENTS

I n i t i a l l y , t h e f o l l o w i n g c o m p o n e n ts w i l l c o n t i n u e

t o b e i n e l i g i b l e f o r b y - la w e n t r y o r f o r r e - s o u r c i n g o v e r s e a s

u n d e r t h e p r o v i s i o n s o f t h e P l a n .

R a d io an d t e l e v i s i o n r e c e i v e r s an d t r a n s m i t t e r s ,

w h e t h e r im p o r t e d s e p a r a t e l y o r o t h e r w i s e , a n d

p a r t s t h e r e f o r

B e a r i n g s t o w h ic h 8 4 . 6 2 . 1 o r 8 4 . 6 2 . 2 a p p l i e s ,

w hen im p o r t e d n o t f i t t e d t o a n y o t h e r c o m p o n e n t,

an d p a r t s t h e r e f o r

P a r t s f o r c o m p o n e n ts s u b j e c t t o c o m p o n e n t m a n u f a c t u r in g

p r o g r a m s , u n l e s s :

( i ) t h e p a r t s a r e e l i g i b l e f o r b y - l a w i n

a c c o r d a n c e w i t h t h e te r m s o f t h e

p r o g r a m , o r

( i i ) t h e c o m p o n e n t f o r w h ic h t h e p a r t s a r e

r e q u i r e d i s a c c e p t e d b y t h e v e h i c l e

p r o d u c e r a s a n im p o r t d e b i t .

ATTACHMENT C of APPENDIX 6

MOTOR VEHICLE COMPONENTS UNDER MANUFACTURING PROGRAMS

Brake equipment, viz. -brake corners brake hoses master cylinders parking brake cables

power assistors

Carburettors Clutch equipment, viz. -carbon thrust bearings cover assemblies

driven plates master cylinders

Filters, viz. air, oil and fuel

"Hang-on" electricals, viz. -distributors generators (d.c.) ignition coils regulators starting motors alternators

Heaters/Demisters Horns

Instruments, viz. -car clocks fuel sending units speedometer flexible shaft assemblies oil pressure switches and senders

temperature transmitters speedometers of the dial and pointer type electrically & mechanically operated

tachometers gauges, fuel, temperatdre, pressure (electrical) ammeters

Mirrors, rear view

Propeller shafts and universal joints (other than constant velocity joint drive shaft assemblies)

Pumps - Fuel

Radiators Seat Belts

Shock Absorbers Turn Signal switches and flasher units

Windscreen washers Windscreen wiper assemblies

MOTOR VEHICLES - IMPORT RESTRICTIONS

APPENDIX 7

EMPLOYMENT PROJECTIONS

There are a large number of factors which determine the

level and composition of the industry's employment. This appendix

examines the significance of some of these factors and projects

employment over the next five years.

Factors considered are:

. market supplies and demand

The Commission has based its projections on forecasts by

witnesses of the total market and of the break-up of the market among

categories of vehicles. Although forecasts of witnesses varied considerably,

most were consistent in anticipating little growth in the market until the

end of 1976, beyond which time market growth was expected to return to

more normal rates.

The forecasts of the total market for vehicles under reference

and of the composition of the passenger vehicle market used in this set

of projections are as follows:

Market Size (000 vehicles)

Domestic market

1974(actual) 1975 1976 1977 1978 1979 1980

Passenger vehicles 474 450 450 480 510 530 550

Commercial vehicles 74 72 73 78 81 84 88

Export market

Export sales have been assumed to move proportionately with

domestic sales.

Composition of the Passenger Vehicle Market (per cent)

Category 1974 1975 1976 1977" 1978 1979 1980

Small light 23 24 25 26 27 28 28

Large light 31 32 33 34 35 36 36

Medium/Luxury^ 46 44 42 40 38 36 36

TOTAL 100 100 100 100 100 100 100

(a) Includes medium, upper medium and luxury/specialty categories.

MOTOR VEHICLES - IMPORT RESTRICTIONS

By forecasting the performance of individual suppliers within

each category, the Commission has built up projections of the share of

the total market held by each class of supplier. These vary with the

assumptions about the actions of Nissan and Toyota and are shown under

each of the projections below.

There was a considerable build up of passenger vehicle stocks

in 1974. It has been assumed that stocks of locally produced vehicles

are reduced to normal levels over a period of two years for assemblers

and one year for local manufacturers.

. local content

Local content levels for existing plan participants are based

on their stated intentions. Local content levels for new plan participants

are assumed to be the minimum required. Local content levels for other

producers are assumed to be the same over the projection period as in 1974.

. employment/local content coefficients

Projected levels of employment have been derived from projections

of local production and local content achieved. For each level of local

content, the Commission has established a set of employment coefficients

calculated from the employment involved in the processes or components

included in a hypothetical vehicle with that level of content. By relating

these employment coefficients to projected production volumes, broad

estimates of employment levels have been made.

The coefficients used in these projections were derived from

evidence submitted at the previous inquiry. Productivity increases of

1 per cent per annum have been assumed.

The employment/local content relationship for a hypothetical vehicle

with the engine sourced locally before 85 per cent local content is

shown in the following diagram:

Page 2 of APPENDIX 7

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 3 of APPENDIX 7

Employment

Index (%)

(a) L o c u s of local

content build up

by new plan

participants with

/r~i'y Other

Employment the engine as

the last locally

sourced major component.

, Assembly z

, Employment Locus of local

content reduction

45 50 62.5 75 85 95 100 by existing plan

participants assuming

Local Content (%)

retention of panel

pressing.

Projection 1

This projection indicates the significance of forecast market

trends on employment.

Assumptions

(1) Market shares throughout the period are the same as in 1974.

(2) Market participants maintain thee same type of operation

(e.g. assembly or c.b.u. sourcing) as in 1974.

Results

The following results relate to employment in the automobile

manufacturing industry''" only.

(a)

Employment (000 persons) 1

Assembly labour 1974 32 1975

26

1976 27

1977 29

1978 31

1979 31

1980 32

Other labour 42 34 36 39 41 42 42

Total 74 60 63 68 71 73 74

(a) For this and other tables in this Appendix, totals do not necessarily add because of rounding.

1 Vehicle builders and component manufacturers.

MOTOR VEHICLES - IMPORT RESTRICTIONS

These results vividly demonstrate the significance of aggregate

market trends throughout the period and the effect of abnormal stock

holdings in late 1974 and early 1975 upon employment levels.

Projection 2

Page 4 of APPENDIX 7

Projection 1, however, is an unlikely forecast of future

developments. The base year import share is abnormally high and unlikely

to be maintained, and changes in suppliers' mode of operation and changes

in local content achieved are likely. Projection 2 has been made on the

basis of the following assumptions.

Assumptions

(1) Nissan and Toyota do not enter the manufacturing plan,

but continue a mixed assembly/importing operation.

(2) Market shares - (%)^

1974 1975 1976 1977 1978 1979 1980

c.b.u. vehicles -Nissan, Toyota 10.5 7.6 9.0 10.5 12.0 13.5 15.0

Other 15.6 12.4 15.3 14.4 13.8 15.5 16.1

locally assembled^ vehicles -Nissan, Toyota 9.4 12.9 13.3 13.7 14.1 14.5 15.0

Plan participants 2.8 8.1 7.6 6.3 5.3 4.3 3.5

Other 7.4 7.2 6.7 6.0 5.9 6.0 6.0

locally manufactured vehicles -Plan participants

(3) Local content -

54.3

(%)

51.8 48.1 49.1 48.9 46.2 44.4

assemblers -Nissan, Toyota 55 53 45 45 45 45 45

Other (average) 45 45 45 45 45 45 45

manufacturers 93 92 88 87 87 86 86

(a) Because of the change in Leyland's status in 1974, Ley land1 's locally manufactured vehicles have not all been included as locally manufactured vehicles in 1974.

(b) Vehicles assembled from imported c.k.d. kits.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Results

Assembly labour Other labour

Total

Page 5 of APPENDIX 7.

Employment (000 persons)

1974 1975 1976 1977 1978 1979 1980

32 28 28 30 31 31 31

42 35 31 31 32 30 30

74 62 59 61 63 61 60

Major differences between this projection and projection 1

result from the assumption here of lower c.b.u. imports (on the basis that

c.b.u. imports in 1974 were abnormally high), and from assumptions of lower

local content on locally produced vehicles.

This projection is based on Nissan and Toyota combined achieving

30 per cent of the market by 1980. The evidence suggests that possibility,

and consequently, the employment trend shown in this projection could easily

be realised unless higher protection against both c.b.u. vehicles and c.k.d.

kits is provided to local manufacturers, or unless Nissan and Toyota decide

to participate in the manufacturing plan.

Projection 3

Projection 3 is based on Nissan and Toyota entering the manufacturing

plan.

Assumptions

(1) Nissan and Toyota enter the manufacturing plan

(2) Market shares - (%)^

1974 1975 1976 1977 1978 1979 1980

c.b.u. vehicles -Nissan, Toyota 10.5 7.6 9.6 7.5 5.9 4.7 3.5

Other 15.6 12.4, 15.1 14.1 13.5 15.1 15.6

locally assembled vehicles -Nissan, Toyota Other plan 9.4 12.9

3.5 participants 2.8 8.1 7.6 6.3 5.3 4.3

Other 7.4 7.2 6.7 6.0 5.9 6.0 6.0

locally manufactured vehicles -Nissan, Toyota Other plan - - 14.4 19.8 24.5 27.4 30.4

participants 54.3 51.8 46.6 46.3 44.9 42.5 41.0

(a) Because of the change in Leyland's status in 1974, Leyland's locally manufactured vehicles have not all been included as locally manufactured vehicles in 1974.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 6 of APPENDIX 7

(3) Local content (%)

vehicles produced in Australia -

1974 1975 1976 1977 1978 1979 1980

Nissan, Toyota 55 53 62.5 70 75 80 85

Other participants 93 92 88 87 87 86 86

Other producers

Results

45 45

Employment (000

45 45

persons)

45 45 45

1974 1975 1976 1977 1978 1979 1980

Assembly labour 32 28 28 31 32 34 35

Other labour 42 35- 33 37 41 47 4S

Total 74 62 61 68 73 75 80

This projection is based on Nissan and Toyota combined achieving

34 per cent of the market by 1980. This has been assumed because a higher

sales volume is necessary to make local production as economic as an importing/

assembly operation. ·

The major difference between this projection and projection 2 reflect the

assumed switch from c.b.u. import sourcing to local production by Nissan and

Toyota upon entering the manufacturing plan, and the employment created by

Nissan and Toyota increasing the local content on vehicles produced in

Australia as required by plan rules.

Sensitivity of Projections

The employment projections presented above are based on a number of

assumptions. A broad assessment of the significance of these assumptions can

be obtained by basing projection 3 on alternative assumptions. One assumption

has been varied, others being held constant.

MOTOR VEHICLES IMPORT RESTRICTIONS

1974 1975 1976 1977 1978 1979 198

(1) Market size assumptions

(a) assumption implicit in projection 3 (000 vehicles) 548 522 523 558 591 614 638

projection (000 persons) 74 62 61 68 7 ί 75 80

(b) market demand projected by IAC model (000 vehicles) 548' 503 510 563 607. 630 663

projection (000 persons) 74 60 60 69 75 79 83

(c) no change in sales over 1974 level (000 vehicles) 548 548 548 548 548 548 548

projection (000 persons) 74 64 64 66 67 66 68

(2) Stocks assumption

Change in the level of vehicle stocks explains a large part of

the projected employment decline between 1974 and 1975. In 1974 there was

a build-up of stocks of locally produced vehicles. Employment was supported

in producing for this build-up. In 1975 there has been a run down in stocks

and consequently production and employment is projected at a lower level

than would be suggested by the trend in vehicle sales. The significance

of the stock change can be seen by estimating 1975 employment levels on

the trend in sales of locally produced vehicles rather than on the trend

in production of locally produced vehicles.

1974 1975

(a) employment projected on production 74 65

(b) employment projected on sales 74 71 (based on 1975 sales

of 522 ,000)

(3) Local content assumptions

1974 1975 1976 1977 1978 1979 1980

(a) assumption implicit in projection 3 Local content of existing plan participants (%) 93 92 88 87 87 86 86

projection (000 persons) 74 62 61 68 73 75 80

(b) alternative,assumption,local content of existing participants is phased down more gradually 93 92 91 90 89 87 86

projection (000 persons) 74 62 63 70 74 76 80

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 8 of APPENDIX 7

(c) alternative assumption

no drop in local content of existing participants

1974 1975 1976 1977 1978 1979 1980

beyond 1975 93 92 92 92 92 92 92

projection (000 persons) 74 62 64 72 77 80 85

In this table, the local content assumption and the market

share assumption have been treated as though they are independent.

There are difficulties in this procedure because the local

content assumption cannot be entirely isolated from the market share

assumption. Any observed drop in local content should be paralleled

by an improvement in the competitive position of plan participants.

In the case of lower content achieved by reversion on high cost

components any cost disability on the vehicle in question should be

reduced. In the case of lower content achieved by increasing the

extent of low content assembly (eg. GM-H’s strategy with the Gemini),

plan participants should be able to make sales that would otherwise

not have been made.

(4) Market shares assumption

Projection 3 assumes that Nissan and Toyota achieve a combined

market share of 34 per cent by 1980. Reasonable alternative estimates of

this market share would span a wide range, and for each estimate, quite

different employment projections would be derived depending on

assumptions made concerning the market share achieved by other suppliers.

Because there are so many possible variations only one is presented

below - that of Nissan and Toyota achieving a lower market share than

assumed for projection 3 with other plan participants achieving a

correspondingly higher share.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 9 of APPENDIX 7

1974 1975 1976 1977 1978 1979 1980

(a) Nissan and Toyota's market share assumed in projection 3 (%) 19.9 20.5 24.0 27,3 30.4 32.1 33.9

projected employment (000 persons) 74 62 61 68 73 75 80

(b) Alternative assumption - Nissan and Toyota's market share (%) 19.9 20.5 22.0 24.0 26.0 28.0 30.0

projected employment(000 persons) 74 63 62 69 74 76 80

Use of Projections

The projections derived in this appendix merely reflect the

underlying assumptions. Consequently they can be used as forecasts

only to the extent that those assumptions are considered as appropriate

forecasts of future developments.

MOTOR VEHICLES - IMPORT RESTRICTIONS

APPENDIX 8

THE MARKET

Suppliers to the Local Market

Local Manufacturers

There are at present three manufacturers of vehicles

under reference in Australia, These companies, with the range of

vehicles produced, are as follows:

COMPANY RANGE OF VEHICLES

Chrysler

Ford

GM-H

Chrysler/Valiant, Centura, Galant.

Falcon/Fairlane/Ford, Cortina, Escort,

light commercials.

Hoiden/Statesman, Torana, Gemini,

Bedford light commercials.

Until the end of 1974, Leyland was also a manufacturer Of goods under

reference, producing P76, Marina and Mini vehicles. Leyland's activity is now

confined to the assembly of Mini and Triumph vehicles.

Leyland apart, the only changes to the range of vehicles produced In

Australia since the Commission's previous report are the replacement

by GM-H of its TA Torana range with the Gemini and the introduction

by Chrysler of its Centura models. All of the above companies also

produce commercial vehicles including commercial vehicles not covered

by this reference.

The local content of vehicles produced by manufacturers

varies, ranging from almost 100 per cent to about 35 per cent. Five of

the models (ie. Holden/Statesman, Torana, Falcon/Fairlane/Ford, Cortina

and Chrysler/Valiant) use a high proportion of locally sourced components

and achieve local content of more than 85 per cent. The remaining

models are substantially of overseas design and incorporate mainly

imported panels in c.k.d. kit form from the overseas manufacturers.

Assemblers

In addition to Leyland three companies are currently assembling

vehicles under reference in Australia. These companies, with the range of

vehicles assembled, are as follows:

MOTOR VEHICLES IMPORT RESTRICTIONS

Page 2 of APPENDIX 8

COMPANY RANGE,.OF VEHICLES

AMj Toyota Corolla, Corona and Crown;

Rambler Hornet and Matador.

Motor Producers Volkswagen passenger and commercial vehicles;

Nissan 120Y*-a^ and 180B; Volvo 4 and 6^^

cy1inder models.

Renault Renault 12 and 16, Peugeot 504 ·

(a) Nissan 120Y model was withdrawn from c.k.d. assembly late in 1974 but has now been reintroduced.

(b) Volvo 6 cylinder models were withdrawn from c.k.d. assembly at the end of 1974, but were due to be reintroduced in August/September 1975.

Assemblers generally use few local components although local

content on one model is almost 60 per cent. With the cessation of

duty concessions under the Small Volume Local Content Plans all assemblers

reduced the proportion of local components in their locally assembled

vehicles. For one popular model assembled in Australia the per unit

value of local materials was reduced from about $600 to $200 between

the end of 1973 and July 1975. Nissan, which company's vehicles are

assembled by Motor Producers stated that for its Datsun 180B models

"the level of local content at present existing is that dictated solely

by economic considerations". Nissan and Toyota, however, have both

signed letters of intent to enter into the Government's 85 per cent

Plans.

With the exception of Motor Producers, but including Nissan

and Volvo for whom Motor Producers assembles under contract, all of the

assemblers import c.b.u. vehicles either to add to the volume of locally

assembled vehicles or to supplement their range in Australia. AMI

for example, import Corolla, Corona, Celica, Mark II and Crown vehicles

c.b.u. from Toyota in Japan while Renault imports R15 and R17 models

c.b.u. from its French parent company.

MOTOR VKHICLKS - IMPORT RLSTRIC'PICilS

Page 3 of a?ph:::)I a 8

Importers

This description has "been used for importers of c.b-u. vehicles

who do not manufacture or assemble in Australia.

There are many such suppliers to the Australian market, but

only two suppliers achieved a market share exceeding 1 per cent in

1974. They were Mazda and Honda.

The Commission received evidence on behalf of importers of

Mazda, Honda and Toyota(commercial) vehicles from Japan; Fiat, Alfa

Romeo and Ferrari vehicles from Italyj Jensen and Rolls Royce vehicles

from Britain; H.M.J. and Mercedes Benz from 'lest Germany and Skoda

vehicles of Czechoslovakian origin.

Market Size

Aggregate Market

TABLE 8.1s MARKET SIZE (000 VEHICLES)

1975 (a)

Passenger

1965 1966 1967 1968 1969 "970 1971 1972 1973 1974 March qtr. Ja n e qtr.

Sept. qtr.

Motor Vehicles(b) 532 306 335 368 400 412 417 405 459 474 125 131 116

Light Commercial Vehicles (b) n.a. n.a. n.a. n.a. n.a. n.a. n. a. 60 72 74 18 22 20

Total n.a. n.a. n. a. n.a. n.a. n.a. n. a. 465 531 548 143 15 3 136

(a) Registration data for March arid Jure quarters has been adjusted to allow fur recorded registrations including actual registrations in previous periods. Bo adjustment has been made to data for the September quarter.

(b) Excludes four wheel drive vehicles which are not under reference,

n.a. not available

Source: Based on ABS notcr vehicle registrations data.

The categories used in this report for passenger vehicles

correspond to those used in the Passenger Motor Vehicles, Etc. report

of 10 July 74» These categories correspond closely with those adopted

by AwAPS Marketing Services Pty. Ltd.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 4 of APPENDIX 8

TABLE 8.2: MARKET COMPOSITION BY VEHICLE CATEGORY PASSENGER MOTOR VEHICLES (per Cent)

Category 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

March quarter

1975 June quarte®

Small light 17.1 13.3 16.1 15.9 16.3 16.7 16.8 18.2 21.4 23.1 25.8 24.3

Large light 16.6 15.2 16.1 19.0 19.9 23.0 24.3 25.8 25.5 28.3 32.9 31.6

Medium, Upper 62.9 Medium 68.0 64.7 62.6 61.6 58.2 57.0 54.3 51.3 46.3 39.1 41.7

Luxury, Specialty 3.4 3.5 3.1 2.5 2.2 2.1 1.9 1.7 1.8 2.3 2.2 2.4

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Based on ABS motor vehicle registrations data.

|

MARKET SHARES TABLE 8.3: MARKET COMPOSITION BY MODE OF PASSENGER MOTOR VEHICLES (Per ORIGIN

Cent)

Mode ot Origin 1965 1966 1967 1967 1969 1970 1971 1972 1973 1974 1975

March quarter

1975 June quarter

Locally atrd. (a) 81.1 84.1 80.3 76.9 75.7 71.2 70.0 71.0 64.9 57.6 52.0 52.6

Locally assembled 10.9 9.0 9.9 9.7 14.8 18.5 17.6 20.5 20.8 16.3 22.9 26.4

Imported c.b.u. 8,0 6.9 9.8 13.4 9.5 10.3 12.4 8.5 14.3 26.1 25.1 21.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

(a) Includes Ley1 and

Source: Based on ABS motor vehicle registrations data and evidence.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 5 of APPENDIX 8

TABLE 8.4:MARKET COMPOSITION BY TYPE OP SUPPLIER BY KOBE OF ORIGIN OF VEHICLE - PASSENGER MOTOR VEHICLE.3-1974 (Per Cent) (a)

Based cn Evidence Based on Motor vehicle

(generally sales to Registration data

Distributors)

Manufacturers 58.8 60.8

locally manufactured vehicles 54.6 57.6

locally assembled vehicles 3.0 1.9

c.b.u. imports 1.2 1.2

Assemblers 26.9 25.1

locally assembled vehicles 14.8 14.3

c.b.u. imports 12.1 10.9

1 importers 14.4 14.0

c.b.u. imports 14.4 14.0

Total

locally manufactured vehicles 54.6 51.6

locally assembled vehicles 17.8 16.3

c.b.u. imports 27.6 26.1

(a) For thi* and other tables In th is appendix, to ta ls do not necessarily add because of rounding. (b) Includes Leylaed Source: Based on ABS *otor vehicle registrations data and evidence,

table 8 .5 : M ARKET SHARES BY COM PANY - PASSENGER M OTOR VEHICLES ( ^ r Cent)

1965 1966 1967 1968 1969 1970 1971 1972 1973 19 74 1975

March qtr. 1975 June qtr.

GM -H 39.3 38.2 34.3 34.8 34.3 34.0 34.3 31.8 29.6 23.8 23.8 25.9

Ford 17.1 18.7 20.6 19.2 20.3 22.3 22.3 27.4 22.4 23.0 20.5 21.1

Chrysler (a) 13.3 13.6 14.1 13.9 14.4 12.6 12.2 9.5 10.0 9.4 9.6 10.5

Leyland (a) 12.9 13.1 11.9 10.8 9.2 7.7 5.7 5.5 6.3 4.5 3.4 1.5

Volkswagen 7.0 5.3 4.7 3.4 2.8 3.2 3.5 2.7 2.1 1.7 2.3 2.3

Toyota 3 2 4.7 5.6 6.8 6.3 6.2 6.1 6.7 8.6 10.1 11.2 11.3

Nissan 1.5 1.5 2.9 3.5 3.9 ΐ.9 6.5 7.4 5.3 5.8 10 8 11.9

Mazda 0.7 0.4 1.3 2.4 2 8 3.2 4.2 3.1 5.3 8.3 7.8 5.7

Other 5.0 4.5 4.6 5.2 t.O 5.3 5.2 5.1 6.4 9.4 10.6 5.8

100 0 100.0 100.0 100.0 '00 0 100.0 100.0 100.0 100.0 109.0 1C9.0 100.0

(a) Market shares over the period relate to current company structures. Source: Based on AdS motor vehicle registrations data.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Market Projections

The Commission's Projections

The Commission has prepared projections of the market for

passenger motor vehicles over the period 1975 to 1985. The projections

are based on an updated version of the statistical model described in

an accompanying study to the Commission's 1974 report on Passenger

Motor Vehicles.^

Page 6 of APPENDIX 8

Details of the updated study are contained in a separate

publication The Australian Market for Passenger Motor Vehicles - 1975 to 1985 ,

October 1975? This study explains the level of sales of new passenger

motor vehicles, in total and by type of vehicle, on a quarterly basis in

terms of a number of factors which influence demand for new vehicles and

the availability of supplies. These factors include:

. changes in the price of passenger motor vehicles

relative to the price of other consumer durables

and the relative price of various types of

passenger vehicles

. changes in the quality of motor vehicles produced

. prices at which second-hand vehicles can be obtained

. relative changes in the operating costs of various

types of passenger vehicles

. the availability of credit for the purchase of vehicles

. changes in the life expectancy of vehicles over time

. cyclical fluctuations in the level of activity in

the economy

. changes in consumer and business confidence

. the introduction of small 6 cylinder motor vehicles in

the 1970’s

. lags in the reactions of purchasers and producers to

changes in the above factors

1. Passenger Motor Vehicles for the purpose of this study include four wheel drive vehicles.

2 Copies are available from the Commission on request.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 7 of APPENDIX 8

Sales estimates derived on the basis of this model could not

fully take into account the effect of the Government's recent sales

tax initiatives. Consequently adjustments have been made to the model

to take account of the extent to which the temporary sales tax reductions

induced potential buyers to bring forward the date of their purchases.

In Figure 8.1 actual sales of all passenger motor vehicles

are graphed against sales predictions generated by the model on an

annual basis from 1953 to 1974 together with projections to 1985.

Figure 8.2 presents the corresponding graphs for the market share of

small vehicles to 1980. Table 8.6 contains quarterly projections to

1980 and annual projections to 1985 with separate estimates of sales

in the months from July to December, 1975 when the effects of the

increased sales tax are expected to be most pronounced.

The most significant features of these projections may be

summarised as follows:

. As one would expect the projected sales figure for

September marks the low point of sales for the year

reflecting the restoration of the full 27.5 per cent

sales tax on September 1. The expected sales figure

of 80,040 for the September quarter of 1975 is the lowest

quarterly sales figure since March 1967.

. There is some indication of an expected recpvery

in the December quarter of 1975 but normal seasonal

factors which are expected to lead to a decline in the

March quarter of 1976 will delay this upturn. Substantial

recovery is not expected until the second half of 1976.

. The full year figure for 1976 is not expected to show a

significant increase over the 1975 figure which includes

the sales tax induced high sales levels of February,

March and April. Sales in 1975 and 1976 are expected to

be substantially below the 1973 and 1974 sales figures

of 460,000 and 476,000 respectively.

MOTOR VEHICLES - IMPORT RESTRICTIONS

Page 8 of APPENDIX 8

. From 1977 recovery is expected to be quite rapid with a

total projected market of approximately 575,000 vehicles

in 1980 and 653,000 vehicles in 1985.

. The market share of light vehicles is projected to

increase to 66 per cent by the end of 1980 but the rate

of increase is projected to decline slightly over the period.

Several comments on these findings appear to be in order.

First the decline in sales in 1975 and 1976 is explained by the model

largely in terms of the present downturn in the economy and also as a

reaction to the sales boom of 1973 and 1974. Second, the actual

trough in sales due to the sales tax variations of 1975 may have been

delayed by the marketing strategies employed by some dealers and/or 2 producers during September.

Third, the projected market shares of small vehicles are

based on expected movements in the relative costs of owning and operating

small and other vehicles and on a continuation of recent trends in

non-price factors (such as changes in tastes favouring smaller cars and

the introduction of small 6 cylinder cars) which have been developing

for only a short period of time. The Commission has received no factual

evidence relating to expected developments in the trends in non-price

factors. Subjective evidence which has been received appears to support

the view that these trends will continue to develop in the period to

1980. It recognises, however, that new factors may arise which could

change the rate at which smaller cars are substituted for larger cars.

The implications of such changes are considered elsewhere in this

report.

2 For example, Chrysler dealers were offering $300 off the price of a new car and certain Ford dealers were also extensively advertising discounts on the prices of new cars.

F I G U R E 8 . 1 : A C T U A L A N D P R E D I C T E D S A L E S O F A L L P A S S E N G E R M O T O R V E H I C L E S , 1 9 5 3 T O 1 9 8 5

7 0 0 r-

Actual

Predicted

Source: Commission's demand study.

MOTOR VEHICLES - IMPOK

FIGURE 8.2 : ACTUAL AND PREDICTED MARKET SHARES OF SMALL PASSENGER VEHICLES

Actual Predicted

Source: Commission's demand study.

H p

S

IMPORT

TABLE S.6 : PROJECTED SALES OF ALL PASSENGER MOTOR VEHICLES

1975 1976 1977 1978 1979 . 1980 1981 1982 1983 1984 1985

January )

February )

March )

April )

May )

June )

July

August

September

October

November

December

U2,815a

b

144,007

32,530 )

26,366 )

21,144 )

30,444 )

33,119 )

32,497 )

Year 432,922

)

87,838 102,835 113,051 120,786 125,214 )

)

)

108,307 120,063 130,398 137,823 142,436 )

)

)

120,073 130,783 140,866 148,751 152,971 )

)

)

122,614 133,152 142,470 149,692 154,230 )

„ )

438,832 486,833 526,785 557,052 574,851 590,011 607,235 622,590 638,195 653,088

a Actual registrations were 125,119

b Actual registrations were 130,719

Note that the actual registrations (which were supplied by the Statistician) do not correspond with figures published in the Preliminary Monthly Registrations bulletins. The former figures relate to actual registrations in each month whereas the latter figures relate to registrations recorded in each month.

Source: Commission's demand study.

M O T O R V E H I C L E S - I M P O R T R E S T R I C T I O N S

P a g e 12 o f A P P E N D I X 8

Forecasts by Witnesses

Forecasts of demand for passenger arid light commercial vehicles

were generally within the ranges given below.

Demand ('000 vehicles)

1974

(actual)

1975 1976 1977 1978 1979 1980

Passenger Vehicles 474 450-495 442-510 477-530 491-550 507-573 515-595

(cf, I,A,C. model) (433) (439) (487) (527) (557) (575)

Light Commercials a .93 84-92 85-97 92-102 96-105 99-108 104-113

a Forecasts supplied by witnesses include some commercial vehicles not under reference.

While estimates of total market growth are reasonably consistent,

views on the extent to which the trend to light vehicles will continue are not:

(a)

Composition of Demand (per cent)

1974 1975 1977 1980

Small light cars

Manufacturers' estimates

(Actual)

23

22-30 23-32 25-35

Assemblers estimates (b) 15-29 16-33 17-37

Importer's estimate 24 27 28

Large light cars

Manufacturers' estimates

28

21-36 21-40 22-45

Assemblers'estimates (b) 22-32 34-36 37-39

Importer's estimate 33 37 38

Medium and Upper Medium Cars

Manufacturers' estimates

46

34-48 40-48 23-43

Assemblers'estimates (b) 32-49 27-46 12-43

Importer's estimate 43 37 35

Luxury/Specia1ty vehicles

Manufacturers' estimates

2

3-8 3-7 3-5

Assemblers' estimates 4-9 4-11 4-11

Importer's estimate (c) (c) (c)

(a) Care needs to be taken in interpreting this table as not all estimates provided by witnesses can be assembled in this standard format. Large differences between 1974 actual figures and 1975 estimates may indicate a presentation problem.

(b) Includes forecasts by Leyland (c) Included in medium

MOTOR VEHICLES - IMPORT RESTRICTIONS

The Commission doubts that the very low estimates supplied by

some witnesses for the size of the market for medium category cars are

realistic. A significant proportion of sales of medium category vehicles are

"fleet" sales. The Commission received evidence indicating that there had

been no significant swing away from the medium sector to the large light

sector in purchases by fleet buyers. This may indicate that the

swing from the medium sector to the large light sector may not be as marked

as some witnesses have suggested.

One difficulty in using these vehicle categories to depict changes

over a number of years is that the meaning of the categories tends to change.

For example,part of the recorded growth in the large light sector may result

from allocating to the large light sector in 1975, vehicles very similar

to those allocated to the medium sector in earlier years.

Page 13 of APPENDIX 8

Forecasts used in the Commission's Projections of Production and Employment

In its projections of production and employment the Commission

has assumed a market of:

1974

(Actual)

1975 1976 1977 1978 1979 1980

Passenger Vehicles 474 450 450 480 510 530 550

Commercial Vehicles 74 72 73 78 81 84 88

Total 548 522 523 558 591 614 638

Market forecasts derived using the Commission's model have not been used

as major manufacturing witnesses generally consider the forecast of 1976 sales

too low, and 1980 sales too high. In projecting employment to 1980, the

Commission has considered it prudent that projections should understate

employment prospects rather than overstate them.

24296/75— L