Oz Leans Toward Cutting Aid, Lessening Chances Toyota Will Stay

The chance Toyota will remain a local vehicle manufacturer has become dimmer with the Australia’s Productivity Commission’s latest report concluding arguments supporting public subsidies for the industry are weak and the wider community would be better off if government aid ended

Deputy Chairman Mike Woods says the commission’s draft proposal recommends no further industry-specific funding beyond 2020.

“The commission opposes a supplementary rescue package for Toyota and component manufacturers,” Woods says in a statement. “Governments could better assist firms by undertaking broad-based economic and regulatory reforms and removing impediments to greater workplace flexibility.”

The Federal Chamber of Automotive Industries says the report is disappointing if not unexpected.

“It is unsurprising to note that the PC again runs the same argument it always runs – that the world would be a better place if only the Australian government didn’t support the automotive industry,” it says in a statement.

But despite its stance, the commission says any significant or uneven reduction of subsidy funding in the next few years could elevate risks of earlier closures by Ford and GM Holden and increase adjustment costs throughout the supply chain, especially where firms close at short notice.

It also might negatively affect investment decisions by Toyota and its component suppliers, the agency admits.

The government asked the commission to review aid to the industry in October after Ford announced it would end local production in 2016 but before GM Holden said it would stop in 2017.

Toyota will decide by midyear on the future of its local production.

“The policy rationales for specific assistance to automotive manufacturing are weak,” the commission says. “The community would benefit from the ending of assistance to automotive manufacturing through the Automotive Transformation Scheme.

“There is no compelling evidence that spillover and multiplier benefits exceed the costs of assistance to the industry.

Decades of transitional assistance have forestalled but not prevented the structural adjustment now being faced by the industry, it says.

“Current government funding should be reassessed to determine when subsidies should end, and whether to change the timing and amount of funding withdrawn from the ATS.

“ATS funding for Toyota and other eligible businesses should cease in 2020, and not be extended or replaced with other specific assistance.”

In terms of supporting workers who will lose their jobs, the commission's preliminary view is that generally available welfare, employment and training services should be relied on in the first instance, provided those services are adequately resourced.

“Infrastructure stimulus programs need to demonstrate a net benefit or else could end up being costly exercises,” Woods says. “And schemes that divert valuable labor and capital from one subsidized industry to others represent a lost opportunity for our economy.”

The commission is calling for comment on its findings, and public hearings will be held in late February before it submits its final report to the government by March 31.

The FCAI accuses the commission of selective analysis, calling the report extremely disturbing.

It complains the agency did not address subsidies provided by other countries, even though its terms of reference required it to take into account the assistance provided to the automotive industry by major and emerging automobile-producing countries.

“It is extremely disappointing that the PC considered this was ‘not feasible for this inquiry,’ despite the 19 pages at Appendix B on international assistance arrangements that shows the extensive levels of assistance used by governments around the world to support their local industries,” FCAI says in a statement.

“Why does almost every other G20 country think their automotive industry is an important part of their economy and their future?”

Meantime, federal Employment Minister Eric Abetz says the government will intervene in a bid by Toyota Australia to cut entitlements for its employees.

The Australian newspaper reports the government notified the Federal Court it will support an appeal by Toyota to overturn an earlier court decision stopping the company from introducing changes to its contract with the Australian Manufacturing Workers Union.

Abetz says the government is greatly concerned that unions and employers inserted "unproductive and expensive clauses" into contracts, particularly when the taxpayer was subsidizing the sector.

He points to a clause that gives Toyota employees a half-day's leave on the last day before a plant shut down, saying this led to 1,586 working days lost, or about A$370,000 ($322,284) in wages paid with no work performed. If all the 69 union delegates took up their entitlement to training, he says, there would be 690 work days lost.

“These are just two instances of how more than 2,000 working days’ worth of productivity could be re-injected into Toyota immediately,” Abetz says.

The AMWU says it will not tolerate the government’s attempts to shift the blame for the problems besetting the Australian automotive industry on to workers.

National Secretary Paul Bastian says in a statement that given the attempts by Treasurer Joe Hockey and Industry Minister Ian Macfarlane to lay the fate of the entire industry on workers, it is no surprise Abetz has decided to join Toyota in the court appeal to force cutbacks to conditions in the union agreement.

Bastian says the solution to Toyota’s productivity concerns will not be decided in court, but when the company decides to sit down with the AMWU and be transparent about its plans and all the cost factors of its Australian operations.

Workers are being asked to make sacrifices without anything in return, including job security, he says.

“This is symptomatic of a wider Coalition (government) view that the only way to improve productivity is through cutting wages and conditions and driving down the living standards of working people,” Bastian says.