Government Role Crucial to Australian Auto Industry, GM Holden Exec Says

Australia can be part of “the golden age of manufacturing,” but only if the auto industry continues to receive government funding, a top automotive official says.

Mike Devereux, Federal Chamber of Automotive Industries president and GM Holden chairman and managing director, tells the National Press Club in Canberra the current level of government assistance is not enough to attract the next round of long-term investment from automotive parent companies in the U.S. and Japan.

Losing the local car industry, he says, would mean walking away from exports worth A$3.6 billion ($3.7 billion) a year; 59,000 immediate jobs and more in supporting industries; billions of dollars in tax revenue and wages and salaries pumping into the economy each year; and billions of dollars in research and development for many years to come.

“What is absolutely critical is long-term policy certainty, clarity, consistency and competitiveness,” Devereux says according to an FCAI transcript of the speech. “We can’t establish long-term co-investment plans only to pull the rug out from under companies halfway through decade-long product-development and investment cycles.”

Devereux, the first auto industry executive to address the press club in nearly 30 years, says Australia stands at a fork in the road and must invest in the country’s capability to design, engineer and build if it wants to have a strong, “knowledgeable economy.”

“If we give up on manufacturing capability, we mortgage our future for the things we can’t even imagine today,” he says.

However, the real competition in the country’s automotive industry is overseas. “It’s not about Holden vs. Toyota vs. Ford vs. importers. It’s about how each of us convince our parent companies to invest right here in Australia,” Devereux says.

“When we compete to design, engineer or build a new model in this country, we’re not competing with rival brands; we’re competing with rival countries.”

There are 13 nations currently manufacturing vehicles and many more that want to be producers and will offer whatever it takes to attract investment, because they understand what that means for education, employment and innovation, Devereux says.

“And where this billion-dollar, capital-intensive industry exists, one of two things happen – government protection or government investment – and sometimes both.”

This is particularly important because Australia is one of the most open car markets in the world, he says. Vehicle tariffs average about 3.5%, down from more than 30% in 1990s.

This compares with passenger-car tariffs of 10% in the European Union and U.K.; 25% in China; 60% in India; 30% in Malaysia; 8% in South Korea; and 30% in Russia, plus an additional 18% value-added tax on imports, Devereux says.

Car tariffs in the U.S. are 2.5% and light-commercial vehicles are 25%, while in Thailand they are a staggering 80%. Brazil’s base tariff rate is 35%, but there is an additional Industrial Products Tax that mainly applies to imported vehicles.

In recent months, Brazil has increased the IPT, which acts as a non-tariff trade barrier, from about 25% to as high as 55%.

“Holden has an export program to Brazil, where the Commodore is sold as a top-of-the- range Chevrolet Omega,” Devereux says. “The new (IPI) added around A$9,000 ($9,185) to the retail cost of the car overnight. This sort of imposition makes it extremely difficult to compete, and we’ve been forced to review the future of this export program.”

Every country with an auto industry has taken direct action to make it more attractive to potential investors. Some have offered tax holidays, some have offered investment incentives and some have increased trade barriers, he says.

“Australia’s long-term policy to open this market, increase competition and force local car makers to be even more competitive has absolutely achieved its objectives. We innovated; we got flexible; we got competitive, incredibly competitive.”

Indeed, Australia has more than 60 automotive brands in a market of just 1 million annual new-vehicle sales, compared with Japan’s 33 in a market of 5.8 million units and import penetration as low as 5%, Devereux says.

The U.S. has 32 brands, competing in a market that has seen sales as high as 17.3 million units. Europe has 70 brands in a region more than 15 times the size of Australia.

“We compete for investment with other countries that understand the importance of this investment,” Devereux says. “Government investment, or intervention, should not be a dirty word.”

He cites Australia’s Green Car Innovation Fund, where OEMs can apply for co-investment funding on a 3:1 ratio to bring new, more-sustainable products, technologies and processes to the local industry.

“There is a guaranteed return on investment; there is job retention and growth; there is a direct link to innovation and efficiency,” he says.

A healthy automotive-manufacturing industry is a key driver of innovation and national strategic capability, he says. For example, Australia’s car industry is developing new technologies, state-of-the-art manufacturing skills and growing energy industries to help solve issues such as climate change.

“There’s no silver bullet here or in any other market when it comes to the environment,” Devereux says. “We need to pursue a range of options, including electrification, but we also need real-world solutions today to support the way Australians really live.”

It perplexes him when, after 27 years in automotive, he hears people describe the industry as a dinosaur.

“Australia’s auto industry is anything but prehistoric,” Devereux says. By the end of next year, about 30 new environmentally friendly vehicles will be on sale in Australia, giving drivers a choice between all-electric, hybrid, liquefied-propane gas, diesel or ethanol.

One of those cars is Toyota’s Camry hybrid sedan. Devereux says the decision to bring the first locally made hybrid to Australia was doubly significant because the Oz subsidiary had to persuade the Japanese parent to relocate production from Thailand – no small feat.

“Importantly, local production of the Hybrid Camry helped Toyota secure local production of their next-generation 4-cyl. (gasoline) and hybrid engines,” he says. “This investment helped their supply base develop new hybrid skills and knowledge, and also added some much-needed incremental volume for the industry.”

Ford and GM Holden are building considerable capability in alternative fuels, such as LPG and ethanol, which highlight the flow-on benefits of local manufacturing from building and supporting local industries.

Devereux says manufacturing, more than any other sector, creates jobs. For example, Toyota’s local production has played an important role in securing the future of automotive-glass manufacturing in Australia. Without federal and Victorian state support, these capabilities would have been lost to overseas.

“In the case of the new locally made Holden Cruze small car,” he says, “our preliminary economic modeling shows making this vehicle in Australia, instead of importing it from GM Korea, injects A$230 million ($236 million) a year into the Australian economy.”