review of australia’s automotive industry...the review confirmed the importance of the automotive...

Review of AustrAliA’s Automotive industry

FinAl report22 july 2008

© Commonwealth of Australia 2008

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Disclaimer

The material contained within this document has been developed by the Review of Australia’s Automotive industry. The views and opinions expressed in the materials do not necessarily reflect those of the Australian Government or the Minister for innovation, industry, Science and Research. The Australian Government and the Review of Australia’s Automotive industry accept no responsibility for the accuracy or completeness of the contents, and shall not be liable (in negligence or otherwise) for any loss or damage (financial or otherwise) that may be occasioned directly or indirectly through the use of, or reliance, on the materials.

furthermore, the Australian Government and the Review of Australia’s Automotive industry, their members, employees, agents and officers accept no responsibility for any loss or liability (including reasonable legal costs and expenses) or liability incurred or suffered where such loss or liability was caused by the infringement of intellectual property rights, including moral rights, of any third person.

22 July 2008

Senator the Hon Kim CarrMinister for innovation, industry, Science and ResearchParliament HouseCANBeRRA ACT 2600

Automotive Review Secretariat

industry House, 10 Binara StreetCANBeRRA CiTY ACT 2601

GPo Box 9839Canberra ACT 2601 Australia

email: [email protected]: www.innovation.gov.au/automotivereview

dear minister

i am pleased to submit my report on the Review of Australia’s Automotive industry.

This Review, commissioned by you on behalf of your Government, comes at a crucial time for automotive production in Australia.

A time when the industry is under considerable pressure due to a combination of externalities including the appreciation of the Australian dollar, higher fuel costs, cleaner emission requirements and intense worldwide competition.

Despite these challenges, the industry has been transforming into a more globally integrated and competitive one. This Review, therefore, recommends that the process of transformation continues through a new transition phase with the ultimate aim of achieving economic and environmental sustainability by 2020.

in particular, the Review recommends considerable new opportunities for Australia’s automotive industry in new cleaner-emissions technology.

To that end, one of the key recommendations of this Review is the bringing forward and doubling of the Green Car innovation fund combined with the inclusion of transportation in any new emissions trading scheme.

These two initiatives should result in Australia’s automotive industry changing vehicle production capacity to become more fuel-efficient, lower Co2-emitting and more internationally focused.

Additionally, this Review recommends considerable change to the existing transitional arrangements, while continuing with a lower tariff regime.

in particular, the Review recommends that the existing Automotive Competitiveness and investment Scheme be reformed into a new Global Automotive Transition Scheme, which supports greater innovation through enhanced research, development and design.

The new scheme also provides a mechanism to support structural adjustment in the Australian automotive supply chain in order to move towards supply arrangements that are more reliable and consolidated. This should, in appropriate circumstances, include fair and reasonable structural adjustment assistance for displaced automotive employees.

The emphasis on exports of assembled vehicles and component parts is also reinforced, noting that the Australian automotive industry is crucial to our worldwide trading position.

The Review confirmed the importance of the automotive industry to Australia’s economy. for example, automotive product exports in 2007 were $4.7 billion—establishing the industry amongst Australia’s top 10 export earners and the largest exporter of elaborately transformed manufactures. The industry earns more export income than more traditional industries such as wine, wheat and wool.

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The automotive industry is also a major investor in innovation, accounting for nearly 17 percent of all manufacturing business expenditure on research and development (R&D). in addition, the R&D intensity of the industry is around three times higher than for manufacturing as a whole and around nine times higher than for the economy. This is a key element to sustaining an internationally competitive industry based on high skills and high-wage jobs.

Australia is one of only 15 countries with the capability to take a car from concept all the way to full production. This capability encompasses strong skill sets in R&D, design, engineering, product and process development, and advanced manufacturing. The industry is also well placed to take advantage of its proximity to Asia, particularly China and india, which are expected to be major contributors to the growth in light vehicle production and sales.

The industry has important links to the rest of the economy, and supports Australia’s capabilities in designing and manufacturing elaborately transformed goods. for example, the advanced manufacturing sector relies on the capital investment by the vehicle manufacturers and major Tier 1 companies, while other manufacturers are heavily reliant on the skills and expertise of the automotive component sector. without this skills base, industries such as the truck industry would struggle to manufacture locally. This could be to the detriment of other important sectors such as transport and resources.

The Review benefited from consultations with stakeholders and with the leaders of other concurrent reviews. The latter included Dr Terry Cutler, Professor Ross Garnaut, Professor Roy Green and Mr David Mortimer Ao.

in concluding, i would like to thank the Review’s expert Panel members—Mr Tim Harcourt, Mr Peter Upton, Dr elizabeth webster and Mr Nixon Apple—for their important contribution and assistance in preparing this report. The support provided by the innovation Department’s secretariat was also invaluable. furthermore, i would like to thank all those individuals, organisations and companies that made submissions to the Review, as well as the Productivity Commission which modelled the economy-wide effects of future assistance arrangements. These proved very helpful to the Panel in assessing the merits of various policy options.

yours sincerely

Hon steve Bracksleaderreview of Australia’s Automotive industry

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TeRMS of RefeReNCe vii

Review leADeR’S SUMMARY 1

RePoRT STRUCTURe AND SUMMARY of ReCoMMeNDATioNS 3

1. THe AUSTRAliAN AUToMoTive iNDUSTRY 9

2. oUTlooK foR THe AUSTRAliAN AUToMoTive iNDUSTRY 19

3. THe GloBAl AUToMoTive iNDUSTRY 25

4. CURReNT AUSTRAliAN AUToMoTive PoliCY ARRANGeMeNTS 31

5. iNTeRNATioNAl AUToMoTive PoliCieS AND ASSiSTANCe ARRANGeMeNTS 37

6. iNNovATioN 41

7. MARKeT ACCeSS 49

8. eNviRoNMeNT 59

9. ReSTRUCTURiNG THe AUSTRAliAN AUToMoTive iNDUSTRY 75

10. veHiCle SAfeTY 87

11. fUTURe AUToMoTive ASSiSTANCe ARRANGeMeNTS 91

APPeNDixeS A–N CoNTeNTS 101

ABBReviATioNS AND DefiNiTioNS 183

RefeReNCeS 185

Contents

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1. TheAustralianautomotiveindustryplaysanimportantroleinemployment,exportsandinnovationintheAustralianeconomy.inparticular,innovationintheautomotiveindustryresultsinsignificantspillovereffectsacrosstheeconomy,andparticularlythemanufacturingsector.inthiscontext,theAustralianGovernmenthascommissionedahighlevelreviewpaneltoconductareviewoftheautomotivesector,inconsultationwithabroadrangeofindustrystakeholders.Thisreviewistotakeplaceconcurrentlywithawide-rangingreviewofAustralia’snationalinnovationsystemandshouldhaveregardtotheissuesraisedinthatreview.

2. TheReviewwillbearinmindtheGovernment’sdesire:

a. foraninternationallycompetitiveandgloballyintegratedautomotivemanufacturingsector;and

b. tooptimisetheoveralleconomicperformanceoftheAustralianeconomy,includinglimitingpriceimpactsonAustralianconsumersandbusinesses.

3. TheReviewistoreportonkeyoutcomesofthecurrentpolicysettingsfortheautomotivemanufacturingsector,including:

a. anevaluationofthekeyoutcomesoftheAutomotiveCompetitivenessandinvestmentScheme(includinganassessmentoftheimpactsoneachofthefourcategoriesofparticipantsintheScheme);

b. anassessmentofthelegislatedpassengermotorvehicletariffreductions,takingintoaccounttheglobalautomotivesectorandgeneraltradeenvironment;and

c. anassessmentofcurrentandprospectivetradeobligationsarisingfromAustralia’smultilateral,regionalandbilateralcommitments.

4. TheReviewwillevaluatetheappropriatenessoftheAutomotiveCompetitivenessandinvestmentScheme(ACiS)inthecurrentcompetitiveenvironmentinrelationto:

a. thepossibleretargetingofassistancewithinACiS;and

b. investigating,identifyingandevaluatingpossiblealternativeassistancemechanisms,consistentwithAustralia’sinternationaltradeobligations.

5. TheReviewwillalsomakeanassessmentofthechallengesandopportunitiescurrentlyfacingthesector,includinghowthosechallengesandopportunitiesmightimpactonthelong-termviabilityandsustainabilityofthesector.inmakingthisassessment,theReviewshouldtakeaccountoffactorssuchas:

a. thestrengthsandweaknessesofthesector;

terms of reference for the review of australia’s automotive industry

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b. recentdevelopmentsandexpectedfuturedevelopmentsandconditionsintheglobalautomotivesector,including:

i. opportunitiesfor,andbarriersto,enhancedglobalintegration;

ii. competitionforinvestmentintheglobalsector;and

iii. progressontradeliberalisation(includingfreetradeagreements)intheautomotivesectorinbothexistingandprospectiveexportmarketsforAustralia.

c. theimpactofclimatechangeandchangingconsumerpreferencestowardslowemissionsandfuelefficientvehicles;and

d. otherpossiblehindrancestotheviabilityofthesectoronboththedemandandsupplysides,suchasexchangerates,petrolprices,skillshortagesandotherenvironmentalissues.

6. TheReviewwillmakerecommendationsonanyoftheissuesidentified,including:

a. measurestoboostinnovationinthesectorandtotakeadvantageofthehighlyinnovativenatureoftheautomotiveindustry;

b. measurestoensurethatsuitablyskilledpeopleareavailableandthatfairworkingpracticesareguaranteed;

c. theimpactofclimatechangepolicyontheautomotiveindustry;

d. thedeliveryoftheAustralianGovernment’sGreenCarinnovationfundfrom2011;

e. facilitatingleadershipamongAustralianautomotiveproducersandcomponentsuppliersindevelopingandadaptingfuelefficienttechnologiesandknow-howintheproductionofmotorvehiclesinAustralia;and

f. improvingAustraliancompanies’accesstoglobalsupplychainsandexportmarkets.

7. TheReviewistoprovideaninterimreporttotheGovernmentby31March2008andafinalreportby31July2008.

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TheAustralianAutomotiveReviewispredicatedonprovidingadvicetotheFederalGovernmentonmeasuresrequiredtoachieveaneconomicallyandenvironmentallysustainableAustralianautomotiveindustry.

TheAustralianautomotiveindustryhasbeentransformedtoamoregloballyintegratedandcompetitiveindustry.

ThistransitionneedstobeenhancedandadvancedsothattheAustralianautomotiveindustryachieveseconomicandenvironmentalsustainabilityby2020.Indoingso,theindustrywillcontinuetoprovideAustralia’slargestnon-resourceexportproduct.

Toachievetheseaims,theReviewcontinuesthepolicysettingsoverthelasttwodecadesofphasingdowntariffsupport,encouragingincreasedexportsandenhancinginnovationthroughmoreeffectiveresearch,developmentanddesign.TheReviewalsotakesaccountofthesignificantlychangedconditionssince2002duetotheappreciationoftheAustraliandollar,higherfuelcosts,cleaneremissionrequirementsandnewfreetradeagreements.

Thenewrecommendationsacknowledgethesechangesand,asaconsequence,proposenewtransitionalarrangementstoenabletheAustralianautomotiveindustrytobeworld-competitiveandviable,including:

replacingtheAutomotiveCompetitivenessandInvestmentScheme’sproductionvolumesubsidywitha�newGlobalAutomotiveTransitionSchemedesignedtosupportresearch,development,designandexportwhileassistingintherestructureoftheAustraliansupplychaintobemorecompetitiveandreliable;

bringingforward,anddoublingto$1billionifsuccessful,theGreenCarInnovationFundand�recommendingguidelinesforthetotalsupplychain(nationallyandinternationally)andresearchinstitutionstodevelopgreencarinnovationtechnologies;

encouragingtheAustralianGovernmenttoincludetransportation(includingfuel)inanemissionstrading�scheme,furtherenhancinggreencartechnologies;

reducingthepassengermotorvehicletariffto5percentby2010,makingAustraliancartariffsthethird-�lowestamongstmajorautomotive-producingeconomiesintheworld(andwithanimport-weightedtariffrateofbetween3and4percent);

encouragingexpandedfreetradeagreements,particularlywiththeGulfStates,theAssociationof�SoutheastAsianNationsandSouthAfrica;

expandingoverseasmarketsthrougha‘TeamAustralia’approachusingeminentautomotiveambassadors;�

review leader’s summary—review of australia’s automotive industry

2| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |3

harmonising,andinsomecasesreducing,passengermotorvehicletaxes,includingstatestampdutyand�vehicleregistrations,whileencouraginggovernmentstosupportanenvironmentallysustainableAustralianindustry;and

establishinganewAutomotiveIndustryInnovationCounciltoprovideadviceandoversightinrelationto�thenewtransitionalarrangementsandincludingareferencegroupprovidingadviceonautomotiveskillsmatterstoManufacturingSkillsAustralia.

TheReview’srecommendationsarepredicatedonchangingthebehaviourofautomotivefirmsandtheindustrytomakethemmorecompetitiveandbetterabletomeetglobalchallenges,includingthemovetoalowercarbonenvironment,overthelongterm.

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report structure and summary of recommendations

Structure of thiS reportThisAustralianAutomotiveReviewreportisstructuredasfollows:

Chapters1to6examinetheexistingAustralianandglobalautomotiveindustries,includingcurrent�industryassistancearrangementsandsupportforinnovation.ThesechapterscontainfindingsbytheReviewbutnorecommendations.

Chapters7to11addressproposedfuturearrangementstoassisttheAustralianautomotiveindustry.�Thesechaptersalsoaddresscurrentandproposedmarketaccess,environmentalissues,industryrestructuringandvehiclesafetyarrangements.Theycontainbothfindingsandrecommendations(exceptChapter11,whichcontainsrecommendationsonly).

TheReview’srecommendationsaresummarisedbelow.Tofacilitateanunderstandingofthemasa�comprehensivepackageoffutureautomotiveassistancemeasures,theyaregroupedunderthematicheadingsandnotnecessarilybychapter.

AppendixesAtoNsupplementinformationcontainedinthemainbodyofthereport.�

thematic Summary of recommendationS

AnewGlobalAutomotiveTransitionScheme(Chapter11)

Anew,retargetedtransitionalprogramtitledtheGlobalAutomotiveTransitionSchemeshouldbe�legislatedin2009andcommencein2010.TheGlobalAutomotiveTransitionSchemewouldcomplement,andbeadditionalto,theAustralianGovernment’sGreenCarInnovationFund.

TherearethreeoptionsforfundingtheGlobalAutomotiveTransitionSchemeandothermeasures�recommendedinthisreport.Theseare:

option1:� FundingfortheGlobalAutomotiveTransitionSchemeoverthefiveyearsto2015(inclusive)shouldbe$1.5billionincappedassistance.Anadditionaltrancheoffundingof$1billionincappedassistanceshouldbeprovidedfrom2016to2020,withthisfront-loadedandreducingtozero.

Thefundingalsocoverstheindustryrestructuringfund,TeamAustraliaAutomotive,the–AutomotiveAmbassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

TheGreenCarInnovationFund,worth$500million,shouldbebroughtforwardto2009.–

4| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |5REPoRTSTRUCTUREANDSUMMARYoFRECoMMENDATIoNS

option2� :FundingfortheGlobalAutomotiveTransitionSchemeoverthefiveyearsto2015(inclusive)shouldbe$1.5billionincappedassistance.Anadditionaltrancheoffundingof$1billionincappedassistanceshouldbeprovidedfrom2016to2020,withthisfront-loadedandreducingtozero.

Thefundingalsocoverstheindustryrestructuringfund,TeamAustraliaAutomotive,theAutomotive–Ambassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

FundingfortheGreenCarInnovationFundshouldbebroughtforwardto2009and,ifsuccessful,the–Fundshouldbedoubledfrom$500millionto$1billionandextendedbeyonditsinitialfiveyears.


Afurthertrancheoffundsshouldbemadeavailabletocovertheindustryrestructuringfund,Team–AustraliaAutomotive,theAutomotiveAmbassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

FundingfortheGreenCarInnovationFundshouldbebroughtforwardto2009and,ifsuccessful,the–Fundshouldbedoubledfrom$500millionto$1billionandextendedbeyonditsinitialfiveyears.

the review recommends option 3.

otherrecommendedcomponentsoftheGlobalAutomotiveTransitionSchemeare:�

Fundingforboththemotorvehicleproducersandthesupplychainshouldbesplit55percent�(tovehicleproducers)and45percent(tothesupplychain)aftermoniesfortheadditionalprogramsareeitherdeductedfromthecappedpoolorallocatedseparatefunding.

Assistanceshouldbeintheformofgrantsandnotdutycredits.�

Creditsfortheproductionofvehiclesfordifferentmarketsshouldbetreatedthesame,bypartially�uncappingallproductioncredits.

Thedependencythresholdforthecomponentsuppliersshouldberaisedto$2milliontofacilitatethe�rationalisationoftheindustry.Automotiveserviceprovidersandautomotivemachinetoolproducersshouldcontinuetomeetthelowerthresholdof$500,000.

TheloadingsapplyingunderthepreviousAutomotiveCompetitivenessandInvestmentSchemefor�supplychaininvestmentshouldbeabolished.

Thelistofeligibleresearchanddevelopment(R&D)activitiesshouldbestreamlinedandexclude�paymentsforrecruitmentandmanagement.

TherateforclaimsforinvestmentineligibleR&Dshouldbeincreasedfrom45to50percent.�

Therateforclaimsforinvestmentinplantandequipmentshouldbereducedfrom25to15percent.�

Firmsthathavenotparticipatedinasupply-chaincapabilitydevelopmentprogramshouldparticipate�insuchaschemeinreturnforreceivinggovernmentassistance.FundingfortheprogramshouldbeprovidedbytheAustralianGovernmentwithcontributingpaymentsfromthefirmsthemselves.ThesuppliercapabilityprogramshouldnotbelimitedtoparticipationinAutomotiveSupplierExcellenceAustralia,butalsoincludeotherserviceproviderssuchasEnterpriseConnect,C21andthemotorvehicleproducers’suppliercapabilityprograms.

AnAutomotiveIndustryInnovationCouncilshouldbeestablished,withhighlevelrepresentationfrom�themotorvehicleproducers,componentsuppliers,unions,researchandacademicorganisations,andgovernment.

TheAutomotiveIndustryInnovationCouncilshouldprovideadviceandoversightinrelationtothenew�transitionalarrangementsapplyingtotheindustry.


AdministrativeexpensesandsecretariatsupporttotheAutomotiveIndustryInnovationCouncilshould�befundedundertheGlobalAutomotiveTransitionScheme.

TheAutomotiveIndustryInnovationCouncilshouldincludeareferencegroupthatprovidesadviceon�automotiveskillsissuestoManufacturingSkillsAustralia(theIndustrySkillsCouncilhavingprimarycarriageformanufacturingindustryskillsdevelopment).

Australia’sfutureautomotivetariffs(Chapter11)

Thepassengermotorvehiclesandpartsthereoftariffsshouldbereducedfrom10to5percenton�1January2010.This,combinedwithassistanceundertheGlobalAutomotiveTransitionScheme,willhelpdeliverbenefitstotheeconomyaswellascontinuingtoprovidetransitionalsupportfortheindustry.

RestructuringtheAustralianautomotiveindustry(Chapter9)

TheAustralianGovernmentshouldcontributetoashort-termautomotiveindustryrestructurefundthat�aimstoassisttheAustralianautomotivesupplychainimproveeconomiesofscale,enhancemanagementcapabilities,internationaliseproductiontobuildcapacityanddemand,andenhancelong-termsustainability.

FundingfortheindustryrestructurefundshouldbepartofthenewGlobalAutomotive�TransitionScheme.

Paymentsundertheindustryrestructurefundshouldbedeterminedonacase-by-casebasisby�theresponsibleMinister,onadvicefromhisorherdepartment,takingintoaccount‘transmissionofbusiness’issuesincludingfacilitatingmergersandacquisitionsinthesector;addressing,whereappropriate,contingentliabilityorotherissuesthatmightactasbarrierstoeffectiveandsuccessfulsectoralconsolidation;consolidationofplantandequipment;andco-locationofproduction.Whereappropriate,fairandreasonableassistanceshouldalsobemadeavailabletoemployeesmaderedundantthroughautomotiverestructuring.

TheindustryrestructurefundshouldincludesupportfordevelopingtheAustralianautomotivesupply�chain’smanagementandoperationalcapabilitiesandprocesses(similartoAutomotiveSupplierExcellenceAustralia,C21andotherexistinginitiatives).

Governmentfundingfortheindustryrestructurefundshouldbeofalimitedamountandduration(for�example,$60to$80millionovertwoyears)tocovertheimmediaterestructuringandconsolidationneedsoftheautomotiveindustry.

Theautomotiveindustryshouldcontributefinanciallytotheactivitiessupportedbytheindustry�restructurefund.

Theautomotiveindustry,unions,employeesandgovernmentsshouldengageinanongoingdialogueso�thattherestructuringandconsolidationprocessiseffectiveinhelpingwithanorderlytransitiontoamorecompetitiveandsustainablefuturefortheindustry.

Amemorandumofunderstandingshouldbenegotiatedbymotorvehicleproducers,component�suppliersandunions,andbefacilitatedbygovernmentswhereappropriate.Thememorandumofunderstandingshould:

acknowledgethatrestructuringandconsolidationareanecessarypartofassuringavitalAustralian�automotiveindustryintothefuture;and

assistwithassuringcontinuityofsupplyinanindustrycharacterisedbyjust-in-timedeliveryandhigh�levelsofinternationalcompetition.

Theleadershipdialoguebetweenthecomponentsectorandunionsshouldcontinue.�

Whetherthistranslatesintoaframeworkagreementisamatterfortheparticipants.However,there�arebenefitstobegainedfromasharedunderstandingofthechallengesthatlieaheadandtheneedforimprovementsincompetitivenessandproductivity.

Theissueofemployeeentitlementsisalsoamatterwherealeadershipdialoguecanassistthe�participantstomoreeffectivelymanagetherestructuringprocess.


Toassistwithresolvingskillsissuescommonacrosstheautomotiveandothermanufacturingindustries,�theAustralianGovernmentshouldestablishareferencegrouptoprovideadviceonautomotiveskillsissuestoManufacturingSkillsAustralia.

ThereferencegroupshouldcomeundertheAutomotiveIndustryInnovationCouncil.�

TheGreenCarInnovationFund(Chapter8)

TheGreenCarInnovationFundshouldassisttheAustralianautomotiveindustrywithdevelopingand�commercialisingtechnologiesaimedatimprovingvehiclefuelefficiencyandemissions.ThecombinationoftheFundwithanemissionstradingschemewilldrivepositiveinnovationandenvironmentaloutcomesfortheeconomyandtheindustry.

Inpreparationforanemissionstradingscheme,thestartdateoftheFundshouldbebroughtforward�to2009.

IftheFundprovessuccessfulinitsfirsttwoyearsofoperation,itsfundingshouldbedoubledfrom$500�millionto$1billionandtheschemeextendedbeyonditsinitialfiveyears.

BenefitsfromtheFundshouldbepaidascashgrants,followingacompetitiveselectionprocessbased�onbroadcriteriathatassesstheinnovation,technological,commercialandenvironmentalmeritsofapplications.

Sinceautomotiveindustryinvestmentisoften‘lumpy’thereshouldbescopeundertheFundtovarythe�amountofFundpaymentsbetweenyears.

Thereshouldbescopetovarytheone-to-threedollarfundingratiowithinarange(forexample,one-to-two�dollarstoone-to-fourdollars)totakeaccountofvaryingriskprofiles.

Thereshouldbeamaximumlimitsetontheamountofsupportavailabletoanyonefundingrecipient.This�limitshouldbesetatahighlevelinordernottorestrictsignificantprojects.

Mandatoryanddiscretionarycriteriashouldbedesignedtoassessproposalsagainstamixofquantitative�andqualitativeaspects.Commercialapplicationoftechnologyshouldbeamandatorycriterion.

Allorganisationsandindividualsshouldbeeligible,includingparticipantsintheautomotivesupplychain,�researchorganisations,andinternationalfirmswhereeligibleactivitiesareperformedinAustralia.

Fundeligibilityshouldnotberestrictedtoanyparticularrangeofautomotivetechnologies.�

Emissionstradingandtheenvironment(Chapter8)

Roadtransport(includingfuel)shouldbeincludedintheemissionstradingschemeasitallowsthe�industrytodeterminethelowest-costformofemissionsabatement.Inthisrespect,futureconsiderationofmandatoryemissionstargetsfornewvehiclesshouldhaveregardtodevelopmentoftheemissionstradingscheme.

Iftheemissionstradingschemeexcludesroadtransport,thenamandatorygreenhousegasemissions�targetshouldbeintroducedasa‘secondbest’policy.

Thegrantforliquefiedpetroleumgas(LPG)unitsfittedatthetimeofmanufactureofavehicleunderthe�LPGVehicleSchemeshouldberaisedfrom$1,000to$2,000,provideditfacilitatestheuptakeofnewtechnologiesthatprovidesignificantlybettergreenhousegasemissionsoutcomesthancurrentlyfittedLPGtechnologies.

Improvingaccesstoglobalmarkets(Chapter7)

ThesuccessfulconclusionoftheWorldTradeorganizationDohaDevelopmentAgendashouldcontinueto�beaprincipalfocusofAustralia’stradenegotiations.

TheReviewofAustralia’sExportPoliciesandProgramsshouldgiveconsiderationtowaysofaddressing�beyond-the-borderissuessuchasnon-tariffbarriersaspartoffuturefreetradeagreementnegotiations.


Australiashouldcontinuetoenterintofreetradeagreementnegotiations.However,fromanautomotive�perspective,theseshouldbefocusedoncountrieswithwhichAustraliacandevelopitscompetitiveadvantageoroncountrieswhereveryhighbarrierstotradeexist.EconomiesuponwhichAustraliashouldfocusitsfreetradeagreementnegotiationsincludetheGulfCooperationCouncil,theAssociationofSoutheastAsianNationsandSouthAfrica.

Traderules,suchasrulesoforigin,should,whereverpracticable,beharmonisedacrossfreetrade�agreementstoreducecompliancecoststoindustry.

Awell-knownandrespectedindustryfigureorfiguresshouldundertakeanambassadorialrolefor�theindustry.

Thisshouldbecomplementedbymedium-termfundingfortheextensionofTeamAustraliaAutomotive�tonewandemergingmarkets,aspartoftheGlobalAutomotiveTransitionScheme.

DeliveryoftheTeamAustraliaAutomotiveinitiativeshouldbethroughacontestablegrantprocess,and�presentaunitedAustralianautomotivecapability(encompassingstategovernmentsupplychainandexportpromotionprograms)tointernationalmarkets.

Vehiclesafety(Chapter10)

VehiclesafetystandardsshouldadheretotheAustralianDesignRulesandbeuniformacrossallstates�andterritories.

AnychangestovehiclesafetystandardsshouldalsobeconsistentwithAustralia’sinternationalobligations�andnotimpactonmutualrecognitionmatters(andhenceriskmarketaccessrestrictionsforAustralian-madevehicles).

othermatters

AustraliangovernmentsshouldcontinuetoincludeAustralian-madevehiclesasamajorpartoftheir�purchasingpolicies,andshouldreinforcethisthroughathresholdagreementattheCouncilofAustralianGovernments.Thisshouldbesubjecttothelocalindustrycontinuingtoimprovegreenhousegasemissionsoutcomesthroughtheuptakeofvariousemissionsabatementtechnologies.(Chapter8)

TheHenryReviewoftaxationshouldconsidertheadoptionofanewfringebenefitstaxstatutoryratetable�thatismoreevenlyspreadacrosstherangeofkilometrestravelled.Thenewratetablewouldencouragedriverstousetheirvehiclesonlyasnecessary.(Chapter8)

AdialoguebetweentheAustralianandaffectedstateandterritorygovernmentsshouldoccurtoensure�thatinvestmentincentivesarenotoverlygenerousandthatthebenefitsexceedthecostsofprovidingsuchassistance.(Chapter11)

Statesandterritoriesshouldconsidertheharmonisationandreductionofstampduties,vehicle�registrationandcompulsorythird-partyinsurancetofacilitatethepurchaseofnew(ornewersecond-hand)vehiclestohelptoreducetheaverageageoftheAustralianvehiclefleet.ThiscouldbethroughforumssuchastheCouncilofAustralianGovernmentsortheCouncilfortheAustralianFederation.(Chapter11)

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IntroductIonTheAustralianautomotiveindustryhasundergoneextensivereform,especiallysincetheButtonPlanin1985,whentheindustrywasprotectedbyquotasandatariffof57.5percent.Theremovalofquotasandtheloweringofprotectionledtosomerationalisationoftheindustryandmadeimportsmoreaccessibletoconsumers.Thesereformshavealsomadetheindustrymoreinternationallycompetitiveandexportfocused.Forexample,exportsofautomotiveproductswerearound$4.7billionin2007,makingautomotiveoneofAustralia’stop10exportearners(andthelargestmanufacturingexportearner).Italsoplacestheautomotivesectoraheadofmoretraditionalexportssuchaswine,wheatandwool.

domestIc marketTheAustralianvehiclemarketisextremelycompetitive,witharound60modelsofmotorvehiclesavailableforpurchase.Inaddition,Australiahasoneofthemostopenautomotivemarketsintheworld.Table1.1showsthatin2005Australiahadthelowestproduction-to-salesratioofautomotive-producingcountries.ThisisareflectionoftheAustralianautomotivemarket’slowbarrierstoentry.

Table 1.1. Production and sales of vehicles in selected economies, 2005

Country Production* Sales

Production-to-sales ratio (%)

Australia 388,985 988,269 39.4

Brazil 2,528,300 1,631,217 155.0

Canada 2,687,892 1,630,142 164.9

China 5,707,688 5,758,189 99.1

CzechRepublic 604,930 175,868 344.0

Germany 5,757,710 3,614,898 159.3

India 1,642,070 1,439,613 114.1

Indonesia 500,710 533,841 93.8

Japan 10,799,659 5,750,750 187.8

Malaysia 563,408 551,042 102.2

Mexico 1,683,913 1,164,048 144.7

Slovakia 218,349 75,033 291.0

Republicof

Korea

3,699,350 1,142,562 323.8

SouthAfrica 515,635 564,974 91.3

Thailand 1,125,316 703,432 160.0

UnitedKingdom 1,803,049 2,825,686 63.8

UnitedStates 11,977,457 17,444,329 68.7

*Includesvehiclesmadeforexport.Source:Ward’s,WorldMotorVehicleData(2006).

Table1.1alsoshowsthatmanyhigh-wagedevelopedeconomiesarenetexportersofvehiclesandarethereforeinternationallycompetitive.Highwagesandinternationalcompetitivenesscanco-exist,asdiscussedunder‘Manufacturingcosts’laterinthischapter.

CHAPTeR1:The auSTralian auTomoTive induSTry

10| ReVIeWoFAUSTRALIA’SAUToMoTIVeINDUSTRY |11THeAUSTRALIANAUToMoTIVeINDUSTRY

In2007,theAustralianmarketrecordedsalesofoveronemillionvehiclesforthefirsttime.Thiswasa45percentincreaseinvehiclesalescomparedto1997anda27percentincreasecomparedto2002,1andcoincidedwiththeincreasingaffordabilityofvehicles.Sincethemid-1990s,realearningshaveincreasedatasignificantlyhigherratethanvehicleprices.2Thishasmeantthatsince1995theaffordabilityindexformotorvehicles(averageweeklyearningsdividedbytheconsumerpriceindexformotorvehicles)hasincreasedby84.8points.3Anothermeasureofincreasingaffordabilityisthat‘family6cars’(HoldenandFordsix-cylinderbasemodels)nowtake31.9averageweeks’earningstopayoff,comparedto41.6weeksin1995.4

Althoughvehicleaffordabilityhasrisen,theoperatingcostsofpassengervehicleshaveincreaseddramaticallyinthepastfewyears.Since2002therehasbeena400percentincreaseinthepriceofoil,fromUS$25perbarreltoUS$100perbarrel.5Thishascontributedtoa33percentincreaseinthepriceofpetrolinAustraliasince2004.6In2003–04,fuelaccountedfor24percentofanAustralianhousehold’stransportcosts,behindmotorvehiclepurchases(36percent),butaheadofregistration/insurance(17percent),othercharges(13percent),spareparts(5percent),publictransport(3percent)andfaresandfreight(2percent).7Itwouldbeexpectedthattheproportionofahousehold’stransportcostsaccountedforbyfuelwouldhaveincreased,asthepriceofpetrolhasincreasedatafargreaterratethanhouseholdincome.However,theriseinthepriceoffuelhasbeencushionedbytheappreciationintheAustraliandollar.

Shiftinconsumerpreferences

Therehasbeenasignificantchangeinthetypeofvehiclesdemandedbyconsumers.8Traditionally,theAustralianvehiclemarkethasbeendominatedbylargepassengercarsandvariants(forexample,HoldenCommodoreandFordFalcon)andlargemediumvehicles(suchastheToyotaAurionandCamry).Therehasbeenarecenttrendtowardssmaller,lowerfuelconsumptionvehicles(suchastheToyotaYarisandCorolla),luxurycars(suchasMercedesBenzandBMW)andsportsutilityvehicles

1 FederalChamberofAutomotiveIndustries,VFacts,FCAI,2007.2 AustralianAutomotiveIntelligence,AustralianAutomotive

IntelligenceYearbook2008,7thedn,RichardJohns,2008,p.55.3 ibid.,p.56.4 ibid.5 Fromthemid-1980sthroughto2002,theinflation-adjustedpriceof

oilwasgenerallyunderUS$25abarrel.6 FCAI,Submissiontothe2008AutomotiveReview,p.21.7 AustralianBureauofStatistics,HouseholdexpenditureSurvey,

Australia,DetailedexpenditureItems,2003–04,cat.no.6535.0ABS,Canberra,2006.

8 FederalChamberofAutomotiveIndustries,op.cit.

(SUVs)(whichrangeinsizefromtheSuzukiVitaraandToyotaRAV4throughtotheHummer).TherehasbeenasignificantsalessubstitutionfromlargeAustralian-madevehiclestoSUVs,eventhoughSUVsaregenerallylessfuelefficient.Thesetrendshaveimpactedonlocalvehicleproducers—themarketshareofAustralianmotorvehicleproducers(MVPs)fellfrom30percentin2002to19percentin2007.Thisfallcontinuedthroughthefirstseveralmonthsof2008,andwas17percentinMay2008.

Inaddition,whiletheAustralianautomotiveindustrycontinuestodominatesalesinthelargeandmediumcarmarket,thedomesticmanufacturers’shareofthismarkethasfallen—from95percentin2002to88percentin2007.ThesetrendsareshowninFigures1.1and1.2.

SalesofAustralian-madevehiclesarelargelydependentonprivateandgovernmentfleetsales.Lessthanone-quarterofAustralian-madevehiclesalesin2007weretoprivatebuyers.Thereisalsoagrowinglevelofsalestothebusinesssector.In2007,salestothissectoramountedto113,807,ornearly56percentoftotalAustralian-madevehiclepurchases(Figure1.3).Inthesameyear,governmentsacrossvarioustierspurchased37,073(or19percent)ofAustralian-madevehicles(Figure1.4).

Source:FederalChamberofAutomotiveIndustries,VFacts.





domestIc productIonTheAustralianautomotiveindustryencompassesawiderangeofactivitiesincludingvehicleproduction,componentproduction,toolinganddesignandengineering.ItisanimportantpartoftheAustralianeconomy,employingover64,000people9andaccountingforalmost6percentofmanufacturingemployment.Valueaddedtothesectortotalsmorethan$5.6billion,10representing5.6percentofthemanufacturingsector’sindustryvalueaddedand0.6percentofnationalgrossdomesticproduct(GDP).InitssubmissiontotheReview,FordAustralianotedthatAustraliaisoneofonly15countriesthatcantakeacarfromconceptallthewaytofullproduction.11

TherearethreeMVPsinAustralia—GMHolden,FordMotorCompanyofAustraliaandToyotaMotorCorporationAustralia.Allthreecompaniesarefullyownedsubsidiariesofmajoroverseasproducers.MitsubishiMotorsAustraliaceaseditsAustralianproductioninMarch2008,althoughitremainsinthemarketasanimporterofafullrangeofvehicles.

MotorvehicleproductiontakesplaceinVictoriaandSouthAustralia.FordhasanassemblyplantinBroadmeadows(Melbourne)andacomponentandengineplantinGeelong.GMHoldenmanufacturesvehiclesinelizabeth(Adelaide),andproducesV6enginesatitsFishermansBend(Melbourne)facility.TheV6engineissuppliedtoboththedomestic

9 AustralianBureauofStatistics,LabourForce,Australia,Detailed,Quarterly,cat.no.6291.0.55.003,ABS,Canberra,2008.

10 AustralianBureauofStatistics, ManufacturingIndustry,Australia,2005–06,cat.no.8221.0,ABS,Canberra,2008.

11 FordAustralia,Submissiontothe2008AutomotiveReview,2008,p.3.


market,forinclusioninGMHolden’srangeoflocallymanufacturedvehicles,andtoanumberofexportmarkets.Toyotamanufacturesvehiclesandfour-cylinderenginesinAltona(Melbourne).

AllthreeMVPshaveR&DcapabilitywithinAustralia.GMHoldenhasaregionaldesignandengineeringcentreinAustraliathatemploysaround1,000staffandisinvolvedinGM’sglobalproductdevelopment.Toyota’sregionaltechnicalcentreemploysaround100staffandalsocontributestoToyota’sglobalplatforms.FordAustraliahasestablishedadesignandengineering‘Centreofexcellence’whichisresponsibleforseveralprojects,includingaglobalpick-uptruckplatform.FordAustralia’sproductdevelopmentprogramemploysover1,300staff.

Inaddition,thereareover200firms—predominantlybasedinMelbourneandAdelaide—producingautomotivecomponentsforthevehiclemanufacturers.TheAustralianautomotiveindustryalsohasaccesstospecialisedtoolingservicesfromaround500firms.

In2007,productionofAustralianvehiclesnumbered327,984,adropof5percentfrom2000.12Inglobalterms,thislevelofproductionisrelativelysmall,accountingforlessthan0.5percentofworldproduction.Competingagainstcountrieswithmajorproduction-scaleadvantagespresentsadifficultchallengefortheindustry.ontheotherhand,Australia’srelativelysmallscaleofproductionmeansthattheindustryisgenerallymoreflexibleinrespectofchangesindemand,moreefficientinservicingnichemarkets,andmorecost-effectiveinsmallerproductionruns.

ThequalityofAustralian-producedvehiclescanbemeasuredbythenumberoffaultspervehicle.AustralianvehiclessuchastheHoldenCommodore(1.2faultspervehicle)andtheFordFalcon(1.0faultpervehicle)wereslightlyabovetheaverageforlargecars(0.8faultpervehicle)in2006.Bothcarsrecordedareducingincidenceoffaultsoverthelastfewyears.TheToyotaAurionhadanaverageofonly0.7faultpervehicle,whichisbelowtheindustryaverage.13

AustralianMVPsareheavilyreliantonAustralianinputs.In2006,MVPssourced75percentoftheircomponents—worth$4.6billion—fromAustraliancomponentproducers.14Similarly,Australiancomponentproducersareheavilyreliantondomesticsales—81percentoftotalsalesaremadedomestically.15

12 FCAI,2008,http://www.fcai.com.au/volumes13 DepartmentofInnovation,Industry,ScienceandResearch,Key

AutomotiveStatistics2007,DIISR,Canberra,2008,p.22.14 ibid.15 ibid.

TrendsthathavedevelopedinthelastfewyearshavechallengedthelinkbetweendomesticMVPsandcomponentproducers.First,duetotheriseofglobalplatformsMVPsaremorecommonlysourcingcomponentsfromoverseas.Theseglobalsupplychainsarebecomingincreasinglyintegrated,andsince1994Australiancomponentimportshaveincreasedby74percent.16Second,MVPsaregenerallyonlyawardingshort-termcomponentscontracts,therebyunderminingthefinancialsecurityofmanycomponentproducers.17Asaresult,manycomponentproducersaremovingtheiroperationsoverseasorreducingtheirrelianceondomesticsales.Forexample,in1994,90percentofcomponentproducers’saleswerederivedfromthedomesticmarket.Thishadfallento81percentofsalesby2007.

Truckandbussector

TherearecurrentlythreeassemblersoftrucksinAustralia:Iveco(Wacol,Queensland),Kenworth(Bayswater,Victoria)andVolvoCommercialVehicles(whichassemblesbothMackandVolvotrucksinDandenong,Victoria).Thesethreeplantsproduceover50percentofheavy-dutytruckchassissoldinAustralia.18Thereisalsoasecondarymanufacturingprocesswhichinvolvesfittingequipmenttotruckchassisasrequiredbythefinaloperator.Therearemanymanufacturers,rangingfromsmallfirmstothetruckchassisassemblers,involvedinthissecondarymanufacturingprocess.ThesemanufacturersandassemblersareheavilyreliantontheskillsandexpertiseoftheAustralianautomotivecomponentsector.Withoutthisskillbase,thetruckmanufacturingindustrywouldstruggletomanufacturelocally,whichcouldbedetrimentaltootherimportantsectorssuchastransportandresources.

Itisestimatedthatthetruckmanufacturingindustryemploysabout2,350peopleinchassismanufacturingandabout7,600in‘secondary’manufacturing.19

Likethecarindustry,theAustralianheavycommercialvehicleindustrywasrationalisedinthe1980sand1990sasgovernmentprotectionwasreduced.Thegeneraltariffof5percentnowappliestoallheavycommercialvehicleimports.

16 DepartmentofInnovation,Industry,ScienceandResearch,op.cit.17 HouseofRepresentativesStandingCommitteeonemployment,

WorkplaceRelationsandWorkforceParticipation,ShiftingGears:employmentintheAutomotiveComponentsManufacturingIndustry,HRSCeWR,Canberra,2006,p.13.

18 TruckIndustryCouncil,Submissiontothe2008AutomotiveReview,p.1.

19 ibid.,p.2.


Aftermarketmanufacturingsector

Thissectormanufacturesarangeofautomotivepartsandaccessoriesfortheindependentautomotiveaftermarket(partsandaccessoriesdistributedthroughnetworksexternaltoMVPnetworks)andtheoriginalequipmentautomotiveaftermarket(partsandaccessoriesdistributedthroughMVPsandtheirdealers’networks).20

Theautomotiveaftermarketmanufacturingsectorisasignificantcontributortotheautomotivesector,employingaround30,000people.21Thesectorisalsoasignificantexporter—around170manufacturersarenowinvolvedindirectexport,technologylicensingandinternationaljointventuresworthanestimated$600millionperannum.22

Retail,serviceandrepairsectors

Althoughnotdirectlyinvolvedinmanufacturing,theautomotiveretailsectorplaysthesignificantroleofselling,distributingandservicingbothimportedandAustralian-manufacturedmotorvehicles.Understandingtheimportanceofthisrole,MVPsalsoundertakesignificantcapitalinvestmentsintheirdealernetworks.AtDecember2006,therewereover1,299dealersinAustraliawithover52,000employees.23

TheautomotiverepairandservicesectorisalsoamajorpartoftheAustralianautomotiveindustry.Morethan25,596businesseswereregisteredattheendofthe2007–08financialyear,24andasatFebruary2008thesectoremployedatotalof135,335people.25

Advancedmanufacturingindustry

Theadvancedmanufacturingindustryprovidesdesign,tooling,manufacturingtechnologyandequipmenttotheautomotivesectoraswellastothebroadermanufacturingsector.Assuch,itisseentoplayan‘enablingrole’withintheAustralianeconomy.In2004,theindustrywasworth$2.84billionannuallyanddirectlyemployed12,000people.26

20 AustralianAutomotiveAftermarketAssociation,Submissiontothe2008AutomotiveReview,p.6.Notethat45percentofAAAAmembersproducefortheaftermarketandtheoriginalequipmentmarketwhiletheremaining55percentofmemberssupplyonlytotheaftermarket.

21 BasedontotalAAAAmembership.22 AAAA,loc.cit.,p.5.23 MotorTradesAssociationofAustralia,MotorData©,MTAA,Canberra,

2008.24 AustralianBureauofStatistics,CountsofAustralianBusinesses,

includingentriesandexits,cat.no.8165.0,ABS,Canberra,2008.Thisfigureincorporatesthe‘AutomotiveRepairandServicesn.e.c.’industrysubdivision.

25 AustralianBureauofStatistics,LabourForce,Australia,Detailed,Quarterly,catno.6291.0,ABS,Canberra,2008.

26 AdvancedManufacturingAustralia,Submissiontothe2008

profItabIlIty27

In2007,tradinglossesinvehiclemanufacturingfortheMVPstotalled$722million,oran8.6percentlossonsales.ThiswassomewhatoffsetbyMVPs’salesofcomponentsandotherbusiness,withnetlossesonallMVPactivitiestotalling$449million.Thissituationcanbecomparedtothatofadecadeearlier,whennettradingprofitsfortheMVPstotalled$518million,including$344millioninprofitsonvehiclemanufacturing.JustifyingdomesticproductionwithsuchlargetradinglossespresentsamajorchallengetotheAustralianMVPs.However,the2007figuresalsoincludethelossesofMitsubishi,whichhassinceexitedthemarket,aswellascostsassociatedwiththedevelopmentofnewmodelsbytheremainingthreeproducers.Itshouldbenotedthatprofitsarealsofallinginanumberofotherautomotive-producingeconomies,includingsomeofthemajorones.TheglobaldownwardtrendinprofitsisdiscussedinmoredetailinChapter3.

Thereisalsoevidencethatcomponentproducersarehavingtheirprofitmarginsreducedasthecompetitivenessofimportsincreases.Thisisdue,inpart,tothestrongAustraliandollarandtothestandardglobalplatformsthatallowMVPstoincreaseimportsubstitutionofcomponents.Cost-downpressuresfromtheMVPs,aswellasrisinginputcosts,havealsoservedtoreducemargins.

manufacturIng costsThecostofmanufacturinginAustraliaisrisingandisamajorconcernformanyautomotivemanufacturingfirms.Productioninputssuchaslabour,materials,energy,waterandlogisticsfeedintothecoststructuresofallmanufacturers.ComponentproducerDensoconductedastudyofthe‘on-costs’ofoperatinginAustraliacomparedtoitsequivalentoperationsinThailand.ThestudyfoundthatoperatinginAustralia(asopposedtoThailand)amountedtoacostpenaltyofaround48percent.Afterfactoringinanelectricitypricerise,thepenaltyincreasedto69percent.28Boschnotesthatlogisticsisamajorincreasingcostforitsbusiness,especiallysincelogisticsamountstoabout3to4percentoftotalcosts.29

AutomotiveReview,p.5.27 DepartmentofInnovation,Industry,ScienceandResearch,op.cit.28 Denso,Submissiontothe2008AutomotiveReview,pp.7–8.29 RobertBosch,Submissiontothe2008AutomotiveReview,p.11.


Intermsofinternationalcomparativelabourcosts(viewedinisolationfromtechnologicalcapacityandtotalfactorproductivity),theAustralianautomotiveindustry’slabourcostsarebelowthoseindevelopedeconomiesbutabovethoseindevelopingeconomiesthathavemajorautomotiveinvestments.AsshowninTable1.2,wagecostsinAustraliaaremuchlessthaninGermanyandtheUnitedStates,butsimilartolevelsinJapan.Labourcostsinautomotive-producingcountriessuchastheRepublicofKorea,TaiwanandMexicoweresignificantlylowerthaninAustralia.

Table 1.2. hourly compensation costs for motor vehicle and parts production workers (in uS dollars)

1999 2002 2005

Germany* $34.28 $32.21 $44.95

UnitedStates $26.98 $32.49 $35.57

UnitedKingdom $20.35 $21.23 $29.27

Japan* $26.06 $24.23 $27.12

Australia $16.59 $15.96 $25.96

RepublicofKorea* $9.57 $12.33 $16.61

Taiwan $7.71 $7.05 $7.75

Mexico* $2.46 $3.46 $3.52

*Denotesnetexporters.Source:USDepartmentofLabor,BureauofLaborStatistics(12May2008).

ofcourse,withregardtolabourcostsatleast,thecomparativedatapresentedinTable1.2donottakeintoaccountAustralia’stechnologicalandskilladvantages,aswellasadvanceddesignandengineeringcapabilities,vis-à-visitslow-wagecompetitors.Inaddition,AustraliaimportsvehiclesandcomponentsfromhigherwagecountriessuchasGermany,theUnitedStatesandJapan.

Still,countriessuchasChinaandIndiaareseekingto‘moveupthevaluechain’byupgradingtheirtechnologicalandresearchinfrastructure.TheimplicationisthattheAustralianindustrymustcontinuetoimproveitsinternationalbenchmarkperformanceinregardtomanufacturingcosts.Inaddition,initssubmissiontotheReview,GMHoldennotedthat,“InthekeyareaofsupportforR&D,Australiaislaggingbehindotherdevelopedcountries”.30Giventhatinnovationandproductivitygrowtharekeystoacompetitiveandsustainableindustryinthefuture,Australia-basedMVPsandthesupplychainshouldstrivetoimprovetheirperformanceagainstbothemergingandestablishedcompetitors.LabourproductivitytrendsarediscussedinChapter9.

30 GMHolden,Submissiontothe2008AutomotiveReview,p.36.

tradeTheexportofautomotiveproductsisofgrowingsignificancetotheAustralianeconomy—amountingto$4.7billionin2007.31ThismakestheautomotivesectoroneofAustralia’stop10exportearnersandthelargestmanufacturingexportearner(with10.7percentoftotalmanufacturingexportsin2007).Italsoplacestheautomotivesectoraheadofmoretraditionalexportssuchaswine,wheatandwool.ThegrowthinAustralia’sautomotiveexportshasoccurreddespitethelargereductionsindomesticautomotivetariffssincethe1980s.

Theimportanceofimprovingaccesstomarketsandtheimpactofinvestmentandlocationdecisionsonexportperformancearediscussedelsewhereinthisreport.Asnoted,thesefactorscanbeinfluencedbyheadofficedecisionsoverexportandimportstrategies,co-locationtoachieveproximitytomajorassemblersandtradebarriers.

Inaddition,currenttradedataarebasedongrossvaluesanddonotreflecttheAustralian-onlyvalueofcomponentsandpartsinautomotivegoods.Assuch,thetradedataincludeexportsofimportedcomponentsandpartsthathavegoneintothemanufactureofautomotivegoods.

Imports

TheAustralianautomotiveindustryoperatesinanincreasinglycompetitiveglobalenvironment.ItfacescompetitionfromtraditionalautomotiveproducerssuchasJapan,theeuropeanUnionandtheUnitedStates,andfromAsianeconomiessuchasThailand,ChinaandtheRepublicofKorea.Australiaisalsooneofthemostopenautomotivemarketsintheworld.ofthemajorautomotive-producingcountries,onlytheUnitedStates,Canada,JapanandtheRepublicofKoreahavemoreopenmarketsintermsofthelevelofappliedtariffsonautomotiveproducts(seeTable5.1inChapter5).TheeuropeanUnionappliesa10percenttariffonautomotiveimports.

Importshaveincreasedsignificantlyoverthelastfewyearsfrom$18billionin2002to$27billionin2007,anincreaseof47percent.Thisincreasecamelargelyfroma61percentincreaseinvehicleimportsbetween2002and2007.

Australia’smajorsourceofimportsremainsJapan(36percentofvehicleandpartsimports),followedbyThailand(12percent),theUnitedStates(12percent),

31 DepartmentofForeignAffairsandTrade,STARSDatabase,DFAT,Canberra,2008.


Germany(9percent)andtheRepublicofKorea(6percent).ThelargestimportgrowthhasbeenfromThailand,whichincreasedby$2.1billionbetween2002and2007.SomeofthiscanbeattributedtotheThailand–Australiafreetradeagreement,whichallowsduty-freeentryofThai-manufacturedvehiclesintoAustralia.

exports

In2007,totalautomotiveexportsfromAustraliaamountedto$4.7billion,whichplacestheindustryinthetop10exportearnersandaheadofmoretraditionalexportssuchaswheatandwool.ofthis,over$2.9billioncamefromtheexportofmotorvehicles,and$1.7billioncamefromthedirectexportofautomotivecomponents,32thatis,componentsnotincorporatedintocompletevehicleexports.

AustralianMVPshavebecomeincreasinglyfocusedonexportmarkets.TheAustralianmotorvehiclemarketisrelativelysmall,andMVPsarefacingdifficultyinachievingscaleeconomiessolelyonthestrengthofdomesticsales.In1997,only16percentoflocalproductionofAustralianmotorvehicleswassoldoverseas.By2007,thisfigurehadincreasedto42percent.33

Since2002,automotiveexportshavefallenby$79millionto$4.7billion.ThiscanbepartlyexplainedbytheappreciationoftheAustraliandollar,whichhaslessenedtheAustraliandollarvalueofexportswherecontractsaredenominatedinUSdollars.However,thisexchangerateeffecthasbeenpartlyoffsetbyincreasesinefficienciesintheautomotiveindustry.Thiscanbeseenbythefactthat,whiletheAustraliandollarhasappreciatedby53percentsince2002,automotiveexportshavefallenbyonly4.6percentoverthesameperiod.

Giventhehigh—but,forsomemodels,declining—localcontentinAustralian-madecars,andthedependenceofcomponentproducersonsalestodomesticMVPs,exportsofvehiclesareveryimportanttothecomponentsector.

Inthepastfewyears,theMiddleeasthasemergedasAustralia’smainexportmarket.Thereissignificantpotentialforgrowthinthisregion,givenitshighlevelofdemandforlargecarssuchastheToyotaCamryandHoldenCommodore(badgedastheChevroletLumina).Australianvehiclesarealsogrowinginpopularityintermsoffleetsales.TaxifleetsintheregionhaveapreferencefortheAustralian-producedToyotaCamry,andtheSaudiArabianpoliceforcehasapreferenceforHoldenCommodores.The

32 ibid.33 DepartmentofInnovation,Industry,ScienceandResearch,op.cit.,

p.21.

demographicsintheregionalsosuggestthatthemarketwillcontinuetogrow—themedianageinSaudiArabiaisaround21years.Itisalsoexpectedthatwomenwillbegrantedtherighttodrivebytheendof2008,whichwillpotentiallyincreasethesizeoftheautomotivemarket.

exportstoSaudiArabia,theUnitedArabemirates,Kuwait,oman,QatarandBahrainamountedto$2.2billionin2007,or46percentoftotalautomotiveexports(and75percentofvehicleexports),anincreaseof19percentsince2002.Australia’slargestsingletradingpartnerisSaudiArabia,withautomotivesalesof$1.2billionin2007.ThisdependenceontheMiddleeastmarketisaconcernfortheindustry,especiallywithgrowingcompetitionfromnationsthatenjoyscaleandgeographicadvantagesoverAustralia.Inaddition,US-sourcedvehiclesentertheGulfStatesduty-freeduetofreetradeagreementprovisions.

othermajorautomotiveexportmarketsincludeNewZealand(16percent),theRepublicofKorea(9percent)andtheUnitedStates(9percent).AutomotiveexportstotheUnitedStatesdecreasedby64.6percentfrom2002to2007,fallingfrom$1.1billionto$394million.ThiscouldbepartlyduetotherisingAustraliandollarandthefallintheUSmarketshareoftheUS-ownedand-basedautomotivecompanies.However,earlysalesoftheAustralianHoldenG8vehicletotheUnitedStateshavebeenstrong,andGMHoldenforecastsavolumeofaround30,000unitstobeproducedfortheUSmarketin2008.34

TheexportofdesignandengineeringservicesisbecomingincreasinglyimportantfortheAustralianindustry.WhilesubmissionstotheReviewdidnotreportontheincomeearnedfromsuchactivities,Australia-basedGMHoldenisresponsibleforthedesignandengineeringofrear-wheel-driveproductsforAustraliaandGMbrandsglobally,FordAustraliaisthedesignandengineeringcentreofexcellencefortheAsia–PacificandAfricaregionsforitsparentcompany,whileToyotaAustraliaisoneoftwotechnicalcentresforToyotaMotorCorporationintheAsia–Pacificregionandoneofitsfivetechnicalcentresglobally.Inaddition,firmsinthesupplychainarealsoearningexportrevenuethroughdesign,engineering,andreturnsonintellectualproperty,aswellasrepatriatingprofitsfromoverseasoperations.

Figures1.5to1.8below,andAppendixA,providefurtherdetailonAustralia’stradeinautomotiveproducts.

34 GMHolden,op.cit.,p.24.


Source:DepartmentofForeignAffairsandTrade,STARSDatabase(2007).





summary of fIndIngsAustraliahasoneofthemostopenautomotive�marketsintheworld.

Australianmotorvehicleandcomponent�producershavebecomeincreasinglyfocusedonexportmarkets.TheautomotiveindustryisamongAustralia’stop10exporters,aheadoftraditionalindustriessuchaswine,wheatandwool.

Therehasbeenashiftinconsumerpreference�towardssmaller,lowerfuelconsumptionvehiclesandSUVs(whichareseenasasubstituteforthefamilycar).Thishasadverselyaffectedthelocalvehicleassemblers,whichproduceinthelargecarsegment,despitethefactthatSUVsaregenerallynotasfuelefficientastheAustralian-madelargevehicles.

Theautomotiveindustryisanimportantpartof�theAustralianeconomy,employingover64,000peopleandaccountingforalmost6percentofmanufacturingemployment.Valueaddedforthesectortotalsmorethan$5.6billion,representing5.6percentofthemanufacturingsector’sindustryvalueaddedand0.6percentofnationalgrossdomesticproduct.

FallingprofitabilitylevelsofthelocalMVPs�presentsamajorchallengetothelocalindustry.In2007,tradinglossesinvehiclemanufacturingforMVPswere$722million,oran8.6percentlossonsales.

|19

IntroductIonThecompetitiveenvironmentfacingtheAustralianautomotiveindustryhaschangedsubstantiallysincethecompletionofthepreviousvehicleindustryreviewinDecember2002.TheindustrynowfacesastrongandrisingAustraliandollar,risinginputcosts(particularlyforrawmaterials),anincreasinglycompetitiveglobalautomotivemarket,environmentalconcerns,risingoilprices,andchangingconsumerpreferencesinamovementawayfromlargeAustralian-producedvehicles.Thelocalindustryneedstotakeadvantageofarangeofopportunities,includingtheconsumershifttowardnewfuelanddrivetraintechnologiesandthedramaticgrowthinemerginginternationalvehiclemarkets.

Theindustryalsohasopportunitiestocompeteinvarioussegmentsoftheautomotivedesignandmanufacturingprocess,notonlyinrelationtotheexportofautomotivegoodsbutalsoinrelationtotheexportofR&Danddesign,licensingofIP,relocation,andtherepatriationofprofitsfromforeigndirectinvestment.

opportunItIes for the AustrAlIAn AutomotIve Industry

Exportopportunitiesinestablishedandemergingmarkets

Thelocalmarketisrelativelysmallandexpansionintooverseasmarketsisimportantforincreasedsalesandproductionandscaleeconomies.Thisexpansionalsohelpsunderpintheindustry’ssustainability.

EmergingmarketssuchasChina,RussiaandIndiapresentmajoropportunitiesformotorvehicleproducers(MVPs)andcomponentsuppliers.TheautomotiveindustriesintheseeconomiesarestilldevelopingandthispresentsanopportunityfortheAustralianautomotiveindustry,whichincludesestablishedcomponentproducersandhasadvanceddesignandtoolingcapabilities.However,FuturisandarangeofothercompaniesnotedintheirAutomotiveReview2008submissionsthattariffandnon-tariffbarrierspresentamajorobstacleinmanyofthesecountries(thisisdiscussedfurtherinChapter7).

TradetoestablishedmarketssuchastheUnitedStatesandtheMiddleEaststillpresentsMVPsandcomponentproducerswithopportunitiesforgrowth.ToyotahasestablishedastrongmarketintheMiddleEast,particularlyinSaudiArabia.Toyotaexportsaround95,000vehiclesayearandsalestofleet,taxiandgovernmentbodiesinthesecountriesareparticularlystrong.Inaddition,GMHoldenhasopenedupanentirelynewmarketsegment,andwillbeginexportingtheHoldenutilitytotheUnitedStatesfrom2009.

ThereisalsopotentialtoexporttoemergingmarketsintheMiddleEastandNorthAfrica,includingLibya.ThegrowthintourisminLibyapresentsopportunitiesforAustraliatosupplytothetaxifleetmarketintheregion.

Increasingglobalsupplychainintegration

TheAustralianautomotiveindustryiscompetinginanincreasinglyintegratedglobalmarket.Costpressureshavemeantthatglobalplatforms,thatis

CHAPTER2:outlook for the australian automotive industry

20| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |21oUTLookFoRTHEAUSTRALIANAUToMoTIVEINDUSTRY

theuseofcommonvehicledesignsacrossdifferentproductionlocations,havebecometheindustrystandard.Thisphenomenonpresentsopportunitiesforcomponentsupplierstobecomemoreintegratedintoglobalsupplychainsandtodiversifyandinvestinforeignmarkets.Itcanalsobeathreat,inthatthelocalsupplychainfacesincreasingcompetitionfromimportsusedtomanufacturelocalvehiclesandmajorcomponents.

Acompleteindustry

Australiaisoneofonly15countrieswiththecapabilitytotakeacarfromconceptallthewaytofullproduction.ThiscapabilityencompassesstrongskillsetsinR&D,design,engineering,productandprocessdevelopmentandadvancedmanufacturing.Thismeansthatforasmallcountry,Australiacanproducevehiclesandcomponents,andforaworldmarketprovidedesignandengineeringservices(andaworldmarketcanproduceautomotivegoodsandservicesforAustralia).

ThisalsoprovidesAustralianfirmswithanadvantagewhencompetingagainstcountrieswhichmaylackacompleteindustryandwhichthereforemustfindanicheroleinglobalautomotiveproduction.ontheotherhand,opportunitiesavailabletotheindustryareunderpressurefromemergingeconomiessuchasChinaandIndia,whicharemovingupthevaluechainandareactivelydevelopingthefullspectrumofcapabilitiesneededtohostacompleteindustry.

ProximitytoAsia

Asiancountries,particularlyChinaandIndia,areexpectedtobemajorcontributorstogrowthingloballightvehicleproduction.Australiaiswelllocatedtobeabletotakeadvantageofthis,especiallyiftradebarriersareremovedorreduced.ontheotherhand,thegrowthinautomotivecapacityintheseeconomiesislikelytobeathreatintheAustralianmarketandinmarketsinwhichAustraliacompetes.

Creatingamarketnicheinemergingalternativefuelanddrivetraintechnologies

TheshiftofconsumerpreferencestowardsvehicleswithlowfuelconsumptionpresentsanopportunityforAustralia’sMVPstofindanichemarketforsuchproductsinthemediumtolargecarsegment.ForMVPsandthesupplychain,theopportunitiesrangefromtheproductionofhybridsandalternativefuelvehicles(suchasliquefiedpetroleumgas(LPG)andcleandiesel)throughtothedevelopment,adoptionanduptakeofcurrentdrivetraintechnologiessuch

ascylinderdeactivation,variablevalvetimingandactuation,sparkignitiondirectinjection,regulatedvoltagecontrol,variabledisplacement,air-conditioningcompressorandelectricpowersteering.

chAllenges

MaintainingandexpandingtheMiddleEastmarket

TheAustralianautomotiveindustryisheavilydependentonexportsalestotheMiddleEast,whichaccountforthree-quartersofvehicleexportsandnearlyhalfofthevalueofallautomotiveexports.ThreatstothismarketincludecompetitionfromimportsfromeconomiessuchasChina,IndiaandThailand.Thereisalsoarealdangerthatthismarketmayshifttowardssmallcarsashasoccurreddomestically.However,theMiddleEastmarketalsoconstitutesapotentialgrowthopportunityforAustralian-madevehicles.ThemaintenanceandexpansionofthismarketaredependentupontheexportstrategiesoftheparentsofAustralianMVPs.TheseandothermarketaccessissuesarediscussedinChapter7.

Changingconsumerpreferences

TherehasbeenasignificantchangeinthetypeofvehiclesdemandedbyAustralianconsumers.1Traditionally,theAustralianvehiclemarkethasbeendominatedbylargepassengercarsandtheirvariants.TherehasbeenatrendinAustraliaandinternationallytowardssmaller,lowerfuelconsumptionvehicles,sportsutilityvehicles(SUVs)andluxurycars.Thistrendhasrecentlyaccelerated,andimpactedonlocalvehicleproducers,withthemarketshareofAustralianMVPsfallingfrom30percentin2002to19percentin2007.

Morespecifically,since2002,domesticsalesofnewAustralian-madevehicleshavedecreasedforGMHolden(by33percent),Ford(by10.5percent),andMitsubishi(by53percent).onlysalesofAustralian-madeToyotavehicleshaveincreasedsince2002—by22percentto2007.Thistrendhascontinuedintothefirsttwomonthsof2008,withsalesofAustralian-madevehiclescontinuingtofall.

Nonetheless,thereareearlyencouragingsignsthatAustralianMVPsarerespondingtothechangingmarketcircumstances.Forexample,Fordhasannouncedplanstomanufacturethefour-cylinderFocusinAustraliafrom2011,andToyotaplanstobuildtheCamryhybridlocallyfrom2010.

1 FederalChamberofAutomotiveIndustries,VFacts,FCAI,2007.


Greenhouseemissions

Theautomotiveindustryisconsideringwaystoimprovefuelconsumptionandreducegreenhouseemissions.Theseplansarecloselyintertwinedwitheffortstodevelopnewfuelefficienttechnologiesandvehicles,suchastheCamryhybridduein2010.TheMVPsnotethatimplementingthesechangestoincreasefuelefficiencyandreducingemissionsisextremelycostlyandrequireslargecapitalinvestments.

TheGarnautClimateChangeReview’sdraftreportrecommendedthatadomesticemissionstradingschemeshouldincluderoadtransport.2Thiswouldincreasethepricepaidbyconsumersforfuelssuchaspetrolanddiesel,andbeachallengefortheAustralianindustry,whichcurrentlyproduceslargecarswithrelativelylargeenginecapacities.

on16July2008,theAustralianGovernmentreleaseditsgreenpaperontheCarbonPollutionReductionScheme,whichisintendedtobeimplementedin2010.Attheheartoftheschemeisemissionstrading.Theschemewillcovertransport.To“offsettheinitialpriceimpactonfuelassociatedwiththeintroductionoftheCarbonPollutionReductionScheme,theGovernmentwillcutfueltaxesonacentforcentbasis”.TheGovernmentalsointendstoprovidetransitionalassistanceintheformofashareoffreepermitstothemostemissions-intensive,trade-exposedindustries.3

Profitability

AsdiscussedinChapter1,theprofitabilitylevelsofthelocalMVPsarefalling.Thereisalsoevidencecomponentproducers’profitmarginsaredeclining,whichcouldsignalfurtherrationalisationsintheindustry.

TherisingAustraliandollar

ThestrengthoftheAustraliandollar,especiallyinrelationtotheUSdollarandtheJapaneseyen,hashadamajornegativeeffectonthecompetitivenessoftheAustralianautomotiveindustry.Fortheexportsector,thekeyexchangerateistheUSdollar,bothbecausemostcontractsaredenominatedinthiscurrencyandbecausemajormarketsfortheindustry,suchastheUSandGulfCooperationCouncil,are

2 Garnaut,R,GarnautClimateChangeReview.DraftReport,CommonwealthofAustralia,Canberra,2008,p.368.

3 Wong,P(MinisterforClimateChange),GreenPaperonCarbonPollutionReductionSchemeReleased,mediarelease,PW117/08,16July2008.

linkedtotheUSdollar.4Forautomotiveimports,thevalueoftheJapaneseyenisparticularlyimportant,sincemostvehiclesareimportedfromJapanandarepaidforwithyen.

FromJanuary2002toJanuary2008,thevalueoftheAustraliandollarappreciated77percentagainsttheUSdollar,40percentagainsttheJapaneseyen,27percentagainstthekoreanwonand36percentonatrade-weightedbasis.5

ThishasledtoAustralianvehiclesbecomingrelativelymoreexpensivecomparedtotheirimportcompetition.Thenewcarpriceindex,whichmeasurestheaverageretailpricesofvehicles,hasincreasedby9percentsince2001forAustralianautomobiles.6However,overthesameperiod,thepriceindexofallimportedvehiclesdroppedby2percent,andforJapanesevehiclesfellby4percent.TherisingAustraliandollaralsoimpactsonexporters,asmanycontractsuseUSdollars.

ontheotherhand,MVPsandsomecomponentproducershaveanaturalhedgeagainsttherisingAustraliandollar,astheyimportinputstoproduction.Inaddition,theappreciationoftheAustraliandollarhasreducedthecostofimportedcapitalequipmentrequiredforupgradingandexpandingcapacity.

TheProductivityCommission’seconomicmodellingshowsthattheeffectsofchangesinautomotiveassistanceontheindustry,andindeedtheeconomy,wouldbeverysmallrelativetootherinfluencesontheindustry,inparticularexchangeratemovements.Forexample,afurtherappreciationoftheAustraliandollar,inducedbyanongoingcommodityboom,isprojectedtoleadtoasignificantcontractionintheautomotiveindustry.Thiscontradictionwouldbefargreaterthanoneresultingfromreducingtariffs,andwouldalsoleadtoacontractioninseveralotherindustries.Moreover,afuturedecreaseintheexchangerateofcomparablemagnitude—resulting,forexample,fromareductionincommodityprices—wouldseeanexpansionthatwouldmorethanoffsetthemodelledeffectsofreductionsinassistance.7Thisassumes,ofcourse,thatasignificantcontractionintheautomotivesectordoesnotleadtodiseconomiesofscaleandtheexitofmanyfirmsthatwouldnotre-entertheAustralianmanufacturingsector.

4 DFAT,Submissiontothe2008AutomotiveReview,p.13.5 ReserveBankofAustralia,HistoricalExchangeRates,2008,

www.rba.gov.au/statistics/historicalexchangerates6 AustralianAutomotiveIntelligence,AustralianAutomotive

IntelligenceYearbook2008,7thedn,RichardJohns,2008.7 ProductivityCommission,ModellingEconomy-wideEffectsofFuture

AutomotiveAssistance.ResearchReport,PC,Canberra,2008,p.61.


Smallscale

Anumberofnewglobalautomotiveassemblyplantshaverecentlyopened,eachwithaminimumproductioncapacityof300,000unitsperannum.ThisfigureisclosetotheentireAustralianannualproduction.Itisgenerallyacceptedthataminimumplantcapacityof300,000to400,000unitsperannumisnecessarytohelpensureprofitabilityforsomesmallandmediumsizecarproductionwheremarginsarelow.Australiadoesnothavethedomesticmarketsizetojustifysuchascaleofproduction.Thisfurtherhighlightstheimportanceofexportsinhelpingboostproductionandeconomiesofscale.

ontheotherhand,therelativelysmallscaleofproductioninAustraliaallowssignificantflexibilitybasedonnicheproductionandsignificantscopetorampuporreduceproductioninlinewithmarketdemand.Forexample,thesmallscalecanenablefirmstorespondmoreflexiblytochangingcircumstances,suchasrisingdemandformorefuel-efficientvehicles.Itismuchharderforlargercapacityplantstoretoolforsmallvolumes.

Fragmentedcomponentsector

TheAustraliancomponentmanufacturingsectorisfragmented,withmanysmallfirmsoperatingintheindustry.Afragmentedcomponentindustrydoesnotproduceonasufficientscaletobegloballycompetitive.Furthermore,smallerfirmsdonothaveaccesstotheglobaltechnologiesavailabletothelargermultinationalTier1firms,arenotascompetitiveaslargerTier1firms,andlackskillsparticularlyintermsofmanagementandmanufacturingquality.8TheseinefficienciesimpactontheentireautomotiveindustryandarediscussedfurtherinChapter9.

Discontinuityofsupply

Arangeoffactors,includingthoselistedabove,haveimpactedheavilyonAustraliancomponentmanufacturers,especiallysmallerfirmsoperatingatthemargin.Asaresult,anumberofsmallercomponentproducershaveclosedinthepastfewyears,anditisestimatedthat7,135jobshavebeenlostintheautomotivecomponentsectorbetween2002and2006.9Thisdiscontinuityincomponentsupplyaffectstheentireautomotiveindustryproductionchain,giventheimportanceofjust-in-timeproduction.AsdiscussedinChapter9,thisimposesanumberofcosts,includingsupplybreakdowns.Italso

8 AustralianAutomotiveIntelligence,op.cit.,p.45.9 FAPM,Submissiontothe2008AutomotiveReview,p.53.

hascostsassociatedwithMVPsandTier1companieshavingtofindalternativesuppliers,coststoworkers,andcoststothereputationoftheAustralianindustry,includinginexportmarkets.Furthermore,itflowsthroughtoandimpactsonthereputationoftheAustralianmanufacturingsectorasawhole.AnactualorperceivedinabilityoftheautomotiveindustrysupplychaintoprovidecontinuityofsupplyhasthepotentialtodiminishtheattractivenessofAustraliaasaninvestmentlocation.

Competitionforinvestment

ManyoftheAustralianMVPsandTier1componentmanufacturersarepartofglobalorganisationsandcompeteforinvestmentfundswithotherforeignsubsidiaries.ManyofthesefirmsnotedintheirsubmissionstotheReviewthatitisbecomingincreasinglydifficulttoattractinvestmentfundshavingcompetingsubsidiariesfromnationswithlowercoststructures(intermsofoverheadsandlabour),moregovernmentsupportprograms,greatertradeprotectionandgreateradvantagesofscale.Inpart,thesedevelopmentsreflectthechangeintheAustraliandollarexchangerateoverthelastseveralyears.

Thishasimplicationsforthesupplychain,whichisreliantondomesticproductionofvehiclesandwhichsuppliesTier1companies.Forexample,theAustraliantoolingindustryisheavilyreliantoncapitalinvestmentbyMVPsandthecomponentssectorinplantandequipment,suchasassemblyandsubassemblylines.Thisinvestmentis‘lumpy’innatureandcentredaroundnewmodellaunches.Thetoolingindustryisalsofacingincreasedcompetitionfromimportsofbasictools,particularlyfromChinaandIndia.

SeveralMVPsandTier1componentmanufacturersnotedtheimportanceoftheAutomotiveCompetitivenessandInvestmentScheme(ACIS)inattractinginvestmentintheirReviewsubmissions.Forexample,GMHoldenreportedthat“ACIScombinedwithothergovernmentincentiveschemeshasprovidedsupportforlarge-scalecapitalinvestmentinAustraliaincludingtheHigh-FeatureV6EngineplantatFisherman’sBend,andthenewVECommodore”.10

RelianceofthecomponentproducersandthetoolingindustryondomesticMVPs

ThecomponentproducersandthetoolingindustryareveryreliantondomesticMVPsforsales.ThecomponentproducersrelyontheMVPstoassemble

10 GMHolden,Submissiontothe2008AutomotiveReview,p.40.


completevehicles,eveniftheysupplytoothercomponentproducers.ThetoolingindustryreliesoncapitalinvestmentbyMVPsasnotedabove.

Thisreliancecanhaveadverseeffectsonthesupplychain.Forexample,theHouseofRepresentativesStandingCommitteeonEmployment,WorkplaceRelationsandWorkforceParticipationreportedthattheglobalpricematchingpracticesoftheMVPs,includingtherequirementthatlocalsuppliersmatchdevelopingcountries‘exworks’prices(thatis,pricesofgoodsleavingthefactory)withoutincludingtransportationandstoragecosts,combinedwiththecontractmanagementprocess,hadledtoaninsecuretradingenvironment.11SuchpracticescanseriouslyaffectthosefirmsreliantontheMVPsandmilitateagainstsufficientgrowthininternalcashflowfromretainedearningstofinanceproductivity-enhancingautomationorinvestmentinR&D.TheresultingfinancialstressandlackofcompetitivenessputstheviabilityoflocalsuppliersatriskandcanactasadisincentivetocontinuedinvestmentinAustralia.

Componentsectorbenchmarkedperformance

TheAutomotiveSupplierExcellenceAustraliaStage2initiativefoundthatthecapabilitiesintheautomotivecomponentproducersectorrequiringthemostattentionweremanagementandleadership,followedbymanufacturingandquality,supplychainintegrationandmanagement,globalsourcingandmarketingstrategiesandfinancialsystemsandpractices.ThisisdiscussedmorefullyinChapter9.

summAry of fIndIngsTheAustralianautomotiveindustryneedsto�continueexpandingitsexportstoattainthescalenecessarytobegloballycompetitive.

MVPsandTier1componentmanufacturers�arefacingincreasingcompetitionforscarceinvestmentfundsfromother-country-basedsubsidiarieswithintheirglobalorganisation.Nevertheless,theAustralianautomotiveindustrycontinuestobegloballycompetitive,maintainingastrongexportbaseeveninthecontextofanappreciatingAustraliandollar.

TheAustralianMiddleEastmarketisvulnerable�toimportcompetitionfromChina,IndiaandThailandandalsoapossibleshifttoapreferenceforsmallervehicles.ontheotherhand,thereis

11 HouseofRepresentativesStandingCommitteeonEmployment,WorkplaceRelationsandWorkforceParticipation,ShiftingGears:EmploymentintheAutomotiveComponentsManufacturingIndustry,HRSCEWR,Canberra,2006,p.13.

alsotheopportunitytoexpandAustralia’smarketintheMiddleEastandNorthAfrica,includinginLibya.

Thetrendtowardssmaller,lowerfuel-�consumptionvehiclesimpactsonlocalvehicleproducersandthesupplychain,withthedomesticmarketshareofAustralianMVPsfalling.Nonetheless,thereareencouragingsignsthatAustralianproducersarerespondingtothesechangingcircumstances,suchasplanstolocallyproducetheFordFocusandToyotaCamryhybrid.

Consistentwithtrendsinothermajorautomotive-�producingcountries,andwithlargetradinglossesoccurring,justifyingdomesticproductionpresentsamajorchallengetoAustralianMVPs.

ThestrengthoftheAustraliandollarishavinga�majornegativeimpactonthecompetitivenessoftheAustralianautomotiveindustry.

TheAustraliancomponentmanufacturingsector�isfragmented,withmanyfinanciallystressedsmallfirmsoperatingintheindustry.Thishasledtoarangeofinefficiencieswithinthecomponentindustryassociatedwithlackofscale,andunderdevelopmentofthemanagementsystemsandorganisationalcapabilitiesrequiredtocompeteeffectively.

Componentproducersmustnowcompeteagainst�productionfromdevelopingcountrieswithlowercoststructuresthanAustraliaandincreasinglycompetitiveproductquality.

Thecapabilitiesand,insomecases,thescale�ofsmallercomponentmanufacturersneedtoberaisedclosertointernationalbestpracticeiftheyaretosurviveandbeviableintheindustry.Thisincludesmanagementandleadershipimprovements.

|25

IntroductIonTheproductionofmotorvehiclesrepresentsthelargestmanufacturingsectorintheworld:ifitwereacountry,theindustrywouldhaveanoutputequivalenttothatoftheworld’ssixth-largesteconomy.1Whileitisakeyactivityinadvancedindustrialnations,theindustryisalsoofincreasingsignificanceintheemergingeconomiesofNorthandEastAsia,SouthAmericaandEasternEurope.Itdrawsonawiderangeofsupplierindustries,fromrawmaterials(suchassteel,aluminium,plasticsandchemicals)throughtosophisticatedcomponentassemblies,tooling,designandengineeringservices.TheindustryisalsooneofthelargestinvestorsinR&D,playingakeyroleinsociety-widetechnologicaldevelopment.Withitsskillbaseandinnovativepractices,theautomotivesectorisseenasprovidinganeffectivenationaltraininggroundformanymanufacturingandengineeringemployeesacrossverydiverseindustries.

GeoGraphIcal dIversIfIcatIon and GlobalIsatIon of productIon

Globalproductionandsales

Onaglobalscale,theproductionofmotorvehicleshasexpandedsignificantlysincethelate1990s.Globalproductionofpassengermotorvehiclesgrewbyaround25percentbetween1999and2006,fromjustunder40millionunitstoalmost50millionunits.Globalproductionofcommercialvehiclesincreasedfromnearly16.5millionunitsin1999

1 OrganisationInternationaledesConstructeursd’Automobiles(OICA),2008,http://oica.net/category/economic-contributions/

toover19millionunitsin2006,anincreaseofaround16.6percent.

Globalvehiclesaleshavealsobeenincreasingsteadily,withsalesrisinginbothmatureandemergingmarkets.Motorvehicleproducers(MPVs)sold65.2millionunitsin2006,thefifthconsecutiveyearofrecordsales.Moreover,industrysaleshaveincreasedbymorethan30percentinthelastdecade,oratabouttwicethepaceofexpansionintheprevioustwodecades.2

Nonetheless,salesgrowthhassignificantlylaggedbehindthegrowthofproductionvolumes(with65.2millionsalesversusnearly70millionunitsproduced).Indeed,significantexcesscapacitycontinuestoexistintheindustry.AccordingtoCSMWorldwide,theindustrybeganthecurrentdecadeatonly68percentofcapacityutilisation—wellbelowthe80percentconsiderednecessaryforsustainedprofitability.Whilethatlevelrosetoabout76percentbytheendof2005,CSMforecastssignificantover-capacitytocontinueatanannualaverageofsome18.4millionunitsinthe2008–2014period.3Asaresult,alargenumberofMVPs,particularlyinthematureeconomies,haveundertakencostlyrestructuringsandrationalisationsinordertoreducecapacityandrealignboththeirproductionvolumesandemployeenumberswithoftenstagnantorevennegativedomesticsalesgrowth.TherecentslowdownintheUSautomotiveindustryisexacerbatingthistrend.

2 PriceWaterhouseCoopers,GlobalAutomotiveFinancialReview:AnOverviewofIndustryDataTrendsandFinancialReportingPractices,PWC,n.p.,2007,p.8.

3 Cather,C,NavigatingtheAutoIndustry’sVolatileWaters,CSMWorldwide,n.p.,2008,viewedathttp://www.automotivedigest.com/WhitePapers/CSM_FFS_NavigatingAutoIndustry.pdf

ChAPTER3:The global auTomoTive indusTry

26| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |27ThEGLObALAUTOMOTIVEINDUSTRY

Riseofemergingmarketsandgeographicaldispersionofproduction

Demandforvehicleshasgrownrapidlyindevelopingcountries,providinganincentiveforthemajorglobalvehicleandcomponentmanufacturerstosetupproductionfacilitiesinthesemarkets.Inits2002reviewofthevehicleindustry,theProductivityCommissionnotedtherewereseveralfactorsthatreinforcedthisincentive,allofwhichareofcontinuingrelevancetoday:

localindustrysupportmeasuresthathaveboth�encouragedinvestmentinproductionfacilitiesanddiscouragedservicingthesemarketsviaexports;

improvedautomotiveinfrastructure,production�skillsandtoolingcapacityinmanyemergingvehicle-producingcountries(towhichonecouldaddstrengtheningR&Dcapabilities);and

logisticalconsiderationsthatencouragethe�locationofcomponentproducersclosetotheircustomers,includingjust-in-timeand/orsequencedvehicleproduction.4

Whiledevelopedcountriesstillaccountforthebulkofglobalvehicle,component,andrelateddevelopmentanddesignactivities,thegeographicaldiversificationofproductionhasresultedinashiftinthebalanceofoutputtowardsdevelopingeconomies.CountriessuchasChina,theRepublicofKorea,brazil,India,Russia,ThailandandMexicopossessthrivingautomotivesectors,asbothlocalandforeigninvestmentflowintonewandalreadyestablishedmanufacturingplants.AnumberofcountriesinEasternEurope(particularlytheCzechRepublicandSlovakia)havealsobeenrecipientsofmajorinvestmentsinnewvehiclemanufacturingplants.

Itisestimatedthatemergingmarketswillcontributeabouttwo-thirdsofthegrowthingloballightvehicleassemblyvolumesbetween2006and2014.Inparticular,thegroupofrapidlyemergingeconomiesknownasbRIC(brazil,Russia,IndiaandChina)isexpectedtosignificantlyincreaseitsshareofthetotal—from16percentofgloballightvehicleassemblyin2006to23percentin2014—whileproductionintheEuropeanUnion,NorthAmericaandJapanwilleitherdecline(albeitslightly)orexperienceonlymarginalgrowth.China,inparticular,hasexperiencedrapidgrowthinbothproductionandsales.Chinaisnowtheworld’ssecond-largestautomotivemarket,producingaround9millionvehiclesin2007,upalmost23percentfrom2006.5

4 ProductivityCommission,ReviewofAutomotiveAssistanceInquiryReport,ReportNo.25,PC,Melbourne,2002.

5 OrganisationInternationaledesConstructeursd’Automobiles(OICA)ProductionStatistics,2007,http://oica.net/category/production-statistics/

Thecompetitiveimpactbroughtaboutbytheriseofdevelopingeconomies,particularlyChina,pointstothesignificanceoftheincreasingshiftofoutputtowardsemergingeconomies.Alongwithlowerpricesforconsumers,therealsignificanceliesintheintensificationofcost-cuttingpressuresandincreasingcompetitionfornewinvestmentintheindustry.AndthesepressuresarepoisedtointensifyifChinaembarksonadeterminedexportdrive,resultinginaninfluxofChinesevehiclesintothematuremarketsofNorthAmerica,WesternEurope,JapanandAustralia.6Increasingly,thesematureeconomiesarebattlingtocompeteagainsttheirlowercostrivals,severalofwhom—forexample,China—arenowdevelopingsignificantdesign,engineeringandR&Dcapabilities.

Inviewofthechallengesposedbyemergingeconomies,anumberofconditionsorobjectivescanassistahigh-wagecountrytodevelopandsustainagloballycompetitiveautomotiveindustry.Amongsuchconditionsorobjectivesareinnovation,includingsuccessfullycommercialisinginventions,world-classdesign,engineeringandR&Dcapabilities,productionscale,andaggressivemarketingandbranding.

profItsThecombinationofintensifiedcompetition,ensuingcostpressuresandexcesscapacityhasplacedincreasingstrainonMVPs’profitlevels.Afteradjustingforoverheads,interestandone-offpayments,FordandGMinparticularrecentlysufferedlargenetlosses.Thiswasduetocostsassociatedwithreorganisationtoalignproductionwithdemandandotherfactors.Forexample,GMreportedanetlossofUS$38.7billionin2007,whileFordreportedanetlossofUS$2.7billionforthesameyear.GMalsoreportedanetlossofUS$3.25billionforthefirstquarterof2008,7whileFordreportedasurprisingUS$0.1billionprofitforthesameperiodbutdoesnotexpecttoreturntofull-yearprofitabilityuntil2009.8

Againstthebackgroundofincreasingglobaleconomicchallenges—causedinparticularbytheglobalcreditcrunch,continuinghighpetrolpricesandrising

6 KPMG,China’sPassengerCarMarket,KPMG,n.p.,2006.Notethat,whileChina’sPMVexportsaresteadilyrising,theystillaccountforonlyabout1percentoftotalsales.ItisthuslikelythatthefullimpactontheglobalindustryofChina’sriseasamajorautomotiveproducerwillbefeltonlywhenitsmuch-anticipatedexportdrivebecomesareality.

7 Kim,S&DAubin,‘GMmayburn$13.9billioncashbyendof2010:bofA’,Reuters,24June2008,viewedathttp://www.newsdaily.com/stories/n24345054-gm-loans-bofa/

8 Krisher,T,‘Fordpostssurprise1Qprofit,stillexpectsfull-yearloss’,AssociatedPress,24April2008,viewedathttp://biz.yahoo.com/ap/080424/earns_ford.html


rawmaterialcosts—otherMVPsexperiencedvariedfortunes.Toyotawarnedthatitsprofitwouldfallbyanoverall29.5percentin2008,afterreportingthatitsprofitdeclinedby28percentinthefirstquarterto¥316billion.9honda’snetprofitfellby85.6percentforthefirstquarterof2008,10whileNissanreportedthatitexpecteditsnetprofitforthefiscalyearthroughtoMarch2009tofallby30percentto¥340billion.11Inaddition,Renault’snetprofitin2007fell7.6percentto€2.73billion.12SomeMVPs,however,recordedbetterresults.Inthefirstquarterof2008,DaimlerAGachievedanetprofitof€1.3billion,largelyonthebackofitsboomingMercedesbenzdivision,13whileVolkswagenreportedanafter-taxprofitof€0.9billion.14

employmentTheautomotiveindustryisasignificantemployeroflabourinbothdevelopedandemergingeconomies.AccordingtotheOrganisationInternationaledesConstructeursd’Automobiles(OICA),about9millionpeoplearedirectlyemployedintheindustry.Thisisover5percentofglobalmanufacturingemployment.

ThemostrecentavailabledatashowthatChinanowhasthelargestautomotiveindustryworkforce,witharound1,605,000employees,followedbytheUnitedStates(954,210),Germany(773,217),Russia(755,000)andJapan(725,000).In2006theautomotivelabourforceinthesefivecountriesaccountedforabout53.5percentofglobalemploymentintheindustry.however,severalemergingeconomieshavesubstantialand,inmostcases,rapidlygrowingautomotiveemploymentlevels.AlongwithChinaandRussia,theseincludebrazil(289,082employees),India(270,000),Turkey(230,736),Thailand(182,300),Mexico(137,000)andSouthAfrica(112,300).15

Overthelastfewyearsautomotiveemploymentgrowthintheadvancedeconomieshasbeenrelatively

9 Lewis,L,‘Toyotaprofitswarningsendsmarkettumbling’,TimesOnline,8May2008,viewedathttp://business.timesonline.co.uk/tol/business/industry_sectors/transport/article3892434.ece

10 Reuters,‘Quarterlyprofitathondatumbles86%’,InternationalheraldTribune,25April2008,viewedathttp://www.iht.com/articles/2008/04/25/business/25honda.php

11 TheAssociatedPress,‘Nissan’s4Qprofitrises,butautomakerforecastsslidingprofitoncurrency,costs’,InternationalheraldTribune,13May2008,viewedathttp://www.iht.com/articles/ap/2008/05/13/business/AS-FIN-EARNS-Japan-Nissan.php

12 TheAssociatedPress,‘Renault2007netfallsbutmarginrises’,InternationalheraldTribune,14February2008,viewedathttp://www.iht.com/articles/2008/02/14/business/14renaultfw.php

13 vanLoon,J,‘DaimlernetmorethandoublesonEADSgain’,bloomberg,15May2008.

14 VolkswagenGroup,VolkswagenGroupRecordsProfitGrowthatAllbrandsinFirstQuarter,mediarelease,30April2008,viewedathttp://www.volkswagenag.com/

15 OrganisationInternationaledesConstructeursd’Automobiles(OICA),2008,viewedathttp://www.oica.net.au

stagnant,andinsomecountriesemploymenthasactuallydeclined.InNorthAmericaaround100,000employeesaresettoleavetheindustryoverthenextcoupleofyears,whileemploymentlevelsinWesternEuropeandAustraliahavealsocomeunderpressurefromaspateofplantclosuresandabolishedshifts.

the automotIve supply sectorWhileglobaldemandforautomotiveproductshasbeengrowingforseveralyears,largesegmentsofthesupplyindustryhavebeenstruggling.Manysuppliershaveclosedupshopandothersarefightingforsurvival.Amongtheproblemscurrentlyfacedbysuppliersaresoaringrawmaterialpricesandconstantdemandsfromautomakerstoreducepricesandself-financeR&D.Asvehiclemanufacturersstrivetoreducecostsandachievegreaterscaleefficiency,theyhavetendedtosourcefromfewerandlargercomponentsuppliers,andtheyhaveeitherswitchedsupplytolowercostsourcesorpressuredcomponentproducerstoachievecost-downtargets.

Thecomponentssectorisbecomingincreasinglyglobal.Thenumberofmanufacturingplantsoperatedbysuppliercompanieshasincreasedconsiderablyoverthelast10to15years.Inaddition,manypreviouslymedium-sizedsuppliercompanieshaveexpandedintolargerglobalfirms.Alargenumberofcompaniesthathadonlythreeorfourproductionplantsinasmallnumberofcountriesatthebeginningofthe1990snowhaveaproductionnetworkofwellover20locationsaroundtheworld.Somecompanieshaveevenbecome‘mega-suppliers’,operatinglocationnetworksof100to200productionsites.16

Severalotherglobaltrendsaffecttheautomotivecomponentsector:

Privateequityfirmsandhedgefundshave�playedanincreasinglyactiveroleintheindustry,asstrugglingandsometimesnearinsolventsuppliershavebeenviewedasdesirabletakeovertargets.Often,costandrevenuepressureshavebeenheightenedasaresultofthesechanges.17

Integrationandmutualdependencybetween�automakersandtheirsuppliershaveincreased,ensuringthat‘managingthesupplychain’becomesakeyingredientofsuccess.Tier1suppliersarenowhighlyintegratedinthevaluechainoftheiroriginalequipmentmanufacturer

16 KPMG,GlobalLocationManagementintheAutomotiveSupplierIndustry,KPMG,Germany,2005,p.5.



customers,andmostTier2suppliersarelikewiseintegratedinatleastthesupplychainoftheirrespectiveTier1s.Consequently,anyproblemforasupplierusuallybecomesaproblemforthemanufacturersupthechain.18

Componentmanufacturersinmatureeconomies�increasinglyconfrontcompetitivethreatsfromtheriseoflow-costdevelopingcountryproducers,particularlyinAsiaandEasternEurope.ThesecomponentsuppliersarealsoincreasinglycompetitiveintermsofqualityandrelatedR&Dcapabilities.Moreover,theirMVPcustomersarenotonlysourcingcomponentsproducedinAsiaorEasternEuropefortheirmanufacturingoperationsinthoseregions:theyaresourcingthemintheir‘home’marketsaswell.19

automotIve capabIlItIesUnderstoodbroadly,motorvehiclemanufacturingisanactivitythatcoversawiderangeofcapabilities,involvingbothproductiveandintellect-orknowledge-intensivelabour.ThesecapabilitiesencompassR&D,alongwithdesignandengineeringandthevariousphasesofmanufactureandassembly.Thereare15countriesinall,includingAustralia,thathavethefullrangeofcapabilitiesfromconcepttodelivery.Intermsofhighvalue-addedandsophisticateddesignandengineeringcapabilities,theleadingcountriesareJapan,Germany,theUnitedStates,France,Italy,SwedenandtheUnitedKingdom.JapanandGermanyinparticularhaveestablishedareputationforinnovativetechnologiesandworld-classR&Dfacilities,aswellashigh-performanceand(inthecaseofJapan)environmentallyfriendlyandfuel-efficientcars.OutsideJapan,theRepublicofKoreaandAustraliaarethemaincentresofdesignandengineeringservicesintheAsia–Pacificregion.

Thereareafewdevelopingoremergingeconomiesthatarestartingtoacquiresignificantdesignandengineeringcapabilities.Inparticular,ChinaandIndiaarestrivingto‘moveupthevaluechain’bydevelopingthesecapabilitiesalongsidetheirvastandrapidlygrowingmanufacturingcapacities.Forexample,anumberofChinesevehiclemanufacturersaremakingprogressinfull-scopeR&Danddesignactivitiesinthelow-endcarsegmentbutarestillbehindinoverallinnovativecapacity.Thevastmajorityofemergingeconomies,however,arerestrictedtomanufacturingandassemblyoperations.

18 ibid.19 KPMG,AutomotiveandComponentsMarketinAsia,KPMG,

n.p.,2005.

chanGes In market demand and technoloGyTheprofileofvehicledemandvariesconsiderablyacrossnationalmarkets.Forexample,intheUSmarket,theriseofSUVsinthe1990shasgivenwaytotheincreasingmarketascendancyofcrossoverutilityvehicles,whichareforecasttogrowby2.1millionunitsfrom2006to2014.20InJapanminicarshavebeenmarketleaders,whileinEurope,SouthAmericaandmostAsianmarketssmallandmedium-sizedmodelsaccountforthebulkofsales.bycomparison,theAustralianmarketis‘hollowingout’,withamarkedtrendawayfrommedium–largemodelstowardssmallandmediumcars,luxurycarsandSUVs.21

Recenttrendsinmarketdemand,particularlyinthemoreindustriallyadvancedcountries,havebeendrivenbychangingcommunityandconsumerexpectationsinregardtovehiclequality,safetyandenvironmentalcredentials.Inparticular,increasingconcernovercarbondioxideemissionsandfueleconomyhasshapedconsumertastesandledtoincreasingdemandforalternativefuelorhybridvehiclesandadrop-offindemandforwhatareperceivedas‘petrol-guzzling’largercarsandSUVs(notwithstandingthereboundin2007andthefirsthalfof2008inSUVsalesinAustralia).Asaresult,technologicaldevelopmentsareproceedingrapidlysoastokeeppacewithbothchangingconsumerexpectationsandtighterregulationbygovernmentsstrivingformoreenvironmentallyfriendlyandfuel-efficientcars.

Environmentalandsafetyconcernshavebeenimportantdriversofproductinnovationintheautomotiveindustry.Thedevelopmentandincorporationofcomputertechnologyhavebeencentralinthisrespect.Automotivecomputersmonitororcontroleverythingfromanti-lockbrakes,electronicstabilitycontrolsandairbagsafetysystemstoemissioncontrols,fuelefficiencyandglobalpositioningsystems.Alternativefuelsystems(includinghybrids)arealsobecomingmorepopular.InhisspeechtoParliamentmarkingWorldEnvironmentDayon5June2008,PrimeMinisterRuddreferredtoPriceWaterhouseCoopers’estimate“that541,000fullhybridswereproducedin2007,andthatthisshouldquadrupleto2.2millionby2015”.healsoreferredto

20 PriceWaterhouseCoopers,GlobalAutomotiveFinancialReview:AnOverviewofIndustryDataTrendsandFinancialReportingPractices,PWC,n.p.,2007atp.13.

21 DepartmentofInnovation,Industry,ScienceandResearch,KeyAutomotiveStatistics2001,DIISR,Canberra,2002;KeyAutomotiveStatistics2006,DIISR,Canberra,2007,Table3.


the“generalexpectationintheindustrythathydrogenfuelcellsarethetechnologyofthefuture”.22

Whilehydrogenmaybethewaveofthefuture(andnotexpectedtobecometrulyviableuntilaround2030),theMarch2008KingReviewcommissionedbytheUKGovernmentconcludedthatfuelconsumptionfornewvehiclescouldbecutby30percentwithinthenextfivetotenyearsbyusingexistingtechnologies.Forexample,“RecentimprovementsinenginetechnologysuchasdirectfuelinjectionhavehelpedtoachieveincreasedfueleconomyandreductionsinCO2withoutsacrificingperformance,costorconveniencetothecarbuyer.Despitea20percentweightgainofmidsizevehiclesinthepast20years,along-termtrendof0.6percentfuelefficiencyimprovementperyearhasbeenobserved,asaresultoftechnicalimprovements”.23Thereisalsoarangeoffuturetechnologyoptionswhichcouldbecomeincreasinglyimportantintheraceforgreaterfuelefficiency,suchasincreasinguseoflightweightmaterials,evolutionaryimprovementstocurrentengines,andnewpowertraintechnologies—thelatter“includingvariablevalveactuation,directinjectionandturbo-charging,aswellas‘mild’hybridtechnologiessuchasstop-startandregenerativebraking”.24

challenGes faced by the leadInG IndustrIal natIonsThestateofvehiclemanufacturinginthedevelopedindustrialregionsofNorthAmerica,WesternEuropeandJapanissomewhatofamixedbag.Severecompetitivepressuresandcostlyrestructurings(particularlyinNorthAmericaandWesternEurope)arepartlyoffsetbysomepositivesignsofrenewedgrowth,dueinnosmallparttoongoingproductandprocessinnovations(withasimilarsetofcircumstancescurrentlyimpactingtheindustryinAustralia,albeitinthecontextofamuchsmallerindustryandmarket).

InNorthAmerica,the‘big’automakers(GM,FordandChrysler)arefacingseverecompetitivechallenges.Allthreecompaniesareundergoingdifficultrestructuringastheystruggletobringtheircapacityandworkforceintolinewiththeirdiminishedmarketshares.Recentandprospectiveplantclosuresareexpectedtoresultinthesheddingof1.9millionunitsofcapacity,alongwitharound100,000employees.

22 Rudd,K,houseofRepresentatives2008,hansard,No.7,5June2008, pp.4692–7.WorldEnvironmentDayMinisterialStatementbythehon.KevinRudd,5June2008.

23 King,J,TheKingReviewofLow-CarbonCars.PartI:ThePotentialforCO2Reduction,hMTreasury,London,2007,p.43.

24 ibid.,p.44.

Apartfromeliminatingfixedcosts,recoveryeffortswilllargelyhingeonrecapturing,oratleaststabilising,marketsharesthrougharenewedproductrange.Ontheotherhand,almost1millionunitsofassemblygrowthareexpectedinthenextfewyearsasaresultoflocalisedassemblyofpreviouslyimportedvehiclesbytheso-called‘NewDomestics’(mainlyJapanese-ownedMVPsthatarebuildingnewcapacityinrecentlyestablishedorbrandnewgreenfieldsitesoutsidetheheavilyunionisedindustrialheartlandssuchasDetroit).25

InJapan,domesticsaleshavebeenstagnantsincethemid-1990s,butthegrowthofexportvolumeshasbeenpickinguptheslack.Infact,forseveralyearsthemajorityofgrowththathastakenplaceintheJapaneseautomotiveassemblysectorcanbeattributedtotheexportvolumethatresultedasautomakersshiftedstrategytoleverageJapanasahubofhighervalue-addedproductssuchaspetrol-electrichybridsandluxuryvehicles.Nonetheless,lightvehicleassemblyisexpectedtofallconsiderablybetween2006and2014,largelyduetoanexpectedfallof410,000unitsinToyota’shomemanufacturingbase.Thisstemslargelyfromthecompany’sstrategicdecisiontoproducemorevehiclesinoffshorelocationssuchasThailandandtheUnitedStates.26OtherJapanese-ownedMVPs,suchashondaandNissan,havealsobeenfocusingonexpandingtheiroffshoreoperations.

Europehasexperiencedseveralhigh-profileplantclosuresinrecentyears.Moreover,capacityhasbeenreducedatanumberofotherplantsasaresultoferadicatingshifts.Theresulthasbeena1.5millionunitreductionofcapacityinWesternEuropebetween2000and2007.SomecapacityhasbeenrelocatedtolowercostgreenfieldsitesinEasternEurope,particularlytheCzechRepublic,Slovakia,Poland,TurkeyandRomania.Ontheotherhand,vehicleassemblyisreboundinginsomeestablishedcarproducingnations,particularlyGermany,which,accordingtoPriceWaterhouseCoopers’forecast,“willlikelyseeanincreaseofmorethan900,000unitsby2014”.27however,thisforecastmayhavetoberevisedinlightoftheEuropeanCommission’sproposalinDecember2007toregulateforatailpipeemissionstargetby2012.28ForGermany,aswithJapan,growth


26 ibid.,p.8.27 ibid.28 King,J,TheKingReviewofLow-CarbonCars.PartII:

RecommendationsforAction,hMTreasury,London,March2008,p.27.

30| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY

ispredicatedonexportvolumesandspecialisationinhighvalue-addedproduction,particularlyengineeringanddesignexcellence.

Despitetheirproblems,theadvancedeconomiesshouldbeamongthebestperformersinreducingexcesscapacityoverthenextseveralyears.by2014theEuropeanUnion(whichimposesatariffrateonPMVsof10percent)isexpectedtoupgrademanufacturingutilisationbyabout6.6percent,whileNorthAmericaisexpectedtoimproveby4.5percent.Onthedownside,oneofthekeydriversinthisimprovingutilisationhasbeentheincreaseincost-cuttingpressuresandattendantplantclosuresandshiftreductions—althoughfortheEuropeanUnionatleastlowercostcapacityhasbeenaddedinnewlowerwageEUcountries.29

summary of fIndInGsGlobalproductionofmotorvehicleshasexpanded�rapidlyinrecentyears,fromaround56.5millionvehiclesin1999(bothpassengermotorvehiclesandcommercialvehicles)tonearly70millionvehiclesin2006.Thisupwardtrendissettocontinue,butwithsignificantproductioncapacityandemploymentshiftingtoemergingeconomies.

Theglobalindustryismarkedbysignificant�excesscapacity,whichhasplacedprofitmargins,particularlyinindustrialisedcountries,undersignificantpressure.

Increasinggeographicaldiversificationof�productionhasresultedinashiftinthebalanceofoutputtowardsdevelopingcountries,particularlyChina,theRepublicofKorea,brazil,India,Russia,ThailandandMexico.Thisshiftischaracterisedbyintensificationofcost-cuttingpressuresandincreasingcompetitionfornewinvestmentintheindustry.

Thecombinationofthesepressureshasplaced�increasingstrainonmotorvehicleproducers’profitmargins.

29 ibid.

Thesupplysectorhasbeendramaticallyimpacted�bytheeffortsofthemotorvehicleproducerstoreducetheirproductioncosts.Thishasledthemotorvehicleproducerstosourcefromfewerandlargercomponentsuppliers.Also,theyhaveeitherswitchedsupplytolowercostsourcesorpressuredcomponentproducerstoachievecost-downtargets.

Advanceddesignandengineeringcapabilities�stilltend,forthemostpart,tobeconfinedtotheadvancedindustrialcountries.however,anumberofemergingeconomies(forexample,ChinaandIndia)arebeginningtodevelopsignificantdesign,engineeringandR&Dcapabilities.

|31

IntroductIonAstablemacroeconomicenvironmentoflowinterestratesandlowinflation,combinedwithmicroeconomicreforms,includinglabourmarketreforms,fostersinnovation,investmentandinternationalcompetitiveness.Theseeconomicpoliciesarecomplementedbytradepolicies,whichcanimproveaccesstointernationalmarkets,andthisisespeciallyimportantforAustralianindustry,givenitssmalldomesticmarket.Tradepoliciescanalsoleadtolowerborderprotectionandgreatercompetitivepressuresonlocalmanufacturers.Industrypolicyhasaroletoplayinhelpingindustrytoadjusttothesecompetitivepressuresandtoassistindustrytocompeteininternationalmarkets.

Fortheautomotiveindustry,thetwocurrentmajorpoliciesaretheautomotivetariffarrangementsandtheAutomotiveCompetitivenessandInvestmentScheme(ACIS).TheindustryisalsosupportedthroughpoliciessuchasTradex,dutydraw-backarrangements,theLPGVehicleScheme,specificcompany-levelassistance,governmentpurchasingpracticesandthespecifictariffarrangementsforsecond-handvehicles.

TheAustralianindustryissubjecttoseveralotherCommonwealth,stateandterritorygovernmenttaxesincludingcompanytaxandpayrolltax.Inaddition,newvehiclesalesaresubjecttothegoodsandservicestax(GST)andtheluxurycartax(LCT).Fringebenefitstax(FBT)maybepayableonavehicleprovidedbyabusinesstoanemployeeforpersonaluse.

AutomotIve competItIveness And Investment schemeACISisatransitionalassistanceschemedirectedtowardsencouragingnewinvestmentandinnovationintheAustralianautomotiveindustryinthecontextoftradeliberalisation.ThemainobjectiveofACISistorewardstrategicinvestment,R&D,andtheproductionofeligiblemotorvehiclesthroughtheissueofimportdutycreditstoregisteredparticipants.Thesecreditscanbeusedtodischargecustomsdutyoneligibleautomotiveimports,oralternatively,canbesoldorotherwisetransferred.

ACIScommencedin2001(followingtheclosureoftheExportFacilitationSchemein2000)andunderthecurrentpolicysettingswillceaseattheendof2015.Undercurrentarrangements,ACISisexpectedtodeliveranestimated$7billiontotheAustralianautomotiveindustryfrom2001to2015.

ACISisregulatedbytheACISAdministrationAct1999.Amongotherthings,theActrequiresthat:

cappedassistanceislimitedtothestagecaps�($2billionfrom2001to2005;$2billionfrom2006to2010;and$1billionfrom2011to2015);and

assistancetoindividualrecipientsislimitedto�5percentoftheirpreviousyear’ssales.

WhenACISwasfirstestablished,therewasasinglepooloffundingfromwhichbothmotorvehicleproducers(MVPs)andcomponentsupplierswereabletoclaimsupport.However,fundingforeachstageisnowsplitbetweenMVPs(55percent)andthesupplychain(45percent).Quarterlyassistancetoindividualrecipientsisdeterminedonaproratabasis,using

CHAPTER4:Current australian automotive poliCy arrangements

32| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |33CURRENTAUSTRALIANAUToMoTIVEPoLICYARRANGEMENTS

anMVPmodulationrateoracomponentproducermodulationrate(seeTable4.1).1

table 4.1. recent aCis modulation rates mvps supply chain

Q12006 0.70 0.71

Q22006 0.69 0.64

Q32006 0.68 0.63

Q42006 0.62 0.64

Q12007 0.63 0.65

Q22007 0.64 0.64

Q32007 0.65 0.63

Q42007 0.63 0.63

Source:DepartmentofInnovation,Industry,ScienceandResearch

UncappedproductioncreditsareavailableonlytoMVPs,andcreditsissuedarebasedonthevalueofproductionofpassengermotorvehiclessoldinAustraliaandNewZealand.Issuedcreditsarenotsubjecttomodulationbut,similartocappedcredits,aresubjecttothe5percentofsaleslimit.

ACISalsoincludestheMVPR&DSchemewhichisdirectedatencouragingAustralianMVPstoinvestinhigh-endR&Dtechnologies.Theschemeoffersupto$150millionofassistanceforR&Dprojectsoverthefiveyearsfrom2006to2010.TheGovernment’s$7.2millionSupplierDevelopmentprogram,fundedundertheMVPR&DScheme,aimstoenhancethecapabilitiesofAustralianautomotivecomponentsuppliersandassistthemtomoreeffectivelyidentifyandsecureemergingopportunitiesininternationalsupplychains.

Asmentioned,ACIScreditsearnedcanbeusedtodischargecustomsdutyoneligibleautomotiveimportsorcanbesoldortransferred.AccordingtotheFederalChamberofAutomotiveIndustries,theautomotiveindustry“favourstheretentionofdutycreditsasthepreferredmechanismforthedeliveryofinvestmentsupport”.2ontheotherhand,GMHoldenexpressedconcernaboutthepossibleerosionoftariffsunderfuturefreetradeagreements,andrecommendedthat“theACISfundingmechanismshouldbereviewedtoprovideanalternativetoadutycreditwhichcouldbeusedtopaynotonlycustomsduties,butalsotaxliabilities”.Governmentcreditwasviewedasapossiblealternativeoption.3

1 Themodulationrateisusedtoadjustclaimstoensurethatthecappedpooloffundingisnotexceeded.Thatis,creditsearnedbyparticipantsaremodulated(orreduced)toprovidea55percentallocationoftheavailablemodulatedcredittoMVPsand45percenttothesupplychain.

2 FCAI,Submissiontothe2008AutomotiveReview,p.25.3 GMHolden,Submissiontothe2008AutomotiveReview,p.43.

Source:AusIndustry

Source:AusIndustry


TotalACISpaymentspaiduptothethirdquarterandfourthquarterof2007areshowninFigures4.1and4.2.4

Theeligibilitythresholds,ratesofassistance,activitylimitationsandeligibleR&DitemsareatAppendixB.ACISclaimsaresubjecttomodulation(andpaidtocompaniesonaproratabasis)toensurethatthecappedpooloffundsisnotexceeded.

TheProductivityCommissionestimatedthattheautomotiveindustryreceived$621millioninbudgetaryassistancein2006–07.5TheassistancewasmainlythroughACIS,whichhaseffectivelyunderwrittenprofitsfortheindustry.Thesituationisnotsustainableandhaskeptmarginalfirms,whichwouldnotsurvivewithoutassistance,intheindustry.Suchcircumstancesinhibitaprocessofrationalisationthatwouldhelptheindustryachievegreatereconomiesofscaleandproductivityimprovements.

TheimpactofACISonthelevelofinnovationandR&DintheautomotiveindustryisdiscussedingreaterdetailinChapter6.

tArIffsAppliedtariffsonpassengermotorvehiclesandrelatedcomponentsarecurrently10percentandarescheduledtobereducedto5percenton1January2010.Tariffsforlightcommercialvehicles,includingfour-wheeldrivesandpartsthereof,arecurrentlyonly5percent.However,whencombinedwiththeeffectofACIS(whichprovidesimportdutycreditstothelocalindustry)andpreferentialaccessthroughtradeagreements,theaverageimport-weightedtariff(ornominaltariff)in2006–07was5.7percentforvehiclesand4.2percentforcomponents.6

Nevertheless,automotivetariffsarethesecondhighesttariffsinAustralia,behindthetextiles,clothing,footwearandleatherindustry.Inaddition,theProductivityCommissionestimatedthattheindustryreceivednettariffassistanceofnearly$635millionin2006–07,orover$600pervehiclesoldinthatyear.7Thisequatestoasubsidytolocalmanufacturersofnearly$2,000pervehicleproducedinAustralia.Automotivetariffsare,however,muchlowerthantheywerewhenaprogramofreformcommencedinthemid1980s.In1984,forexample,theindustrywasprotectedbyanimportquotaandatariffof57.5percent.

4 Numbersmaynottotal100percentduetorounding.5 ProductivityCommission,TradeandAssistanceReview2006–07,PC,

Canberra,2008,Table2.5B.6 ProductivityCommission,ModellingEconomy-wideEffectsofFuture

AutomotiveAssistance.ResearchReport,Table3.2.7 ProductivityCommission,TradeandAssistanceReview2006–07,

Table2.2B.

TheDepartmentofForeignAffairsandTrade(DFAT)notedthattradeliberalisation“hasbenefitedAustralianconsumersandbusiness,bymakingpossiblecheaperpricesandgreaterchoice.Astheindustryhasadjusted,ithasbecomemoreefficient,morecloselyintegratedintoglobalsupplychainsandmorefocusedonnichecapabilitiesandmarkets”.8

recent regIonAl trAde Agreements Freetradeagreements(FTAs)havethepotentialtoopenupmarketsfortheAustralianautomotiveindustrybyremovingimpedimentstotrade,includingtariffsandnon-tariffbarriers(suchaslocaltaxesorcustomsrequirements).Conversely,FTAsgenerallyopenupthedomesticindustrytogreaterinternationalcompetitionbyloweringtariffrates.AustraliahasFTAswiththeUnitedStates,Singapore,NewZealandandThailand.FTAsarealsoundernegotiationorconsiderationwiththeAssociationofSoutheastAsianNations(ASEAN)andNewZealand,Chile,China,theGulfCooperationCouncil,India,Indonesia,Japan,Malaysia,MexicoandtheRepublicofKorea.

AftertheFTAwithThailandcameintoforce,Thailandrestructureditsexciseonmotorvehiclesaccordingtoenginesize.TheexcisedisadvantagesAustraliancarexporters,whichproduceonlylarge-enginevehicles.ThisandotherimpactsofFTAsonthelocalautomotiveindustryareconsideredingreaterdetailinChapter7.

second-hAnd cAr tArIffAllusedvehiclesbuiltonorafter1January1989needtoqualifyundertheSpecialistandEnthusiastVehicleSchemeorRegisteredAutomotiveWorkshopSchemeandbecertifiedascomplyingwithAustralianDesignRulesapplicableatthedateoftheimportedvehicle’smanufacture.Allusedvehiclesmanufacturedbefore1989maybeimportedwithoutrestriction.

Usedvehiclesattractatariffof10percentforpassengervehiclesand5percentforlightcommercialvehiclesand4WDs,inadditiontoanon-advaloremtariffof$12,000.9Vehiclesimportedunderthetwoschemesdonotattractthenon-advaloremtariff.In2006–07,27,854second-handmotorvehicleswereimportedintoAustralia,anincreaseof61percentoverthepreviousyear.10

8 DFAT,Submissiontothe2008AutomotiveReview,p.5.9 Advaloremmeans‘fixedinproportiontothevalue’.10 DepartmentofInnovation,Industry,ScienceandResearch,Trade

InformationSystem(incorporatingunpublishedimportandexportdatafromtheABS),DIISR,Canberra,2008.


desIgns Act 2003Before2003,MVPswereabletoregisterthedesignsofindividualcarpartsandobtainmonopolyrightsfor16yearsundertheCommonwealthDesignsAct1906.In2003,theGovernmentexcludedsparepartsfromdesignprotectiontoensureeffectivecompetitioninthesparepartsmarket.Alsoknownasthe‘rightofrepairexemption’thiswasdonethroughSection72oftheDesignsAct2003(theDesignsAct).Underthisexemption,registrationofallnewanddistinctivedesignsofcomponentpartsispermitted,butwherethesepartsareusedfortherepairofacomplexproductsoastorestoretheproduct’soverallappearance,manufacturersandsuppliersofthesecomponentpartsareexemptfromanyliabilityforinfringement.

In2005,inaccordancewiththeAustralianGovernment’s2003commitment,IPAustraliaconductedareviewoftheimpactoftheDesignsAct‘rightofrepair’provision.IPAustraliareportedthattheprovisionexemptionshouldremain,asitcouldnotfindsufficientevidencethatthereformswereachievingtheirpolicyobjectives.IPAustralia’sreviewnotedthatthelongleadtimesbetweenregistrationandmarketentryofproductsmeansthattheSection72reformshavenotasyetmadeanimpactonconsumersandthesparepartsindustry.11

TheEuropeanUnionhasadoptedasimilarpositiontothatofAustraliabyremovingdesignprotectionforspareparts.Membershavebeenallowedafive-yeartransitionperiodtogiveeffecttotherelevantlawreforms.

other support ArrAngements

Tradex

TheTradexSchemeenablesexportingcompaniestoobtainanup-frontexemptionfromcustomsdutiesandothertaxesprovidedthatthegoodsaresubsequentlyexported,orincorporatedingoodsthatareexported,within12monthsoranotherapprovedperiod.Inthisway,theschemeprovidesbenefitstoexportersthatareequivalenttothoseavailableinafreetradezone,withouttheexpensesinvolvedinmaintainingabondedwarehouse.

11 IPAustralia,Reviewofthe‘SpareParts’provisioninthe‘DesignAct2003’,IPAustralia,Canberra,2005,p.6.

DutyDrawbackScheme

TheDutyDrawbackSchemeenablesexportingcompaniestoobtainrefundsofpaymentsofcustomsdutieswherethosegoodswillbetreated,processedorincorporatedinothergoodsforexportorwhengoodsarere-exportedunused.Dutydrawbackcanonlybeclaimedafterthegoodshavebeenexported.

TeamAustraliaAutomotive

Vehiclesupplychainsarebecomingincreasinglyglobalised.TeamAustraliaAutomotiveaimstoenhanceopportunitiesinglobalsupplychainsbydiscoveringopportunitiesandmatchingtheseopportunitieswiththecapabilitiesoftheAustralianautomotiveindustry.TheAustralianGovernmenthasprovidedgrantstotheTeamAustraliaAutomotiveconsortium.TheroleofTeamAustraliaAutomotiveisdiscussedfurtherinChapter7.

Specificcompany-levelassistance

Therehavealsobeenanumberofone-offmeasuresimplementedtoassisttheindustryachievespecificgoals,includingAustralianGovernmentassistancetoFordAustraliaandtoGMHolden.The$52.5milliongranttoFordAustralia,withadditionalassistancefromtheVictorianGovernment,wastoenablethecompanytodevelopthenextgenerationFalconanddesignandengineerapick-uptruckplatformfortheglobalmarket.Similarly,therewasa$6.7milliongranttoGMHolden,withadditionalfundsfromtheVictorianandSouthAustralianGovernments,tointroducesafetyandfuelmanagementimprovementsandfurtherreducegreenhousegasemissionsfromCommodorevehicles.

LPGVehicleScheme

TheAustralianGovernmentestablishedtheLPGVehicleSchemetoassistprivateusemotoristswiththepurchaseofanewLPGvehicleortheconversionofaneworusedpetrolordieselvehicletoLPG.Twodifferentgrantsareavailable:agrantof$2,000followingtheLPGconversionofaneworusedpetrolordieselmotorvehicle;oragrantof$1,000forthepurchaseofanewmotorvehiclewithanLPGunitfittedatthetimeofmanufactureofthevehicle.

Asof15June2008,136,838grantshadbeenpaid,withatotalvalueof$272.6million.12

12 AusIndustry,LPGVehicleSchemeStatistics,DIISR,Canberra,2008,viewedathttp://www.ausindustry.gov.au/content/content.cfm?objectID=A622D054-FBD0-48A2-A70D56E6002630CD&L2Parent=&L3Parent=D47685C8-0B0B-459C-B07A2EFBDB3D4AF7


Governmentpurchasingpolicies

Businessandgovernmentfleetpurchasersaccountedforoverthree-quartersoftotaldomesticdemandforAustralian-madevehiclesin2007(businessaccountingfor56.8percentandgovernment18.5percent).Governmentpurchasesaresupportedbylocalpreferencesapplyingtosomegovernmententitiesatthestateandnationallevel.Forexample,theVictorianGovernment’scarfleetcontractsarewithdomesticproducers.

TheCommonwealthandallthestatesandterritoriesareactivelyencouragingthepurchaseofmorefuel-efficientvehicles.ThesepoliciesarediscussedingreaterdetailinChapter8.

GreenCarInnovationFund

TheAustralianGovernmenthasannouncedthatitwillestablishaGreenCarInnovationFundworth$500millionoverthefiveyearsfrom2011.TheFundaimstoprovideincentivesforR&Dandinnovation,andtosupporttheuseofnewengineeringsolutionsandadvancedmaterialstoimprovefuelefficiencyinAustralian-madevehicles.TheFundwillinvolvetheAustralianGovernmentinvestingonedollarforeverythreedollarsinvestedbytheindustry.Theaimistogenerateatleast$2billionworthofR&Dinvestmentingreencars.

InJune2008,theAustralianGovernmentannouncedthatitwasbringingforward$35millionoftheFundtoassistToyotatoassemble10,000hybridCamrysayear,beginningin2010.Boththeenginesandhybridcomponentswill,atleastinitially,beimportedfromJapan,whilethecarswillbeassembledatToyota’sAltonaplantinMelbourne.TheGovernmentalsoannouncedthatitwouldusetheFundtoimproveby20percentthefuelefficiencyofcarsbuiltinAustraliaby2010.

TheFundisdiscussedfurtherinChapter8.

domestIc tAxAtIon of vehIclesVehiclesaresubjecttoarangeoftaxesonbothpurchaseanduse.UnderAustralia’sfederalsystemofgovernment,taxesareleviedatboththenationalandstateandterritorylevels.

Nationallevel

A10percentGSTappliestothesaleofallautomotivevehicles.Thistaxoperatesinasimilarwaytothevalue-addedtaxescommoninmanyothercountries.AnLCTof25percentappliesonretailvaluesin

excessof$57,123forthe2007–08financialyear(thatis,25percentonlyontheproportionofthepriceabovethisamount).Thecarlimitisindexedannually.Certaincommercialvehicles,emergencyvehicles,motorhomes,campervansandvehiclesadaptedtocarrypeopleseatedinwheelchairsareexemptfromtheLCT.TheLCTthresholdisalsothemaximumvalueofavehiclefordepreciationpurposes.TheLCTraisednearly$298millionofrevenuein2004–05.overthree-quartersofLCTcollectionsinthatyearwereraisedfromcompanies.

From1July2008,theLCTisduetoincreasefrom25percentto33percent,achangethatwasannouncedinthe2008–09Budget.ThelegislationwaspassedbytheHouseofRepresentativesinJune2008but,atthetimeofwriting,ithadbeenreferredtoaSenateCommitteeforconsideration.ItisalsobeingconsideredaspartofthereviewintotheAustraliantaxationsystemconductedbytheTreasurySecretary,DrKenHenryAC.

Stateandterritorylevel

Stateandterritorytaxesvaryindetailandlevelfromstatetostate.Howevertherearesomecommonelements.Stampdutiesareadvaloremtaxes(approximately3percent)onthefirstregistrationofvehicles.Thereisalsoaflatfeefortheinitialissueoflicenceplatesinmoststatesandterritories.Annualregistrationfeesareleviedonallmotorvehicleswithhigherfeesforlargecommercialvehiclesandlowerfeesformotorbikes.Allvehiclesarerequiredtocarryinsurancecoveringpersonalinjurycausedtothirdparties.

Theindustryisalsosubjecttopayrolltax,withdifferentthresholdsapplyingacrossthestatesandterritories.

Fueltaxes

Excisedutyiscurrentlyappliedatarateof38.143centsperlitretounleadedpetrolanddiesel.Ethanolandbiodieselalsoattractanexciserateof38.143centsperlitrebuttheyalsoreceiveanoffsettingproductionsubsidy.Inaddition,allfuelsaresubjecttoGST.ThecombinedeffectoftheexcisedutyandtheGSTonfuelalsohasbeenreferredtoDrHenry’staxationreviewforconsideration.13

AnexcisedutyiscurrentlynotleviedonLPG.However,from2011,anexcisedutyof2.5centsperlitrewillbeimplemented,risingto12.5centsperlitrein2015.

13 Shanahan,P,‘PMhitsbreakonluxurycartax’,TheAustralian,27May2008.

36| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY

Fringebenefitstax

FBTisleviedonvehiclesprovidedbyanemployerforanemployee’sprivateuse,includingthoseusedbyanemployeeunderanovatedleasearrangement.14ThestatutoryformulausedtolevyFBTisonaslidingscale,whichdecreasesasthedistancestravelledincrease.TheFBTwillbediscussedinfurtherdetailinChapter8.

summAry of fIndIngsTheAutomotiveCompetitivenessandInvestment�Schemehasrecentlyunderwrittentheprofitabilityofmanyfirmsintheautomotiveindustry.However,underwritingprofitabilityhastheeffectofkeepingmarginalfirmsintheindustryandinhibitsaprocessofrationalisationthatwouldhelptheindustryachievegreatereconomiesofscaleandproductivityimprovements.

Theautomotiveindustryreceivessubstantial�supportfromtheAustralianGovernment.

Tariffsupporttotheautomotiveindustryequates�toover$600pernewvehiclesoldinAustralia,ornearly$2,000pervehiclemanufacturedhere.

Nevertheless,assistancetotheindustryhas�fallensignificantlyoverthepasttwodecades,andhasmovedfromhightariffsandquotastootherformsofsupport.

Itisappropriatetoretainthesection72�exemptionoftheDesignsAct2003,subjecttoIPAustralia’sreviewprocess.

14 TheAustralianTaxationofficeprovidesthefollowingdescriptionofanovatedlease:“Underanovatedleasearrangement,youtakeoverallorpartofthelessee’srightsandobligationsunderthelease.Thistransferofrightsandobligationsisagreedtoinadeedofnovationbetweenyou,thefinancecompanyandthelessee.Thelesseeisusuallytheemployee,oranassociateoftheemployee.”Formoredetail,refertohttp://www.ato.gov.au/businesses/content.asp?doc=/Content/23465.htm

|37

IntroductIonSignificantdirectemploymentintheindustry,stronglinksbetweentheindustryandotherpartsoftheeconomy,andperceivedtechnologicalandemploymentspillovershaveledmanygovernmentstoprovideformsofassistancefortheirautomotiveindustries.Thishasvariouslyinvolvedtheimpositionoftariffsorotherimportbarriers,foreigninvestmentincentives,exportsubsidies,protectionforIPrights,andsupportforR&Daswellasinvestmentineducationandtraining.

Overrecentyears,governmentsupportintheleadingindustrialnations(includingAustralia)hasshiftedawayfromimportbarriersandtowardssupportforR&D,education,trainingandIP,butprotectionfromimports(oftenofthenon-tariffvariety)stillplaysanimportantroleinmostemergingeconomies.Fiscalsupportpackages,alongwithincentivestoattractforeigninvestment,suchastaxholidaysandreductionofincometaxratesforforeigncompanies,arealsowidespread,suchpoliciesbeingcommoninbothdevelopedanddevelopingcountries.Theprotectionsgiventotheautomotiveindustryinmanycountriesarealsomoregenerousthanthosecountriesgivetoothersectorsoftheireconomies.Theseassistancearrangementsarediscussedmorefullylaterinthischapter.

Oneparticularpolicy-relatedtrendaffectingtheautomotiveindustryistheproliferationoffreetradeagreements(FTAs).Forexample,theUnitedStatesisasignatoryto11FTAs,andanumberofothersareunderdiscussion,whileAustraliahasfourformalFTAsandisholdingformalnegotiationswithseveral

othereconomies.ThesecomplementmultilateraltradeliberalisationthoughinstitutionssuchastheWorldTradeOrganization(WTO)andtheAsia–PacificEconomicCooperation(APEC)forum.

tarIffs Mostcountriesimposetariffsontheimportationofautomotivegoods.Thesetariffsarebothasupportmechanismfordomesticautomotiveindustriesandasourceofrevenue.Table5.1showsthetariffsinanumberofeconomies,includingmajorautomotiveproducingcountriesinEurope,theAmericasandAsia.

ThetableshowsthatinternationalautomotivetariffsarestillgenerallyhighrelativetoAustralia’sautomotivetariffs.Moreover,manydevelopedeconomiesalsoimposerelativelyhightariffs,suchasthe25percenttariffimposedbytheUnitedStatesonimportsofgoods-carryingvehicles(forexample,pickuptrucks).Thissegmenthasbeenamajor‘profitgenerator’forthedomesticUSproducers.Inaddition,Malaysia,forexample,hasreduceditstariffsonpassengermotorvehicles(PMVs)from300percentto30percent,buthasincreaseditsvehicleexcisetaxtobetween75and125percent(dependingonenginecapacity).

Therealsoseemstohavebeensome‘steppingback’byseveralcountriesintheircommitmentstotradeliberalisation.Forexample,aspartofitsautomotivepolicy,ChinaintroducedtheMeasuresontheImportationofPartsforEntireAutomobiles,whichimposeatariffof25percentonimportedcomponents(ratherthan10percent)whenthenumberorvalueofimportedpartsinanassembledvehicleexceedsspecifiedthresholds(thisisdiscussedfurtherinChapter7).

ChAPTER5:international automotive policies and assistance arrangements

38| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |39INTERNATIONALAUTOMOTIVEPOLICIESANDASSISTANCEARRANgEMENTS

Further,on22April2008Vietnamannouncedanincreaseinitstariffoncarsfrom70to83percent.Thereasonscitedweretoreducetrafficcongestionandthetradedeficit.

Non-tariffbarrierscanalsorestrictautomotivetrade.Forexample,andasnotedinChapters4and7,ThailandrestructureditsexciseonmotorvehiclesaccordingtoenginesizeaftertheFTAwithAustraliacameintoforce.TheexcisedisadvantagesAustraliancarexporters,whichproduceonlylarge-enginevehicles.

natIonal automotIve polIcIesMostmajorautomotive-producingcountriescomplementtheirtariffregimeswithpoliciestoprotectandfosterthedevelopmentofadomesticautomotiveindustry.Inmanyinstances,thesepoliciesareaccompaniedbyspecificinvestmentincentivestoattractautomotivefirmstoestablishoperationsinahostcountry,includingtheestablishmentof‘green

car’manufacturing.Further,somecountries,suchasMalaysia,usenon-tariffbarrierssuchasimportlicensingandotherrestrictionstoprotecttheirindustries.

AmorecompletediscussionoftheautomotivepoliciesandspecificassistancearrangementsofselectedeconomiesisatAppendixC.Insummary,theseincludethefollowing:

AspartofitsNationalAutomotivePolicy,Malaysia�hasintroducedanIndustrialAdjustmentFundofinterest-freeloansandmatchinggrantstohelpmanufacturersfacegreatercompetitionandliberalisation.

Thailandhasintroducedincentivestoencourage�automakerstosetuplocalproductionbasesfor‘eco-cars’thatmeetthemoststringentEuropeanemissionstandards.Underthescheme,companiesthatproduceeco-carswillnothavetopaycorporateincometaxesontheirinvestmentsforeightyears,anddutiesonimportedmachinery

table 5.1. automotive tariffs in selected countries

country pmvs (%) motor vehicles for the transport of

goods (%)

engines (%) gearboxes (%)

Australia 10 5 10 10

Brazil 35 35 18 18

Canada 6.1 6.1 0–6 6

China 25 15–25 10–17.5 18.6

EuropeanUnion 10 10–22 2.7–4.2 4.5

India 105 30 30 30

Indonesia 60 5-20 15 15

Japan 0 0 0 0

RepublicofKorea 8 10 8 8

Malaysia 30 30 5–30 25

Mexico 20–30 13–50 18 18

Philippines 30 3–30 1–10 10

Russia 25 10 0–3 0

SaudiArabia 5 5 5–15 7

SouthAfrica* 30 10–34 0 20

Thailand 80 5–40 10 30

UnitedArabEmirates 5 5 5 5

UnitedStates 2.5 25 0–2.5 2.5

Vietnam** 83 n/a 35–50 25

*Asat2007.**AsatApril2008.

Notes: Thetariffsareasat2006. Tariffsforvehiclescanvarydependingonfactorssuchasenginecapacityandwhethertheyhavesparkorcompressionignition. Tariffpreferencescanapplyforimportsfromcertaincountries.

Sources:USTradeRepresentative(2008);forRussia,EuropeanAutomobileManufacturersAssociation&CostNews,no.9,June2007(followinglegislationintroducedbytheRussiangovernmentinNovember2006,importedautomotivecomponentsintendedforfurtherassemblageofmotorvehiclesenjoyreducedcustomsduties(0–3%insteadofthenormal5–15%));forallothers,WTOAppliedTariffDatabase2006.

38| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |39INTERNATIONALAUTOMOTIVEPOLICIESANDASSISTANCEARRANgEMENTS

willbewaived.1AsatJune2008sixeco-carprojectshavereceivedBoardofInvestmentprivileges,includinghonda,NissanandSuzuki.Combinedproductionofthesecarsisestimatedat800,000unitsinthenextsixtosevenyears.Inaddition,thegovernmenthasexemptedimporttariffsonE852carparts,aswellasreducingexcisetaxesforE85-poweredvehicles.3

TheIndiangovernmentseestheautomotive�sectorasa‘sunrisesector‘andinJanuary2007launcheditsAutomotiveMissionPlan.Theplanisajointdocumentpreparedbyindustryandthegovernment,encompassingproactiveactioninattractinginvestment,affirmativeactionwithregardtoexpansionofinfrastructureanddevelopmentofhumanresources.4

SouthAfrica’sMotorIndustryDevelopment�Programwasdesignedtohelptheindustryadjustandincreaseitscompetitivenessinthenewpost-apartheidtradepolicyenvironment.Theprogramcomprisesfiveprincipalelements,includinganexport–importcomplementationschemeunderwhichvehicleandcomponentsexporterscanearntradeable‘ImportRebateCreditCertificates‘tooffsetdutiesonimportedvehiclesandcomponents.

Slovakiaattractsautomotiveinvestmentsthrough�amixofalow-cost(butskilled)labourforceandtaxationandrelocationincentives.

In2006theFederalgovernmentofgermany�launchedaNationalhydrogenandFuelCellTechnologyInnovationProgrammeandisprovidingfundingtotalling€500millionoverthenext10years.Togetherwithfundsprovidedbytheindustry,thiswillbealong-termprogramwithfundingtotalling€1billion.Theobjectiveistosignificantlystepupappliedresearchand,inparticular,developmentactivitiesinthefieldofhydrogentechnologyandfuelcells.5

IntheUnitedStates,stategovernments,�particularlyinthesouth,havebeenactiveinofferinginvestmentincentivestoautomotivemakers.Incentivesincludepropertytax

1 BoardofInvestment(Thailand),BoItoPromoteEco-CarsMaximumIncentivesforIntegratedCarAssemblyandKeyPartsManufacturingProjects,PressReleaseNo.87/2/2007(O.41/2),BoI,n.p.,June2007.

2 E85isafuelwhichis85percentethanoland15percentpetroleum.3 MCOT,govt’sIncentivesInsufficientforE85CarsMadeinThailand,

2008,viewedathttp://enews.mcot.net/view.php?id=46184 MinistryofheavyIndustries&PublicEnterprises(India),Automotive

MissionPlan2006–2016,MhIPE,n.p.,2007.5 FederalMinistryofEconomicsandTechnology(germany),National

hydrogenandFuelCellTechnologyInnovationProgramme,FMET,n.p.,2006,viewedathttp://www.iphe.net/germany/h2FC%20Strategy%20englV%208May2006.pdf

abatements,reducedelectricityrates,extensionofinfrastructure,paymentstowardworkertrainingprograms,jobcreationtaxcredits(uptoUS$1,000pernewposition)andpre-employmentjobtrainingprograms.TheUSEnergyDepartmentisproviding$30millionoverthreeyearsforplug-invehicleprojects.Thefundingwillsupporttheassemblyof80plug-invehiclesforfleettestingbyChrysler,theenhancementoflithium-ionbatterypacksandchargingsystems,andthedeploymentofplug-invehicletestfleetsbygM(whichalsoreceivedsupportfromstateagencies).Additionally,FordwillworkwithSouthernCAEdisonandJohnsonControls-Safttoacceleratethemassproductionofplug-inhybrids.6

Japan’sMinistryofEconomy,TradeandIndustry�willspendUS$1.72billionoverfiveyearsfornext-generationpowertrainsandfuelstocutpetrolconsumptionandreducecarbondioxideemissions.Morethan75percentofthefundingwillfocusonhydrogenfuelcelltechnology.7

summary of fIndIngsMostcountries,includingAustralia,impose�tariffsontheimportationofautomotivegoods.Non-tariffbarrierscanalsohavetheeffectoflimitingtradeinautomotiveproducts(forexample,Thailand’sexcisebasedonenginesize).Additionally,countriesfosterthedevelopmentoftheirdomesticautomotiveindustrythroughactiveautomotivepolicies.Inmanyinstances,emergingeconomiescomplementthesepolicieswithspecificinvestmentincentivestoattractautomotivefirmstoestablishoperationsinthehostcountry.

Australia’stariffsarerelativelylowby�internationalstandards.Ofthemajorautomotiveproducingcountries,Australianhasthefifthmostopenmarketasmeasuredbythetariffrateforcars.

Theemergingautomotivemanufacturing�countriesintheregionareparticularlyactiveinprovidingup-frontsupporttovehicleproducers.

6 JohnsonControls,JohnsonControls-SaftNamedasBatterySupplierforFordTestFleetofPlug-InhybridElectricVehicles,mediarelease,JohnsonControlsInc.,Milwaukee,June102008,viewedathttp://www.johnsoncontrols.com/publish/us/en/news.html

7 greenCarCongress,JapanPlanstoSpend$1.72BillionOver5YearstoSpurDevelopmentofLow-CarbonPowertrainsandFuels,greenCarCongress,n.p.,28May2007,viewedathttp://www.greencarcongress.com/2007/05/japan_plans_to_.html

|41

IntroductIonInnovationiscriticaltotheAustralianautomotiveindustryinmeetingfuturechallengesandachievingefficiencyandproductivitygains.Whilethereisnosingledefinitionofwhatconstitutesinnovation,itisagreedthatitismuchbroaderthanR&Dandcanincludeproductandprocessimprovements,organisationalchange,improvementstoworkforceskillsandmanagement,andtechnologyuptake.1Fortheautomotiveindustry,innovationisnotjustaboutimprovedproducts:itmustalsodeliverproductionprocessimprovements,fasterandmoreeffectivemodeldevelopmentsystemsand,forthatmatter,improvementsthroughoutthecompletevaluechain.2

TheprimaryformofassistanceforinnovationintheautomotiveindustryisfundingforR&D.ThisassistanceisthroughtheAutomotiveCompetitivenessandInvestmentScheme(ACIS),andtheR&Dtaxconcession—withthedefinitionofeligibleautomotiveR&DunderACISbeingmuchbroaderthanthatusedfortheR&Dtaxconcession.TheindustryalsoreceivessupportfrominitiativessuchasthecooperativeresearchcentresandtheCommercialisingEmergingTechnologies(COMET)programs.

Severalsubmissionsarguethatthisassistanceforinnovationisjustified,sincetheeconomicbenefitsderivedfromsupportingtheindustry‘spillover’intoothersectorsoftheeconomy.Whilesuchspillovers

1 ThisdefinitionincludesR&DaswellasthoseinnovationactivitiesusedbytheOECDassetoutintheOsloManual.(OECD,TheMeasurementofScientificandTechnologicalActivitiesOsloManual:GuidelinesforCollectingandInterpretingInnovationData,3rdEdn,OECD,2005.)

2 FCAI,Submissiontothe2008AutomotiveReview,p.46.

aredifficulttoquantify,therearenumerousexampleswhereproductorprocessinnovationsfromtheautomotivesectorhavehadrealbenefitsforothersectors.Someoftheseexamplesarediscussedlaterinthischapter.

FindingsandrecommendationsonmeasurestoimprovetheinnovationandR&Dperformanceoftheindustry,aswellasmeasurestoaddressgreenhousegasemissionsandpromotea‘greener’automotiveindustry,arealsodiscussedinChapters8,10and11.

natIonal InnovatIon SyStem and other concurrent revIewSInJanuary2008,theAustralianGovernmentannouncedareviewoftheNationalInnovationSystem.Amongotherthings,thereview“willidentifygapsandweaknessesintheinnovationsystemanddevelopproposalstoaddressthem”.Thereview’sexpertpanelwilldeliveraGreenPaper,whichwillbefollowedbyaWhitePaperresponsefromtheAustralianGovernment.3

Consistentwithitstermsofreference,theReviewofAustralia’sAutomotiveIndustryworkedwiththeNationalInnovationSystemreviewtoachievecompatibilityamongtherespectivefindingsandrecommendations.Forsimilarreasons,theAutomotiveReviewhaddiscussionswiththeconcurrentReviewofAustralia’sTextiles,ClothingandFootwearIndustry,4theReviewofAustralia’sExport

3 Carr,K(MinisterforInnovation,Industry,ScienceandResearch),GovernmentAnnouncesReviewofNationalInnovationSystem,mediarelease,SenatortheHonKimCarr,Canberra,22January2008.

4 Refertowww.innovation.gov.au/tcfreviewforfurtherinformation.

CHAPTER6:innovation

42| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |43INNOVATION

PoliciesandPrograms5andtheGarnautClimateChangeReview.6

ThischapterprovidesanoverviewofextantinnovationissuesandprogramsrelevanttoAustralia’sautomotiveindustry.Nonetheless,theAustralianGovernment’sbroaderinnovationpoliciesandprogramscouldchangeinthefutureasaresultoftheNationalInnovationSystemandotherreviewprocesses.

reSearch and development

R&D,innovationandcompetitiveness

Asthelinchpinofbothproductandprocessinnovation,R&DiscentraltoimprovingthecompetitivenessandsustainabilityofAustralia’sautomotiveindustry.Inparticular,competitivelevelsofR&DexpenditurecansupportinitiativesthatwillhelpprovidetheAustralianindustrywithinnovativetechnologiesandproductswithwhichtowinnewexportmarketsandbecomeasignificantplayerinthepivotalnewarenaofgreenandfuel-efficientvehicletechnologies.ThisisevenmoreimportantgiventhattheAustralianindustrycannotcompetewiththewagecostsinemergingcountriessuchasChinaandThailand.Thus,asstatedinthejointsubmissiontotheReviewfromtradeunionsrepresentedintheindustry,thenexusofR&Dandinnovationisthekeytosustaininganinternationallycompetitiveautomotiveindustrybasedonhigh-skillandhigh-wagejobs.7

AstheFederalChamberofAutomotiveIndustriesnotedinitssubmissiontotheReview:

InnovationisnotjustaboutR&D.Therearemanyotherelementsthatgointoinnovationwhetherithastodowithimprovedproducts,betterproductionprocessesandmoreeffectiveorganisationalandsupplychainmethods.

Thissection,however,largelyfocusesonR&D,whichisrelativelyeasytomeasureandforwhichthereisalargeamountofreliabledata.

5 Refertohttp://www.dfat.gov.au/trade/export_review/index.htmlforfurtherinformation.

6 Refertohttp://www.garnautreview.org.au/domino/Web_Notes/Garnaut/garnautweb.nsfforfurtherinformation.

7 FederationofVehicleIndustryUnionsetal.,Submissiontothe2008AutomotiveReview,2008,p.24.

BERDandhumanresourcesdevotedtoR&DintheAustralianautomotiveindustry

Businessexpenditureonresearchanddevelopment(BERD)bytheAustralianmotorvehicleandpartsmanufacturingsectorgrewbyanannualaveragerateof7.48percentoverthelastdecadetoreach$654millionin2005–06(seeFigure6.1).8Thisrepresentednearly17percentoftotalmanufacturingBERD.Inaddition,theR&Dintensityoftheautomotiveindustrywas11.6percentin2005–06.9ThisisaboutthreetimeshigherthanformanufacturingasawholeandaboutninetimeshigherthanfortheAustralianeconomy.10

About89percentoftheautomotivesector’sBERDwasforexperimentaldevelopment,therebeingverylittlepureorbasicstrategicresearch.ThissuggeststhattheAustralianautomotiveindustryisfocusedonproductdevelopmentasopposedtothedevelopmentofnewtechnologies.

AutomotiveindustryexpenditureonR&Dhasincreasedsince2001,whenACIScommenced.In1999–2000,thelastfullfinancialyearbeforeACIScommenced,industryexpenditureonR&Dwas$347.9million.11By2005–06,industryR&Dexpenditurehadincreasedby$306.3millionto$654.2million.ACISR&Dassistancein2005–06was$146.7million(seeTable6.1).

8 AustralianBureauofStatistics,ResearchandExperimentalDevelopment,Businesses,Australia,2005–06,cat.no.8104.0;andunpublishedABSdata,cat.no.8104.0,ABS,Canberra,2008.ItshouldbenotedthattheABSusestheOECDdefinitionofR&D,whichismuchnarrowerthanthedefinitionofR&DusedforACIS.

9 R&DintensityismeasuredbyBERDasaproportionofindustryvalueadded.

10 TheACISdefinitionofR&DisbroaderthantheABSdefinitionofBERD.Forexample,undertheABSBERDdefinition,R&Dexpenditurefundedbyabusiness,butperformedwhollybyanotherentityonitsbehalf,isnotincluded.UnderACIS,suchR&DexpenditureisallowedsolongasthebusinesscontributestothedirectionoftheR&Dundertaken.OtherexamplesofactivitiesthatareclassifiedasR&DunderACISbutnotBERDincludecostsassociatedwithobtainingindustrialpropertyrights,costsforsupportingR&D(forexample,administrativestafforassociatedoverheads),industrialengineering,andengineeringdesign

“necessaryfortheimplementationofneworimprovedproductsorservicesandthecommercialuseofneworimprovedprocesses”.Formoredetail,refertoACISAdministrativeRegulations2000;ABScat.no.8104.0,ResearchandExperimentalDevelopment,Businesses,Australia,2005–06,ExplanatoryNotes;andtheOECD’sProposedStandardPracticeforSurveysofResearchandExperimentalDevelopment(‘FrascatiManual’),2002.

11 ibid.


OneareaofconcernisthatthegrowthofautomotiveR&Dexpenditurehasflattenedoutinrecentyears(seeFigures6.1and6.2).WhereasannualgrowthofR&Dexpenditureinmotorvehicleandpartsmanufacturingaveragedabout18.5percentintheperiodfrom1999–2000to2002–03,thefigurefor2003–04to2005–06wasonly2percent.ThismaybepartlyduetothelumpinessofR&Dexpenditureinthemotorvehicleindustry,which,likeinvestmentmoregenerally,isshapedbythelonglead-intimesforthedesign,developmentandreleaseofnewmodels.InternationalcompetitionforinvestmentinanR&D-intensiveindustrymayalsobeafactor.

ThesecomparisonssuggestthatACISfundingcouldbenefitfromretargetingandstreamliningtowardsmoreinnovativeresearchtoencouragefurthergrowthinautomotiveindustryBERD.12

Asdiscussedabove,theautomotivesectorisoneofthelargestcontributorstoR&DspendinginAustralia.ThesectorconsequentlyemploysasignificantnumberofstaffinR&D-relatedactivities.Forexample,Holden’sregionaldesignandengineeringcentreemploysaround1,000designers,engineersandtechnicalstaff.Intotal,theautomotivesectoremployed3,307researchers,techniciansandothersupportingstafftoundertakeR&Din2005–06.Thisisconsiderablyhigherthananyothersectorwithin

12 DepartmentofInnovation,Industry,ScienceandResearch,KeyAutomotiveStatistics2007,DIISR,Canberra,2008.R&DexpenditureisincurrentpricesandisforANZSICIndustryGroup281,MotorVehicleandPartManufacturing.

manufacturing.Itisalso73percenthigherthanadecadeagoandshowsgreatergrowthinhumanresourcesdevotedtoR&Dthanforallbusinessescombined—thelatterupby58percentoverthepast10years.InthepastdecadetherehasbeenasignificantchangeinthemixofR&Demploymentintheautomotiveindustry,withresearchersnowaccountingfornearly60percentofallhumanresourcesdevotedtoR&D;in1995–96thefigurewas44.5percent.Moreover,in2005–06,17.8percentofhumanresourcesinthemanufacturingsectordevotedtoBERDwereemployedinmotorvehicleandpartsmanufacturing.13

AppendixDprovidesfurtherinformationonBERDintheautomotiveindustry.

Internationalcomparisons

TheautomotiveindustryisoneofthelargestinvestorsinR&Dandisoftenrankedwithothertechnology-intensiveindustriessuchaspharmaceuticals,informationtechnologyandelectronics.InWesternEuropetheautomotiveindustryaccountsforaround30percentoftotalbusinessR&D.In2006,fouroftheworld’slargestcorporatespendersonR&Dweremotorvehiclemanufacturers.14

R&DexpenditureintheAustralianautomotiveindustryaccountsforabout6.5percentoftotal BERD.Thisfigureissignificantlybelowthecorrespondingfiguresforanumberofothercountries,such

13 ibid.14 FCAI,Submissiontothe2008AutomotiveReview,2008,p.46.

Figure 6.1. australian automotive industry R&D expenditure, 1995–96 to 2005–0612

Note:R&DexpenditureisincurrentpricesandisforANZSICIndustryGroup281,MotorVehicleandPartManufacturing.

Source:DepartmentofInnovation,Industry,ScienceandResearch(2008).


asGermany(32percent),theCzechRepublic(26percent),Sweden(19percent),andJapan,FranceandtheRepublicofKorea(all15percent).ThesefiguresreflecttheoperationsofmajorautomakerslocatedinthosecountriesandtheirpropensitytomaintaincoreR&Dathome.15

Australia’sprovisionofgovernmentassistanceforautomotiveR&Dappearstobesimilartothatofothercountries,withtheexceptionofSweden(seeFigure6.2).Comparedwithmostotherdevelopedcountries,governmentinAustraliaactuallycontributesasignificantlygreaterproportiontothetotalR&Dexpenditureofitsautomotiveindustry.However,astheFederationofAutomotiveProductsManufacturersnotedinitssubmissiontotheReview,whileexpenditure“relativetothesizeoftheautomotiveindustryishigh,theabsolutelevel,whilecreditable,islow,comparedtothatinothercountries,suchastheUSorJapan”.16Inaddition,GMHolden’ssubmissiontotheReviewstatedthatAustraliaislaggingbehindotherdevelopedcountriesinthekeyareaofsupportforR&D.1718

15 NationalScienceBoard,ScienceandEngineeringIndicators2008,Volume1,NationalScienceFoundation,Arlington,VA,2008,pp.4–43,availableathttp://www.nsf.gov/statistics/seind08/

16 FAPM,Submissiontothe2008AutomotiveReview,p.50.17 GMHolden,Submissiontothe2008AutomotiveReview,p.36.18 FAPM,op.cit.,p.50.

Government aSSIStance for InnovatIonTheAustralianGovernmentprovidesstrongsupportforinnovationandR&Dthrougharangeofassistancemeasures.In2006–07,supportforbusinessR&Danditscommercialisationaccountedforone-thirdoftotalbudgetaryassistancetoindustry.19ACISandAutoCRC(theCooperativeResearchCentreforAdvancedAutomotiveTechnology)aretheonlyinnovationassistanceprogramsspecifictotheautomotiveindustry.

Table6.1showstheAustralianGovernment’sbudgetaryassistanceprovidedtotheautomotiveindustry.This“levelofassistanceprovidedtoautomotiveR&Daccountsfor13percentoftotalbusinesssectorinnovationsupport(andwillriseto20percentin2006–07).”20

19 ProductivityCommission,TradeandAssistanceReview2006–07,PC,Canberra,2008at3.2.

20 ProductivityCommission,PublicSupportforScienceandInnovation,ResearchReport,ProductivityCommission,Canberra,2007,p.439.

Figure 6.2. Mean annual government funding for automotive sector R&D as a proportion of gross domestic product, 2002–200818

Source:FAPM(2008).


table 6.1. australian Government’s R&D assistance to motor vehicles and parts manufacturing, 2005–06 and 2006–07

Program/Scheme 2005–06 ($ million)

2006–07 ($ million)

CommercialReadyProgram* 1.3 2.2

COMETprogram <0.1 0.1

Cooperativeresearchcentres 4.6 5.1

PremiumR&Dtaxconcession 5.4 7.5

Pre-seedfund 0.3 0.0

R&DStart <0.1 0.0

R&Dtaxconcession 14.3 15.5

ACIS 146.7 168.9

MVPR&DScheme 6.7 12.0

*TheAustralianGovernmentclosedtheprogrameffectivefrom14May2008.

Sources:ForACISandtheMVPR&DScheme,DIISR(2008),TheAustralianGovernment’s2008–09ScienceandInnovationBudgetTables(Table3);forallothers,ProductivityCommission(2007),Trade&AssistanceReview2006–07,PCCanberra,April(Table3).

AutomotiveCompetitivenessandInvestmentScheme

AsdiscussedinChapter4,theAutomotiveCompetitivenessandInvestmentScheme(ACIS)providestheautomotivecomponentproducers,automotivemachinetoolandtoolingproducersandautomotiveserviceproviderswithimportdutycreditsbasedonthevalueofinvestmentinapprovedR&D.Inaddition,recipientscanreceiveACIScreditsforinvestmentinplantandequipment,animportantsourceoftechnologyuptake.

ACISalsoincludesthemotorvehicleproducer(MVP)R&DScheme,whichisdirectedatencouragingAustralianMVPstoinvestinhigh-endR&Dtechnologies,whilecollaborationandimprovementsinthesupplychainaresupportedbygovernmentandindustrythroughthe$7.2millionSupplierDevelopmentprogram.ThisprogramiscomplementedbyinitiativessuchasAutomotiveSupplierExcellenceAustralia(ASEA),acollaborativeeffortinvolvinggovernmentandindustrythataimstodevelopaprioritisedsector-widesetofinitiativestoraisesuppliercapabilitiestoagloballycompetitivestandard.ASEAisdiscussedfurtherinChapter9.

SeveralexamplesraisedinsubmissionstotheReviewdemonstratethatACISfundingisleadingtoR&Dthatwouldnothaveotherwisetakenplace.TheFederationofAutomotiveProductsManufacturers(FAPM)conductedastudyofitsmembersin2008andfoundthatACISisresponsiblefordriving73percentofparticipantcompanyexpenditureinR&D,which

suggestsahighlevelofadditionalR&DflowingdirectlyfromACIS.21

InitssubmissiontotheReview,FuturisnotedthatACISallowsthefirmtospendapproximately6to7percentofannualsalesonR&Dactivities,comparedwith1to2percentbeforeACISexisted.Asaresult,FuturishasusedACIStofundarangeofR&Dprojectsthatmightnothaveotherwiseoccurred,includinganR&DcentreinMelbourneforitsglobaloperations.FuturisbelievesthatwithoutACISfundsthisfacilitywouldhavebeenestablishedinChina.22

ACISsupporthasallowedContinentalPtyLtdtosenditsemployeesontrainingsessionstoupgradetheirskillsandknowledgebase.ContinentalnotesthatthishasledtoimprovementsintheskillleveloftheR&Ddepartmentoverthelastfewyears.23

GMHolden’sroleasthecentreofexpertiseforGM’sglobalrear-wheel-drivevehicledevelopmenthasledtoanumberofsignificantprogramsbeingundertaken,whichareeligibleforR&Dcredits.ToyotaandFordalsohavedesignandengineeringfacilities.

TheProductivityCommissionhasbeenlessenthusiasticabouttheinducementeffectsofACISbutnotedthatitwasdifficulttodrawdefinitiveconclusions.Ontheonehand,theCommissionnotedthestronggrowthinautomotiveR&DsincetheinceptionofACISandsurveydatafromtheautomotiveindustryontheimportanceofACIStothatresult.Ontheotherhand,theCommissionnotedthatsomeoftheactivitysupported,involvingmodificationofexistingproductsandprocesses,islikelytohavebeenundertakenwithoutpublicsupportandthatR&DinmanufacturinggenerallyhadincreasedovertheperiodACISapplied.TheCommissionalsonotedthatthesupportprovidedbyR&DincentivesneededtobeweighedagainsttheeconomicbenefitstoAustraliaassociatedwiththetransitiontoalowerautomotivetariffenvironment.24

Overall,theindicationsarethatACISneedstoberetargetedtoencouragefurthergrowthinautomotiveindustryR&D.Furthermore,eligibleR&DsupportedbyACIScouldbestreamlinedtoproperlyreflectR&Dactivitiesattheinnovativeendofthespectrumandsofacilitategreateradditionality.RecommendationsforchangingACISareaddressedinChapter11.

21 FAPM,Submissiontothe2008AutomotiveReview,p.59.22 Futuris,Submissiontothe2008AutomotiveReview,p.28.23 FAPM,Submissiontothe2008AutomotiveReview,p.76.24 ProductivityCommission,PublicSupportforScienceandInnovation,

ResearchReport,ProductivityCommission,Canberra,2007,pp.439–440.

46 | REVIEW of AUSTRALIA’S AUToMoTIVE INDUSTRY | 47 INNoVATIoN

Cooperative Research Centre for Advanced Automotive Technology

The Cooperative Research Centre for Advanced Automotive Technology (AutoCRC) aims, through strategic industry-led research collaborations, to deliver improved manufacturing and vehicle technology for Australia’s benefit. Its participants are eight leading vehicle and component manufacturers, two state governments and 10 research institutions. The Australian Government, industry, universities and state governments, have provided joint funding of $100 million over seven years.

MVPs, especially GM Holden, have been highly involved in the AutoCRC program. GM Holden currently has 18 research projects under way, involving 10 different research organisations. Many of these AutoCRC projects are already generating valuable intellectual property, and some are moving to the implementation phase. These projects include work on advanced fastening processes, ergonomic modelling, voice recognition systems and virtual reality tools for assembly-line operator training.25

Innovation Councils

As part of its election platform in 2007, the Labor Party announced that it would establish a series of Innovation Councils in the second half of 2008. These councils will act as key advisory bodies to government and as innovation advocates on a range of matters. Members will be drawn from leaders in innovation, business, unions, professional organisations, science and research agencies and government.

The councils will also have an important role in linking activities across the innovation community, including the Australian Government’s Enterprise Connect Network (discussed later in this chapter).

R&D tax concession

The R&D tax concession is an ongoing scheme designed to increase the level of R&D being conducted by Australian companies. It is broad based, not industry specific, and market driven, with the applicant entity deciding on the scope and timing of the R&D. The scheme offers a tax deduction of 125 percent of expenditure incurred on R&D activities (or a 175 percent premium under the R&D incremental tax concession). An ‘R&D tax offset’ (equivalent to the value of the R&D tax concession) is available to companies with an annual turnover of less than $5 million.

25 GM Holden, Submission to the 2008 Automotive Review, p. 63.

In its submission to the Review, fAPM noted that the R&D scheme is not industry specific and provided inadequate levels of funding for R&D.26 GM Holden, on the other hand, believes that the R&D tax concession is an important incentive for encouraging R&D and its scope should be expanded.

Commercialising Emerging Technologies

Commercialising Emerging Technologies (CoMET) is a competitive, merit-based program that supports early-growth stage and spin-off companies in successfully commercialising their innovations. CoMET provides grants of up to $64,000, successful applicants being required to work with a CoMET business adviser to develop and implement an assistance plan through third-party specialist service providers.

Enterprise Connect

Enterprise Connect provides support to Australian small to medium-sized enterprises to help them become more innovative, efficient and competitive. It is designed to help the enterprises acquire the knowledge, tools and expertise to improve productivity, increase competitiveness, and fully capitalise on their growth potential. Enterprise Connect comprises two components—manufacturing centres and innovation centres. Together, they provide a national network of services and support for eligible small to medium-sized enterprises to access expert practical advice and support tailored to their individual firms.

SpilloverS27

A key rationale for these assistance measures is that the benefits from increased innovation in the automotive sector will ‘spill over’ into other areas of the economy. Spillovers take different forms, including transfers of knowledge, product innovation, production techniques and management techniques.

Spillovers from automotive manufacturing are the result of the well-established links between the industry and other activities. for example, the tooling industry works extensively in the automotive industry but also provides tooling services to a range of other industries and sectors, including rail, aerospace, marine and defence. Any knowledge or efficiency

26 fAPM, Submission to the 2008 Automotive Review, p. 51.27 Spillovers, in a strict economic interpretation, may imply that the

benefits are free to other areas of the economy. In some cases, the expansion of automotive skills into other sectors is done on a commercial basis. This section illustrates the impact that the automotive sector has on the economy beyond its intermediate suppliers.


gainsfromworkingintheautomotivesectorwillbeappliedintheirworkintheseothersectors.

Spilloverstudies

Thelevelofspilloversfromtheautomotivesectorisdifficulttoquantify.TheReviewcommissionedtwostudiesaimedatidentifyingthenatureofspilloversfromtheautomotiveindustry.First,astudywascommissionedthatusedthenumberofpatentcitationsasameasureofinterfirmspillovers.Spilloversweremeasuredbydetermininghowmanyautomotivesectorpatentswerecitedbyotherpatentsintheautomotiveindustryandinotherindustries.

Thestudyfoundthattheautomotiveindustryitselfandthemachineryandequipmentsectorreceiveaboutthree-quartersofspillovers.Significantspilloversalsoarisefor‘automotive-using’industriessuchaslandtransport,salesofmotorvehiclesandprivatehouseholds.Thestudyfoundthatspilloversfromtheautomotivesectoraffectarelativelysmallnumberofotherindustries.Itshouldbenotedthatpatentcitationscannotmeasureallspillovers.TheoutcomesofthestudyarediscussedfurtherinChapter11,andthefulltextofthestudyisatAppendixE.

Anotherstudywascommissionedtoprovideexamplesofautomotivespilloversinpractice.Sevenfirmsfromtheautomotiveindustry(whoseworkincludedtooling,componentmanufacturinganddesign)werethesubjectofcasestudiesthatidentifiedanyspillovers,examinedthenatureofthesespilloversandwhytheyoccurred,andfinallylookedatthequestionofwhethertherewereanyimpedimentstospilloversoccurring.

Thesecasestudiesfoundthattheautomotiveindustryiscompetitive,usesadvancedtechnologyandproducesonalargescale.Suchanenvironmentisconducivetohighlevelsofinnovation.This,coupledwiththeautomotiveindustry’sextensivelinkswithotherindustries,hasledtoextensiveknowledgespilloverstootherpartsoftheeconomy.Thecasestudiesalsoidentifiedarangeofcommonspillovers,includingtransferoflabourandskills,transferofhigh-techengineeringanddesigncapabilities,andtheuptakeofleanmanagementprinciples(suchas‘just-in-time’principlesusedbytheMVPs).Someimpedimentstospilloversthatwereidentifiedincludedlackofinformationwhenenteringnewsectorsandindustrybarrierstonewparticipants(especiallyinthedefenceindustry).ThecasestudiesarediscussedfurtherinChapter11anddetailedatAppendixF.

Automotivespilloversreflecttheimportantlinkstheindustryhastotheheavyengineeringsectoroftheeconomy:itisthelargestindustryinthesector,onethatrequiresgloballycompetitivestandardsinproductsandprocessesandonethathassubsidiariesofmajorinternationalcompanies.TheautomotiveindustryisintegraltoAustralia’scapabilitiesinelaboratelymanufacturedgoods.

Anindustryperspectiveonspillovers

SeveralsubmissionstotheReviewalsoprovidedexamplesofspilloverbenefitsfromtheautomotiveindustry.

Intermsofmanagementspillovers,thebenefitsoftheToyotaproductionsystemwereraisedbyseveralsubmissions.Thissystemisseentobedrivingefficiencyandproductivityacrosstheautomotiveindustryandarangeofotherindustries.Forexample,OzPressproducespartsfortheToyotaCamryandAurion.ItsexperiencewithToyotahasledtoimprovedmanufacturingprocedures,whicharebeingusedinworkforVictalawnmowers.GMHoldennotesthatsincethelate1980sthe“thelocalvehicleassemblershavebeenattheforefrontofdiffusingleanmanufacturingtechnologieswithinAustralia”.28ThisroleisparticularlyimportantgiventhatFAPMidentifiedthelackofmanagementskillsintheautomotivesectorasanarearequiringimprovement.29

Thetruckassemblyindustryisamajorrecipientofspilloversfromtheautomotivesector.Theautomotivecomponentssector,aswellassupplyingcomponentsforthepassengermotorvehicleindustry,alsosuppliestotheAustraliantruckindustry.30Effectively,thetruckassemblyindustryanditsapproximately17,000employeesderiveaspilloverbenefitfromtheskillsandexpertiseoftheAustralianautomotivecomponentssector.Thesebenefitsinturnflowontoothersectorsintheeconomy,especiallytheresourcesindustry,whichisabletoleverageoffalocalisedandcompetitivetruckindustry.

Thehighproductandprocessstandardsrequiredtobecompetitiveintheautomotivesectoralsoleadtospilloversintoimportantindustriessuchasheavyengineering.FirmsintheheavyengineeringormachinerysectorsmustabidebyrigorousstandardssuchasthosesetbyMVPsandTier1producers.Thesestandardsimprovethestandardofworkheavyengineeringfirmsdoforothermanufacturingindustries.Inthiswaytheautomotivesectoriscritical

28 GMHolden,Submissiontothe2008AutomotiveReview,p.52.29 FAPM,Submissiontothe2008AutomotiveReview,p.45.30 TruckIndustryCouncil,Submissiontothe2008AutomotiveReview,

p.2.


inbuildingAustralia’scapabilitiesinproducingelaboratelytransformedgoods.

Intermsofimprovedproductqualityandinnovation,FuturisnotedthatformalaccreditationsystemssuchasQS9000,ISO14001andTS16949havebeenimplementedintheautomotiveindustryandarebeingimplementedacrossarangeofindustries.31

Theautomotiveindustry’sengineeringandskillsbasecanalsoprovideanationaltraininggroundformanymanufacturingandengineeringemployeesindiverseindustries.TheUniversityofMelbournecasestudyprovidesagoodexampleofthistypeofspillover.TheUniversity’sDepartmentofMechanicalEngineeringprovideseducationandtrainingonmechanicalengineeringandalsoconductsresearchwithintheautomotivesector.Thecasestudyshowsthattheknowledgegainedfromresearchandeducationontheautomotivesubjectmattercanleadtosignificantknowledgespillovers.Forexample,studentscantaketheknowledgegainedfromworkingwithautomotive-relatedtechnologiessuchascombustionandaerodynamicsandapplythisknowledgetoworkinothersectorssuchasaerospaceandtransport.

Summary of fIndInGSThelevelofautomotiveindustryR&Dexpenditure�hasplateauedinthelastfewyears,whileR&Dexpenditureinthetotalmanufacturingsectorhasgrownsignificantly.

Australia’sprovisionofgovernmentR&D�assistancefundingtoitsautomotiveindustryrelativetoGDPissimilartothatofmostothercountries.

IndicationsarethatACISneedstoberetargeted�toencouragefurthergrowthinautomotiveindustryR&D.Furthermore,eligibleR&DsupportedbyACIScouldbestreamlinedtoproperlyreflectR&Dactivitiesattheinnovativeendofthespectrumtofacilitategreateradditionality.

Therearenumerousexamplesofspilloversfrom�theautomotiveindustrytoothersectorsintheeconomy.Forexample,Australianautomotivecomponentproducersprovidethenecessaryskillsandknowledgetoallowthetruckassemblerstosupplythegrowingresourcesindustry.ThesespilloverssupportthecontentionthattheautomotivesectorisanimportantcomponentofAustralia’smachineryandequipmentcapability.

31 Futuris,Submissiontothe2008AutomotiveReview,p.45.

|49

IntroductIonAccesstooverseasmarketsiscriticaltoachievingincreasedexportsandhenceenhancingthegrowthprospectsoftheAustralianautomotiveindustry.ExportopportunitiesforAustralianvehiclesandpartsareconstrainedbyseveralfactors,includingtradebarriers,investmentattractionincentiveswhichencourageforeigndirectinvestmentratherthansupplythroughexports,andtheglobalsourcingpoliciesofthemajorvehicleandcomponentproducers.

MarketaccessopportunitiesexistfortheAustralianautomotiveindustrythroughtheextensionoftradeliberalisationthroughmultilateralandbilateraltradeagreements.Theseagreementscanalsoleadtoincreased“cooperationinareassuchasstandards,customsprocedures,services,protectionofinvestmentsandintellectualproperty”.1

trade barrIersMostcountriesimposetariffsontheimportationofautomotivegoods,asdiscussedinChapter5.Thesetariffsacttoincreasethemarketpriceofimportedvehiclesandparts,andactasasupportmechanismfordomesticautomotiveindustriesaswellasasourceofrevenue.Theyincreasepricestoconsumers.

Insomecountries,thereareothertradebarriersinadditiontotariffs,suchasimportlicensingandapprovedpermits(whichareakintoquotas).Lackoftransparencyincustomsproceduresandthegazettalofthevalueofimportedcarsforthepurposesof

1 DFAT,Submissiontothe2008AutomotiveReview,p.4.

determiningimportdutiesarecharacteristicsinsomecountries.Theseacttoconstrainvehicleimportsintothesemarkets,includingfromAustralia.InitssubmissiontotheReview,theFederationofAutomotiveProductsManufacturers(FAPM)detailedarangeofnon-tariffbarriersimposedbymajortradingpartners.Thesearediscussedlaterinthischapter.

TheremovaloftradebarriersisimportanttoAustralia,whichalreadyhasanopenandcompetitiveautomotivemarket,withsomeofthelowestbarrierstoentryamongstautomotiveproducingeconomies.AsnotedbytheFederalChamberofAutomotiveIndustries(FCAI),“developingexportbusinessisofcentralimportancefortheAustraliancarmanufacturersastheyseektopositionthemselveswithinglobalnetworksoftheirparentcompaniesandtoachievethenecessaryscaleofproductiontobeinternationallycompetitive”.2

Investment attractIon IncentIvesMostmajorautomotive-producingcountriescomplementtheirtariffregimeswithpoliciestoprotectandfosterthedevelopmentofadomesticautomotiveindustry.Inmanyinstances,thesepoliciesareaccompaniedbyspecificinvestmentincentives.Theseincentivesareaimedatattractingautomotivefirmstoestablishoperationswithinacountryratherthantoexporttothatmarket.Ontheotherhand,somefirmsexporttoamarketbeforerelocatingtheresoastobetterservicethevehicleassemblersandTier1companies.Theinvestmentincentivescan

2 FCAI,Submissiontothe2008AutomotiveReview,p.30.

ChAPTER7:market access

50| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |51MARkETACCESS

thenconstituteasubsidytoafirmthatwouldhaveundertakenthedirectinvestmentanyway.Theseforeigninvestmentscanalsohelpthelocalindustrygainfurthercontactsinoverseasmarketsaswellasdemonstratetheindustry’scapabilities.3Itmayalsohelpin‘pullingthrough’thesecompanies’suppliersintointernationalmarkets.Forexample,TriMotive,acompanythatproducescomponentsfor1-tonnepickups,hasestablishedmanufacturingoperationsinThailandtotapintotheboomingAsianmarket.ThishasallowedittoalsoexpanditsAustralianoperations,asitsqualitycontrol,R&Dandbusinessrelationsmanagementarelocatedhere.4

TheAustralianAutomotiveAftermarketAssociation(AAAA),initspreliminarysubmissiontotheReview,saidthat“manyGovernmentswerestrengtheningtradingblocs,aggressivelychasingnewinvestmentandformulatingaraftofnon-tariffmeasurestoprotectandgrowtheirlocalindustries”.5

multIlateral and bIlateral trade negotIatIons

Multilateraltradeliberalisationispreferabletobilateraltradeliberalisationinthattheformerencompassesallcountriesratherthanpromotingrestrictedeconomicintegration.Inaddition,freetradeagreements,beingagreementsbetweenmembercountriesonly,discriminateagainstnon-membercountries.Nevertheless,intheabsenceofmultilateraltradereform,theseagreementscanbeasecond-bestpolicyapproachandcancomplementmultilateraltradereforms.

World trade organIzatIon doha development agendaTheWorldTradeOrganizationlaunchedtheDohaDevelopmentAgenda(DDA)in2001.TheDDAisaroundoftradenegotiationsthatcomprisesfurthertradeliberalisationandnewrule-making,underpinnedbycommitmentstostrengthensubstantiallytheassistancetodevelopingcountries.ThesuccessfulconclusionoftheDDAcouldleadtoimprovedmarketaccessforAustraliangoodsandservices,includingautomotiveproductsanddesignandengineeringservices.Itcouldalsoleadtotheintroductionofaconsistentsetoftraderules,loweringadministrativecoststofirmsandgovernment.

3 Futuris,Submissiontothe2008AutomotiveReview,p.21.4 harcourt,T,TheCatEmpirerulesGeelongwithatouchofSiamese,

Economist’sCorner,17October2007,viewedatwww.austrade.gov.au/economistscorner

5 AAAA,Preliminarysubmissiontothe2008AutomotiveReview,p.7.

ThemainimpactonmarketaccessfromasuccessfulconclusiontotheDDAcomesfromtheapplicationoftheSwissformula.UndertheSwissformula,thesizeofatariffreductionisdeterminedbythecoefficientused.Itworksbysettinganewboundrateforatariff.Acountry’sappliedratecannotbeabovetheboundrate.Forexample,Australia’sboundrateonpassengermotorvehiclesis40percentandtheappliedrateiscurrently10percent.6TheDepartmentofForeignAffairsandTrade’ssubmissiontotheReviewreportedthatthemostrecentdraftnegotiatingtextsuggestsacoefficientofbetweensevenandninewouldbeused.ThiswouldmeanthatforAustraliaappliedtariffswouldhavetobereducedtosomewherewithinarangeof4.1to7.6percentforautomotivepartsand6.6to8.8percentforpassengervehicles.however,itshouldbenotedthat“thesetariffswouldnotreachtheselevelsuntil2015,assumingtheDohaoutcomeisimplementedfrom2011andphasedinoverfiveannualinstalments,whichseemsreasonablylikelybutisyettobeagreed”.7

WhileAustralia’sautomotivetariffswouldbereducedundertheDDA,sowouldthoseofothereconomiesincludingtheEuropeanUnion,theUnitedStates,Canada,theRepublicofkoreaandsoon.Akeyconcern,however,isthetreatmenttobeaffordedemergingeconomies,includingtheemergingautomotive-producingnationssuchasChina,IndiaandThailand.Theseeconomiesmaybeabletoapplyadifferentcoefficientofbetween19and23,allowingthemtomaintaintheirautomotivetariffsatmorethandoublethoseapplyingindevelopedeconomies.Inaddition,anumberoftheseeconomiesmaybeabletoshieldtheirautomotivesectorsfromthefulleffectsofatariffcutunderspecialanddifferentialtreatmentprovisions.ItisthisconcernthatpromptedtheFCAItoreportthat“asaconsequenceitislikelythatevenasuccessfuloutcomefromtheDohanegotiationswillreinforceasignificantcompetitiveadvantageforautomotiveproducersindevelopingcountries,suchasThailand,ChinaandIndia”.8

Notwithstandingthis,thesuccessfulconclusiontotheDDAwouldstimulategrowthinAustralia’stradeandeconomy,whichwouldhavepositivebenefitsforAustralia’sautomotiveindustry.Itwouldalsomeanthat,inthelongterm,anyfurthermultilateraltrade

6 TheSwissformulaworksbysettinganewboundrateforatariff.Acountry’sappliedratecannotbeabovetheboundrate.UndertheSwissformula,withacoefficientof10,Australia’snewboundrateforPMVswouldbe(10*40%)/(10+40)=400/40=8percent.

7 DFAT,Submissiontothe2008AutomotiveReview,p.16.8 FCAI,Submissiontothe2008AutomotiveReview,p.31.


negotiationswouldstartwithtariffsatalowerratethanthoseapplyingforthecurrentnegotiations.

World trade organIzatIon accessIonsTherearecurrently29countriesseekingaccessiontotheWTO,includingRussia.Membershipusuallyresultsinlowertariffsandtheremovalofothertradebarrierssuchaslocalcontentprovisionsandquotas.Thesuccessfulaccessionofthesecountriescouldimprovemarketaccessforallautomotiveproducersandserviceproviders,includingthosefromAustralia.

however,thereisconcernthatsomeeconomiesmaybesteppingbackfromtheirWTOaccessioncommitments.Forexample,aspartofitsautomotivepolicy,ChinaintroducedtheMeasuresontheImportationofPartsforEntireAutomobiles.9Severaleconomies,includingtheUnitedStates,theEuropeanUnionandCanada,haveraisedtheissueintheWTO.Inaddition,Vietnamraiseditstariffonpassengermotorvehiclesfrom70to83percenton22April2008.Thereasoncitedforthisincreasewastoreducecongestionandthetradedeficit.

asIa–pacIfIc economIc cooperatIon APECcomprises21membereconomiesfromtheAsia–Pacificregionandaimstofacilitateeconomicgrowth,tradeandinvestmentintheregion.In1994membercountriesagreedtotheBogorDeclarationoffreeandopentradeandinvestmentintheregion,by2010fordevelopedeconomiesand2020fordevelopingeconomies.however,APEChasnotreatyobligationsrequiredofitsmembersandtheBogorDeclarationisthereforenotbinding.

Nevertheless,APEChasbeenconstructiveinhelpingtofacilitateimprovedautomotivemarketaccesswithintheregionthroughitsAutomotiveDialogue.TheAutomotiveDialoguewasestablishedin1999toserveasaforumforgovernmentofficialsandseniorindustryrepresentativestoworktogetheronstrategiesforincreasingintegrationanddevelopment

9 USTradeRepresentative,NationalTradeEstimateReportonForeignTradeBarriers,USTR,Arlington,2008,p.80.Thereportalsonotesthat“therulesrequireallvehiclemanufacturersinChinathatuseimportedpartstoregisterwithChina’sCustomsAdministrationandprovidespecificinformationabouteachvehicletheyassemble,includingalistoftheimportedanddomesticpartstobeused,andthevalueandsupplierofeachpart.Ifthenumberorvalueofimportedpartsinanassembledvehicleexceedsspecifiedthresholds,theregulationsimposedoneachoftheimportedpartsachargeequaltothetariffoncompleteautomobiles(typically25percent)ratherthanthetariffapplicabletoautomotiveparts(typically10percent)”.

oftheautomotivesectorintheregion.ItsMarketAccessWorkingGroupiscurrentlyfocusingonmonitoringandreviewingtheimplicationsofeffortstoreinvigoratetheWTODDAnegotiations(discussedabove)andisre-examiningtheimplicationsofdifferent‘rulesoforigin’regimesinregionalandfreetradeagreements(FTAs)fortheautomotiveindustryintheAsia–Pacificregion.Thisalsoincludesconsiderationoftheprospectsandpotentialadvantagesofincreasedharmonisationofthesearrangements.

free trade agreements MarketaccessopportunitiesexistfortheAustralianautomotiveindustrythroughtheextensionofFTAstonon-FTApartnercountries,especiallythosecountrieswithhightradebarriers.FTAscanalsohelpimproveAustralia’scompetitiveadvantageinmajormarkets.Inaddition,FTAsleadtoexpandedeconomicgrowth,whichcancreatejobsandimproveconsumerwelfare.Thisgrowthhasaflow-oneffecttothelocalautomotiveindustry.FTAsareanimportantpillaroftradepolicyandcomplementmultilateralinitiatives.

AustraliahasenteredintoFTAswithNewZealand,Singapore,ThailandandtheUnitedStates.NeitherNewZealandnorSingaporeisamajorautomotive-producingcountry.AustraliaiscurrentlynegotiatingFTAswithASEAN–NZ,Chile,China,theGulfCooperationCouncil,MalaysiaandJapan.FTAsunderconsiderationincludethosewithIndia,Indonesia,MexicoandtheRepublicofkorea.

however,whileFTAsgenerallyhaveapositiveeffectontheeconomyandconsumers,someofthemmayhaveanadverseimpactontheAustralianautomotiveindustry.Forexample,whiletheFTAwithThailandhasbenefitedconsumersofvehiclesthataresimilartothosesourcedfromThailandthroughlowerprices,andhashelpedtheThaiautomotiveindustryinparticularthroughaneardoublingofautomotiveimportsfromThailand,thepost-entry-into-forcechangestoThailand’sexcisearrangementshaveeffectivelyrestrictedaccesstothatmarketforAustralian-madevehiclessuchastheFordTerritory(seethesectionontheThailand–AustraliaFTAbelow).

Australia–ChinaFTA

TheAustralia–ChinaFreeTradeAgreementJointFeasibilityStudy10indicatedthattradeliberalisationcouldincreaseAustralia’sGDPby$24.4billionin

10 DepartmentofForeignAffairsandTrade,Australia–ChinaFreeTradeAgreementJointFeasibilityStudy,DFAT,Canberra,March2008,p.131,viewedathttp://www.dfat.gov.au/geo/china/fta/feasibility_full.pdf


present-valuetermsovertheperiod2006to2015.Australia’smerchandiseexportstoChinawereexpectedtoincreasebyaround$4.3billionin2015or15percentabove‘baseline’.however,thereportnotesthatindependentmodellingshowsthat,underapossibleFTA,Australia’smotorvehicleandpartsmanufacturingsectorwouldexperiencesmallfallsinbothemploymentandoutput.

China’stariffonvehiclesandautomotiveaccessorieswerereducedto25percentand10percent(averagelevel)respectivelyon1July2006.11InitssubmissiontotheReview,FAPMnotedthatChinahashighnon-tariffbarrierstoentrysuchaslocalcontentrequirements,discriminatorytaxationandadministrativehurdles.12

Thailand–AustraliaFTA

UndertheThailand–AustraliaFTA(TAFTA),whichcameintoforceatthebeginningof2005,Australiareduceditspassengervehicleandlightcommercialvehicletariffstozeroandwillreducethetariffsoncomponentstozeroby2010.Thailandreduceditstariffsonpassengervehicleswithanenginecapacityofmorethan3litresanditstariffsonlightcommercialvehiclestozero.Tariffsonpassengervehicleswithanenginecapacityof3litresorlessandcomponentswillreducetozeroby2010.

SinceTAFTAcameintoforce,exportsofAustralianvehiclesandpartstoThailandhaveincreasedby18percentto$75million.Overthesameperiod,importsofvehiclesandpartsfromThailandhaveincreasedby89percent,toover$3.7billion.ThailandhasrisentobecomethesecondlargestsourceofAustralia’sautomotiveimports,upfromfifthposition.

Australia’sexportsofvehiclestoThailandhavebeenconstrainedthroughtherestructuringofThailand’sexciseonmotorvehicles,whichhasincreasedaccordingtoenginesize.Althoughtheexciseappliesostensiblyonanon-discriminatorybasistoallexporters,itdisadvantagesAustraliancarexporters,whichproduceonlylarge-enginevehicles.ThisrestructuringoccurredshortlyafterTAFTAbegan.ThisissuewasraisedinseveralsubmissionstotheReview.Ford,forexample,reportedthatthischangeintaxstructureresultedintheFordTerritoryhavinga30percentdisadvantageoveritsmaincompetitors.13

11 ibid.,p.27.12 FAPM,Submissiontothe2008AutomotiveReview,p.27.13 Ford,Submissiontothe2008AutomotiveReview,p.41.

Australia–UnitedStatesFTA

UndertheAustralia–UnitedStatesFTA,whichcameintoforceatthebeginningof2005,Australiareduceditstariffsonlightcommercialvehiclesandcomponentstozeroandwillreduceitstariffsonpassengermotorvehiclestozeroby2010.Inresponse,theUnitedStatesagreedtoreduceallitsautomotivetariffstozero.

SincethisFTAbegan,exportsofAustralianvehiclesandpartstotheUnitedStateshavefallenby33percentto$518million.Muchofthis,however,isattributabletothecessationofanexportprogrambyGMholden.AnewprogramofexportsoftheG8andutilityvehiclesbyGMholdenshouldreversethistrend.Overthesameperiod,importsofvehiclesandpartsfromtheUnitedStateshaverisenby33percentto$3.5billion.

Australia–JapanFTA

TheJointStudyintotheCostsandBenefitsofTradeandInvestmentLiberalisationbetweenAustraliaandJapan(April2005)foundthat,givenfullandimmediatebilateraltradeliberalisationbetweenAustraliaandJapanfrom2005,Australia’srealGDPwouldincreaseby$38.7billioninnet-present-valuetermsovertheperiod2005to2025.14ThemodelfurtherfoundthatAustralia’sexportstoJapanwereexpectedtoincreasebyUS$12billionby2020.however,production(oroutput)fromtheAustralianmotorvehicleandpartsmanufacturingsectorwasexpectedtodeclineby0.4percentandexportstoreduceby2.0percent.ImportsofmotorvehiclesandpartsfromJapanwereexpectedtoincreaseby6.5percent.Japanhasnotariffsonautomotivegoods,nordoesitapplyimportrestrictions,customsproceduresorinvestmentrequirements.Itdoes,however,havesomespecificmeasuresthatactasbarriers.InitssubmissiontotheReview,FAPMreportedthatarangeofstrictmeasuresrelatingtoinspections,emissions,vehiclesafety,recyclingandfleetpurchasingallhavetheeffectofdeterringexportstoJapan.15

Australia–RepublicofkoreaFTA

TheAustralia–RepublicofkoreaFreeTradeAgreementFeasibilityStudy(April2008)foundthatfullliberalisationofbilateraltradeandinvestmentbetweenAustraliaandtheRepublicofkoreafrom

14 DepartmentofForeignAffairsandTrade,JointstudyintothecostsandbenefitsoftradeandinvestmentliberalisationbetweenAustraliaandJapan,DFAT,Canberra,April2005,p.168,viewedathttp://www.dfat.gov.au/geo/japan/tef-study/index.html

15 FAPM,Submissiontothe2008AutomotiveReview,pp.24–25.


2007wouldresultinanincreaseinAustralia’srealGDPofUS$22.7billionovertheperiod2007to2020inpresentvalueterms.16AustralianexportstotheRepublicofkoreaareexpectedtoincreaseby31percent,orUS$7.5billion,by2020.ThemotorvehicleandpartsmanufacturingsectorsinboththeRepublicofkoreaandAustraliaareexpectedtogrowundertheFTAcurrentlybeingconsidered.TheRepublicofkoreaappliesan8percenttariffonpassengermotorvehiclesandcomponents,anda10percenttariffoncommercialmotorvehicles.Othernon-tariffbarriersincludelengthyadministrativedelaysthroughcustoms,importeditemsluxurytax,taxesforeducationandsubways,andavehicletaxthatisdependentonenginesize.

Australia–GulfCooperationCouncilFTA

FTAnegotiationswiththeGulfCooperationCouncil(GCC)commencedattheendofJuly2007.17TheGCCcomprisesBahrain,kuwait,Oman,Qatar,SaudiArabiaandtheUnitedArabEmirates.Asdiscussedearlier,automotiveexportstothisregionareofvitalstrategicimportancetoAustralia,andwereworth$2.2billionin2007.

AustraliawouldbenefitsubstantiallyfromanFTAwiththeGCCthataddressedtariffs,whicharegenerallyonly5percentonautomotiveproducts,andotherbarrierstotradeingoods.AnFTAcouldaddresssomeimportanttradeissuesforAustralianindustry,includingcustomsprocedures,technicalbarrierstotrade,non-tariffmeasures,andawiderangeoftradefacilitationmeasures.ItwouldalsoleveltheplayingfieldbetweenAustraliaandthoseeconomiesthathaveFTAswithGCCcountries,includingtheUnitedStates.AnFTAcouldalsobuildonAustralia’sadvantagesintheregion.Forexample,Australiaisseenintheregionasatolerantandsafeenvironmentforstudents,withtheadditionaladvantageofbeingEnglish-speaking.

Australia–ASEAN–NZFTA

InMarch2005,negotiationscommencedforanFTAinvolvingAustralia,NewZealandandASEAN(comprisingBurma,BruneiDarussalam,Cambodia,Indonesia,Laos,Malaysia,thePhilippines,Singapore,ThailandandVietnam).

16 DepartmentofForeignAffairsandTrade,Australia–RepublicofkoreaFreeTradeAgreementFeasibilityStudy,DFAT,Canberra,April2008,p.108,viewedathttp://www.dfat.gov.au/geo/rok/fta/rok-au-study-report.pdf

17 DepartmentofForeignAffairsandTrade,2008,http://www.dfat.gov.au/trade/fta/gcc/

Australia’stradetothisregionisgrowingrapidly.Inthe10yearsto2006,Australia’stwo-waymerchandisetradewithASEANgrewbyanaverageannualrateof9.5percent.18AutomotivetradewiththeASEANregionissignificant,withexportsof$216millionandimportsofaround$4billionin2007.SeveralsubmissionstotheReviewnotedthatbecauseofthistradeimbalanceonautomotivegoods,Australiashouldproceedwithnegotiationsinthisregionwithcaution.however,manyofthesecountrieshavehightariffandnon-tariffbarrierstotrade,whichcouldbeaddressedinacomprehensiveFTA.

Thealreadyhighandgrowingpopulation,combinedwithincomegrowth,oftheASEANregionalsomakesthisanimportantpotentialmarketforAustralianautomotivegoodsandservices.ForeigndirectinvestmentintoAustraliaintheautomotivesectorcouldbefacilitatedbygainingaccesstothismarket.

Australia–MalaysiaFTA

InApril2005,AustraliaandMalaysiaagreedtolaunchnegotiationsonabilateralFTA.MalaysiaisanimportanteconomicpartnerforAustraliaandranksasourthird-largesttradingpartnerinASEANandour11th-largesttradingpartneroverall.Tradebetweenthetwocountrieshasgrownsteadilyinrecentyearsandin2006–07stoodataround$11.9billion.IntermsofautomotivetradetoMalaysia,Australiahasatradedeficitofaround$74million.Tradeinbothdirectionshasdeclinedinthepastfewyears,withexportsfallingfrom$30.3millionin2003to$11.6millionin2007.Overthesameperiod,automotiveimportsfromMalaysiafellfrom$95.2millionto$85.9million.

Ascopingstudy,coordinatedbytheDepartmentofForeignAffairsandTrade,reportedthatanAustralia–MalaysiaFTAwouldincreaseAustralia’sGDPby$1.9billionovertheperiodto2027.Malaysia’sGDPwouldincreasebyaround$6.5billionoverthesameperiod.MalaysiawouldgainmoreastheeconomywithhighertradebarriersandahigherratiooftradetoGDP.19

InitssubmissiontotheAustralia–MalaysiaFTAscopingstudy,theFCAInotedthattheAustralianautomotiveindustrycouldmakesignificantgainsfromthisfreetradearrangement.20FordAustralia

18 DepartmentofForeignAffairsandTrade,2008,http://www.dfat.gov.au/trade/fta/asean/aust-trade.html

19 DepartmentofForeignAffairsandTrade,2008,http://www.dfat.gov.au/geo/malaysia/fta/

20 FCAI,SubmissiontotheAustralia–MalaysiaFTAScopingStudy,FCAI,Canberra,2004,viewedathttp://www.dfat.gov.au/geo/malaysia/fta/submissions/fcai.pdf


notedthattheFTAcouldaddressthetradeimbalancebetweenthetwocountries.BothsubmissionsnotedthatMalaysiahashightariffsonvehicles(upto300percent)andarangeofprohibitivenon-tariffbarriersincludingvehicleexcisebasedonenginecapacityandexciseexemptionsforlocalproducers.

IndustryviewsonprospectiveFTAs

MostsubmissionstotheReviewfromindustrysupportedAustralia’spossibleFTAswiththeGCCandASEAN–NZ.Thesamesubmissionsdid,however,argueforacautionaryapproachtoFTAswithChina,JapanandtheRepublicofkorea.Thisisbecauseofthesecountries’capacityandexportorientation,andpossibleadverseaffectsontheindustry.Ontheotherhand,othersubmissionsraisedthepositivebenefitsofFTAstotheindustry,includingimprovedmarketaccessandgreatercooperationovertechnicalbarrierstotrade.

Severalsubmissions,includingfromGMholdenandFord,raisedtheimportanceofimprovedmarketaccess,andpointedoutopportunitieswiththeEuropeanUnion,LatinAmerica,Russia,SouthAfricaandBrazil.ManyoftheseeconomieshavehighertariffsthanAustralia.SouthAfricaandtheUnitedkingdom(amemberoftheEuropeanUnion)arealsoright-hand-drivemarkets,anadvantageforAustralianvehicleproducers.

FeasibilitystudiesarealsobeingundertakenforFTAswithIndia,IndonesiaandMexico.

Behind-the-borderarrangements

FTAscanhelpineliminatingtechnicalbarrierstotradesuchasstandardsconformanceandcertificationissues.however,thesebarriersmaynotbefullyremovedinFTAnegotiations,ortheFTAmaynotcoversomedomesticpolicy-relatedmatters.Forexample,asnotedabove,Thailandimplementedanewexcisetaxstructure,whichactedtoheavilydisadvantageAustralianvehicleexportstoThailand,despiteanFTAexistingbetweenthetwocountries.

Othernon-tariffbarriersidentifiedineconomieswithwhichAustraliaisconsideringFTAsincludeimportlicensingcertification,administrativearrangements,domestictaxes,environmentaltaxesandcharges,fleetpurchasingpoliciesandcustomsvaluationissues.

AprojectfundedbytheIntellectualPropertyInstituteofAustraliareportstheresultsofasurveyofmorethan2,100AustralianenterprisesthathavebusinessdealingswithChina.Thesurveyfoundthat“Chinese

regulationsandlegaltransparencyareofgreaterimportancefortheir[theAustralianenterprises’]Chinesebusinessdealings“thanIPissues(forexampleregistration,examinationandenforcement).Italsofoundthat“amongtheIPissuescoveredinthesurvey,IPenforcementposesthegreatestproblemforAustralianbusinesses”.21

Differencesintraderules

WhiletherehasbeensomeharmonisationinthetraderulesgoverningFTAs,somedifferencesremain.Forexample,inAustralia’snegotiatedFTAs,therulesoforiginaremostlybasedonachangeintariffheading(orsub-heading)withanadditionalregionalvaluecontentthreshold.however,thisthresholdvariesamongagreements.UndertheAustralia–UnitedStatesFTA,theregionalvaluecontentisbasedonanetcostmethod,whereasunderTAFTAitisbasedonabuilddownmethod.Inaddition,therearedifferentcompliancetestsinrelationtotheneedforcertificatesoforigin.Thesedifferencesintraderulesincreaseadministrativecostsforimportersandexportersalike,andcanactasabarriertotrade.

Tariffsasabargaininglever

IthasbeensuggestedthatAustralia’sautomotivetariffscouldbeusedasleveragewhennegotiatingFTAs.Thatis,thetariffshouldonlybegivenupifatradingpartneragreesbilaterallytoloweritsowntariff.however,bilateralproduct-specificdealsareprohibitedunderWTOrules.Inaddition,Australia’sappliedautomotivetariffratesarealreadylow,withthenominaleffectiverate(thatis,tariffrevenue/customsvalueofimports)beingbelow6percentformotorvehicles.

Moreover,currentnegotiationsintheWTOundertheDDAareaimedattradeliberalisation,andthesuccessfulconclusionofthesenegotiationswouldhelprendermoottheargumentabouttheuseoftariffsasabargaininglever.

AnotherconsiderationisthatmakingtheautomotivetariffahostagetotradenegotiationsignoresthecoststoconsumersandtheadvantagestotheeconomyingeneraloffuturereformstoAustralia’sautomotiveassistancearrangements.Inaddition,unilateralreductionsintariffssendapositivesignaltotradingpartnersaboutAustralia’scommitmenttotradeliberalisation.

21 Leahy,A,MacLaren,D,MacDonald,D,Weatherall,k,Webster,E&Yong,J,IntheShadowoftheAustralia–ChinaFTANegotiations:WhatAustralianBusinessThinksaboutIP,IntellectualPropertyInstituteofAustralia,WorkingPaperNo.07/07,September2007,p.2.


global productIon and sourcIng polIcIesNearlyalllargeAustralia-basedautomotivefirmsaresubsidiariesofmultinationalcompanies.Assuch,Australia-basedfirmscannotexporttointernationalmarketsiftheyareconstrainedbyoverseasparents.Forexample,FordAustraliaisapparentlyprecludedfrommanufacturingaleft-hand-drivevehicle,whichlocksitoutofmanymajormarkets.Inaddition,manysmallAustraliancomponentproducersmaybeprecludedfromsupplyingpartstomotorvehicleproducersandTier1companiesbecauseofsupplydecisionsfromtheiroverseasparentsbasedonglobaltenderprocedures,particularlysincetheadventofglobalvehicleplatforms.Inaddition,thecostofabidcanbebetween$0.3and$2million,whichdetersmanysmallerfirmsfrombidding.

InformatIon faIlureManysmallautomotivecomponent,toolingandservicecompaniesmaynotbeabletoaccessglobalsupplychainsbecauseofinformationfailure.Thiscanrelatetotheinabilityofthesesmallfirmstoobtaininformationaboutglobalplatformdevelopmentsandalackofunderstandingofthetenderprocedure.ItcanalsorelatetoalackofknowledgebyglobalcompaniesofthecapabilitiesofsmallAustralianfirms.

encouragIng exportsTheremovaloftradebarriersisimportantforimprovingmarketaccessforAustralianfirms.however,theexportperformanceoftheindustrymaynotbefullyrealisediffirmsdonothavetheabilitytoparticipate.ThisisespeciallytrueformanyAustralian-ownedfirmsintheautomotiveindustrywhicharesmall,operateinafragmentedenvironment,donothavethescaletoeffectivelyenternewmarketsandlackinformationaboutexportorsupplychainintegrationopportunities.Thesefirmscanalsofacethe‘tyrannyofdistance’(thatis,Australia’sgeographiclocationanddistancefrommarkets),whichactsasabarriertoexport.

EncouragingsmallfirmstocollaborateandachievethescalenecessarytowininternationalexportcontractsenhancesthesustainabilityandcompetitivenessoftheAustralianindustry.Otherbenefitsincludeswifterimplementationoftechnologicalimprovements,stimulatingcompanies’internalcostcontrols,andimprovementsinproductivity.Exportingfirmsalsotendtopayhigherwagesandsalariesthannon-exportingfirms.

TeamAustraliaAutomotive

AsubmissiontotheReviewfromtheIndustryCapabilityNetworkLimited(ICNL)outlineditsinvolvementwithTeamAustraliaAutomotive.22Thisconsortium,aninitiativeoftheVictorianandSouthAustraliangovernments,componentproducersandICNL,aimstoovercometheimpedimentsmentionedabove.TheTeamAustraliaconsortiumapproachalsohelpsthefragmentedcomponentsindustrytocreatethescalenecessarytocompeteforinternationalcontracts.

WithfundingfromtheDepartmentofInnovation,Industry,ScienceandResearch,theTeamAustraliaconsortiumemploysarepresentativeinDetroittomarketAustralianautomotivemanufacturerstovehicleassemblersandTier1companies.Thisincludesprovidinginformationtotheinitiative’smembersaboutupcomingmodelsandplatforms,trendsinvehicledesignandenquiriesaboutpossiblebids.ICNLreportedthattheinitiativehadgeneratedUS$4millioninthefirst12monthsofitsoperation.CommonwealthfundingfortheinitiativeceasesinOctober2008.ICNLhasrecommendedfundingforanadditionalfiveyearstocontinueitsoperationsinNorthAmericaandtoexpandtheTeamAustraliamodelintoothercountries.

InitspreliminaryReviewsubmission,theAustralianAutomotiveAftermarketAssociation(AAAA)notedthatithadlaunchedanexporters’networkformembers,whichprovidesinformation,mentoringandseminarstohelpcaptureexportmarkets.23TheAAAAreportedthatfortheindustrytotakefulladvantageofexportopportunitiesrequiresgovernmentandindustrytoworktogetheronaTeamAustraliaapproachtocommonmarkets,customersandproductgroupingstoassisttheindustryintakingthenextstepinitsindustrialisationprocess.24TheAAAAbelievesthatthecostsassociatedwiththeuseofAustrade’sservices,combinedwiththerestrictiononaccesstotheExportsMarketDevelopmentGrantsScheme,precludeitsmembersfromusingsuchprograms.TheAustralianIndustryGroup’ssurveyresults“suggestmorecouldbedonebygovernmentstosupportcomponentcompaniestoexploregreaterexportopportunities.Thesurveyfoundexportdevelopmentprogramstobeoflimitedsuccess”.25

22 IndustryCapabilityNetwork,Submissiontothe2008AutomotiveReview.

23 AustralianAutomotiveAftermarketAssociation,Submissiontothe2008AutomotiveReview,p.4.

24 ibid.,p.2.25 AiG,NationalCEOSurvey:DrivingonInnovationand

Competitiveness,AIG,Sydney,2008,p.5.


Whilethereismuchmeritinsuchaprogram,anyinitiativewouldhavetocomplywiththerulesoftheWTO,avoidbeinganexportsubsidiesprogramandavoidfavouringparticularfirms.

TheTeamAustraliainitiativeneedstopresentaunitedAustralianautomotivecapabilitytobuildrecognitionininternationalmarketsandfullyleveragethecombinedsuiteofnichecapabilitiesthattheAustralianautomotiveindustryhastooffer.Theunitedapproachcouldencompassstategovernmentsupplychainandexportpromotionprograms.Furthermore,deliveryoftheinitiativecouldbecontestabletoensurethatitisefficientandeffectiveinachievingbenefitsfortheAustralianindustry.

Automotiveambassador

ArelatedchallengefortheAustralianautomotiveindustryistogainaccesstothedecisionmakersofthemajororiginalequipmentandTier1componentmanufacturers,andingovernment.Thiscouldbeaddressedthroughawell-knownandrespectedeminentAustralian(orAustralians)undertakinganambassadorialrolefortheindustry.Theambassadorcould‘opendoors’forthewholeAustraliansupplychainandassistinpromotingtheindustryinnewandemergingmarkets.Theambassadorcouldalsohelpfacilitatetrademissionsbybothgovernmentandindustryandhelptobettercoordinatesuchvisitsacrossdifferenttiersofgovernment.ThisinitiativewouldcomplementrelatedinitiativessuchasTeamAustraliaAutomotive.Itwould,however,requireaconcertedandcollaborativeeffortbyindustryandthevarioustiersofgovernment.

ThisambassadorialroleissupportedbyFuturisandothers,whonotedintheirsubmissionstotheReviewthatthisrolewouldbecrucialinpromotingAustralianindustrywithestablishedandalsoemergingandgrowingmotorvehicleproducers.26

revIeW of australIa’s export polIcIes and programsAsnotedinChapter6,theAustralianGovernmenthasannouncedaReviewofAustralia’sExportPoliciesandPrograms.27ThereviewwillexamineAustralia’stradeperformanceoverthepasttwodecadesincludingfactorsaffectingexportgrowth.ThereviewischairedbyMrDavidMortimerAO,whoissupportedbyDrJohnEdwards.AseparateresearchprojectonAustralia’sapproachtoFTAswillbeundertakenin

26 Futuris,Submissiontothe2008AutomotiveReview,p.17.27 Refertohttp://www.dfat.gov.au/trade/export_review/index.htmlfor

furtherinformation.

parallelwiththeexportpoliciesandprogramsreview,andtheresultswillbeincorporatedintothereview’sfinalreport.Thisresearchprojectwill,inpart,alsoanalyseAustralia’smostrecentFTAstoassesstheirnetbenefits.

summary of fIndIngsAustralia’sautomotivetariffsareamongthe�lowestofautomotive-producingcountries.Assuch,thesuccessfulconclusionofacomprehensiveinternationaltradeagreementinwhichdeepcutsaremadetoglobalautomotivetariffswouldimprovemarketaccessforAustralia’sautomotiveproductsandservicesandhavenetbenefitsfortheAustralianindustry.Ofconcern,however,ispreferentialtreatmentformajoremergingautomotiveeconomiessuchasThailandandChina.

Economieswithhightradebarriersandwhere�AustraliacandevelopacompetitiveadvantageshouldbeconsideredaspartofAustralia’sfuturefreetradeagreementagenda.

Manycountriesmaintainnon-tariffandother�beyond-the-borderbarriersthatrestrictmarketaccessforAustralianautomotivegoods.

Thereismeritinextendingfundingtoaninitiative�suchasTeamAutomotiveAustralia,providingitcomplieswithAustralia’sinternationaltradeobligations.

recommendatIonsThesuccessfulconclusionoftheWorldTrade�OrganizationDohaDevelopmentAgendashouldcontinuetobeaprincipalfocusofAustralia’stradenegotiations.

TheReviewofAustralia’sExportPoliciesand�Programsshouldgiveconsiderationtowaysofaddressingbeyond-the-borderissuessuchasnon-tariffbarriersaspartoffuturefreetradeagreementnegotiations.

Australiashouldcontinuetoenterintofree�tradeagreementnegotiations.however,fromanautomotiveperspective,theseshouldbefocusedoncountrieswithwhichAustraliacandevelopitscompetitiveadvantageoroncountrieswhereveryhighbarrierstotradeexist.EconomiesuponwhichAustraliashouldfocusitsfreetradeagreementnegotiationsincludetheGulfCooperationCouncil,theAssociationofSoutheastAsianNationsandSouthAfrica.


Traderules,suchasrulesoforigin,should,�whereverpracticable,beharmonisedacrossfreetradeagreementstoreducecompliancecoststoindustry.

Awell-knownandrespectedindustryfigureor�figuresshouldundertakeanambassadorialrolefortheindustry.

Thisshouldbecomplementedbymedium-�termfundingfortheextensionofTeamAustraliaAutomotivetonewandemergingmarkets,aspartoftheGlobalAutomotiveTransitionSchemeproposedinChapter11.

DeliveryoftheTeamAustraliaAutomotive�initiativeshouldbethroughacontestablegrantprocess,andpresentaunitedAustralianautomotivecapability(encompassingstategovernmentsupplychainandexportpromotionprograms)tointernationalmarkets.

|59

IntroductIonTherewere14.8millionmotorvehicles(includingmotorcycles)registeredinAustraliaattheendofMarch2007.1Thisisanincreaseof1.6millionvehicleregistrationssinceMarch2003,whichequatestoanincreaseinthenumberofvehiclesper1,000residentsfrom663to705.Thecontinuedincreaseinthenumberofvehiclesisadverselyaffectingthequalityoftheenvironmentasvehicleemissionscontributetobothclimatechangethroughtheemissionofgreenhousegases,andtodiminishingthequalityoftheurbanenvironmentthroughincreasedairpollutantsandtrafficcongestion.

Theimpactofmotorvehicletravelontheenvironmentisalsodeterminedbyvehicletypeandenginesize,theageofthevehiclefleet,distancestravelled,thetechnologiesembodiedinthevehiclefleetandfuelquality.Themanufactureofvehiclesandcomponents,aswellastheconstructionofroadtransportinfrastructure,alsoaddtogreenhousegases,whilethedisposalofoldvehiclesandpartscanadverselyaffecttheenvironmentifdoneinappropriately.Positiveenvironmentaloutcomescanbeachievedthroughtheuseofintelligenttransportsystemsanduseoflow-emissionstransportsuchaspublictransportandbicycles.

In2006,roadtransportaccountedfor68.9milliontonnes(or12percent)ofAustralia’snetgreenhousegasemissions.Thiswas14.5milliontonnes(or26.7percent)higherthanin1990.Passengercarswerethelargestsourceoftheseemissions,

1 AustralianBureauofStatistics,MotorVehicleCensus,,cat.no.9309.0,ABS,Canberra,31March2007.

contributing42.6milliontonnes.Thiswas7.4milliontonnes(or21percent)higherthanin1990.2

Fuel consumptIonTheAustraliancarindustryhasannouncedavoluntarytargetofreducingfuelconsumptionofnewpetrol-enginedpassengercarsto6.8litresper100kilometresby2010.TheaveragerateoffuelconsumptionacrossallAustralian-registeredvehiclesintheyearended31October2006was13.8litresper100kilometres,whichmeanstheaverageofthevehiclefleetwaslessfuelefficientthanfortheyearended31October2004,whenitwas13.6litresper100kilometres.Thiscanbeexplainedbythegrowthinthesportsutilitymarket,whichhaslargelyoffsetimprovementsinenginetechnologyasfarasfuelefficiencyisconcerned.3Giventhistrend,thevoluntary2010targetpresentsaverydifficultchallengefortheautomotiveindustry.

LoweringlevelsoffuelconsumptionwillassistAustralianmotoristswiththerisingcostsoffuel.TheAustralianConservationFoundation’ssubmissiontotheReviewnotedthat,atapetrolpriceof$1.50perlitre,a6.8litresper100kilometresstandardcouldsavetheaverageAustraliandriveraround$1,000onpetroleachyear.4

2 DepartmentofClimateChange,NationalGreenhouseGasInventory2006,CommonwealthofAustralia,Canberra,2008.

3 BureauofTransportandRegionalEconomics,InformationSheet18:FuelConsumptionbyNewPassengerVehiclesinAustralia,BTRE,Canberra,2002,p.2.

4 AustralianConservationFoundation,Submissiontothe2008AutomotiveReview,p.4.

ChAPTER8:EnvironmEnt

60| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |61ENVIRONMENT

envIronmental challenges

KyotoProtocol

On3December2007,PrimeMinisterRuddsignedtheinstrumentofratificationoftheKyotoProtocoltotheUnitedNationsFrameworkConventiononClimateChange.Aspartofthisagreement,Australiahassetatargettoreducegreenhousegasemissionsby60percenton2000levelsby2050.5Asacomparativefigure,a60percentreductionin1990emissionsapplieduniformlyacrossthetransportsectorimpliespassengermotorvehicleemissionsof14milliontonnesofcarbondioxidein2050—one-thirdofcurrentlevels.

AustralianDesignRules

TheAustralianDesignRulessetthestandardsthateachvehiclemodelisrequiredtomeet.Intheenvironmentalcontext,theysetstandardsforpollutantemissions,noiseandfuelconsumptionlabelling.Therulesdonotmandatetheuseofparticulartechnology,althoughithasbeennecessaryforvehiclemanufacturerstoinstallparticulartechnologies,suchascatalyticconvertersforlightpetrolvehicles,inordertomeetemissionslimitsimposedbytherules.Therulesforemissionsstandardshavebeenprogressivelytightenedsincetheywereintroducedin1972.

Anationalemissionstradingscheme

TheAustralianGovernmentisestablishinganemissionstradingscheme,tostartnolaterthan2010.TheschemeispartoftheGovernment’sframeworkformeetingtheclimatechangechallenge.Adetaileddesignoftheschemeistobefinalisedbytheendof2008.

TheGovernmenthasoutlinedfivetestsforthescheme:itmustbeacapandtradeschemetobeinternationallyconsistent;itmusteffectivelyreduceemissions;itmustbeeconomicallyresponsible;itmustbefair;anditmustrecognisetheneedtoactnow.Acomprehensiveemissionstradingschemewouldincluderoadtransport.

GarnautClimateChangeReview

TheGarnautClimateChangeReviewwasinitiatedbythethenLeaderoftheOpposition,thehonKevinRuddMP,andbytheFirstMinistersoftheeightstatesandterritoriesofAustralia.Itwas

5 Wong,P(MinisterforClimateChangeandWater),It’sofficial,AustraliaisnowpartoftheKyotoProtocol,mediarelease,Canberra,11March2008.

commissionedbytheFirstMinisterson30April2007.TheCommonwealthjoinedtheReviewattheendof2007.

TheReviewwasrequiredtoexaminetheimpacts,challengesandopportunitiesofclimatechangeforAustralia.Adraftreport6wasreleasedon4July2008,withafinalreportduebytheendofSeptember2008.

ThedraftreportprovidestheReview’ssuggestionsonthedesignoftheemissionstradingscheme,whichshouldcoverasmanysectorsaspracticable,includingtransport.Thiswillhelpensurethatcostsaremoreefficientlysharedacrosstheeconomy.

Thedraftreportadvocatesthefullauctioningofemissionspermitsandthereturnofallrevenuetohouseholdsandbusiness.Italsoproposesthathalfoftheproceedsfromthesaleofallpermitsbeallocatedtohouseholds,around30percentbeprovidedforstructuraladjustmentneedsforbusiness(includinganypaymentstotrade-exposed,emissions-intensiveindustries),and20percentbeallocatedtoR&Dandthecommercialisationofnewtechnologies.TheformerPrimeMinister’sTaskGrouponEmissionsTradingalsocalledfortheinclusionoftransportinthescheme.7

GreenpaperontheCarbonPollutionReductionScheme

On16July2008,theAustralianGovernmentreleaseditsgreenpaperontheCarbonPollutionReductionScheme,whichisintendedtobeimplementedin2010.Attheheartoftheschemeisemissionstrading.Theschemewillcovertransport,butto“offsettheinitialpriceimpactonfuelassociatedwiththeintroductionoftheCarbonPollutionReductionScheme,theGovernmentwillcutfueltaxesonacentforcentbasis”.Thismeasurewillbereviewedafterthreeyears.TheGovernmentwillalsocutfueltaxesforheavyvehicleroadusersonacentforcentbasis.Thismeasurewillbereviewedafteroneyear.TheGovernmentalsoannouncedthatitwillprovidetransitionalassistanceintheformofashareoffreepermitstothemostemissions-intensivetrade-exposedindustries.8

TheAustralianGovernmentalsoproposestheestablishmentoftheClimateChangeActionFundto

6 Garnaut,R,ClimateChangeReview.DraftReport,CommonwealthofAustralia,Canberra,June2008.

7 PrimeMinisterialTaskGrouponEmissionTrading,ReportoftheTaskGrouponEmissionsTrading,DepartmentofPrimeMinisterandCabinet,Canberra,2007,AppendixJ.

8 Garnaut,R,IssuesPaper—Forum5—Transport,PlanningandtheBuiltEnvironment,Canberra,2007,p.4.


facilitatethetransitionofbusinessestoalow-carboneconomy.Itwilldothisbyprovidingpartnershipfundingfor:

capitalinvestmentininnovativenewlow-�emissionsprocesses;

industrialenergyefficiencyprojectswithalong�paybackperiod;and

disseminationofbestandinnovativepractice�amongsmalltomedium-sizedenterprises.9

TheGovernmenthascommittedtohelphouseholdsmeettheincreaseinthecostoflivingflowingfromtheschemethroughmeasuressuchasincreasingpaymentsaboveautomaticindexationtopeoplereceivingpensioner,carer,seniorandallowancebenefits,increasingassistancetootherlow-incomehouseholdsthroughthetaxandpaymentssystemandprovidingassistancetomiddle-incomehouseholds.10

Theimpactonthecostoflivingfromtheschemewilldependuponitscoverageandtheambitioninrelationtoreducingemissions.“Forillustrativepurposes,preliminarymodellingofacarbonpriceof$20pertonne,introducedin2010–11,suggestsanaverageincreaseinthecostoflivingofaround0.9percent.”11

Otheremissionstradingschemes,suchastheEUscheme,excludeemissionsfromroadtransport.12TheEUschemecapturesthemanufacturingoperationsoftheautomotiveindustryatacostof€25pertonofCO2emitted.13Toreduceemissionsfromthevehiclefleet,theEuropeanUnionisconsideringmandatingaveragenewcarCO2emissionsof130gramsperkilometre,14withanadditionalreductionof10gramsofCO2perkilometretobeachievedthroughtechnologies(forexample,low-frictionresistancetyres).however,amandatorytargetofCO2emissionsperkilometremaynotachieveoverallreductionsinemissions,asthereisnoincentivetodriverstoreducethenumberofkilometrestravelled.Itmayalsoimposecostsontheindustrythataregreaterthanthecostsassociatedwiththeinclusionofroadtransportintheemissionstradingscheme.Thisisbecausetheschemeallowsindustrytoachievethelowest-costformofabatement,ratherthanthroughtheuseoftechnologiestoachievemandatedtargets.Inaddition,mandatedtargetsdo

9 AustralianGovernment,GreenPaperFactSheetNo.8:BusinessandtheScheme,16July2008.

10 AustralianGovernment,GreenPaperFactSheetNo.7:householdsandtheScheme,16July2008.

11 AustralianGovernment,GreenPaperFactSheetNo.12:CarbonPollutionReductionScheme—PriceImpacts,16July2008.

12 IncludesPhases1to3(2005–2020).13 Toyota,Submissiontothe2008AutomotiveReview,p.27.14 PriceWaterhouseCoopers,TheAutomotiveIndustryandClimate

Change.FrameworkandDynamicsoftheCO2(R)evolution,PWC,n.p.,September2007,pp.33–34.

notaddressgreenhousegasemissionsfromoldervehicles.Assuch,amandatedemissionstargetisa‘second-best’option.

Ofconcern,however,isthepossibilitythattheintroductionofanemissionstradingschemeinAustraliacouldleadtoasituationwhereAustraliacouldexportitsgreenhousegasemissionsfromvehicleandcomponentmanufacturethroughthepurchaseofautomotivegoodsfromeconomieswithoutanemissionstradingscheme.ThiswouldbedetrimentaltoAustralianmanufacturingandnotleadtoareductioninglobalCO2-equivalentemissions.Whilecompensationtotrade-exposed,emissions-intensiveindustriesmayoffsettheadverseimpactonmanufacturers,itwouldnotaddressthelatterissue.OnemethodtoovercomethiscouldbethatimportersofautomotivegoodsfromeconomiesthatdonotimposearecognisedemissionstradingschemeberequiredtopurchaseanAustraliancarbon-equivalenttowhattheautomotivegoodwouldhaveattractedhaditbeenmadeonshore.Thishassomeadministrativedifficultiesassociatedwithit,suchashowtoaccountforcomponentsmanufacturedineconomieswithanemissionstradingscheme.

Industryviewsontheemissionstradingscheme

IntheirsubmissionstotheReview,mostAustralianmotorvehicleproducerssupportedanAustralianemissionstradingschemeinprinciple,asitwillallowthemarkettoprovideefficientemissionsreductionsbyexploitingleast-costopportunities.however,theyalsostatedthattheimpactontheAustralianautomotiveindustrywillbeparticularlysevereforarangeofreasons.First,Australiaproduceslargecars,whichwilllikelybereplacedbysmallervehiclesasthepriceeffectsoftheschemearefelt.15TheAustralianautomotiveindustryisalsohighlytrade-exposed,withover80percentofdomesticvehiclesimported(includingfromcountrieswhichmaynothaveacomparablescheme).Furthermore,theautomotiveindustryisaheavyenergyuser,andalsoisreliantonheavyenergy-usesectorssuchassteelandaluminium.16Finally,GMholdennotesthatanemissionstradingschemewillforceashifttomoreefficienttechnologies,whichwillcomeataverylargecosttotheindustry.

IntheirsubmissionstotheReview,theFederalChamberofAutomotiveIndustries(FCAI)17andFord18

15 FCAI,Submissiontothe2008AutomotiveReview,p.55.16 ibid.17 ibid.,p.56.18 Ford,Submissiontothe2008AutomotiveReview,p.39.


supportaneconomy-wideemissionstradingscheme(whichincludesroadtransport)asitisanefficientmechanismtodetermineleast-costemissionsabatement.however,theFCAIencouragestheGovernmenttoconsidereachindustryindividually,anddeterminehowhigh-emissionsortrade-exposedindustries,suchastheautomotiveindustry,shouldbedealtwithunderanemissionstradingscheme.

Furthermore,mostReviewsubmissionsnotedthatimpositionofemissionstargetsfornewvehicleswouldbeoverlyburdensomeiftheywereadditionaltoaneconomy-widescheme.Itwouldeffectivelymeantheautomotiveindustrywouldpaymoreforitsemissionsthanotherindustriesforasimilarreductioninoverallemissionsreleasedintotheatmosphere.GMholdenalsonotesthatamandatedCO2targetcouldoverlyinflatethepriceofvehiclesutilisingemissionsabatementtechnologies,andactually“drivebuyingpatternswhichultimatelymaybedetrimentaltoCO2[emissions]”.19

comparIsons oF InternatIonal emIssIons targets Effortstoreducethegreenhousegasemissionsfrommotorvehiclesareunderwayinmanypartsoftheworld.Australia,likeJapan,hasavoluntaryemissionstarget,whiletheUnitedStateshasamandatoryemissionstarget.TheEuropeanUnionisalsoconsideringmandatinganemissionstarget.Aprecisecomparisonbetweenemissionstargetsisnotpossibleduetodifferencesinfleetcoverageandtestmethods.Nevertheless,thefollowingsectionbrieflyoutlinesthetargetsandfleetcoverageofsomeinternationalschemes.

Atanationallevel,theUnitedStateshasamandatorycorporateaveragefueleconomystandard(CAFE).ThishasalsobeenadoptedasavoluntaryindustryschemeinCanada.Eachcarmakerisrequiredtoachieveanaveragefuelefficiencystandardacrossalltheirvehiclemodelseachyear.Differentstandardsapplytocarsandlighttrucks.ThecurrentCAFEisequivalentto8.6litresper100kilometresforcarsand11.4litresper100kilometresforlightcommercialvehiclesandsportsutilityvehicles.Asapartofthe2007EnergyIndependenceandSecurityAct,theCAFEstandardisproposedtobetightenedtotheequivalentof6.6litresper100kilometresby2015forpassengercars.

Inaddition,PresidentBushannouncedinhisJanuary2007StateoftheUnionaddressthathewouldseek

19 GMholden,Submissiontothe2008AutomotiveReview,p.74.

fuelefficiencyimprovementsforcarsandlighttrucks,andsupportcleandieselfuel,atechnologyinwhichEUmanufacturersleadtheworld.Atthestatelevel,California—followedby10otherstates—adoptedarulein2004thataimsfora30percentreductioningreenhousegasemissionsfromcarsandlighttrucksbetween2009and2016.Moreover,in2007,CaliforniaestablishedagroundbreakingLowCarbonFuelStandardforroadtransportationfuelssoldinthestate.By2020,thestandardwillreducethecarbonintensityofCalifornia’spassengervehiclefuelsbyatleast10percent.20

Japanrecentlyannounceditsintentiontofurtherimprovecarfuelefficiencyby20percent,whichtranslatesintoatargetof138gramsofCO2perkilometre,by2015(seeTable8.1).Japan’sfuelefficiencytargetsencompassbothpetrolanddieselpassengerandlightcommercialvehicles,usinga‘bestinclass’or‘toprunner’approach,inwhichthestandardsarebasedonthebest-performingvehiclesineachclass.Formostvehicles,thetargetsaretobemetbyeachvehiclemakerforeachvehicleweightclass.ThemajorityofJapanesevehiclessoldinJapanhavealreadyachievedtheirclassstandard.

InDecember2006,Japanreviseditsfueleconomytargetsupward,andexpandedthenumberofweightbinsfromninetosixteen.Thisnewstandardisprojectedtoimprovethefleetaveragefueleconomyofnewpassengervehiclesfrom13.6kilometresperlitrein2004to16.8kilometresperlitrein2015,anincreaseof24percent.BasedonanalysisbytheInternationalCouncilonCleanTransportation,thenewtargetequalsanaverageof125gramsofCO2perkilometreontheNewEuropeanDrivingCycletest.

TheEuropeanUnionisconsideringagreenhousegasemissionstargetof120gramsofCO2perkilometreby2012,whichisthemostambitiousintheworld.Thistargetwillbedefinedbytheaverageemissionsofnewcarssoldinagivenyear.howexactlythiswillbetranslatedatthelevelofmanufacturersandvehiclesisyettobedecided.21TheEuropeanUnionisconsideringmakingthistargetmandatorybecauseroadtransportisnotincludedunderitsemissionstradingscheme,andalsobecausetheautomotiveindustry’sprevioustarget(140gramsofCO2perkilometreby2008)willnotbemet.

Europe’speakautomotivemanufacturersassociation,theEuropeanAutomobileManufacturers’Association

20 OfficeoftheGovernor(California),‘Gov.Schwarzeneggersignsexecutiveorderestablishingworld’sfirstlowcarbonstandardfortransportationfuels’,pressrelease,California,18January2007,viewedathttp://gov.ca.gov/index.php?/press-release/5174/

21 IhS,FAQonECStrategytoReduceCO2EmissionsfromCars,IhS,n.p.,8February2007,viewedathttp://auto.ihs.com/news/eu-en-car-co2-emissions-faq-2-07.htm


(ACEA),hasavoluntaryagreementbasedstrictlyontacklingCO2emissions.TheagreementcallsforaEurope-wideCO2reductionto140gramsofC02perkilometreby2008.22

In2005,theFCAIestablishedavoluntarytargettoreducenationalaveragecarbonemissions(NACE)forallnewvehicles(under3.5tonnes)to222gramsofCO2perkilometreby2010.TheNACEhasimprovedcontinuouslysincedatawerefirstcollected—from252gramsofCO2perkilometrein2002to226gramsofCO2perkilometrein2007,areductionofmorethan10percent—andcurrenttrendssuggestthatthisNACEtargetof222gramswillbeachieved.23

table 8.1. recent and projected national average carbon emissions (nACE) for all new light or passenger vehicles*

nACE (latest figure)

target Coverage Code

Australia 226.1g

CO²/km

(2007)

222.0g

CO²/km

(2010)

Newlightvehicles

<3.5tonnesgross

mass

Voluntary

EU/ACEA 160.0g

CO²/km

140.0g

CO²/km

Newlyregistered

passengercars

Voluntary

EU(under

consideration)

160.0g

CO²/km

(2007)

120.0g

CO²/km

(2012)

Newpassenger

vehicles,

includingSUVs

Mandatory

Japan24 165.6g

CO²/km

(2004)

138.0g

CO²/km

(2015)

Carsandlight

trucks

Voluntary

*AprecisecomparisonbetweentheEuropeanUnionandotherregulatoryregimesisdifficultbecauseofdifferencesinfleetsandtestmethods.24

Sources:ForAustralia,http://www.fcai.com.au/media/2008/03/00000156.html;forEUandACEA,SquaringtheCircle:EmissionsStandardsintheCarIndustry,EquityResearch,December2005;forEU(underconsideration)http://ec.europa.eu/environment/air/transport/co2/co2_home.htm;forJapan,JapanOptsforIntegratedApproach,http://www.acea.be/index.php/news/news_detail/japan_opts_for_integrated_approach/.

Fueltypesandfuelstandards

Thephysicalcharacteristicsandqualityofmotorvehiclefuelhaveimplicationsforbothfueleconomyandgreenhouseemissions.TheFuelQualityStandardsAct2000providesalegislativeframeworkforsettingnationalfuelqualityandfuelqualityinformationstandardsforAustralia.Thestandardsaddressfuelpropertiesthatareconsideredimportantinfacilitatingtheadoptionofemergingvehicleengine

22 WestinF,SquaringtheCircle:EmissionsStandardsintheCarIndustry,EquityResearch,December2005,p.4.

23 FCAI,Submissiontothe2008AutomotiveReview,p.52.24 StandardsimplementedbytheJapaneseGovernmentin2007set

carmakersthechallengeofachievingafuelefficiencyperformance,whichby2015mustbemorethan20percentbetterthanin2004.ThistranslatesintoaCO2targetof138gramsperkilometre.

andemissionscontroltechnologies,andinmanagingambientlevelsofpollutantsidentifiedasposinghealthandenvironmentalproblems.Itisestimatedthattheremaybereductionsofupto50percentover20yearsforsomepollutantsasaresultofthesestandards.25Fuelqualitystandardshavebeensetforpetrol,diesel,biodieselandLPGautogas.Fuelqualitystandardsarecurrentlybeingconsideredfordiesoholandethanol.Notwithstandingthis,AustralialagsbehindEuropeintheintroductionofmorestringentstandards.

ThecleanerfuelsgrantsschemewasestablishedundertheFuelQualityStandardsAct.Itaimstoreducetransportemissionsandfacilitatetheuptakeofnewenginetechnologiesbyencouragingthemanufactureandimportationoffuelsthathaveareducedimpactontheenvironment.Underthescheme,eligiblefirmscanreceiveagrantof38.143centsperlitre(discountedfromthefuelexcise)forproducingcertainfuelsincludingbiodiesel,renewablediesel,andloworultra-lowsulphurconventionalfuels,suchaslowsulphurpremiumunleadedpetrolandultra-lowsulphurdiesel.From1July2011,compressednaturalgas,LPG,liquefiednaturalgas,ethanol,andmethanolwillbeeligibleforthegrant.26

TheFuelQualityStandardsActsetstheparametersfortheamountoftoxicpollutants,suchasbenzeneandsulphur,thatcomefrompetrolemissions.Figure8.1showsthatasignificantdifferenceinCO2emissionsexistsbetweentheEuro3andEuro4standards.Thefirsttrancheoffuelstandardscommencedwiththeloweringofsulphurlevelsinunleadedpetrolandleadreplacementpetrolto500partspermillion(ppm)atthebeginningof2002andconcludedwithalevelof50ppmofsulphurindieselatthebeginningof2006.27Theproposedreductionofsulphurcontentinpremiumunleadedpetrolto10ppmunderthecleanerfuelsgrantsschemewasraisedinseveralsubmissionstotheReview.however,thisisamatteroutsidethescopeofthisReview.Nonetheless,itisnotedthatnewpetrol-poweredvehiclessoldintotheAustralianmarketwillneedtomeettheAustralianDesignRulesforEuro4compliancein2010.

25 DepartmentoftheEnvironment,Water,heritageandtheArts,December2007,http://www.environment.gov.au/atmosphere/fuelquality/standards/petrol/index.html

26 AustralianTaxationOffice,June2008,http://www.ato.gov.au/businesses/content.asp?doc=/content/00128216.htm&page=2&h2

27 DepartmentofResources,EnergyandTourism,September2004,http://www.ret.gov.au/Industry/Petroleumpetroleumdevelopmentpetroleumexplorationpetroleumretailandpetroleumrefiningandfuels/Pages/RefiningandFuels.aspx


Figure 8.1. Greenhouse gas emissions from family-sized vehicles28

Source:Beeretal.(2004).

Ethanolisderivedfromrenewablebiological28feedstocks,andisgenerallyblendedwithpetroleuminAustralia.Ethanolhasalowerenergycontentcomparedtopetroleum.InAustralia,E10(90percentpetroleumblendedwith10percentethanol)isthemaximumpermittedethanolcontentinpetrol29,butthereisnofuelstandardforethanolcurrentlyunderconsideration.AnumberofAustraliangovernmentinitiativessupporttheuptakeofbiofuelssuchasethanol(andbiodiesel),includingthe$37.6millionBiofuelsCapitalGrantsProgramtosupportneworexpandedbiofuelproductioncapacity,CommonwealthfleetuseofE10,andsimplificationoftheethanollabel.Therearealsomanyinternationaleffortstoincreasetheuseofbiofuels,includingE85(15percentpetroleumand85percentethanol)intheUnitedStates,E100(100percentethanol)inBrazilandtaxincentivesforbiofuelsinGermany.

Autogas(liquefiedpetroleumgas,orLPG)iswidelyavailableinAustraliaatabout3,300servicestationsacrossthecountry.LPGhaslowergreenhousegasemissionsperlitreoffuelconsumedthanpetrol,butalsohasalowerenergycontent.“Thereforeequivalentvehicles[ofasimilarsizeandtype]tend

28 Beer,T,Grant,T,Watson,h,Olaru,D,Life-CycleEmissionsAnalysisofFuelsforLightVehicles,Reportha93a-C837/1/F5.2etotheAustralianGreenhouseOffice,CSIRO,n.p.,May2004,p.4.,viewedathttp://www.environment.gov.au/settlements/transport/publications/lightvehicles.html

29 DepartmentoftheEnvironment,Water,heritageandtheArts,June2007,http://www.environment.gov.au/atmosphere/fuelquality/standards/ethanol/labelling.html

toconsumemoreofLPGthanpetroltotravelagivendistance.”30however,thereisevidencetosuggestthatthelevelofCO2emissionsfromLPGislowerthanthatofpetrol.31Figure8.1suggeststhatthelevelsofCO2emissionsforLPG(seebars8and9inthefigure)arecomparabletothatofpremiumunleadedpetrol(PULP—bar2inFigure8.1).ThefigurealsodemonstratestheimprovementsinCO2emissionsgainedfromlatergenerationsofLPGtechnologycomparedtothosefromearliergenerations.

TheAustralianAlternativeFuelsRegistrationBoardcontendedinitssubmissiontotheReviewthatLPGcontains80percentlesstoxinsand60percentlesscarbonmonoxideemissionscomparedtopetrol.AutogasfuelstandardsaredictatedbytheFuelQualityStandardsActandtheFuelStandard(Autogas)Determination2003.

Dieselhasarelativelyhighenergycontentand,whereenginesarespecificallydesignedtooperateondiesel,theytendtobefarmorefuel-efficientthanpetrolengines.32Figure8.1showsthatthelatestgenerationofdieselfuels(bars4,5and12ofFigure8.1)actuallyemitlessCO2thanpremiumunleadedpetrol(PULP—bar2).Nonetheless,dieselemitsthehighestlevel

30 DepartmentofClimateChange,2008,http://www.greenhouse.gov.au/fuelguide/environment.html

31 DepartmentofClimateChange,NationalGreenhouseAccounts[NGA]Factors,DCC,Canberra,January2008,p.11.

32 DepartmentofClimateChange,2008,http://www.greenhouse.gov.au/fuelguide/environment.html


ofparticulatepollution.33DieselfuelstandardsaredeterminedbytheFuelQualityStandardsAct,theFuelQualityStandardsRegulations2001andtheFuelStandard(Diesel)Determination2001.AustralianDesignRulesformorestringentstandardsondiesel-poweredvehicleswillbeintroducedearlyinthenextdecade.

Biodieselsaredieselfuelsderivedfromplantoranimalmatterratherthanpetroleumsources.ThemostcommonblendsinuseinAustraliaare5percentbiodiesel(B5)and20percentbiodiesel(B20).Figure8.2showsthefullrangeofCO2emissionsofbiodieseldependingonthesource.Generally,dieselfromfeedstockssuchascanola,palmoil,tallowandcookingoilhavesubstantialCO2benefits.Thelackoftailpipeemissions—theseareverylowasCO2issequesteredduringB100production—morethanmakesupfortheupstreamemissions,withsavingsofupto87percentforuseofcookingoil.Theimmensefull-life-cyclegreenhousegasemissionsfrombiodieselobtainedfromtheclearingofforestsshouldalsobenoted,withCO2emissions59to136timesgreaterthanforotherbiodieselfeedstocks.AustraliacurrentlyusesblendedfuelsthathavesmallCO2savingsoverpetrol.BiodieselstandardsaregovernedbytheFuelQualityStandardsAct,theFuelQualityStandardsRegulationsandtheFuelStandard(Biodiesel)Determination2003.

TheintroductionoftheGreenCarInnovationFundcouldhastenthedevelopmentoftechnologiesandvehiclesequippedtooperateonmanyofthesefuels,leadingtoimprovedemissionsoutcomes.

Fuel-efficientandlow-emissionstechnologies—shortterm

TherecentKingReview,commissionedbytheUKGovernment,examinedthevehicleandfueltechnologiesthatoverthenext25yearscouldhelptoreducecarbonemissionsofroadtransport,andparticularlycars.TheReviewconcludedthat30percentfuelconsumptionsavingsareachievablefortheaveragenewvehicleintheshort(5–10year)timeframeusingexistingtechnologies.

Forexample,“[r]ecentimprovementsinenginetechnologysuchasdirectfuelinjectionhavehelpedtoachieveincreasedfueleconomyandreductionsinCO2withoutsacrificingperformance,costorconveniencetoconsumers.Despitea20percentweightgainof

33 Beer,T,Grant,T,Watson,h,Olaru,D,Life-CycleEmissionsAnalysisofFuelsforLightVehicles,Reportha93a-C837/1/F5.2etotheAustralianGreenhouseOffice,CSIRO,n.p.,May2004,p.1.

Figure 8.2. Full-life-cycle greenhouse gas emissions from biodiesel (B100) and its various sources34

Source:Beeretal.(2007).

midsizevehiclesinthepast20years,along-termtrendof0.6percentfuelefficiencyimprovementperyearhasbeenobserved,asaresultoftechnicalimprovements”.35

Thereisalsoarangeoffuturetechnologyoptionsthatcouldbecomeincreasinglyimportantintheraceforgreaterfuelefficiency,suchasincreasinguseoflightweightmaterials,evolutionaryimprovementstocurrentengines,andnewpowertraintechnologies—thelatter“includingvariablevalveactuation,directinjectionandturbo-charging,aswellas‘mild’hybridtechnologiessuchasstop-startandregenerativebraking…”.36

Allthemajorvehiclemanufacturersaremovingtodevelopnewfuel-efficientandlow-emissionstechnologies,includingtheparentcompaniesoflocalMVPs.Initssubmission,GMholdenstatedthatitischasing“energydiversityonseveralfronts”,37including:

34 Beer,T,Grant,T,Campbell,P,GreenhouseandAirQualityEmissionsofBiodieselBlendsinAustralia,ReportNumberKS54C/1/F2.29,CSIRO,2007,p.2.

35 King,J,TheKingReviewoflow-carboncarsPartI:thepotentialforCO2reduction,hMTreasury,London,2007,p.43.

36 ibid.,p.44.37 GMholden,Submissiontothe2008AutomotiveReview,pp.55–56.


thecontinuedimprovementoftheefficiency�ofinternalcombustionengines,bothpetrolanddiesel;

intensifiedeffortstodisplacetraditional�petroleum-basedfuelswithbiofuelsincludingethanolandotheralternativefuels;

thedevelopmentofsustainableproduction�processes,suchascellulosicethanolproduction,whichusescarbon-basedwastematerialasfeedstock;and

thedevelopmentofelectricallydrivenvehicles,�suchashybrids,fuel-cellsandextended-rangeelectricvehicles.

Fordalsoclaimstohavedirectedmanyofitsinnovationactivitiestothedevelopmentofgreendrivingtechnologies.InitssubmissiontotheReview,Fordstatedthatasignificantpartofthecompany’sannualR&Dexpendituresisinvestedinenvironmentalinitiatives,inparticulartheintroductionof“CO2reducingtechnologiessuchasEcoBoost,whichisadirectinjectionturbochargingtechnology”.ReductionsofCO2emissionsofaround15percentareclaimedforthisparticulartechnology.38

ToyotaAustraliaisduetoassemble10,000hybridCamrysayearfrom2010.WhilethisgivestheAustralianindustryastakeinthehybridsector,manyMVPsarenowturningtoplug-inorfullyelectricvehiclesasthewaveofthefuture.Recentadvancesinlithium-iontechnologyhaveresultedinlighterbatteries,whichcanpoweravehicleforaround160kilometresbeforetheyneedrecharging.ThistechnologyhasprogressedsorapidlyinrecentyearsthatseveralmajorMVPsnowconsiderplug-inelectriccarstobecommerciallyattractive.R&DteamsattachedtotheseMVPsarenowfullyengagedinensuringthatelectriccarsentermajormarketssuchastheUnitedStates,EuropeandJapanwithinthenextfewyears.39

GM,forexample,planstolaunchitsplug-inelectriccar,theChevroletVolt,bytheendof2010.TheVoltwillinitiallyoperatewitha‘batteryonly’rangeof64kilometres,butGMplanstoeventuallyincreasetherangeto1,000kilometresbyaddingasmallpetrolorpetrol/ethanolengineforrechargingthelithium-ionbattery.40ToyotaandMitsubishialsoremainontargettoselltheirownelectriccarsintheUnitedStatesin2010.LiketheVolt,theToyotaplug-in

38 Ford,Submissiontothe2008AutomotiveReview,pp.37–38.39 AustralianFinancialReview,‘WhichCar?’,14June2008.40 ibid.Seealso‘GMplanstovaultaheadwithelectriccarChevrolet

Volt’,InternationalBusinessTimes,22November2007.

vehicleisexpectedtohaveanall-electricrangeof64kilometres.41Inaddition,Renault–Nissanplanstoofferabroadrangeofplug-inelectriccarsinseveralmajormarketsby2012.

Renault–NissanhasformedapartnershipwithProjectBetterPlacetoofferelectricvehiclestocustomers.Inaddition,thegovernmentsofDenmarkandIsraelwillprovidetaxincentivestocustomerstopromotetheuptakeofthesevehicles.Renault–Nissanwillsupplytheelectricvehicles,andProjectBetterPlacewillconstructandoperateanelectricrechargegridacrossthecountries.Electricvehicleswillbeavailableforcustomersin2011:

TheRenault–NissanAlliance/ProjectBetterPlacemodelwillseparateownershipofthecarfromtherequirementtoownabattery.Consumerswillbuyandowntheircarandsubscribetoenergy,includingtheuseofthebattery,onabasisofkilometersdriven.42

Futuretechnologies

Intheperiodupto2030,itisexpectedthattechnologicaladvanceswillfollowareasonablypredictablepattern,withanincreaseintheuseofhybridtechnologyandelectricpropulsioninmotorvehicles.Beyond2030,thereislesscertaintyoverwhichtechnologieswilldominatelow-emissionscars,

“butalmostcompletedecarbonisationwilldemandsignificantadvancesintechnology”.43

hydrogenisalong-termtechnologythatisbeingseriouslyconsideredbyarangeofMVPs.hydrogenfuelcellscombinehydrogenandoxygentoproduceelectricenergy,withwaterastheonlyby-product.GM’slong-termglobalstrategyistoeventuallyreplaceallcarbon-basedfuelswithhydrogenfuel-cell-poweredvehicles.GMaimstohaveavalidhydrogenfuel-cellpropulsionsystemby2010thatiscompetitivewithcurrentinternal-combustionsystemsintermsofdurability,performanceandcost.44InApril2007,BMWintroduceditsfirst7-Seriesproductionhydrogeninternal-combustionvehiclesinboththeUnitedStatesandGermany.

Overthelongerterm,possiblyby2050,nearlycompletedecarbonisationofroadtransportmaybearealisticgoal.Thiswillrequireadvancesin

41 King,J,TheKingReviewofLow-CarbonCars.PartII:RecommendationsforAction,hMTreasury,London,2008,p.23.

42 Refertohttp://www.greencarcongress.com/2008/01/renault-nissan.html

43 King,J,TheKingReviewofLow-CarbonCars.PartII:RecommendationsforAction,hMTreasury,London,2008,p.23.

44 GMholden,Submissiontothe2008AutomotiveReview,pp.58–59.


hydrogenand/orelectricbatterytechnologyaswellasa‘zero-carbon’sourceforhydrogenproductionorbatterycharging.ReductionofCO2perkilometreby90percent(andtotalCO2emissionsby80percent)maythenbepossible.Takingaccountofthesepredictedlong-termscenarios—whileallowingforimmediateorshort-termcontingencies—iscrucialtosettinguptheappropriateinstitutionalR&DarrangementsandresearchprioritiesfortheAustralianautomotiveindustry.45

green car InnovatIon Fund AsdiscussedinChapter4,theAustralianGovernmenthascommittedtointroducinga$500millionGreenCarInnovationFundtoencouragetheAustralianautomotiveindustrytodevelopandmanufacturelow-emissionsvehiclesinAustralia,withtheGovernmentinvestingonedollarforeverythreedollarsinvestedbytheindustry.ThebroadobjectivesoftheFundaretoassistinthereductionofautomotivegreenhousegasemissionsandenhancethelong-termcompetitivenessandsustainabilityoftheAustralianautomotiveindustry.Theprogram,whichwouldgenerateatotalof$2billionofinvestmentinautomotiveinnovation,hasbeenwellreceivedbytheautomotiveindustry.

TheReviewwasaskedtomakerecommendationsonthedeliveryoftheFund.

ThedraftreportoftheGarnautClimateChangeReviewproposesthattransportsectorgreenhousegasemissionsshouldbecoveredfromtheoutsetofanemissionstradingschemeandnotesthatfar-reachinginnovationwillbeneededtoachievethedeepcutsnecessarytostabiliseatmosphericgreenhousegasconcentrations.Itnotesthatthereareexternalitiesassociatedwithprivateinvestmentincommercialisingnewlow-emissionstechnologiesandthatwithoutgovernmentinterventiontherewillbesuboptimallevelsofprivateinvestment.On16July,theGovernmentreleaseditsGreenPaperontheCarbonPollutionReductionScheme.Thisalsoproposedtheinclusionoftransportinanemissionstradingscheme.

FortheAustralianautomotiveindustry,acarefullytargetedFundwouldcomplementtheintroductionofanemissionstradingscheme.TheAustralianautomotiveindustry,withitsinnovativedesignandengineeringbase,iswellpositionedtorespondtoglobaldemandforlow-emissions,fuel-efficientcars

45 ibid.

ineveryvehicleclass,includingthelargepassengercarsproducedinAustralia.

Therewillalsobestrongopportunitiesforawiderangeofnichelow-emissionsautomotivetechnologies.Thecommercialbenefitsarelikelytogototheearlydevelopersofthesetechnologies,soitisimportantthattheAustralianindustrymovesquicklytoexploittheseopportunities.TheFundwillthereforebeimportantinre-structuringtheindustrytoaneconomicallyandenvironmentallysustainablefuture.

InJune2008,thePrimeMinisterannouncedagrantfromtheFundof$35milliontoToyotatoassistitinestablishingproductionofhybridpetrol–electricToyotaCamrysinAustralia.46TheVictorianGovernmentwillalsomakeacontribution.Inmakingtheannouncement,thePrimeMinisternotedthebenefitstoAustralianmotorists,theAustralianmotorvehicleindustry,andtheenvironment.healsostatedthattheFundwastoassistthestart-upofnewtechnologiesandbusiness,ratherthanaproductionsubsidy.

TomaximisethepotentialbenefitsoftheFund,theGovernmentwillneedtoconsiderarangeofissuesindesigningitsstructureandeligibilitycriteria,includingtheorganisations,technologiesandactivitiesthatwouldbeeligibletoreceivefunding.

StructureoftheFund

Automotiveindustryinvestmentdecisionsaremadeinthecontextoflongproductdevelopmentcycles.ThefullbenefitsofinitiativessupportedbytheGreenCarInnovationFundmaynotbeevidencedforsomeyearsafterthesupportisprovided.Thestructure,eligibilitycriteriaandapplicationprocessesfortheFundshouldthereforebeestablishedasamatterofpriorityanditsintroductionbroughtforwardto2009.Inaddition,iftheFundprovessuccessfulinthefirsttwoyearsofoperation,itshouldbeextendedbeyonditsinitialfiveyears.

AssistanceundertheFundshouldbepaidascashgrants,followingacompetitiveselectionprocessbasedonbroadcriteriatoassesstheinnovation,technological,commercialandenvironmentalmeritsofapplications.TheMinisterforInnovation,Industry,ScienceandResearchshouldhaveresponsibilityforapprovingindividualgrants,informedbyrecommendationsfromanindependentboardestablishedforthispurpose.

46 Rudd,K(PrimeMinisterofAustralia),ToyotatoBuildhybridCamryinAustralia,mediarelease,10June2008,viewedathttp://www.pm.gov.au/media/Release/2008/media_release_0295.cfm


Automotiveinvestmentisunevenand‘lumpy’overtime,withsomeprojectstakingseveralyearstoreachcommercialisation.Itisalsolikelythatthequalityofapplicationsmayvaryacrosstimeperiods.Forthisreason,thereshouldbesomescopetovarytheamountofFundpaymentsbetweenyears,ratherthanmandating$100millionforeachofthefiveyears.

Thetechnologicalandcommercialriskprofilesoffundingproposalsmayvaryconsiderably.ItmaythereforebeworthconsideringsomescopefortheMinistertoadjusttheone-to-threedollarfundingratiowithinarange(forexample,one-to-twotoone-to-four)totakeaccountofthisvariation.

Thereareseveralwaysthiscouldbestructured.Oneapproachmightbetocategoriseproposalsas(i)incrementalnew-to-the-firminnovations(forexample,theToyotaCamryhybridsproject),(ii)radicalnew-to-the-worldinnovations,(iii)new-to-the-worldR&Dthatiscollaborativewithpublicsectorresearchorganisations,and(iv)new-to-the-worldR&Dthatiscollaborativewithoverseaspartners.Aspecificfundingratiocouldthenbeappliedtoeachcategoryaccordingtoitsriskprofile.

ToensurethatfundingisfocusedonprojectsthatcontributetotheAustraliandevelopmentandcommercialisationoflow-emissionsautomotivetechnologies,theGovernmentmightalsoconsiderspecifyingthebroadallocationoffundsbetweenthesecategoriesofactivities.

TheremaybeaneedtosetamaximumlimitontheamountofsupportavailabletoanyoneFundrecipient.however,thislimitshouldbesetatahighlevelinordernottorestrictsignificantdevelopmentsthatmayhavethepotentialtodeliversubstantialinnovation,commercialandenvironmentalreturns.

EligibilitycriteriaMandatoryanddiscretionarycriteriashouldbedesignedtoassessproposalsagainstamixofquantitativeandqualitativeaspects.Commercialapplicationoftechnologyshouldbeamandatorycriteriontodeterpureresearchproposalsthatwouldnotprovideassuredcommercialorenvironmentalbenefits.

EligibilitycriteriafortheFundshouldnotundulyrestrictthescopeofapplicantstodevelopproposalsthatwoulddelivermaximumbenefitstoAustralianautomotiveinnovation,industryandgreenhousegasabatement.TheReviewrecommendsthateligibilitybeopentoallorganisations,includingresearchorganisations,andindividuals,whileacknowledgingthatapplicationscontainingaclearpathandcommitmenttoAustraliancommercialisationandproductionwouldbemostlikelytofulfilthe

Government’sobjectivesfortheFund.ForeigninvestorsshouldbeencouragedtoapplyforfundingwheretheproposalhascommercialapplicationintheAustralianautomotivesupplychain.

Similarly,Fundeligibilityshouldnotberestrictedtoanyparticularrangeofautomotivetechnologies.Greenautomotiveinnovationandcommercialisationmayemergefromarangeofautomotivetechnologies.Assessmentofapplicationswillneedtocarefullyconsiderandcomparethecommercial,technologicalandenvironmentalmeritsofapplications.Theeligibilitycriteriashouldnotundulyfavourautomotivepowertraintechnology,butbeopentoall‘green’automotivecomponents,systems,technologiesandprocesses.GivenAustralia’sinternationalpositionasaproducerofnicheautomotiveproducts,itshouldnotbeassumedtheFundwouldonlysupportAustralianproductionofcomplete‘green’cars.

TheFundshouldhaveclawbackprovisionssothatfirmscannotclaimforthesameactivityfrommultiplefundingsources.

FrInge beneFIts taxThereisanecdotalevidencethatcurrentFBTarrangementsencouragedriverstoincreasetheamountofkilometresdriveninordertoreduceFBTliability.ThisisatoddswiththeGovernment’sbroadenvironmentalgoalsofreducingcarbonemissions.

ArecentsurveyundertakenbyfleetmanagementcompanySGFleetfoundthat,of15,496novatedleasesunderitsmanagementintheFBTyearending30March2008,adisproportionatenumberofdriverstravelledbetween15,000and16,000kilometresorbetween25,000and26,000kilometres,asshowninFigure8.3.47

BothofthesebracketsfallonasignificantFBTstatutorypercentagereduction,asshowninTable8.2.

table 8.2. FBt statutory percentages48

total kilometres travelled during the year Statutory percentage

Lessthan15,000 26%

15,000to24,999 20%

25,000to40,000 11%

Over40,000 7%

Source:AustralianTaxationOffice.

47 SGFleethad65,000vehiclesintotalundermanagement,asatMarch2008.

48 AustralianTaxationOffice,FringeBenefitsTax(FBT)RatesandThresholds,May2008,http://www.ato.gov.au/businesses/content.asp?doc=/Content/76140.htm&page=4&h4


Figure 8.3. SG Fleet: number of vehicles and kilometres travelled in the FBt year ending march 200849

Source:SGFleet.

49 SGFleet,Submissiontothe2008AutomotiveReview,p.3.

ThesedataareconsistentwiththesuppositionthatdriversaimforparticularkilometrebandsinordertoreducetheirFBTliability.Forexample,SGFleetestimatesthatthecostofdrivinganextra2,000to3,000kilometrestofallwithinalowerFBTbracketwouldbeeasilyoffsetbythegainofmovingfromthe20percenttothe11percentbracket.Indoingso,driversaretravellingmorekilometresandemittingmoreCO2-equivalentemissionsthantheyotherwisemight.

SGFleetproposesashort-andalong-termpolicychange.Intheshortterm,thepolicyistomoreevenlyspreadtheFBT/kilometresbandsoastoencouragedriverstoonlyusetheirvehiclesasoftenoraslittleastheyneedto.ThenewstatutoryrateproposedbySGFleet(seeTable8.3)wouldhavetheeffectofeliminatingthelargefinancialincentivescurrentlyavailabletodriverswhoplantheirvehicleusagetoreachacertainFBTbracket.ItdoesthisbyrequiringdriverswhousetheirvehicleslesstopayalittlebitmoreFBT,whichisoffsettoalargeextentbythereductioninrunningcosts.Theflipsidemeansthatthefinancialincentivetotravelextrakilometrescanbeoffsetbytherunningcostsinvolvedintravellingtheextrakilometres.

table 8.3. SG Fleet’s proposed statutory fractions50

number of kilometres travelled per FBt year Statutory

fraction

0–14,000 26%

14,001–16,000 21%

16,001–18,000 19%

18,001–20,000 17%

20,001–22,000 15%

22,001–24,000 13%

24,001–26,000 11%

26,001–34,000 10%

34,001–40,000 9%

40,001+ 7%

Source:SGFleet.

Theimplementationofaflatstructure,regardlessofdistancetravelled,wasalsosuggestedinsomesubmissions.however,aflatstructurewouldsetanarbitraryamountandcouldleadtoresultscontrarytointendedFBTpolicyoutcomes.Aratethatistoolowcouldreducethecostofsalarypackagingvehicles,andthuserodetheeffectivenessoftheFBTsystem.Ontheotherhand,ahighratecouldremovetheincentivetosalarypackagevehiclesaltogether.

Thestaggereddecreaseinthestatutoryfraction,asseeninTable8.3,ismoreappropriate,asitachievesthepolicyobjectiveoutcomesoftheFBTwithout

50 SGFleet,Submissiontothe2008AutomotiveReview,p.3.


encouragingtheover-useofvehiclesthatisprevalentunderthecurrentsystem.SGFleetbelievesthatthismeasurewouldberevenueneutralandleadtoamoreevendistributioninkilometrestravelled,asshowninFigure8.4.

lpg vehIcle schemeTheAustralianGovernment’sLPGVehicleSchemeencouragestheuptakeanduseofLPGasacheaperalternativefuel.Underthescheme,$2,000willbepaidfollowingtheLPGconversionofaneworusedpetrolordieselmotorvehicle,andagrantof$1,000willbepaidfollowingthepurchaseofanewmotorvehiclewithanLPGunitfittedatthetimeofmanufactureofthevehicle.Asof15June2008,atotalof136,838grantshadbeenpaidtoatotalvalueof$272.6million.51

Amajorityofgrantsunderthescheme(99.2percent)werepaidforLPGconversions.however,severalsubmissionsnotedthatthetechnologyusedforsuchconversionsisbehindthetechnologythatcanbeinstalledatthetimeofvehiclemanufacture.AccordingtoLPGAustralia,therearetechnologiescurrentlyavailable(suchasLPGinjection)thatdemonstratesignificantlybetterperformanceand

51 AusIndustry,LPGVehicleSchemeStatistics,DIISR,Canberra,July2008,viewedathttp://www.ausindustry.gov.au/content/content.cfm?ObjectID=A622D054-FBD0-48A2-A70D56E6002630CD&L2Parent=&L3Parent=D47685C8-0B0B-459C-B07A2EFBDB3D4AF7

lowergreenhousegasemissionscomparedtootherretrofittedLPGtechnologies.ThesetechnologiesalsocomplywithEuro2,Euro3andEuro4emissionstandards.52

however,LPGinjectiontechnologyisonlyinstalledinabout10percentoftheAustralianLPGfleet.Initssubmission,OrbitalnotedthattheLPGpassengercarmarketis“servedbygenerallyunsophisticatedaftermarketLPGsystemswhichhavebeendevelopedinEuropeandarefittedbylocalgaragesasanaftermarketfitment.Inmostcasesthesystemsbeingutiliseddonotmeetthedemandsoftheaverageconsumerintermsofperformance,driveabilityandrange”.53Ontheotherhand,inresponsetoarequestfordetailsontheimprovementsinCO2performancegainedintheconversionofoldervehiclesfromunleadedpetrol(ULP)toLPGusingastandardfumigationsystem,LPGAustraliaundertookanevaluationoftheemissionsperformanceasbetweenULPandLPG.TheseresultsshowimprovedemissionsoutcomesfromconvertingULPvehiclestoLPGusingastandardfumigationsystem.TheresultsarepresentedatAppendixG.

ThebenefitsofLPGfortheAustralianvehicleindustryarealsolimitedbyLPG’snarrowapplicationinlocalvehiclemanufacturing.FordAustraliaiscurrently

52 LPGAustralia,Submissiontothe2008AutomotiveReview,p.7.53 OrbitalAustralia,Submissiontothe2008AutomotiveReview,p.4.

Source:SGFleet.


theonlylocallybasedMVPtoproduceavehiclethatrunsondedicatedLPG.ThissystemhasyettobedevelopedfurtheraspartoftheFGFalconprogramandcouldberetiredwhenthecompanyshiftstoaglobalV6enginein2010.54however,inMay2008,GMholdenannouncedthatitwasconsideringmanufactureofadedicated-LPGversionoftheCommodore.55

TheLPGVehicleSchemeshouldencouragetheuptakeofthebestavailabletechnologies,whichcanbebetterachievedbyanincreaseinthegrantfornewfactory-fittedLPGtechnologies.Loweringthepriceofsuchvehicleswouldincreasedemandforthem,leadingtoimprovedGhGemissionoutcomes.Figure8.1demonstratesthegreenhousegasreductionsthatcanbefoundfromimplementingnewergenerationsofLPGtechnology.Anincreaseinthegrantwouldalsohavethebenefitofencouragingthepurchaseofnewervehicleswithimprovedfuelefficiency.

ThedevelopmentofsuchLPGtechnologiesinAustraliaisimportant,astheoverallinvestmentrequirementsforthisLPGsystemdevelopmentprocessarelowerthana‘cleansheettechnology’anditcanalsobeimplementedintheshorttomediumtermastheLPGrefuellinginfrastructureisalreadyinplace.56Inaddition,AustraliahasabundantreservesofnaturalgasforbothLPGandcompressednaturalgas.

InitiativestoimprovegreenhousegasemissionsfromvehiclesthroughtherevisedLPGVehicleSchemecomplementtheinclusionofroadtransportinanemissionstradingscheme—onepolicyencouragesAustralianMVPsandconsumerstoadopttechnologiesandimproveemissionsoutcomeswhiletheotherpenalisesthosewhouselessfuel-efficientvehicles,whichhavehighergreenhousegasemissions.

Fleet purchasIng polIcIesAsdiscussedearlier,governmentfleetsalesareanimportantpartoftotalAustralian-madevehiclesales.Lessthan25percentofAustralian-madevehiclesalesin2007weretoprivatebuyers.Inthesameyear,governmentsacrossvariouslevelspurchased37,073(or18.5percent)Australian-madevehicles.Forthisreason,theshiftingovernmentpurchasingpoliciestowardmorefuel-efficientvehiclespresentsamajorchallengetotheAustralianautomotiveindustry,

54 ibid.55 Trounson,A,‘Cartradetoosmallforgreenswitch’,TheAustralian,

13June2008.56 OrbitalAustralia,Submissiontothe2008AutomotiveReview,p.6.

whichproducespredominatelylargevehicles.AppendixhsummarisesthevariousAustralian,stateandterritorygovernmentfleetprocurementpolicies.

TheAustralianGovernmenthasannouncedapurchasingframeworkthathas,amongarangeofconsiderations,the‘environmentalbenefit’ofavehicle.TheGovernmentalsoaimstoincreasetheproportionofitsfleetwithGreenVehicleGuide(GVG)scoresof10.5orgreaterfrom18percentto28percent.TheGovernmenthasrecentlyimplementedapolicyofencouragingusersofCommonwealthvehiclestopurchaseE10wherepossible.Sincethecommencementofthepolicy,thegovernmentfleet’smonthlyconsumptionofE10hasincreasedfrom2,000litresduringOctober2005to150,000litresduringJune2007.57

AllAustralianstatesandterritorieshaveannouncedmeasurestoreduceemissionsfromtheirgovernmentfleets.Queenslandhasmadethemostsubstantialchangestoitsfleetpurchasingpolicyinresponsetoenvironmentalconcerns.TheQueenslandGovernmentaimstoreduceannualemissionsby15percentbytheendof2010,25percentbytheendof2012,and50percentbytheendof2017.Moreimportantly,thefleetistohaveaminimum5.5greenhouseratingundertheGVG,whichwouldexcludetheholdenCommodorefromanygovernmentpurchase.however,allotherAustralian-madevehicles(excepttheFordTerritory)haveGVGgreenhouseratingsof5.5orgreater.

VictoriaandWesternAustraliahavemadecommitmentstoLPGvehicles,withthelatteraimingfor25percentofitssix-cylindervehiclestorunonLPG.Victoria,WesternAustralia,theAustralianCapitalTerritoryandSouthAustraliahave,orwillhave,afleetthatincludessomehybridvehicles.TheAustralianGovernmenthasalsoannouncedthatitwillincludetheToyotaCamryhybridinitspurchasingarrangementswhenthisvehicleisproducedinAustralia.

Thesefleetpreferencepoliciesshouldcontinuetoencouragethedevelopmentofthelocalindustrywhilealsoaimingtoimprovegreenhousegasemissionsoutcomes.Asnoted,thelocalindustryisembarkingonarangeofmeasurestoimproveenvironmentaloutcomes.Theinclusionofroadtransportinanemissionstradingschememayovercometheneedforgovernmentstomandatefleetpurchasepreferencesoncarbondioxideperkilometretargets.

57 DepartmentofFinanceandAdministration,AnnualReport2006/07,DoFA,Canberra,2007,p.91.


summary oF FIndIngsIn2006,roadtransportaccountedfor68.9million�tonnes(or12percent)ofAustralia’snetgreenhousegasemissions.Passengercarswerethelargestsourceoftheseemissions,contributing42.6milliontonnes.Thiswas7.4milliontonnes(or21percent)higherthanin1990.

Aneconomy-wideemissionstradingscheme�(whichincludesroadtransport)isanefficientmechanismtodetermineleast-costemissionsabatement.

Theintroductionofanemissionstradingscheme�inAustraliacouldleadtoasituationwhereAustraliacouldexportitsgreenhousegasesfromvehicleandcomponentmanufacturethroughthepurchaseofautomotivegoodsfromeconomieswithoutanemissionstradingscheme.

Additionalvehicleemissionstargetsforvehicles�wouldbeoverlyburdensomeifaneconomy-wideemissionstradingschemeisinplace.

Alternativefuelshavethecapacitytosignificantly�reducegreenhousegasemissions.however,thisisdependentuponthesourcesofthefuels.

Thelocalindustryisembarkingonarange�ofinitiativestoreducegreenhousegasemissionsoutcomes.

Initiativestoimprovegreenhousegasemissions�fromvehiclesthrougharevisedLPGVehicleSchemecomplementtheintroductionofaneconomy-wideemissionstradingschemethatincludesroadtransport—onepolicyencouragesAustralianmotorvehicleproducersandconsumerstoadopttechnologiesandimproveemissionsoutcomeswhiletheotherpenalisesthosewhouselessfuel-efficientvehiclesthathavehighergreenhousegasemissions.

recommendatIonsRoadtransport(includingfuel)shouldbeincluded�intheemissionstradingschemeasitallowstheindustrytodeterminethelowest-costformofemissionsabatement.Inthisrespect,futureconsiderationofmandatoryemissionstargetsfornewvehiclesshouldhaveregardtodevelopmentoftheemissionstradingscheme.

Iftheemissionstradingschemeexcludesroad�transport,thenamandatorygreenhousegasemissionstargetshouldbeintroducedasa‘secondbest’policy.

ThehenryReviewoftaxationshouldconsiderthe�adoptionofanewfringebenefitstaxstatutoryratetablethatismoreevenlyspreadacrosstherangeofkilometrestravelled.Thenewratetablewouldencouragedriverstousetheirvehiclesonlyasnecessary.

Thegrantforliquefiedpetroleumgas(LPG)units�fittedatthetimeofmanufactureofavehicleundertheLPGVehicleSchemeshouldberaisedfrom$1,000to$2,000,provideditfacilitatestheuptakeofnewtechnologiesthatprovidesignificantlybettergreenhousegasemissionsoutcomesthancurrentlyfittedLPGtechnologies.

Australiangovernmentsshouldcontinueto�includeAustralian-madevehiclesasamajorpartoftheirpurchasingpolicies,andshouldreinforcethisthroughathresholdagreementattheCouncilofAustralianGovernments.Thisshouldbesubjecttothelocalindustrycontinuingtoimprovegreenhousegasemissionsoutcomesthroughtheuptakeofvariousemissionsabatementtechnologies.

GreenCarInnovationFund

TheGreenCarInnovationFundshouldassistthe�Australianautomotiveindustrywithdevelopingandcommercialisingtechnologiesaimedatimprovingvehiclefuelefficiencyandemissions.ThecombinationoftheFundwithanemissionstradingschemewilldrivepositiveinnovationandenvironmentaloutcomesfortheeconomyandtheindustry.

Inpreparationforanemissionstradingscheme,�thestartdateoftheFundshouldbebroughtforwardto2009.

IftheFundprovessuccessfulinitsfirsttwo�yearsofoperation,itsfundingshouldbedoubledfrom$500millionto$1billionandtheschemeextendedbeyonditsinitialfiveyears.

BenefitsfromtheFundshouldbepaidascash�grants,followingacompetitiveselectionprocessbasedonbroadcriteriathatassesstheinnovation,technological,commercialandenvironmentalmeritsofapplications.

Sinceautomotiveindustryinvestmentisoften�‘lumpy’thereshouldbescopeundertheFundtovarytheamountofFundpaymentsbetweenyears.

Thereshouldbescopetovarytheone-to-three�dollarfundingratiowithinarange(forexample,one-to-twodollarstoone-to-fourdollars)totakeaccountofvaryingriskprofiles.


Thereshouldbeamaximumlimitsetonthe�amountofsupportavailabletoanyonefundingrecipient.Thislimitshouldbesetatahighlevelinordernottorestrictsignificantprojects.

Mandatoryanddiscretionarycriteriashould�bedesignedtoassessproposalsagainstamixofquantitativeandqualitativeaspects.Commercialapplicationoftechnologyshouldbeamandatorycriterion.

Allorganisationsandindividualsshouldbe�eligible,includingparticipantsintheautomotivesupplychain,researchorganisations,andinternationalfirmswhereeligibleactivitiesareperformedinAustralia.

Fundeligibilityshouldnotberestrictedtoany�particularrangeofautomotivetechnologies.

|75

IntroductIonTheautomotiveindustryisamajoremployerinAustralia.However,theindustryisfacinginternationalanddomesticcompetitivepressuresthatwillcontinuetoshapeitssize,structureandworkplacepractices.

CostpressuresinmanufacturinggenerallyaredrivinganinternationaltrendtowardsmovingproductiontolowerlabourcostcentressuchasAsia.Indeed,loweroverseaslabourcostshavebeencitedinonestudyasthefactorthathasthegreatesteffectonthecompetitivenessoftheVictorianautomotivecomponentsindustry.1GMHolden’ssubmissionnotedthat,withthecurrentstrengthoftheAustraliandollar,itsglobalparentconsidersAustraliatobeahigh-costcountryformanufacturing—inthehighestthirdofbenchmarkedlocations.2Atthesametime,astronglabourmarketinAustraliahasplacedupwardpressureondomesticcostsacrossarangeofin-demandskillcategories.

EmploymEnt

Currentemployment

IntheMay2008quarter,theAustralianautomotivesectoremployedatotalof64,800peopleandcomprised5.8percentofAustralia’smanufacturing

1 AustralianIndustryGroup,FederationofAutomotiveProductsManufacturers,TheVictorianComponentsIndustry,Competitiveness,Profitability,andFutureStrategies,AIG,Sydney,2005,p.17,viewedathttp://www.aigroup.asn.au/aigroup/pdf/economics/surveys_and_reports/2838_VicAutoReport_KPMGv2.pdf

2 GMHolden,Submissiontothe2008AutomotiveReview,pp.18,80.

employment.3,4About93percentoftheautomotivejobswerefull-time,comparedto72percentforallindustries.5

Overthelongerterm,totalemploymentinthesectorhasfallenby25.3percentsincethepeakof86,800peopleinNovember2002,butrisenby17.3percentsincealong-termlowof55,200peopleinAugust1999(seeFigure9.1).6

Withintheautomotiveindustry,motorvehiclemanufacturingwasthemainemployer(accountingfor40percentofemployment).Itwasfollowedbyautomotivecomponentmanufacturing(32percent);motorvehiclebodymanufacturing(23percent);andautomotiveelectricalandinstrumentmanufacturing(5percent).7

Theautomotiveindustryisregionallyconcentrated.In2006,VictoriaandSouthAustraliatogetheraccountedforalmostthree-quartersofnationalautomotiveindustryemployment.Inparticular,10statisticalregionsinandaroundMelbourneandAdelaidecomprisedalmosthalfofthenationaltotal(seeTables9.1and9.2).

3 AustralianBureauofStatistics,MotorVehicleandPartsManufacturing,cat.no.6291.0.55.003,ABS,Canberra,May2008.

4 Itisworthwhilenotingthattherecanbesignificantvolatilityintheemploymentdata.Forexample,theMay2008dataindicatesemploymentwasupby6percent(from61,100)sincetheNovember2007quarter.

5 DEEWR,Submissiontothe2008AutomotiveReview,p.7.6 AustralianBureauofStatistics,MotorVehicleandParts

Manufacturing,op.cit.7 AustralianBureauofStatistics,ManufacturingIndustry,Australia,

2005–06,catno.8221.0,ABS,Canberra,2007.

CHAPTER9:restructuring the australian automotive industry

76| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |77RESTRUCTURINGTHEAUSTRALIANAUTOMOTIVEINDUSTRY

table 9.1. automotive industry employment in australia, by state and territory, 2006

state or territory no. of persons employed

Proportion of national auto employment

(%)

Victoria 33,888 55.3

SouthAustralia 11,145 18.2

NewSouthWales 6,793 11.1

Queensland 6,748 11.0

WesternAustralia 2,228 3.6

NorthernTerritory 110 0.2

AustralianCapitalTerritory 54 0.1

Otherterritories 0 0.0

Source:AustralianBureauofStatistics.

table 9.2. automotive employment, selected victorian and south australian statistical subdivisions, 2006

statistical subdivision no. of persons employed

Proportion of national auto employment

(%)

NorthernAdelaide 5,333 8.7

WesternMelbourne 4,386 7.2

SouthEasternOuter

Melbourne

3,391 5.5

SouthernAdelaide 2,981 4.9

Melton–Wyndham 2,227 3.6

GreaterGeelongCityPartA 2,208 3.6

EasternMiddleMelbourne 2,125 3.5

HumeCity 2,115 3.4

SouthernMelbourne 2,083 3.4

GreaterDandenongCity 2,052 3.3

Subdivisionstotal 28,901 47.1




TheVictorianGovernmentestimatesthatafurther100,000jobsdirectlyorindirectlydependonautomotivemanufacturing,inindustriessuchassteel,glass,plasticsandservices.8TheFederationofAutomotiveProductsManufacturersnotesthattheautomotiveindustrygenerates6.5jobsinassociatedsupplyandconsumerindustriesforeveryoneautomotivejob.9

Employmentoutlook

Someannouncedclosuresarenotyetreflectedintheavailableautomotiveindustryemploymentdata.Forexample,SouthPacificTyreswillcloseitstyrefactoryinSomerton,Victoria,fromDecember2008,andGMHoldenandFordhaveannouncedengineplantclosurestotakeeffectfrom2009and2010respectively.Incombination,thesethreeclosureswilldirectlyaffectmorethan1,700employees.10,11,12Ontheotherhand,Fordannouncedin2007thatlocalproductionoftheFordFocusfrom2011willcreateabout300newjobs.13

TheDepartmentofEducation,EmploymentandWorkplaceRelationsforecaststhatautomotiveemployment“maywellcontinuetoweakenoverthecourseof2008”.Overthefiveyearsto2012–13,employment“isexpectedtodecreaseatanaveragerateof1.5percentperannum”(about4,600jobsintotal).14

TheProductivityCommission’smodellinghasprojectedthatemploymentinautomotiveassemblywouldreduceinthelongtermbybetween2.0and5.5percent,andautomotivecomponentsectoremploymentbybetween0.2and1.8percent,dependinguponthespecificfutureassistancearrangementsmodelled.Iflabourandcapitalproductivityweretoimproveby1.0percent,thenemploymentcouldreducefurtherbyabout0.5percentagepoints.15

8 VictorianGovernment,Submissiontothe2008AutomotiveReview,p.7.

9 FAPM,Submissiontothe2008AutomotiveReview,p.7.10 Norington,BandHannon,E,‘600jobstogoasFordshutsplant’,

TheAustralian,18July2007.11 SouthPacificTyres,SouthPacificTyresannouncesclosureof

Somertonfactory.587jobsaffected,mediastatement,26June2008.12 GMHolden,HoldenAnnouncesTimeframeforEndofFamilyII

EngineProduction,mediarelease,6June2008.13 Ford,FordtoManufactureSmallCarsinAustralia,media

release,23July2007,viewedathttp://www.ford.com.au/servlet/ContentServer?pagename=FOA/DFYArticle/Standalone1024&cid=1178823150118&c=DFYArticle&pid=1137384212428&qid=1178823149932

14 DEEWRSubmissiontothe2008AutomotiveReview,p.14.15 ProductivityCommission,ModellingEconomy-wideEffectsofFuture

AutomotiveAssistance,ResearchReport,PC,Canberra,2008,pp.53,62,75.

Incontrast,forecastemploymentacrossallindustriesispredictedtoincreasebyanaverageof1.5percentperannumto2012–13.16Consequently,automotiveindustryemploymentisexpectedtodeclineduringatimeofmoderategrowthacrossAustralianindustry.

Overthelongerterm,theoutlookforemploymentintheMotorVehicleandPartsManufacturingsectorwillbelargelydeterminedbychangesintheexchangerate,productivitygrowth(asAustraliancarmanufacturersadjusttoincreasingcompetitivepressuresfromcountriessuchasChinaandIndia)andthestrengthofdomesticandglobaldemandforlocallyproducedvehiclesandparts.17

Jobandre-employmentprospects

Ofthetop10occupations(representing56.4percentofemployees)intheautomotiveindustry,six(29.4percent)haveaveragetogoodjobprospectsandfour(27.0percent)havebelow-averageprospects.TheregionsidentifiedinTable9.2generally“haveunemploymentrateseitheraboveoraroundthenationalaverage…rateof4.1percent”.18

Thecombinedeffectsofhighregionalconcentration,generallyhigherunemploymentratesintheseregions,andvariabilityinthedemandforautomotiveskillscouldleadtoautomotiveworkersmaderedundantthroughclosuresanddown-sizinghavingmoredifficultyfindingwork,despiteanotherwisebuoyantnationallabourmarket.

WagEs and salarIEsGrosswagesandsalaries19intheautomotiveindustryroseby24percent(fromabout$44,000to$55,000)inthefiveyearsto2005–06.Thecorrespondingincreaseformanufacturingwas17percent(from$41,000to$48,000).In2006,wagesandsalariesintheautomotiveindustrywere14percenthigherthaninmanufacturingingeneral(seeFigure9.2).20

16 DEEWR,Submissiontothe2008AutomotiveReview,p.14.17 ibid.,p.15.18 ibid.,pp.12,15.19 TheABSdefinesgrosswagesandsalariesasincluding:capitalised

wagesandsalaries;terminationandredundancypayments;salariesandfeesofdirectorsandexecutives;retainersandcommissionsofpersonswhoreceivedaretainer;bonuses;and,annualandothertypesofleave.Provisionexpensesforemployeeentitlements(egprovisionsforannualleaveandleavebonus,longserviceleave,sickleave,andseverance,terminationandredundancypayments)arealsoincluded.Refertohttp://www.abs.gov.au/AUSSTATS/[email protected]/Latestproducts/8221.0Glossary12005-06?opendocument&tabname=Notes&prodno=8221.0&issue=2005-06&num=&view=

20 AustralianBureauofStatistics,ManufacturingIndustry,Australia,2005–06,catno.8221.0,ABS,Canberra,2007.


Althoughwagesandsalarieswerehigheroverallintheautomotiveindustry,therewassignificantvariationwithintheindustryitself.Forexample,wagesandsalarieswere:

highestamongstmotorvehiclemanufacturing�employees($63,000in2006),and32percenthigherthantheaverageformanufacturinggenerally;

similaramongstautomotivecomponent�manufacturingemployees($56,700)totheautomotiveindustryaverage($54,700);and

lowestamongstmotorvehiclebody�manufacturingemployees($38,000),or31percentlowerthanthebroaderautomotiveindustryand21percentlowerthanmanufacturing.

Table1.2providesacomparisonofhourlyworkerscompensationcostsinAustraliaandotherselectedcountries.

labour productIvIty

Australianautomotivesectorproductivity

Labourproductivityintheautomotiveindustrygrewbyanannualaverageof2.4percentbetween1970and2005(seeFigure9.3).21Thisreflectsannualaveragegrowthof2.4percentiflabourproductivityismeasuredbythenumberofvehiclesperemployee—theproductivityseriesusedbyAustralianAutomotiveIntelligence22andtheDepartmentofInnovation,Industry,ScienceandResearch(andreportedin‘KeyAutomotiveStatistics’—seeAppendixJ).

Thedownturninlabourproductivityincertainyearsisaresultofmodelchangeoversandindustryrationalisation.Forexample,thelargeincreaseinproductivityfromtheearly1990scouldbeattributabletoseveralfactors,includingtheclosurebyFordofitsHomebushplantandthetransferofproductionoftheCamryandCorollabyToyotafromtheDandenongandPortMelbourneplantstoAltona.Therewasalsoacorrespondingdecreaseinemploymentas

21 EUKLEMSdatabase,GrowthandProductivityAccounts:March2008Release,VolumeLP_I,grossvalueaddedperhourworked,vehicles,trailersandsemi-trailers,http://www.euklems.net/euk08i.shtml#top

22 AustralianAutomotiveIntelligence,AustralianAutomotiveIntelligenceYearbook2008,7thedn.,RichardJohns,2008.



partoftheserationalisations.Nissanceaseditsmanufacturingoperationsin1992.

ProductivitycomparisonswithotherAustraliansectors

Since1970,annualaveragelabourproductivitygrowthintheAustralianautomotiveindustry(2.4percent)hasbeenthesameasthatfortotalmanufacturingandabovethatfortotalindustries(1.7percent).Nonetheless,therewasasharpriseinautomotiveproductivitygrowth(to6.2percent)duringtheperiod1986to1995,followedbyamarkedslowing(to1.9percent)intheperiod1996to2005.Inthecorrespondingperiods,manufacturingslowed(to1.5percent)thenrecovered(to2.5percent),whiletotalindustriesremainedconstant—seeTable9.3.23

table 9.3. comparison of average annual labour productivity growth in australian industries

industry sector average annual growth

1970–2005 (%)

1986–1995 (%)

1996–2005 (%)

Motorvehicles,

trailersand

semi-trailers 2.4 6.2 1.9

Totalmanufacturing 2.4 1.5 2.5

Totalindustries 1.7 1.7 1.7

Source:EUKLEMSdatabase.

23 EUKLEMSdatabase,GrowthandProductivityAccounts,VolumeLP_I,EUKLEMS,March2008,viewedathttp://www.euklems.net/euk08i.shtml#top.Grossvalueaddedperhourworked,vehicles,trailersandsemi-trailers.

Productivitycomparisonswithothercountries

Long-termproductivitygrowthinAustralia’sautomotiveindustryhasgenerallybeenslowerthanthatinmostotherselectedcountries.Inthemostrecentdecadeforwhichdataareavailable(1996to2005),Australia’sgrowthrateslowedtorankseventhoutofeightcountriessampled—seeTable9.4.24

table 9.4. comparison of automotive industry average annual labour productivity growth in selected countries

country average annual growth ranking 1996–20051970–2005

(%)1986–1995

(%)1996–2005

(%)

Australia 2.4 6.2 1.9 7

France 4.5 3.4 6.8 3

Germany 2.7 2.2 3.4 4

Italy 1.4 0.8 0.4 8

Japan NA 3.4 3.2 5

Sweden 4.8 5.1 9.0 2

UK 3.1 5.7 2.2 6

US 2.9 2.1 9.5 1


24 EUKLEMSdatabase,GrowthandProductivityAccounts,VolumeLP_I,EUKLEMS,March2008,viewedathttp://www.euklems.net/euk08i.shtml#top.Grossvalueaddedperhourworked,vehicles,trailersandsemi-trailers.NotethatKLEMSdataisavailableonlyforalimitednumberofnon-Europeancountries.



Since1996,Australia’saverageautomotiveproductivitygrowthhasbeencomparablewiththatoftheUnitedKingdom;about60percentofJapan’s;andabout20percentofthatoftheUnitedStatesandSweden.Themedianproductivityincreaseamongtheeightcountriessampledwas3.3percentoverthesameperiod,comparedtoAustralia’s1.9percent.

GMHolden’ssubmissiontotheReviewnotedthatproductivityimprovementshavelargelyoffsetwageincreases,butthat“improvementshavenotbeensufficienttocounteracttheimpactofcurrencymovements”.25Itisreasonabletoassumethatproductivityincreasescannotcompensateformovementsinexchangerates.Nonetheless,inordertoremaininternationallycompetitive,theAustralianautomotiveindustry’srateofproductivitygrowthwillneedtoincreasesubstantiallyjusttokeeppacewiththatofitsoverseascompetitors.TheappreciationoftheAustraliandollarsignificantlycompoundsthecompetitivenesschallenge.

skIlls In thE automotIvE Industry

Skillsshortages

Competitivepressures,combinedwiththeintroductionofnewtechnologiesandproductionprocesses,requiretherenewalandupgradingofworkforceskillsthroughaprocessofcontinuousimprovement.

WithunemploymentinAustraliaatalong-termlow,thereiscompetitionforskilledworkers.Inthemanufacturingsector,47percentofemployersarehavingsomeorgreatdifficultyinrecruitingstaff,but89percentofmanufacturingemployersconsiderstaffskilllevelsareadequatetoorexceedtheirorganisationalneeds.26Nonetheless,“thereareindicationsinsomeStatesthatarecentdeclineinmanufacturingactivitymayhaveledtoaslighteasingofdemandformetaltrades,asretrenchmentsincreasethesupplyofskilledworkersavailabletootheremployers”.27

Thefollowingskillscategoriesareofsignificancetotheautomotiveindustryandarecurrentlyexperiencingnationalorstatewideshortages:managingandmechanicalengineers;accountants;fitters;metalfabricators;toolmakers;welders;

25 GMHolden,Submissiontothe2008AutomotiveReview,p.80.26 NationalCentreforVocationalEducationResearch,Australian

vocationaleducationandtrainingstatistics,Employers’useandviewsoftheVETsystem,NCVER,Adelaide,2007,p.7,viewedathttp://www.ncver.edu.au/statistics/surveys/seuv07/su07030.pdf

27 DEEWR,Submissiontothe2008AutomotiveReview,p.16.

motormechanics;vehiclepainters;vehiclebodymakers;andgeneralelectricians.ManyofthesecategoriesareontheNationalSkillsNeedsListusedbytheDepartmentofEducation,EmploymentandWorkplaceRelationstoassesstheeligibilityofemployersandapprenticesforarangeofincentivesandinitiativesthatencourageapprenticestotakeuptheoccupations.SomeprofessionsandtradesofrelevancetotheautomotiveindustryarealsoontheMigrationOccupationsinDemandListusedintargetingmigrantswithin-demandskills.28InitssubmissiontotheReview,GMHoldencitedadditionalshortagesofcalibrationandelectricalengineersandproductdesigners(forexample,claymodellers).29

Theintroductionofnewtechnologiescouldleadtogrowingdemandforskillsinintegrateddesignsystems(forexample,computer-aideddesign);simulationtools;competitivemanufacturing;environmentalskills;mechatronicsandrobotics;smallbusinessmanagement;andmaterialshandlingprocesses.30,31

Theageprofileoftheautomotiveworkforceissimilartothatofthebroadermanufacturingsectorandallindustries.32Nonetheless,38.1percentoftheautomotiveworkforceisaged45yearsorover33andwouldbeeligibletoleavetheindustrythroughretirementwithin10years.Thiscouldexacerbatedifficultiesinrefreshingskillsandattractingnewstaffinanindustrycharacterisedby“poorcareerperceptions,poorwagesandconditions,andretentionproblemswithexperiencedstaff”.34

Developingtheskills

Educationandtrainingfortheautomotiveindustryareprovidedthroughacombinationofinstitutions(forexample,schools,universitiesandTAFEs),employeron-the-jobtraining,andindustry-specificrelationshipswithtrainingproviders.Someautomotiveindustryemployersarealsoregisteredtrainingproviders.

Expenditureontrainingintheautomotivecomponentssectoris1.5percentoftheaveragewageandismarginallyhigherthanformanufacturing.35Indicationsarethat“industryinvestmentisprimarily

28 ibid.,pp.17–19.29 GMHolden,Submissiontothe2008AutomotiveReview,p.79.30 VictorianGovernment.Submissiontothe2008AutomotiveReview,

p.21.31 GMHolden,op.cit.,p.79.32 DEEWRop.cit.,p.9.33 ibid.,p.7.34 VictorianAutomobileChamberofCommerce,Submissiontothe

2008AutomotiveReview,p.22.35 FAPM,Submissiontothe2008AutomotiveReview,p.58.


inon-the-jobandin-housetraining.Therelianceonon-the-jobtrainingmeansthatindustry–providerpartnershipsareanessentialcomponenttotheprovisionoftraining”.36

InformationprovidedbytheFederationofAutomotiveProductsManufacturers37indicatedthatformaleducationalqualificationlevelsintheautomotivecomponentssectoraresimilartothoseinothermanufacturingindustries—seeTable9.5.

table 9.5. highest educational attainment in motor vehicle components manufacturing and other manufacturing

Qualification motor vehicle components

manufacturing (%)

other manufacturing

(%)

Postgraduate,

doctorate,mastersand

professionalspecialist

2 2

Graduatediplomaand

graduatecertificate,

professionalspecialist

1 1

Bachelordegree 8 9

Advancedassociate

diploma

6 6

CertificateI,II,IIIorIV 29 27

Year11+12 25 25

Year10,9,8orbelow 23 24

Inadequatelydescribed 7 7

Total 100 100

Source:FederationofAutomotiveProductsManufacturers.

Fordnotedthattheformaleducationalqualificationsamongits5,000employeeshaverisensignificantly.Forexample,between1995and2007,theproportionofemployeeswith:

postgraduatequalificationsrosearoundfivefold,�from0.8to4.1percent;

graduatedegreesalmostdoubled,from8.2to�15.3percent;

TAFEqualificationsalmosttrebled,from22.7to�62.4percent;and

nopost-secondaryqualificationsreducedby�almostthree-quarters,from68.2to18.2percent.38

36 HouseofRepresentativesStandingCommitteeonEmployment,WorkplaceRelationsandWorkforceParticipation,ShiftingGears—Employmentintheautomotivecomponentsmanufacturingindustry,HRSCEWR,Canberra,2006,pp.44–45.

37 FAPM,Submissiontothe2008AutomotiveReview,pp.85–86.38 Ford,Submissiontothe2008AutomotiveReview,p.29.

ComparingtheeducationalqualificationdatafromtheFederationofAutomotiveProductsManufacturerswithFord’sindicatesthatformaleducationalqualificationsaresignificantlyhigheramongtheemployeesofthemotorvehicleproducers(MVPs)thanamongthoseofautomotivecomponentmanufacturersand‘othermanufacturing’.Inpart,thiscouldbeindicativeofthegrowingengineeringanddesignrolesofdomesticMVPswithintheirrespectiveglobalparentstructures,aswellastheoutsourcingoflowervalue-addedfunctions.ItisalsoconsistentwiththehigherwagesandsalariespaidbyMVPs.

Nonetheless,theFederationofAutomotiveProductsManufacturersalsocitedanecdotalevidencethatvehicleandcomponentproducerswereconcernedaboutthequalityandrelevanceofskillsofrecentgraduatesandsaidtheemployerswerehavingtoprovidemuchoftherequiredskillsandknowledgethroughon-the-jobtrainingbecauserelevantformaltrainingisnotavailable.39

Themotorvehicleindustryisinvolvedinarangeoftraininginitiativeswitheducationalinstitutions.Forexample:

FordisinvolvedintheAdvancedCentrefor�AutomotiveResearchandTesting,incollaborationwiththeUniversityofMelbourneandtheVictorianGovernment.Thecentreseekstoprovide“thelocalautomotiveandtransportindustrieswithstate-of-the-artinfrastructureandhighlyskilledpersonnel”.40

Toyotahasinvested$1.5millioninconjunction�withtheChisholmInstituteofTAFEinestablishingtheToyotaTradesTrainingCentre.41

KanganBatmanInstituteofTAFEhas�relationshipswithanumberofautomotivefirms,includingRobertBosch.42

GMHoldenacknowledgedanadverseperception�oftheautomotiveindustryamongthepotentialrecruitingpool,butalsosaidthatthe“realityoftheindustryisonewherehighlevelsofautomationhavereducedmanualhandling,whereworkoffersavarietyofstimulatingintellectualandtechnologicalchallenges,andwhereworkersarecompetitivelyremunerated”.Thefirm“isworkingtoincreaseawarenessofcareersinautomotivedesign,andproviding

39 FAPM,Submissiontothe2008AutomotiveReview,pp.85–86.40 Ford,Submissiontothe2008AutomotiveReview,p.34.41 VictorianGovernment,Submissiontothe2008AutomotiveReview,

p.23.42 ibid.,p.24.


supporttodevelopappropriateskill-setsforfutureautomotivedesigners”(forexample,withMonashUniversity).43

AutomotiveTrainingAustraliaisresponsiblefortheAutomotiveManufacturingTrainingPackageAUM00,andtheAutomotiveRetail,ServiceandRepairTrainingPackageAUR05.PackageAUM00covers“allaspectsofvehiclemanufacturing”includingvehicledesign,development,testingandcomplianceandthemanufactureofbodycomponentsandengines.PackageAUR05includesautomotiveretailing,partswarehousing,andvehicleservicingandrepair.PackageAUR05“accountsfornearly8percentofallapprenticesandtraineesnationally(31,120asatSeptember2007),andranksnumberfourinthetop20mostusedtrainingpackages”.44

NeitherofthesetrainingpackagesiscurrentlycoveredundertheIndustrySkillsCouncilstructure.Agreement“hasnotbeenreachedabouttheindustryadvisoryarrangementsfor[the]automotiveindustryandthishasledtointerimarrangements”whichincludefundingforAutomotiveTrainingAustraliabytheAustralianGovernmentto30September2008.45

TheAustralianIndustryGroupsuggestedthatManufacturingSkillsAustralia,whichisoneofthe11existingnationalIndustrySkillsCouncils,shouldprovidecoveragefortheautomotiveindustry.46Otherstakeholders,includingAutomotiveTrainingAustralia47andtheVictorianGovernment48,supportedtheestablishmentofaseparateIndustrySkillsCouncilfortheautomotiveindustry.

EstablishingaseparateautomotiveIndustrySkillsCouncilmightinvolvesomeoverlapofresponsibility,andpossibledemarcationissues,forskillscommonacrossmultipleindustries,includingmanufacturing.Toassistwithresolvingskillsissuescommonacrosstheautomotiveandothermanufacturingindustries,theAustralianGovernmentcouldestablishareferencegrouptoprovideadviceonsuchissuestoManufacturingSkillsAustralia.ThereferencegroupcouldcomeundertheAutomotiveIndustryInnovationCouncilproposedinChapter11.

43 GMHolden,Submissiontothe2008AutomotiveReview,pp.78,80.44 ATA,Submissiontothe2008AutomotiveReview,p.3.45 DEEWR,Submissiontothe2008AutomotiveReview,p.21.46 AiG.Submissiontothe2008AutomotiveReview,p.29.47 ATA.Submissionop.cit.,p.6.48 VictorianGovernment,Submissiontothe2008AutomotiveReview,

p.23.

Industry rEstructurIng and consolIdatIon

Restructuring—anongoingtheme

Withintheautomotivecomponentssector,anecdotalevidencesuggeststhatuptoone-thirdofthe200Australianautomotivecomponentfirmscouldbeatriskofexitingtheindustryoverthenextfewyears.Thiscouldbeadditionaltothe52Tier2,3and4firmsthathavealreadymovedoutofthecomponentsectorinrecentyears.49Nonetheless,therearealsopositiveexamplesinthesectorthrough“strategicsupplyconsolidations,resultinginmoresustainablebusinessesinthelongterm”(forexample,byBosch,FuturisandAutodom).50

Contingentliabilitiescanbeimportantfortheentiresupplychainduringtherestructuringandconsolidationprocess.Thesizeofsuchliabilitiescaninfluenceafirm’svalueand/oritsprospectsforafullorpartialsaleasagoingconcernintheeventthatitsuffersfinancialstress.

Automotiveindustryrestructuringandconsolidationarelikelytobeongoingthemes,withconsequentialeffectsontherangeandvalueofproductsandservicessuppliedbythelocalindustryaswellasonitsemploymentandskillsbase.Industryandfirmrestructuringandconsolidationcanhelptoachieveeconomiesofscale,improveproductivity,buildgloballinksandattractfurtherinvestment.

Anorderlyrestructuringprocess

InitssubmissiontotheReview,WilliamBuckarguedthatthekeyissuefortheindustryisnotsomuchthatclosuresareoccurringandwillcontinuetooccur,butthat‘unplanned’exitsneedtobeaddressedbecausetheyimposecostson:

theautomotivesupplychainuntilalternative�supplyarrangementscanbeimplemented;

employeesandemployersintermsoflost�contracts,unfundedemployeebenefits,workerdislocationandemotionalimpacts;and

theindustry’sreputationasareliablesupplier�andinvestmenttarget.51

WilliamBuckwentontosaythatthere“wouldseemtobeagoodeconomiccaseforthegovernmenttoplayaroleinhelpingmanagethesupplychainconsolidationprocess,tominimisetheinstances

49 AiG,July2008,NationalCEOSurvey—DrivingonInnovationandCompetitiveness,loc.cit.,p.24.

50 WilliamBuck,Submissiontothe2008AutomotiveReview,p.4.51 ibid.,pp.3–5.


ofunplannedexitsandthereforeminimisethecosttotheindustryoftheongoingtransitionprocess”.52AdvancedManufacturingAustraliaalsosuggestedthat“somewelltargetedassistancetofacilitatethedialogue,planningandexecutionofindustryconsolidationplanswouldgenerateasignificantreturnintermsofaddressingthekeystructuralimpedimentsfacingtheindustry”.53Theneedforan‘orderly’restructuringprocesswasathemesupportedbyarangeofstakeholders,involvingproposalsfor:

establishmentofanautomotiveindustryauthority,�avisionstatementand/oranadjustmentplan(forexample,involvinggovernment,industryandunions);

establishmentofashort-termindustry�restructuringfund(forexample,toassistwithaddressingexpansions,alliances,acquisitions,mergers,andcontingentliabilitiesincluding,whereappropriate,employeeentitlements);and

aframeworkagreementbetweenindustryand�unions(forexample,toaddresscooperativeandconstructiverestructuringissues).54

Themostpressingchallengeisrestructuringtheautocomponentsectorandindividualfirmsintheindustry.Managingworkers’redundancyentitlementswillbeespeciallyfraught.EnsuringorderlyworkforcereductionswhilesimultaneouslymaintainingtheconfidenceofitscurrentandpotentialfutureworkforceiscriticalforcompanyCEOsandunionleadersalike.Thiswillonlybepossibleifthereisahighlevelofcooperationbetweenemployers,unionsandtheworkforce.Iftheimpendingrestructuringprocessmerelybecomesastruggleoverwhobearstheburdenofthefinancialcostforworkerentitlementstheindustryasawholewilllose.55

InitssubmissiontotheReview,theSouthAustralianGovernmentsaidthatsupportshouldcontinue“forlabouradjustmentprogramstoprovidejobsearch,retrainingandrelocationassistanceforemployeeswhoaredisplacedfromtheindustryduetostructuralchange”.56

52 ibid.,p.3.53 AMAus,Submissiontothe2008AutomotiveReview,p.29.54 FAPM,Submissiontothe2008AutomotiveReview,pp.63,67;FVIU

etal.,Submissiontothe2008AutomotiveReview,p.26;SouthAustralianGovernment,Submissiontothe2008AutomotiveReview,p.4.

55 WorkplaceRelationsCentre,Industrialagreementsandeconomicerenewal:WherenextfortheAustralianAutomotiveIndustry?,25June2008,p.4,providedtothe2008AutomotiveReviewbytheAustralianManufacturingWorkers’Union.

56 SouthAustralianGovernment,Submissiontothe2008AutomotiveReview,p.6.

Developingcomponentproducers’capabilities

AutomotiveSupplierExcellenceAustralia(ASEA)isathree-stageprojectmanagedbytheCooperativeResearchCentreforAdvancedAutomotiveTechnology(AutoCRC).ASEAaimstoimprovethecapabilityofAustralianautomotivecomponentfirmsthroughacompetencyassessmentframework.Theprojectissupportedbythethreemotorvehicleproviders,theFederationofAutomotiveProductsManufacturers,andtheVictorian,SouthAustralianandAustralianGovernments.57

ASEAStage1,completedin2007,involved100companiesandidentified10keycompetencyareasbenchmarkedagainstinternationalbestpractice.Stage2wascompletedin2008andassessed62companiesagainsteachofthecompetencies.Eachcomponentcompanyreceivedaprioritisedsetoffourtofiveimprovementprojectstargetingkeymanagementandoperationalweaknesses.Participatingorganisationshadinvested$2millionbythecompletionofASEAStage2.58

Amongotherthings,Stage2ofASEAfoundthat:

thecomponentsectorisstrongestintermsofits�newproductandcustomerfocus;

thesectorneedstoimproveintermsof�managementandleadership;manufacturingandquality;supplychainintegrationandmanagement;globalsourcingandmarketingstrategies;andfinancialsystemsandpractices;

automotivecomponentcompanieswithlarger�turnovers(particularlymorethan$100million)tendtooutperformsmallcompanies(thatis,thosewithaturnoveroflessthan$50million);

multinationalcompaniesoutperformedlocal�companies;and

exportingcompaniesperformedbetterthan�non-exporters.59

Keythemesemergingfromtheseresultsarethat:

globalintegrationisakeydeterminantfor�success—forexample,throughglobalsourcingandmarketingstrategies;leveragingexperience,infrastructure,technologyandsupportfromglobalparents;andcompetinginternationally;

biggerisbetter;and�

57 AutoCRC,Submissiontothe2008AutomotiveReview,p.3.58 ibid.59 ASEA,‘Stage2:SupplierEvaluationandInternational

Benchmarking’,unpublished,June2008.


workisrequiredtoliftthequalityofthe�componentcompanies’internalmanagementandprocesses,particularlyamongthesmallerfirms.

ASEA’sStage2researchclearlyhighlightedthestrengthsandweaknessesoftheautomotivesector.Nonetheless,therealbenefitstotheindustrywillcomethroughindividualfirmsimplementingperformanceimprovementplansinthecontextofASEA’sStage3,whichisnotyetfullyfunded.Initssubmission,andaspartofafutureautomotiveindustrysupportpackage,theAutoCRCsoughtfundingof:

$12millionunderASEAStage3torectify�identifiedweaknessesin62automotivecomponentfirms.Nonetheless,ASEAisproceedingwitha$1.8millionpilotphaseinvolving20companiesandfundedfromwithintheconsortium;and

$5millionperyearto2015forongoingsupplier�assessmentandimprovementprojectsusingtheASEAmodel.60

TheC21ChallengeProgramisaninitiativeoftheVictorianGovernmentandToyotatoassistVictorianTier2and3componentproducersbuildbusinesscompetitiveness.Theprogramcoverssixelementsforeachparticipatingfirm:astrategicdiagnosticreview;manufacturingefficiency;aworkforceplanningreviewandactionplan;mentoringsupport;traininginnegotiationskills;andautomotiveindustryinformationforums.TheprogramisrunningbetweenMarchandSeptember2008.61

FordisexpandingitsSupplierTechnicalAssistanceorganisation,whichprovidestechnical,qualityandbusinesssupporttoitssuppliers.ThecompanyistargetingTier2suppliersforspecialisttechnicaltraining.Fordalsohasinsolvencyspecialistsworkingwithallkeysuppliers.62

Workplacereform

TheDepartmentofEducation,EmploymentandWorkplaceRelationsindicatedthatcollectiveagreementscoveraboutthree-quartersofemployeesintheautomotivesector.Inthemetalproductandmachineryandequipmentmanufacturingsectors,therewere1,252collectiveagreementsasatDecember2007.Ofthese,morethanthree-quarters(961)areduetoexpirein2008or2009.63Consequently,

60 AutoCRC,Submissiontothe2008AutomotiveReview,p.4.61 BusinessVictoria,C21Challenge,viewedathttp://www.business.vic.

gov.au/BUSVIC/GAP/1001/PC_62600.html62 Ford,Submissiontothe2008AutomotiveReview,pp.23,27.63 DEEWR,Submissiontothe2008AutomotiveReview,p.30.

thereisasignificantwindowofopportunitytopursuefurtherworkplacereformintheneartermformotorvehicleandautomotivecomponentproducerswhocompeteinsimilarlabourmarkets.

Flexibleworkpracticesandastableworkplacerelationsenvironmentareimportant,particularlyasmotorvehicleproducersrelyonleanmanufacturingtechniquesanddeliveryofcomponentsonajust-in-timebasis.

Disruptionstoproductionatakeycomponentsupplieroratamotorvehicleproducercanleadrapidlytotheshutdownofthevehicleassemblylineandtoshutdownsthroughthesupplychain.Consequently,stoppagescanbeveryexpensiveintermsoflostproduction,penaltiesfordelayeddelivery,idlecapital,lostwages,lostsalesandthedamagetoaproducer’sreputationasareliablesupplier.

Therewasgeneralacknowledgmentamongstakeholdersthatindustrialdisputesintheautomotivesectorhavebeenatahistoricallylowlevelinrecentyears.ThisissupportedbyABSdataindicatingthat,inthe10yearsto2008,therewasageneraldownwardtrendinthenumberofworkingdayslostduetoindustrialdisputesforthemetalproductandmachineryandequipmentsectors.64

However,giventhecompetitivepressurestheindustryisexperiencing,agreateremphasisonimprovingproductivity,reformingworkandmanagementpractices,andpromotingaproductiveworkplaceculturewillberequirediftheAustralianindustryistoremaincompetitiveinthelongerterm.Whilevolume,economiesofscaleandinnovation(broadlydefined)remainthekeydeterminantsofproductivityintheindustry,moreneedstobedonetoencouragehigh-performanceworkplacesandcost-competitivesupplychains.

Supportforindustryadjustment

Thekeyissuefororderlyrestructuringandconsolidationoftheautomotivecomponentsectorisfacilitatingthe‘transmissionofbusiness’whileminimisingtheincidenceofoutrightcollapsesofsupplierfirms.Whereverpossible,suchcollapsesneedtobeavoidedinanindustrywherejust-in-timedeliveryisparamountandshutdownsanywhereinthesupplychaincanrapidlyandexpensivelyreverberatethroughoutthewholeindustry.Somegovernmentinterventionisconsideredessentialtoachievethis,particularlyforthesmallerTier2,3and4firms,whichareunderthemostfinancialstress.

64 AustralianBureauofStatistics,IndustrialDisputes,Australia,Dec2003,cat.no.6321.0.55.001,ABS,Canberra,March2008.


Governmentsupportfor‘transmissionofbusiness’couldassistwithstrengtheningfirms’capabilitiesandsecuringtheirfutureviabilityasgoingconcerns;facilitatingmergersandacquisitionsinthesector;and/oraddressingcontingentliability(forexample,employeeentitlements)orotherfactorsthatmightactasbarrierstoeffectiveandsuccessfulsectoralconsolidation.Economicconsolidationofplantandequipmentandco-locationofproductionalsoneedtobeaddressedinthatcontext.

Ifautomotiveemployeesaremaderedundant,thenfairandreasonablestructuraladjustmentassistancecouldbeprovided(possiblyfundedthroughanautomotiveindustryrestructurefund).

Theultimateobjectivesaretomovetowardsgreatereconomiesofscaleandinternationalisationofproductiontobuildcapacityanddemand,andtoenhancetheviabilityoftheAustralianautomotivesupplychain.Theimperativeistofacilitaterestructuringintheshortterm;consequently,thedurationofgovernmentsupportshouldbelimitedtothiscriticalperiodonly.Therecommendationsattheendofthischapterhavebeenframedwiththeseobjectivesinmind.

Theindustryandtheemployeesthemselvesclearlyalsohavearoletoplayinrestructuring.Companyleadersfromtheautomotivecomponentsectorandleadersofthemajorunionshavebegunnegotiationsonaframeworkagreement.65Suchanagreementcould:

acknowledgethatrestructuringandconsolidation�willbeanecessarypartofassuringavitalAustralianautomotiveindustryintothefuture;and

assistwithassuringcontinuityofsupplyinan�industrycharacterisedbyjust-in-timedeliveryandhighlevelsofinternationalcompetition.

TheReviewsupportsanongoingdialogue,involvinggovernments,toensurethattherestructuringandconsolidationprocessiseffectiveinhelpingwithanorderlytransitiontoamorecompetitiveandsustainablefuturefortheAustralianautomotiveindustry.

65 TaylorL,‘CarPartsMakerPaidtoShutDown’,TheAustralian,19June2008,p.1.

summary of fIndIngsTheautomotiveindustryisamajoremployerin�Australia,employing64,800people.Employmentintheindustryisforecasttodecreaseatanaveragerateof1.5percentperannumoverthenextfiveyears.

Inorderforittoremaininternationally�competitive,theAustralianautomotiveindustry’srateofproductivitygrowthwillneedtoincreasesubstantiallyjusttokeeppacewithitsoverseascompetitors.

Thefollowingskillscategoriesareofsignificance�totheautomotiveindustryandarecurrentlyexperiencingnationalorstatewideshortages:engineers;accountants;fitters;metalfabricators;toolmakers;welders;motormechanics;vehiclepainters;vehiclebodymakers;generalelectricians;andproductdesigners.

Formaleducationalqualificationsaresignificantly�higheramongmotorvehicleproducers’employeesthanamongthoseofautomotivecomponentproducersandmanufacturingingeneral.

Automotiveindustryrestructuringand�consolidationarelikelytobeongoingthemes,withconsequentialeffectsontherangeandvalueofproductsandservicessuppliedbythelocalindustryaswellasonitsemploymentandskillsbase.

Anorderlyrestructuringandconsolidation�processisrequired.

Itisthesmaller—thosewithlessthan�$50millionannualturnover—Tier2,3and4automotivecomponentfirmsthatareunderthemostfinancialstressandwouldbenefitmostfromassistancewithrestructuringandconsolidation.

Aframeworkagreementnegotiatedby�automotivecomponentsectoremployersandunions,aswellasongoingdialoguewithgovernments,cansupporttherestructuringandconsolidationprocess.

Withintheautomotivecomponentssector,�researchindicatesthat:

globalintegrationisakeydeterminant�forsuccess—forexamplethroughglobalsourcingandmarketingstrategies;leveragingexperience,infrastructure,technologyandsupportfromglobalparents;andcompetinginternationally;


biggerisbetter;and�

workisrequiredtoliftthequalityofthe�componentcompanies’internalmanagementandprocesses,particularlyamongthesmallerfirms.

Thereisasignificantwindowofopportunity�topursuefurtherworkplacereformintheneartermformotorvehicleandautomotivecomponentproducerswhocompeteinsimilarlabourmarkets.

rEcommEndatIonsTheAustralianGovernmentshouldcontribute�toashort-termautomotiveindustryrestructurefundthataimstoassisttheAustralianautomotivesupplychainimproveeconomiesofscale,enhancemanagementcapabilities,internationaliseproductiontobuildcapacityanddemand,andenhancelong-termsustainability.

Fundingfortheindustryrestructurefund�shouldbepartofthenewGlobalAutomotiveTransitionSchemeproposedinChapter11.

Paymentsundertheindustryrestructure�fundshouldbedeterminedonacase-by-casebasisbytheresponsibleMinister,onadvicefromhisorherdepartment,takingintoaccount‘transmissionofbusiness’issuesincludingfacilitatingmergersandacquisitionsinthesector;addressing,whereappropriate,contingentliabilityorotherissuesthatmightactasbarrierstoeffectiveandsuccessfulsectoralconsolidation;consolidationofplantandequipment;andco-locationofproduction.Whereappropriate,fairandreasonableassistanceshouldalsobemadeavailabletoemployeesmaderedundantthroughautomotiverestructuring.

Theindustryrestructurefundshouldinclude�supportfordevelopingtheAustralianautomotivesupplychain’smanagementandoperationalcapabilitiesandprocesses(similartoAutomotiveSupplierExcellenceAustralia,C21andotherexistinginitiatives).

Governmentfundingfortheindustry�restructurefundshouldbeofalimitedamountandduration(forexample,$60to$80millionovertwoyears)tocovertheimmediaterestructuringandconsolidationneedsoftheautomotiveindustry.

Theautomotiveindustryshouldcontribute�financiallytotheactivitiessupportedbytheindustryrestructurefund.

Theautomotiveindustry,unions,employees�andgovernmentsshouldengageinanongoingdialoguesothattherestructuringandconsolidationprocessiseffectiveinhelpingwithanorderlytransitiontoamorecompetitiveandsustainablefuturefortheindustry.

Amemorandumofunderstandingshould�benegotiatedbymotorvehicleproducers,componentsuppliersandunions,andbefacilitatedbygovernmentswhereappropriate.Thememorandumofunderstandingshould:

acknowledgethatrestructuringand�consolidationareanecessarypartofassuringavitalAustralianautomotiveindustryintothefuture;and

assistwithassuringcontinuityofsupplyinan�industrycharacterisedbyjust-in-timedeliveryandhighlevelsofinternationalcompetition.

Theleadershipdialoguebetweenthecomponent�sectorandunionsshouldcontinue.

Whetherthistranslatesintoaframework�agreementisamatterfortheparticipants.However,therearebenefitstobegainedfromasharedunderstandingofthechallengesthatlieaheadandtheneedforimprovementsincompetitivenessandproductivity.

Theissueofemployeeentitlementsisalsoa�matterwherealeadershipdialoguecanassisttheparticipantstomoreeffectivelymanagetherestructuringprocess.

Toassistwithresolvingskillsissuescommon�acrosstheautomotiveandothermanufacturingindustries,theAustralianGovernmentshouldestablishareferencegrouptoprovideadviceonautomotiveskillsissuestoManufacturingSkillsAustralia.

Thereferencegroupshouldcomeunder�theAutomotiveIndustryInnovationCouncilproposedinChapter11.

|87

IntroductIonConsumerandgovernmentdemandforsafervehiclesandforreducedroadtraumahasledtoincreasesandimprovementsinthesafetyfeaturesofvehiclesandmorestringentvehiclesafetystandards.Suchsafetyfeaturesoverthepastdecadeshaveincludedtheintroductionofseatbelts,frontalcrumplezones,airbagsandelectronicstabilitycontrol.Safetytechnologiesatanearlystageofmarketentryincludeforwardcollisionandlanedeparturewarningsandpredictivebraking.

However,itisimportantthattheadoptionofsafetystandardsinAustraliaisconsistentwithinternationalstandardssothatitfacilitatesmarketaccessandglobalsupplychainintegrationforAustralianmanufacturers,designers,thetoolingindustryandvehicleimporters.ItisalsoimportantthattheAustralianstandardsdonotimposeonmanufacturersadditionalrequirementsthatcouldjeopardisemutualrecognitionofthecertificationofAustralian-madevehiclestointernationalstandards,therebyraisingthecostofparticipatinginglobalmarkets.

VehiclesafetystandardsshouldalsobeconsistentacrossAustralianjurisdictionssoasnottoimposefurthercostsonlocalmanufacturersandimportersseekingtomeetvaryingrequirementsindifferentdomesticmarkets.

VehIcle safety standardsGovernmentresponsibilityforroadsafetyisshared.TheAustralianGovernmentadministerstheMotorVehicleStandardsAct1989(MVSAct).Thestatesandterritoriesareresponsibleforroadtraffic

regulationandenforcementthroughtodrivertrainingandlicensing.

TheobjectoftheMVSActistosetuniformnationalvehiclestandardsforvehiclessuppliednewtotheAustralianmarket.ThesestandardsaretheAustralianDesignRules,whichaimtomakeroadvehiclessafetouse,controlemissionsfromroadvehiclesandsecureroadvehiclesfromtheft.TheMVSActrendersinoperativeanyvehiclestandardpurportedtoberequiredbyastateorterritorygovernmentforanewvehicle.

Harmonisationwithinternationalstandards

Australiaisasignatorytoboththe1958and1998agreementsadministeredbytheUnitedNationsEconomicCommissionforEurope(UNECE)oninternationaltechnicalharmonisationinthemotorvehiclesector.The1958AgreementsetsinternationalvehicleregulationsasUNECEregulations,andprovidesmutualrecognitionforproductcertification.Signatoriestothe1958AgreementincludeAustralia,Japan,theRepublicofKorea,NewZealand,France,Germany,theUnitedKingdomandtheEuropeanUnion.

The1998Agreementsetsinternationalvehicleregulationsasglobaltechnicalregulations.However,thereisnomutualrecognitionofvehiclestandardsunderthisagreement.Signatoriestothe1998AgreementincludeAustralia,theUnitedStates,Canada,China,Japan,theRepublicofKorea,NewZealand,France,Germany,theUnitedKingdomandtheEuropeanUnion.

InaccordancewiththeAgreementonTechnicalBarrierstoTrade,theUNECEregulationsandthe

CHApTER10:vehicle safety

88| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |89VEHICLESAFETY

AustralianDesignRulesareperformancebasedwherepossible.performance-basedstandardsareintendedtoavoidtechnicalrestrictionsthataredesignprescriptiveandtoallowflexibilityformanufacturerstomeetregulatoryrequirementsinatechnology-neutralmanner.AsGMHoldennoted,theperformance-basedapproach“givesvehiclemanufacturerstheflexibilitytoachievetheperformancerequirementsbynewandinnovativemeans,resultinginbetterandconstantlyimprovingsafetytechnologiesfindingtheirwayintonewvehicles”.1

TheAustralianGovernment’spolicyistoharmonisethenationalvehiclesafetystandardswiththeseinternationalregulationswherepossible.ThemajorityoftheAustralianDesignRulesincorporatetheUNECEregulations.VeryfewsubmissionstotheReviewaddressedtheharmonisationoftheAustralianruleswiththeUNECEregulations.Thosethatdid,suchasGMHoldenandtheAustralianAutomotiveAftermarketAssociation,supportedthecurrentharmonisationprocess.

Mutualrecognition

Animportantelementofthe1958Agreementisthemutualrecognitionofproductcertification.Thatis,theagreementallowsfor‘testonce,acceptedeverywhere’.SignatorycountriesthathaveadvisedtheUnitedNationsoftheirwillingnesstobe‘bound’byindividualregulationsmayissuecertificationapprovalsundertheagreement;thesemustthenbeacceptedbyothersignatorieswhohavealsoagreedtobeboundbytherelevantregulationorregulations.Thisfacilitatesglobaltradeinautomotiveproductsbyreducingthecostsandcomplexitiesassociatedwithexportingandimporting.Forexample,Australian-madevehiclescertifiedasmeetingtherelevantinternationalregulationsunderthe1958Agreementwouldnotneedtobecrashtestedortoundergoothercertificationprocesseswhenimportedintoothersignatorycountries.InternationalrecognitionoftheAustraliancertificationprocesscanpotentiallysavemillionsofdollarsincompliancecostswhenaccesstoothermarketsisbeingsought.

Differencesininternationalstandards

SeveralsubmissionstotheReview,includingfromtheAustralianAutomobileAssociation,saidthat“effortsneedtobemadetoensurethatstandardsafetyrequiredbycarssoldinAustraliashouldgobeyondthebasicAustralianDesignRules,whichessentiallysetaminimumstandard”.2Inaddition,theVictorian

1 GMHolden,Submissiontothe2008AutomotiveReview,p.85.2 AAA,Submissiontothe2008AutomotiveReview,p.19.

Governmentactivelysupportsthemandatingofelectronicstabilitycontrolandsidecurtainairbagsinnewpassengermotorvehicles.

ItisimportanttorecognisethattheAustralianDesignRulessetminimumtechnicalstandards.Effortstoencouragehighersafetyspecificationsincarscantakemanyforms.Forexample,fleetmanagementstrategiesandadvertisingthebenefitsofparticulartechnologiestoeducateconsumerscanbepowerfulmechanismsfordirectingconsumerpreferencestodesirabletechnologies.However,attemptingtoregulatehigherspecificationsinvehiclesbeyondinternationallyacceptedstandardsrunstheriskofimposingadditionalcostsonvehiclemanufacturersandaffectinginternationalagreementobligations—particularlywhereopportunitiesareavailabletoenterothermarketsthroughmutualrecognitionofvehiclecertifications.Totakeadvantageofinternationalcertificationprovisionsunderthe1958Agreement,signatoriesagreetoacceptproductfromothersignatorieswheretheproductmeetsidentifiedUNECEregulationsandthepartieshaveagreedtobeboundbythoseregulations.Ifasignatoryimposesaregulationmorestringentthan,ordifferentfrom,theinternationalregulation,itisnotpossibletotakeadvantageofthemutualrecognitionprovisionsoftheagreement.ThiswouldbethecaseifastateorterritorygovernmentsoughttoimposestandardsmorestringentthantheUNECEregulationsgiveneffectthroughtheAustralianDesignRules.

Imposingregulatoryrequirementsadditionalto,ordifferentfrom,internationalstandardsalsorunstheriskofreducingtherangeofimportedvehiclemodelsmadeavailableforAustralia—particularlyifitmeanschangingaproductionprocess,re-engineeringavehicle,orincurringadditionaltestingcoststodemonstrateevidenceofcompliancewithauniquedomesticrequirement.Asvehicleswithleading-edgeorexpensivetechnologiesmaybeamarginalinvestmentpropositionforasmallmarketsuchasAustralia,itcouldmean,paradoxically,theavailabilityofvehiclemodelswiththesefeaturesisreduced.

Safetystandardsforvehicles—in-serviceandreplacementparts

Therecanbesignificantvariationsinthelevelsofsafetybetweennewandoldervehicles.Theroadworthinessofoldervehiclesistheresponsibilityofthestateandterritorygovernments.Vehiclesaretobesubjectedtoanannualtestortoatestwhenavehicleissold,re-registered,orrequiredtoclearadefectnoticeoranoticeofunroadworthiness.Similarly,somereplacementpartsaresubjecttoinspectionwhenavehicleistestedforitsroadworthiness.

88| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |89VEHICLESAFETY

figure 10.1. changes in vehicle safety ratings, 1990 to 20065

Source:AAAanalysisofANCApdata.

5 ibid.,p.18.

InitssubmissiontotheReview,theAustralianAutomotiveAftermarketAssociationdiscussedthelackofauniformnationalvehicleinspectionprogramwhich“createsasituationinmanystateswhereavehiclecanbein-serviceforover15yearswithouteverbeinginspectedtoensureitmeetsbasicenvironmentalandsafetybenchmarks”.3VeryfewsubmissionscommentedontheissueandtheAustralianAutomotiveAftermarketAssociationdidnotrecommendaprescriptionforit.

StatesandterritoriesusuallyrequirevehiclestocomplywiththeAustralianDesignRulesapplicablewhenthevehiclewasfirstsuppliedtothemarket.

productsafetystandards

oneissueraisedduringthesubmissionprocessrelatedtothelackofconsistentnationalregulationscoveringproductstandards,vehiclemodificationandconsumeraffairsforaftermarketproducts.Forexample,theAustralianAutomotiveAftermarketAssociationreportedthatthereare24standardscommitteesrelatingtoaftermarketproducts,eachstateandterritoryhaslegislativeauthoritytoregulatethesaleandfinaluseofaftermarketcomponents,andthereisanoverlapofconsumeraffairsregulationsbetweentheCommonwealthandthestatesandterritories.Thiscanaddtothecomplianceburdenformanufacturersandimportersofaftermarketpartsandraisecosts.

3 AAAA,Submissiontothe2008AutomotiveReview,pp.3–4.

ItshouldbenotedthatstatetransportauthoritieshavereleasedaNationalCodeonLightVehicleConstructionandModification,andalljurisdictionsareworkingtoimplementit,albeitwithdifferenttimeframes.

TheAustralasianNewCarAssessmentprogram

TheAustralasianNewCarAssessmentprogram(ANCAp)providesconsumerswithinformationonthelevelofoccupantprotectionprovidedbyvehiclesinseriousfrontandsidecrashes.participationinANCAptestingisvoluntaryforvehicleproducersandimporters.TheprogramissupportedbyAustralianandNZautomobileclubs,thestategovernmentroadandtransportauthoritiesofNewSouthWales,Victoria,SouthAustralia,Queensland,TasmaniaandWesternAustralia,theNZGovernmentandtheFIAFoundation.

TheAustralianAutomobileAssociationreportedthat:

overtime,carsafetyhasimprovedmarkedlywithadvancesinseatbeltdesign,additionofairbags,powerassisteddiscbrakes,improvedbodystructuresandbetterdriveability.TheimprovementisillustratedinANCApresultswhichshowthatwhentheprogramstarted,allvehiclestestedscoredjust1or2starsforsafety,thoughnowmostcarsscore4or5stars.4

Figure10.1illustratesthis.

4 AAA,Submissiontothe2008AutomotiveReview,pp.17–18.

90| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY

However,locallymadepassengermotorvehiclescurrentlyachieveanANCApratingofonlyfourstars,mainlyduetothelackofsidecurtainairbagsasastandardfeatureonbasemodels.

Toraisecommunityawarenessaboutvehiclesafety,theAustralianAutomobileAssociationproposedamandatorylabellingofANCApstarratingsonvehiclessoldinAustraliaandthat,whereANCAptestshavenotbeenconductedforcertainvehicles,thisberecordedonthelabel.TheassociationalsoproposesthattheAustralianGovernmentassistwithfundingforANCAp.However,itistheAustralianDesignRuleswithwhichnewvehiclesmustcomplybeforeenteringthemarket,andnotanANCAprating.

summary of fIndIngsNewvehiclessoldintotheAustralianmarket�havebecomesaferovertimeduetoadvancesintechnologiessuchasseatbelts,discbrakesandairbags.

TheharmonisationoftheAustralianDesignRules�withtheUnitedNationsEconomicCommissionforEuroperegulationsremovesbarrierstotrade,andfacilitatesparticipationinglobalmarketsbytheAustralianautomotiveindustry.

recommendatIonsVehiclesafetystandardsshouldadheretothe�AustralianDesignRulesandbeuniformacrossallstatesandterritories.

Anychangestovehiclesafetystandardsshould�alsobeconsistentwithAustralia’sinternationalobligationsandnotimpactonmutualrecognitionmatters(andhenceriskmarketaccessrestrictionsforAustralian-madevehicles).

|91

IntroductIonNearlyallnationsstillprovideassistancetomanypartsoftheireconomies.Forexample,ithasbeenestimatedthatin2004developedcountriesprovidedtariffandsubsidysupportofaroundUS$280billiontotheiragriculturalsectorsalone.1Formanufacturing,manydevelopedeconomiesstillprovidetariffprotection,includingtariffescalationalongtheproductionchain,anduseanti-dumpingactionstorestrictimportcompetition.

Theautomotivesector,asasubsetofmanufacturing,isnodifferent.Countries,includingAustralia,stillsupporttheirautomotivesectorsthroughtariffsandtheapplicationofnon-tariffbarriers.Theyalsohaveactiveinvestmentattractionpoliciesaimedatincreasinginwardinvestmentintheautomotivesector,asdiscussedinChapter5.

LeveL of assIstance to the austraLIan automotIve IndustryInaninternationalcontext,Australia’sautomotivetariffsarerelativelylow,anditsinvestmentattractionpoliciesaremoretransparentandlessgenerousthanthoseofferedbysomeothercountries.Thesupportofferedisdesignedtohelptheindustrymakethetransitiontoamorecompetitiveenvironment.Nevertheless,thelevelofassistancetotheAustralianautomotiveindustryishighcomparedwithsupportforotherdomesticindustrysectorsinAustralia.Forexample,in2006–07,motorvehicleandparts

1 Anderson,K,Martin,W,Valenzuela,E,TheRelativeImportanceofGlobalAgriculturalSubsidiesandMarketAccess,WorldBank,November2005,p.1.

manufacturingreceivedcombinedbudgetaryandtariffassistanceof$1.3billion,ornearly$4,000pervehiclemanufactureddomestically.2,3Theonlyothersectortoreceiveahigherabsolutedollarvalueofassistancewasthefood,beverageandtobaccomanufacturingsector.

Anothermeasureofassistanceistheeffectiverateofassistance,whichis“ameasureofthenetassistancetoanindustrydividedbyitsunassistedvalueadded”—thatis,thenetassistancetoanindustryrelativetoitscontributiontotheeconomy.4In2006–07,theProductivityCommissionestimatedtheeffectiverateofcombinedassistancetotheautomotiveindustrywas12.2percent.5Thiswasthefourthhighest,behinddairyfarming(15.1percent),textiles,clothing,footwearandleather(13.5percent)andfisheries(12.7percent).ThelevelsofassistancetotheAustralianautomotiveindustryhave,however,declinedsince1985,whentheindustrywasprotectedbytariffsof57.5percentandimportquotas.In1984–85,theeffectiverateofassistancetotheindustrywasabout140percent.

2 ProductivityCommission,TradeandAssistanceReview2006–07,AnnualReportSeries,ProductivityCommission,Canberra,2008,Table2.7,p.2.16.

3 Budgetaryassistanceincludesdirectbudgetaryassistance,agriculturalpricingandregulatoryassistance.

4 ProductivityCommission2008,TradeandAssistanceReview2006–07,op.cit,p.2.12.

5 ibid.,Table2.8,p.2.17.

ChAPTER11:Future automotive assistance arrangements

92| REVIEWoFAUSTRALIA’SAUToMoTIVEINDUSTRY |93FUTUREAUToMoTIVEASSISTANCEARRANGEMENTS

effect of assIstance on consumers, Industry and the economyAssistancetotheautomotiveindustrycomesatacosttootherindustriesandtoconsumers.ThetariffsmeanbuyersofimportedvehiclesandcomponentspayataxtotheGovernment,andpurchasersofdomesticallyproducedvehiclesandpartspayasubsidytodomesticmanufacturersbecauseoftheprice-raisingeffectofthetariff.Budgetaryassistancetotheindustryaffectsotherindustriesandconsumerssincetaxrevenuehastoberaisedordivertedfromotheruses.

Assistancetotheindustrycanalsodisadvantagetheeconomyingeneral,andothersectorsinparticular,bydistortingpricesanddivertingresourcesawayfrommoreefficientuses.Forexample,removingassistancefromtheautomotiveindustrywouldhelpthemining,agriculture,servicesandnon-automotivepartsoftheeconomy.Theindustryitselfwouldsave$724millionperannumonitsinputcostsfromtheabolitionofalltariffs,includingtheabolitionoftheautomotivetariffs.6

reasons for assIstanceTherearemanyreasonsthatgovernmentsprovidesupporttoindustry,eventhoughthesupportmightdisadvantageothereconomicsectors.ThereasonsincludegovernmentinterventiontogeneratenetbenefitsthroughaddressingmarketfailuressuchaspositiveexternalitiesassociatedwithspilloversandR&D,informationgaps,skillsdevelopmentandbusinessnetworking.Anotherreasonforsupportistohelpanindustrythroughastructuraladjustmentprocess—thatis,tohelpanindustrymakethetransitiontobeingastronger,moreeconomicallysustainableone.Thiscanleadtoaleanerandmorecompetitiveindustryandhelptoensurethatanindustrydoesnotprematurelyexit—thatis,onceanindustryislost,itisdifficulttoreformulateitwhenconditionschange.Thelossofanindustryalsohasimpactsonothersectorsduetoitseconomiclinksandspilloverbenefits.

Whenitwasundertakingthereviewofpost-2005automotiveassistancein2002,theProductivityCommissionsawmeritinpolicycertaintyandthecontinuationofindustrysupportthroughtheAutomotiveCompetitivenessandInvestmentScheme(ACIS)asatransitionalmeasuretoamoreeconomicallysustainableindustrylinkedtofurther

6 ibid.,Table2.2B,p.2.5.

tariffdeclines.7Italsofounda“settledpathforfutureautomotiveassistancewouldservetoreduceonesourceofuncertaintyimpactingoninvestmentandproductiondecisionsintheindustry”.8Thecommissionrecommendedthatthetariffsonpassengermotorvehiclesandpartsthereofbereducedto5percentby2010,andthereductionbecushionedbyanextensionoftheACISprogram.

InitsresponsetotheProductivityCommission,theAustralianGovernmentagreedtoreducethetariffsonpassengermotorvehiclesandpartsthereofto10percentin2005andto5percentin2010,aswellasACISbudgetaryassistanceworthabout$4.2billionovertheperiod2006to2015inclusive.Theleveloffundingandthedurationoftheschemewentbeyondwhatwasrecommendedbythecommission.

a changed envIronmentTheenvironmentinwhichtheautomotiveindustryisoperatinghaschangedsincethelastreview,bytheProductivityCommissionin2002.TheAustraliandollarhasappreciatedsignificantlyagainstthecurrenciesofmajorautomotiveproducingcountries,affectingthecompetitivenessofthelocalindustry.Forexample,theAustraliandollarhasappreciated77percentagainsttheUSdollarsince2002.Inaddition,ithasappreciated40percentagainsttheJapaneseyen,27percentagainsttheKoreanwon,and36percentonatrade-weightedbasis.AfurtherappreciationintheAustraliandollarwouldcontinuetoerodetheeffectivenessoftariffprotectionandadverselyaffecttheinternationalcompetitivenessoftheindustry.Inaddition,theprofitabilityoftheindustryhasfallentosuchanextentthatACISisunderpinningthefinancialperformanceofthesector.

Australiahasalsoenteredintoseveralfreetradeagreements,includingwiththeautomotiveproducingcountriesoftheUnitedStatesandThailand.Changingconsumertastesandfuelpriceincreaseshaveseenthemarketshareoflocalvehicleproducersfallingfrom30percentin2002to19percentin2007.Inaddition,therearemanyemergingchallengesbeingdrivenbyenvironmentalconcernsandtheindustry’sneedtocontributetogreenhousegasabatement.Theextentoftheimpactsofthesechangedcircumstancescouldnothavebeenanticipatedin2002.

Sincethe1980s,theAustralianautomotiveindustryhasbecomemoreopenandefficient.Ithas

7 ProductivityCommission,ReviewofAutomotiveAssistanceInquiryReport,ReportNo.25,PC,Melbourne,2002,pp.181,183.

8 ibid.,p.182.


respondedtoincreasedexposuretointernationalcompetitionthroughenhancedglobalintegrationandamoreexport-orientedfocus.Whathasnotchanged,however,isthattheindustryisstillsubjecttothestructuraladjustmentprocess.Asin2002,policycertaintycontinuestobeacentralthemeunderpinningfutureinvestmentinthedomesticindustry.Themaindifferencenowisthatthehorizonforpolicycertaintysoughtbytheindustryextendsoutto2020.

Impact of changed automotIve assIstance arrangementson14April2008,thehonChrisBowenMP,AssistantTreasurerandMinisterforCompetitionPolicyandConsumerAffairs,taskedtheProductivityCommissionwithmodellingtheeconomy-wideeffectsoffutureassistanceoptions.ThepolicyoptionssuggestedbytheReviewcoveredthegamutofpossibleassistancearrangements—fromtheremovalofallsupportthroughtomaintainingthecurrenttariffsandincreasingfundingunderACIS.TheReviewalsorequestedmodellingofascenarioinwhichtheAustralianandUSdollarsachievedparity.

TheProductivityCommissionreleaseditsreport,ModellingEconomy-wideEffectsofFutureAssistanceArrangements,on5June2008.9Thecommission’smodellingfoundthatreducingthepassengermotorvehicle(andpartsthereof)tariffsfrom10to5percentanddiscontinuingACISwouldincreaseGDPbyupto0.06percentand(publicandprivate)consumptionby0.002percent.Itwouldalsoleadtoanexpansionintheoutputoftheagriculture,mining,foodprocessingandservicessectors,andacontractioninoutputfromthemanufacturingsector.10

Fortheautomotiveindustry,thereductionintariffsfrom10to5percentandthediscontinuationoftheschemewouldleadtooutputfromautomotiveassemblyandcomponentmanufacturingfallingby4.6and1.4percentrespectively.Employmentinthesesub-sectorswouldfallby5.5and1.8percentrespectively.11Attheregionallevel,thechangedpolicyenvironmentwouldleadtoanexpansioningrossstateproductforalljurisdictionswiththeexceptionofVictoria,SouthAustraliaandtheAustralianCapitalTerritory,thetwostatesbeingthemoreautomotive-intensivejurisdictions.12VictoriaandSouthAustralia,andtoalesserextentNewSouthWales,would

9 ProductivityCommission,ModellingEconomy-wideEffectsofFutureAutomotiveAssistance,ResearchReport,PC,Melbourne,2008.

10 ibid.,p.49.11 ibid.,Table4.2,p.53.12 ibid.,Table4.3,p.55.

loseasmallproportionoftheirpopulationstotheresource-intensivejurisdictionsofWesternAustralia,QueenslandandtheNorthernTerritory.13

Theeconomicbenefitsfromassistancereductionscomelargelyfromreducingthetariff—removingorreducingACIShasamuchsmallereffect.ThisisillustratedinreferencecaseR314:removingtheschemewithnochangeinthetariffproducesverysmallGDPgainsandadeclineinconsumption(0.003and-0.18percentcomparedtothebasecaseeffectsof0.063and0.02percentrespectively).Theresultstemsfromthedistortiontopricesimposedbythetariff,whichdoesnotoccurunderACIS.

Thereducedassistanceleadstoaresourceexpansioneffect.Theresourceexpansioneffect,inturn,involvesanincreaseininvestmentandthiscomesfromtwosources.First,thereductionsinassistancereducethecostofautomotiveproducts,whichreducesthecostofcapital.Second,theefficiencygainsincreaserealwages,whichencouragessubstitutionofcapitalforlabour.ReferencecaseR415removestheresourceexpansioneffectwiththeresultthattherearenegligiblegainstoGDPandadeclineinconsumption(0.004and-0.008).Thegainfromtheresourceexpansioneffectmustbeviewedinlightofaneconomyexperiencinganinvestmentboomandsomesupply-sideconstraints.

TheProductivityCommission’smodellingfoundthatarealappreciationinthetermsoftradegeneratedbyacontinued‘mineralsboom’woulddwarftheimpactsofanychangedassistancearrangements.16

TheProductivityCommissionalsoranvarioussimulations,includingchangingtheexportdemandelasticitiesfrom10tofive.Thisisimportantbecauseloweringtheexportdemandelasticitiesresultsinalargerterms-of-tradeeffectandasmallerincreaseinexports.Thelowerelasticitiesarealsoconsistentwiththeargumentofproponentsoftheoptimaltariff—thatis,whentariffsarealreadylow,reducingthemfurtherresultsintheterms-of-tradeeffectsoutweighingthebenefitsofallocativeefficiencies.Thecommissionreportedthat,withthelowerexportdemandelasticities,theeffectofreducingthetariffto5percentanddiscontinuingACISwouldresultinanincreaseinGDPof0.05percentandafallin(privateandpublic)consumptionof-0.01percent.17

13 ibid.,Table4.3,p.54.14 ibid.,Table4.1,p.49.15 ibid.16 ibid.,Table2,p.XVIII.17 ibid.,Table4.5,p.60.


Thesimulationsalsoshowedthatifthecostofborrowingriseswiththedemandforcapital,oriflabourmobilityisconstrained,thenbothsimulationswouldresultinareductionof(privateandpublic)consumptionof-0.07and-0.06percentrespectively.18

Finally,itisnotedthateconomicmodellingbecomeslessinsightfulasthepolicyshockbecomessmaller.Thisisbecausetheresourceimpactsaresmallerandcanbeconfoundedby‘noise’fromthemanysimplifyingassumptions.Forthisreason,whilethemodellingisanimportantinputtodeliberations,itneedstobecomplementedbyanalysisofthemanydynamicfactorsaffectingthecompetitivenessandcontributiontotheeconomyoftheautomotiveindustry.

automotIve Industry spILLoversAsdiscussedinChapter6andAppendixesEandF,theAustralianautomotiveindustryisonefromwhichtechnologyspilloversaregenerated.Thespilloversare,however,relativelyconcentrated.Theindustriesthatareamongthosereceivingalargeamountofspilloversfromtheautomotiveindustryaremachineryandequipment,othermanufacturing,andtheothertransportationequipmentindustries(mostlyrailroadequipmentandothertransportationequipment).

Thereareadditionalspillovers,otherthantechnologyspillovers,asidentifiedinthestudiesreportedintheappendixes.Suchbenefitsandspilloversincludetheapplicationofautomotive-relatedengineeringandproductioncapabilitiestootherindustrysectors,transferofcompetenciesandcapabilitydevelopmenttosuppliers;transferofautomotive-relatedmanagementprinciplestootherindustrysectors;andthecreationoftrainingprogramsthatbenefitnon-automotive-relatedfirms.

Thesespilloversreflecttheimportantlinkstheautomotivesectorhastotheheavyengineeringsectoroftheeconomy—itisthelargestindustryinthesector,onethatrequiresgloballycompetitivestandardsinproductsandprocessesandonethathassubsidiariesofmajorinternationalcompanies.TheautomotiveindustryisintegraltoAustralia’scapabilitiesinelaboratelymanufacturedgoods.

18 ibid.

vIews In submIssIons

AutomotiveCompetitivenessandInvestmentScheme

ThelocalmotorvehicleproducersandcomponentproducerscontendthatACIShasbeencriticaltotheindustry’sabilitytoattractrenewedinternationalinvestmentandincreaseexpenditureonR&Dinthefaceofintensifyingcompetitivepressures.Forexample,GMholdenmaintainsthatACIS,incombinationwithothergovernmentincentiveschemes,hasprovidedsupportforlarge-scalecapitalinvestmentinAustralia,includingthehigh-FeatureV6EngineplantatFisherman’sBendandthenewVECommodore.19Inaddition,Fordstatedithad“committedtoasuiteofinitiatives”—includingdesign,engineeringandmanufactureofthenewmodelFalconandTerritory—onthebackoftheintroductionandimplementationofACIS.20FuturisalsostatedthatACIShasbeenamajorfactorinthecompany’sexpansionbothinAustraliaandinternationally.

YetitisdifficulttomeasuretheextenttowhichACIShasbeenthekeyfactorininducingfurtherinvestmentinR&D.AccordingtoanalysisbytheProductivityCommission,acomparisonofpre-andpost-ACISR&Dexpendituredoes,onthefaceofit,revealstronggrowthinR&Dspending,with2percentgrowthinthethreeyearspriortotheschemecomparedto30percentaftertheschemewasintroduced.21however,automotiveindustrybusinessexpenditureonresearchanddevelopment(BERD)hasplateauedinrecentyearsandfallenbehindthegrowthinBERDforthemanufacturingsectorinparticularandallindustriesingeneral.ThisissupportedbytheNRMA,whichnotedthatthegrowthinautomotiveBERD“needstobeplacedincontextofotherunderlyingtrendsinthemanufacturingsectorwithcomparativefigures[forR&Dgrowthfortheentiremanufacturingsector]of-1percentand17percentrespectively”.22Thus,whileACISislikelytohaveplayedsomepart,theexpansioninautomotiveindustryR&Dseemstohavealsobeendrivenbyothernon-ACISrelatedfactorsaffectingthemanufacturingsector.

overall,itseemsthatACIShasservedtheindustrywell.ACIShasprovidedsupportforcapitalinvestmentbythemotorvehicleproducersandTier1companies.Thissupporthasassistedthesupplychain,whichis

19 GMholden,Submissiontothe2008AutomotiveReview,p.40.20 Ford,Submissiontothe2008AutomotiveReview,p.25.21 ProductivityCommission,TradeandAssistanceReview2006–07,

AnnualReportSeries,ProductivityCommission,Canberra,2008.22 NRMA,Submissiontothe2008AutomotiveReview,p.19.


reliantonthedomesticproductionofvehiclesandsuppliesTier1companies.

TherehasbeenanincreaseinthelevelofBERDundertakenbytheindustry.however,BERDhasplateauedinrecentyearsandhasnotkeptpacewiththegrowthinmanufacturingortotalBERD.Theautomotiveindustry’sshareofmanufacturingBERDfellfrom22percentin2002–03to17percentin2005–06,suggestingthatACISisnotencouragingcontinuedgrowthinR&Dexpenditure.

ACIShasalsofacilitatedinvestmentinplantandequipmentandtheintroductionofnewvehiclemodels,andfundedtheexpansionofsomesectorsofthesupplychain.

ontheotherhand,asmentioned,ACIShasproppeduptheprofitabilityoftheindustry.ThissuggeststhattosomeextentACIShaskeptmarginalfirmsintheindustryandinhibitedrationalisationandconsolidation.Thismayhaveactedtorestraineconomiesofscaleandproductivitygrowth.

BecauseACISfundsarepaidascredits,somefirmsinthesupplychaincannotusethecreditstoimportautomotiveproductsandmustthereforesellthecredits.Inaddition,thecreditscanbeusedtoimportcomponentsratherthanforthepurchaseofdomesticallyproducedcomponents.Changingfromcreditstograntswouldrestoreneutralitybetweenthetreatmentofdomesticandforeign-basedcomponentproducers.ACIShasalsoencouragedthedevelopmentofasecondarymarketsoastofacilitatethetradeindutycredits(sothosefirmsthatcannotusethecreditscansellthem),whichhasledtoleakagefromthesystemintheformofbrokeragefees(paidascredits).

Tariffs

InitssubmissiontotheReview,theNRMAstatedthatatariffrateof5percent“willdonexttonothingtoprotecttheautomotiveindustry,andwillreallyjustserveasanextrataxoncarsthatareimported”.23Similarly,thesubmissionfromtheDepartmentofForeignAffairsandTradereferredtothebenefitsbroughtbytheliberalisationoftariffsintheformofgreaterchoiceandcheaperproductsforAustralianconsumersandbusinesses.Itssubmissionalsonotedtheproductivitybenefitstotheindustrybroughtbythetariffreduction:“Astheindustryhasadjusted,ithasbecomemoreefficient,morecloselyintegratedintoglobalsupplychainsandmorefocussedon

23 ibid.

nichecapabilitiesandmarkets”.24Inaddition,tariffprotectiontendstoshiftproductiveresourcesfromindustriesthatarenotprotectedtothosethatare,withthedepartmentnotingthat“assistancetotheindustryneverthelesscontinuestoraisethecostsandlowerthecompetitivenessofothersectors(suchastheservicessector),whichutilisetheindustry’soutput.SalestoprivatefirmsaccountformorethanhalfofAustralian-madevehiclesalesonthedomesticmarket”.25

ontheotherhand,anumberofsubmissions(includingfromallthreedomesticmotorvehicleproducers,somecomponentproducers,theunions,andboththeVictorianandSouthAustralianGovernments)raisedconcernsaboutthepotentiallynegativeimpactontheAustralianindustryofthescheduledtariffreduction.oneconcernwastheneedtoreducethepotentialfordisruptiveadjustmentwithinthesectorduringatimeofintensifyingcompetitionfromhigh-volume,low-costproducers.AnotherwasthesimultaneousboontoimportsanddragonexportsarisingfromtheincreaseintheAustraliandollarfromUS56centsin2002(whenthecurrenttariffschedulewasimplemented)towelloverUS90centsinmid-2008.26Inaddition,theindustryisconcernedthatAustralia’stariffreductionpolicyisplacingthedomesticindustryatacompetitivedisadvantageaslittleimprovedaccessforAustralia’sexportsisbeingrealised.27Severalsubmissionssuggestedthatfurthertariffreductionsbelow10percentshouldbecontingentonsubstantiveprogressinmultilateralnegotiationsontradeliberalisation.

optIons for repLacIng the automotIve competItIveness and Investment schemeTheAutomotiveCompetitivenessandInvestmentSchemeprovidestransitionalassistancetohelptheindustryadjusttoalowertariffandmoreinternationallycompetitiveenvironment.Assistancetotheindustryfortheperiod2011to2015shouldreflectthis,andthefundingshouldbeappropriatetohelptheindustrycontinuetoadjusttoamoreinternationallycompetitiveenvironment.Thecontinuationofassistancecanalsohelptheindustry

24 DFAT,Submissiontothe2008AutomotiveReview,p.5.25 ibid,p.7.26 SouthAustralianGovernment,Submissiontothe2008Automotive

Review,p.10.27 See,forinstance,Toyota’ssubmissiontotheReviewatpage51.

Toyotaalsonotes(p.45)“thatmostcountrieswithasimilarscaleofproductionhaveanimporttariffbetween2.5timesand9timesthescaleofAustralia’s”.


meetthechangedenvironmentcausedbyastrongappreciationintheAustraliandollar,highoilprices,changedconsumerpreferences,cleaneremissionsrequirementsandnewfreetradeagreements.

Theleveloffundingforcappedassistancecouldthereforebereducedfromthecurrent$2billionoverfiveyearsto2010to$1.5billionoverthefiveyearsto2015.Thisishigherthanthecurrentlegislated$1billionoverthefiveyearsto2015butreflectsthechangedenvironment,aswellastheneedtopromoteconsolidation,capabilityimprovementandimprovedR&Dinvestmentoutcomes.Thesupportcanleadtohigherlevelsofinnovation,improvedeconomiesofscale,betterworkplacerelations,higherskillsandincreasedproductivity.Thenewsupportarrangementsshouldbelesspassivethancurrentassistancearrangements,andshouldpositivelyinfluencefirmandindustrybehavioursoastohelptheindustrycontinueitstransitiontoamoreinternationallycompetitiveone,andonethatisabletomeetthechallengesofalowercarboneconomyinthelongerterm.Amoreproductiveandcompetitiveindustryalsohasbenefitsfortherestoftheeconomy.

ThefundingthereforecoversthesuiteofinitiativesoutlinedinChapters7,8and9,whichcanbefundedfromwithinthetrancheof$1.5billion,andwhichwouldbebroughtforwardforthispurpose.TheGreenCarInnovationFundwouldbeadditionaltothe$1.5billion.

Alternatively,thesuiteofinitiativesannouncedinChapters7,8and9couldbefundedfromaseparateallocationofmoniesoverandabovethe$1.5billionavailableforcappedassistance.Thefundwouldbeadditionaltoboththe$1.5billionandtheseparateallocation.

Thelevelofassistanceshouldcontinuebeyond2015,andafurtherfive-yeartrancheof$1billionto2020shouldbemadeavailabletotheindustrytocompletethetransitionalassistanceprocess.Cappedfundsshouldcontinuetobesplit55:45betweenthemotorvehicleproducersandthesupplychain.Thisfundingshouldbe‘front-loaded‘andphaseddownoverthefive-yearperiod.Assistanceshouldceaseattheendof2020.

ThefundingmixundertheassistancearrangementsshouldbechangedtooffsettheimpactACIShashadonretainingmarginalfirmsintheindustry,tomoreappropriatelytargetR&DandtoremovetheanomalyinprovidingmoreassistancefortheproductionofvehiclesforthedomesticmarketandNewZealand

comparedwithassistanceforproductionofvehiclesforexporttoothermarkets.

Thelastfactorcanbeaddressedbymakingtheproductionofallvehiclessubjecttothesameclaimingprocessandformula.Thatis,allproductionwillreceivebothcappedanduncappedfunding.Thiswouldalsoincreasethemodulationrateusedtoallocatecreditstothemotorvehicleproducers.Inaddition,theoverallsuiteofnewmeasures(outlinedbelow)raisesthelevelofassistancetothesupplychain,andliftstheproportionofassistancegoingtothesupplychain.28

Motorvehicleproducersshouldcontinuetoreceiveassistancebasedonproduction.Thishelpssmoothoutthe‘lumpiness’ofinvestmentinplantandequipmentandR&Dassociatedwiththeintroductionofnewmodels.Thechangedarrangementsshouldapplyfrom2010.

Facilitatingtherationalisationprocesstoachieveeconomiesofscaleandproductivityimprovementscanbehelpedbytighteningthedependencythresholdforthecomponentproducers(excludingtheserviceprovidersandthemachinetoolingproducers).Currently,thisissetat$500,000.Raisingthisto,say,$2millionwouldexcludemarginalfirmsfromassistanceandincreasethefundsavailabletolarger,moreviablefirms.Itmightalsoencouragerestructuringamongsmallerfirmsandhelpleadtobettereconomiesofscale.Therationalisationprocesscanbefurtherfacilitatedthroughthe‘transmissionofbusiness’initiativediscussedinChapter9.

TheloadingscurrentlyapplyingunderACIS(toupliftclaimsforinvestmentinplantandequipmentandinR&D)effectivelyacttoreducethemodulationrateasassistanceiscapped.Removingtheloadingwillincreasethemodulationrateandensuregreatercertaintyininvestmentdecisionsbyfirmsinthesupplychain—thisisdiscussedfurtherbelow.

Inaddition,someoftheeligibleexpenditureitemsforR&DthatcanbeclaimedbythesupplychainunderACISaregenerous.Forexample,firmscanclaimcostsassociatedwithrecruitmentandmanagement.StreamliningtheeligibleexpenditureitemswillhelpensurethatclaimsmoreaccuratelyreflectR&Dactivities.Itwillalsohelpraisethemodulationrate.

RemovingtheloadingsandreducingtheeligibleexpenditureitemscanbecomplementedbyanincreaseintherateforclaimsofeligibleR&D.

28 Thesupplychain’sshareoftotalassistanceincreasesbyaround3percentagepoints.


Currently,itis45percent.Thiscouldberaisedto50percent.TofurtherencourageR&D,therateforplantandequipmentclaimscanbereducedfromitspresent25percentto15percent.

Themodulationrateisusedtoadjustclaimstoensurethatthecappedpooloffundingisnotexceeded.Itiscurrentlyaround0.63percent.Becausethemodulationratevariesandisnotclosetounity,itcanactasadisincentiveforinvestmentsincethereisnocertaintyabouttheACIScreditsthatcanbeclaimedforsuchinvestment.Changingthecurrentsupportarrangementstoreflecttheabovemeasureswouldacttoincreasethemodulationrateandintroducegreatercertaintyforeligibleinvestment.

AsdiscussedinChapter9,therearedeficienciesinmanagementandleadership,manufacturingandquality,andsupplychainintegrationskillsinthesmallerfirmsinthesupplychain(thoseunder$50millionofturnover).TheAutomotiveSupplierExcellenceAustralia(ASEA)Stage3processandsimilarprogramsrunbythemotorvehicleproducers,governmentandbusiness(suchasEnterpriseConnectandC21)canhelpliftthesecapabilities.Governmentassistancetothesefirmscouldbetiedtothemundertakingandimplementingacapabilitiesimprovementprogram.Thiswouldbetargetedatfirmsthathavenotparticipatedinsuppliercapabilitydevelopmentprograms.Itwouldbeaseparatepooloffundsandwouldhelptocompensatethesupplychainfortheadditionalassistancegiventothemotorvehicleproducersfromuncappingthecreditsavailableforproductionforexport.Firmswouldalsoneedtocontributeasmallpaymentforthecapabilitiesimprovementprogram.ServiceproviderscouldincludeASEA,C21,EnterpriseConnect,themotorvehicleproducersorotherbodies.

Assistancetotheindustryshouldbechangedfromdutycreditstogrants.Thiswouldraisetheimport-weightedaverageautomotivetariffsforcarsandcomponents,andhelpequalisethetariffsapplyingbetweenautomotivegoods.Itwouldalsohelpoffsetanyimpactthatfuturefreetradeagreementsmayhaveinloweringimportdutiesbelowtheavailabledutycredits.Changingfromdutycreditstograntswouldassistadministrationoftheprogramandpreventleakageofassistance.

GiventhechangesoutlinedaboveandthosediscussedinChapters7,8and9,thenameoftheassistanceprogramshouldbechangedtotheGlobalAutomotiveTransitionSchemetobetterreflecttheintentofthenewscheme.Thenewarrangements

shouldtakeeffectin2010,thelastyearofthecurrenttrancheoffundingunderACISStage2andwhentariffsarelegislatedtofall.Thisexcludesthoseelementsofthenewarrangementsthatarebroughtforwardaheadof2010.

tarIff optIonAreductioninautomotivetariffsto5percentin2010couldprovidenetbenefitstotheeconomyandtoconsumers.Itwouldalsocontinuethestructuraladjustmentprocesstheindustryhasbeenundergoingsincethemid-1980s.TakingintoaccountAustralia’scurrentfreetradeagreements,theimport-weightedtariffundertheproposedtransitionalassistancearrangementswouldbebetween3and4percentfrom2010.

AccordingtotheProductivityCommission,reductionsinautomotivetariffswouldhavegreatereconomicbenefitsthanreducingACIS.Thiseffectarisesfromtheincreasetopricesimposedbytariffs,whichdoesnotoccurwithreducingaproductionsubsidysuchasACIS.ItisalsoconsistentwithAustralia’sgeneraltradereformagendaandwithanypossibletariffcommitmentsarisingfromtheDohaDevelopmentAgenda.

other measuresTheAustralianandstategovernmentshaveprovidedincentivestocompanieswithintheirjurisdictionstoencourageinvestmentinR&Dandtraining.Manyotherinternationaleconomiesoffersuchincentives.Theuseoftheseincentives,however,canleadtoincreasedcompetitionbetweenthestatestoattractinvestment.Suchcompetitionallowscompaniestoplayonestateoffagainstanotherandcanleadtoasuboptimaloutcome—withtheincentivesofferedbeingpotentiallyinexcessofthebenefitsofsuchinvestment.Toimprovethis,adialoguebetweentheCommonwealthandthestatesandterritoriescouldbeinitiatedwithaviewtoensuringthatinvestmentincentivesarenotoverlygenerousandthatthebenefitsexceedthecostsofprovidingsuchassistance.

Thestatesandterritoriescouldalsoconsidertheharmonisationandreductionofstampduties,vehicleregistrationandcompulsorythird-partyinsurancethroughforumssuchastheCouncilofAustralianGovernmentsortheCouncilfortheAustralianFederation.Thiswouldfacilitatethepurchaseofnew(ornewersecond-hand)vehiclesandhelptoreducetheaverageageofthein-servicevehiclefleet.An


addedbenefitwouldbeareductioningreenhousegasemissions.

TheestablishmentofanAutomotiveIndustryInnovationCouncil,withhigh-levelrepresentationfromthemotorvehicleproducers,componentsuppliers,unions,researchandacademicorganisations,andgovernment,canfacilitatestrategicdialogueonissuesaffectingtheindustryandmeasurestoimprovetheinnovationandproductivityperformanceoftheindustry.Thecouncilcouldprovideadviceandoversightinrelationtothenewtransitionalarrangementsapplyingtotheindustry.AsnotedinChapter9,thecouncilcouldalsoincludeareferencegroupthatprovidesadviceonautomotiveskillsissuestoManufacturingSkillsAustralia(theIndustrySkillsCouncilhavingprimarycarriageformanufacturingindustryskillsdevelopment).TheestablishmentofanAutomotiveIndustryInnovationCouncilwasintheGovernment’spre-electionplatform.FundingforthecouncilshouldcomefromtheGlobalAutomotiveTransitionScheme.

oneissueraisedduringtheReviewprocessconcernedautomotiveproductsbeingontheExcludedGoodsSchedule.ThismeansthatanimporterofaproductcannotapplyforaTariffConcessionorder(TCo)toimportitduty-free.ATCocanprovideforduty-freeentryofcertaingoodswherethereisnolocalindustrythatproducesthosegoods.onceaTCoisgrantedforaparticulargood,itisavailabletoallimportersofthegood.however,allowingTCosforautomotivegoodswouldunderminethefundingbaseoftheautomotiveassistancearrangementsbyreducingtariffrevenue.

recommendatIonsAnew,retargetedtransitionalprogramtitledthe�GlobalAutomotiveTransitionSchemeshouldbelegislatedin2009andcommencein2010.TheGlobalAutomotiveTransitionSchemewouldcomplement,andbeadditionalto,theAustralianGovernment’sGreenCarInnovationFund.

TherearethreeoptionsforfundingtheGlobal�AutomotiveTransitionSchemeandothermeasuresrecommendedinthisreport.Theseare:


Thefundingalsocoverstheindustry–restructuringfund,TeamAustraliaAutomotive,theAutomotiveAmbassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

TheGreenCarInnovationFund,worth–$500million,shouldbebroughtforwardto2009.


Thefundingalsocoverstheindustry–restructuringfund,TeamAustraliaAutomotive,theAutomotiveAmbassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

FundingfortheGreenCarInnovation–Fundshouldbebroughtforwardto2009and,ifsuccessful,theFundshouldbedoubledfrom$500millionto$1billionandextendedbeyonditsinitialfiveyears.


Afurthertrancheoffundsshould–bemadeavailabletocovertheindustryrestructuringfund,TeamAustraliaAutomotive,theAutomotiveAmbassadors,theAutomotiveIndustryInnovationCouncilandthechangedLPGVehicleSchemearrangements.Theseinitiativesshouldcommencein2009.

FundingfortheGreenCarInnovation–Fundshouldbebroughtforwardto2009and,ifsuccessful,theFundshouldbedoubledfrom$500millionto$1billionandextendedbeyonditsinitialfiveyears.

the review recommends option 3.


otherrecommendedcomponentsoftheGlobal�AutomotiveTransitionSchemeare:

Fundingforboththemotorvehicle�producersandthesupplychainshouldbesplit55percent(tovehicleproducers)and45percent(tothesupplychain)aftermoniesfortheadditionalprogramsareeitherdeductedfromthecappedpoolorallocatedseparatefunding.

Assistanceshouldbeintheformofgrants�andnotdutycredits.

Creditsfortheproductionofvehiclesfor�differentmarketsshouldbetreatedthesame,bypartiallyuncappingallproductioncredits.

Thedependencythresholdforthecomponent�suppliersshouldberaisedto$2milliontofacilitatetherationalisationoftheindustry.Automotiveserviceprovidersandautomotivemachinetoolproducersshouldcontinuetomeetthelowerthresholdof$500,000.

Theloadingsapplyingundertheprevious�AutomotiveCompetitivenessandInvestmentSchemeforsupplychaininvestmentshouldbeabolished.

Thelistofeligibleresearchanddevelopment�(R&D)activitiesshouldbestreamlinedandexcludepaymentsforrecruitmentandmanagement.

Therateforclaimsforinvestmentineligible�R&Dshouldbeincreasedfrom45to50percent.

Therateforclaimsforinvestmentinplant�andequipmentshouldbereducedfrom25to15percent.

Firmsthathavenotparticipatedinasupply-�chaincapabilitydevelopmentprogramshouldparticipateinsuchaschemeinreturnforreceivinggovernmentassistance.FundingfortheprogramshouldbeprovidedbytheAustralianGovernmentwithcontributingpaymentsfromthefirmsthemselves.ThesuppliercapabilityprogramshouldnotbelimitedtoparticipationinAutomotiveSupplierExcellenceAustralia,butalsoincludeotherserviceproviderssuchasEnterpriseConnect,C21andthemotorvehicleproducers’suppliercapabilityprograms.

Thepassengermotorvehiclesandpartsthereof�tariffsshouldbereducedfrom10to5percenton1January2010.This,combinedwithassistanceundertheGlobalAutomotiveTransitionScheme,willhelpdeliverbenefitstotheeconomyaswellascontinuingtoprovidetransitionalsupportfortheindustry.

AdialoguebetweentheAustralianandaffected�stateandterritorygovernmentsshouldoccurtoensurethatinvestmentincentivesarenotoverlygenerousandthatthebenefitsexceedthecostsofprovidingsuchassistance.

Statesandterritoriesshouldconsiderthe�harmonisationandreductionofstampduties,vehicleregistrationandcompulsorythird-partyinsurancetofacilitatethepurchaseofnew(ornewersecond-hand)vehiclestohelptoreducetheaverageageoftheAustralianvehiclefleet.ThiscouldbethroughforumssuchastheCouncilofAustralianGovernmentsortheCouncilfortheAustralianFederation.

AnAutomotiveIndustryInnovationCouncilshould�beestablished,withhighlevelrepresentationfromthemotorvehicleproducers,componentsuppliers,unions,researchandacademicorganisations,andgovernment.

TheAutomotiveIndustryInnovationCouncil�shouldprovideadviceandoversightinrelationtothenewtransitionalarrangementsapplyingtotheindustry.

Administrativeexpensesandsecretariat�supporttotheAutomotiveIndustryInnovationCouncilshouldbefundedundertheGlobalAutomotiveTransitionScheme.

TheAutomotiveIndustryInnovationCouncil�shouldincludeareferencegroupthatprovidesadviceonautomotiveskillsissuestoManufacturingSkillsAustralia(theIndustrySkillsCouncilhavingprimarycarriageformanufacturingindustryskillsdevelopment).

|101AUTOMOTIVETRADE

APPENDIxES

APPENDIXA: AUTOMOTIVETRADE 103

APPENDIXB: AUTOMOTIVECOMPETITIVENESSANDINVESTMENTSCHEMEELIGIBILITYCRITERIA111

APPENDIXC: SUPPORTFORTHEAUTOMOTIVEINDUSTRYINSELECTEDECONOMIES 113

APPENDIXD: DETAILEDR&DANALYSIS 119

APPENDIXE: QUANTITATIVESPILLOVERSTUDY—PATENTCITATIONS 125

APPENDIXF: QUALITATIVESPILLOVERCASESTUDIES 139

APPENDIXG: COMPARATIVEIN-SERVICEEMISSIONSTESTING 153

APPENDIXH: GOVERNMENTFLEETPURCHASINGARRANGEMENTS 155

APPENDIXI: STATEANDTERRITORYSTAMPDUTIESANDREGISTRATIONFEES— 157INDICATIVEEXAMPLES

APPENDIXJ: KEYAUTOMOTIVESTATISTICS 159

APPENDIXK: REVIEWPROCESSES 175

APPENDIXL: PUBLICSUBMISSIONSTOTHEREVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY 177

APPENDIXM: STAKEHOLDERMEETINGSANDCONSULTATIONS 179

APPENDIXN: REVIEWPARTICIPANTS 181

|103

APPENDIXA:AutomotIvE trADE1, 2

1 DepartmentofInnovation,Industry,ScienceandResearch,TradeInformationSystem(incorporatingunpublishedimportandexportdatafromtheABS),DIISR,Canberra,2008.Thisdatabaseincorporatesdataonafinancialyearbasis.

2 Forthepurposesofanalysis,themajorautomotivetariffitemswereanalysed.Thereweresomeomissionsforcomponentsthatcouldbeusedforbothautomotiveandnon-automotivepurposes.However,theseomissionsareminor.Forexample,forthevalueofexportsofvehiclesextractedfromtheABSdatathereisonlyonaveragea0.2percentdifferencetothevalueofvehicleexportsobtainedfromDFAT’sSTARSdatabase(andwhichiscategorisedaspertheStandardInternationalTradeClassificationsystem).Forthevalueofexportsofautomotivecomponents,thereisonaveragea3.2percentdifferencebetweenthetwodatasources.

Vehicle exportsTableA.1showsthatthevalueofvehicleexportswas$2.9billionin2006–07.Thisisa15.2percentdecreaseonthevalueofvehicleexportsin2005–06.Thetablealsoshowsthatthevalueofexportsofpassengermotorvehicles(PMVs)hadbeensteadyataround$2.8to$2.9billionforthethreeyearsbetween2002–03and2004–05.However,itgrewby14.4percentin2005–06toalmost$3.2billion,beforefallingbackin2006–07.ThiswasmainlyduetoafallinexportstotheUnitedStates.ThemajorexportmarketforPMVsisSaudiArabia,whichaccountedforover40percentofthevalueoftheseexportsin2006–07.ThemainvehiclesexportedtothismarketweremanufacturedbyToyotaandGMHolden(withthelatterbadgedasaChevrolet).ThenextlargestexportmarketwasNewZealand(towhichallthreeofthelocalproducersexport).PMVexportstotheUnitedStatesdecreaseddramaticallyin2006–07asaresultofthecessationoftheprogramtoexporttheHoldenMonarotothatcountry.However,thisisexpectedtorebound,withaVECommodorevariantbeingexportedtotheUnitedStatesasaPontiacG8.Inaddition,GMHoldenhasannouncedthatitwillalsoexporttheVEUtilityasaPontiac‘sportstruck’inthesecondhalfof2009.

TheUnitedArabEmirates,KuwaitandOmanarealsoimportantexportmarkets,betweenthemaccountingforover27percentofthevalueofPMVexportsin2006–07.ThevehiclesexportedtothesecountriesincludeToyotasandHoldens(alsobadgedasChevrolets).

TableA.1alsoshowsthatthevalueofexportsofgoodsvehiclesnearlytripledintheperiod2002–03to2004–05,whilethevalueofexportsoftractorsandbusesfell.However,thevalueofexportsofgoodsvehiclesfellsignificantlyin2005–06and2006–07to$145million.Thevalueofexportsofbusesalsocontinuedtofallin2005–06butrecoveredslightlyto$6millionin2006–07.Thevalueofexportsoftractorsincreasedby125percentin2005–06andafurther14.4percentin2006–07,toover$54million.

Thevalueofexportsofutilities(mostlytoNewZealand)remainedfairlyconstantfrom2003–04to2006–07,whenitfell47percentto$72million.However,thevalueofexportsofdumpersgrewsignificantlyintheperiod2002–03to2004–05,butdecreasedbynearly60percentin2005–06toalmost$40million.Thisrecoveredto$73millionin2006–07.In2004–05thevalueofexportsofdumperstoIndonesiaincreasedsignificantly,accountingforthetotalgrowthinthevalueofexportsofdumpersin2004–05.ThedecreaseinthevalueoftheseexportstoIndonesiain2005–06accountedfornearlyallthedecreaseinthevalueofthesevehiclesin2005–06.Theincreasein2006–07wasmainlyaresultofnewexportstoSouthAfrica,ChileandSingaporeandanincreaseinexportstoPapuaNewGuinea.

104| REVIEWOFAUSTRALIA’SAUTOMOTIVEINDUSTRY |105AUTOMOTIVETRADE

component exportsTableA.2showsthatthevalueofexportsofcomponentshasfallenby2.1percentto$1.8billionsince2002–03.Thisdecreaseismainlyattributabletosignificantfallsinthevalueofexportsofpartsusedinmotorvehicles(includingbrakes,clutchesandgearboxes)andelectricalswitchesandapparatus.Thiswasmostlybalancedbyincreasesinthevalueofexportsofenginesandtyres.ThesevaluescouldfallinthefutureasaresultoftheclosureofGMHolden‘sfour-cylinderengineplantfrom2009,andtheclosureofSouthPacificTyres’Somertontyrefactoryfromtheendof2008.

Partsusedinmotorvehicles

TableA.3showsthatthevalueofexportsofpartsusedinmotorvehicles(includingbrakes,clutchesandgearboxes)hasfallenbyover$380millionsince2002–03.Thisisduetolargefallsinexportsofbrakesandservos,gearboxes,safetybelts,andchassisandparts.

Brakes

Thevalueofexportsofbrakesandservoshasfallenby$120millionsince2002–03,to$100millionin2006–07.Thiswasdrivenbyadropof$149millioninexportstotheUnitedStates.ExportstoMexicohavealsofallensince2002–03.

TherewasasmallincreaseinthevalueofexportstoChinabetween2002–03and2005–06,followedbyaverylargeincreaseofover1,500percentto$85millionin2006–07.TherewasalsoasignificantincreaseinexportstoThailandin2005–06,whichfellsharplyto$11millionin2006–07.

Gearboxes

Thevalueofexportsofgearboxeshasfallenby$106millionsince2002–03.ThefallisattributabletoadropinthevalueofexportstotheRepublicofKorea.

Electricalswitchesandapparatus

Thevalueofexportsofelectricalswitchesandapparatushasdecreasedbyover22percentsince2002–03to$184millionin2006–07.ThisisaresultofafallinexportstoGermany(-$115millionsince2002–03).TherehavebeensomeincreasesinexportstotheUnitedStates,NewZealandandtheRepublicofKorea.

Engines

Thevalueofexportsofengineshasincreasedby$307million(ornearly106percent)to$596million

since2002–03.ThemainmarketforenginesistheRepublicofKorea($293million),followedbyChina($69million),theUnitedStates($37million),Thailand($36million)andGermany($24million).ThemajorAustralianexporterofenginesisGMHolden,whichexportsafour-cylindermotortoGMDaewoointheRepublicofKorea.HoldenannouncedinJune2008thatitisceasingproductionofthefour-cylinderengines.

EnginesalestoSwedenincreaseddramaticallyin2005–06–Holden’sAlloytecV6engineisnowsourcedbySaabforthe9-3and9-5models.TheincreaseinengineexportstoItalyisaresultofHolden’sV6engine,nowsourcedinAlfaRomeo’s159,147,GT,BreraandSpider3.2.

Tyres

Thevalueofexportsoftyresremainedflatbetween2003–04and2005–06,butthenincreasedby105percenttoover$81millionin2006–07.ThisincreasewaslargelybecauseofincreasesinexportstoseveralcountriesincludingSouthAfrica,theUnitedStates,NewZealand,PapuaNewGuineaandtheNetherlands.

Otherparts

Thevalueofexportsofautomatedregulatorsincreasedfrom$75millionin2002–03to$160millionin2004–05.ThiswasaresultofthevalueofexportsofthesecomponentstoGermanytriplingto$105millionin2004–05.However,sincethen,exportsofautomatedregulatorsfellsignificantlyto$58millionin2006–07.ThiswasalmostpurelyaresultofadecreaseinexportstoGermany,withonly$10millionbeingexportedtherein2006–07.

Thevalueofexportsofmirrorsandreflectorshasincreasedby$22millionsince2002–03,mainlyasaresultofanincreaseinthevalueofexportstotheUnitedStates.

Thevalueofexportsofinstrumentsandgaugesincreasedby31.6percentin2005–06to$38.2million.Theseexportsincreasedafurther7.0percentto$41millionin2006–07.TheseincreaseswerearesultofanincreaseinthevalueofexportstotheUnitedKingdom,theUnitedStatesandseveralothercountries.Thiswasoffset,tosomeextent,byasmalldecreaseinexportstoDjibouti,IndiaandBelgium.

Thevalueofexportsofspeedindicatorsandtachomotersmorethandoubledtonearly$15millionin2004–05.Theseexportsstayedsteadyin2005–06beforefallingback31percenttolessthan$10million


in2006–07.ThefluctuationhaslargelybeenduetochangesintheleveloftheseexportstoGermany.

Vehicle importsThevalueofvehicleimportswas$19.4billionin2006–07,asshowninTableA.4.ThisismorethanseventimesthelevelofAustralianautomotiveexportsforthesameyear.ThetablealsoshowsthatthevalueofimportsofPMVsgrewatanaverageannualrateof6.5percentfrom2002–03to2006–07to$13.2billion.ThemainsourcecountryofimportedvehicleswasJapan,whichaccountedfor41percentofthevalueofvehicleimportsin2006–07.ThenextlargestsourcecountryofimportedvehicleswasThailand,followedbytheUnitedStates.

Japanhasconsistentlyremainedthelargestsourcecountryofimportedvehicles.Ofthe$7.9billionimportedin2006–07,$6.2billionwasPMVsand$1.4billionwasgoodsvehicles.ThevalueofvehicleimportsfromSouthAfricaincreasedsignificantlyovertheperiod2002–03to2005–06,from$450millionto$934million.However,thisdecreasedbyover20percentin2006–07to$742million.

TableA.4alsoshowsthatthevalueofimportsofspecial-purposevehiclesmorethantripledintheperiod2002–03to2005–06,thenremainedsteadyat$203millionin2006–07.Thevalueofimportsofbusesincreasedby48percentovertheperiod2002–03to2005–06,andthenfell9.8percentin2006–07to$165million.Importsofgoodsvehicleshasincreasedatanaverageannualrateofalmost16percent–from$2.8billionin2002–03toover$5billionin2006–07.Importsoftractorsincreasedovertheperiod2002–03to2004–05,butthenfellmorethan23percentto$770millionin2006–07.

Thevalueofimportsofutilities(mostlyfromThailand)increasedatanaverageannualrateof13.9percentfrom2002–03to2006–07.ThegrowthinimportsofutilitiesfromThailandaccountedforover71percentofthetotalgrowthinutilitiesoverthesameperiod.Thevalueofimportsofdumpersgrewevenmoresignificantly(atanaverageannualrateofover25percent)intheperiod2002–03to2006–07,tonearly$1.1billion.ImportsofdumpersfromtheUnitedStatesaccountedfor81percentofthetotalgrowth.

component importsAsshowninTableA.5,thevalueofimportsofcomponentsremainedsteadyovertheperiod2002–03to2005–06,increasingonly1.3percentto$6.6billion.However,in2006–07,thevalueofimportsofcomponentsincreased12percentto$7.4billion.Thissignificantjumpismainlyattributabletoincreasesinthevalueofimportsoftyres,partsusedinmotorvehicles(includingbrakes,clutchesandgearboxes),electricalswitchesandapparatus,andchassiswithengines.Australia’scomponentimportsare3.7timesgreaterthanitscomponentexports.

Tyres

AsshowninTableA.5,thevalueoftyreimportsincreasedatanaverageannualrateof7percentovertheperiod2002–03to2005–06,thenincreased25percentin2006–07to$1.7billion.ThissignificantjumpismainlyattributabletoincreasesinimportsfromChina,theUnitedStates,Japan,Thailand,Lithuania,theRepublicofKoreaandSpain.

Instrumentsandgauges

Thevalueofimportsofinstrumentsandgaugesincreasedsteadily–from$167millionin2002–03to$228millionin2005–06.Thevalueoftheseimportsthenfellbynearly6percentto$215millionin2006–07.Therisein2002–03to2005–06wasaresultofincreasesinthevalueofimportsfromtheUnitedKingdom,Germany,theUnitedStatesandseveralothercountries.TheonlysignificantdropinimportsoverthisperiodwasfromJapan.Thedropinvalueoftheseimportsin2006–07wasaresultofdecreasesfromtheUnitedKingdom,theUnitedStatesandSingapore.

Chassiswithengines

TableA.5showsthatthevalueofimportsofchassiswithenginesincreasedsignificantlyin2004–05–byalmost$53million.Thiswasdrivenbyincreasesof$21.8millionand$22millionfromSpainandSwedenrespectively.However,in2005–06thevalueofimportsofchassisandpartsfellnearly14percentto$104.5million.ThiswasaresultofdecreasesinthevalueofimportsfromSwedenandSpain,partiallyoffsetbyanincreaseof$4.4millionfromGermany.Thevalueoftheseimportsincreasedby39percenttoover$145millionin2006–07.ThiswasaresultofincreasesfromBrazil,GermanyandSpain.


Engines

Thevalueofimportsofengineswas$944millionin2006–07.Thisisadecreaseof$184million(or16percent)since2002–03,attributabletoreductionsinimportsfromCanada(fallof$146million),theUnitedStates($133million)andJapan($101million).ThedecreaseswerepartlyoffsetbyincreasesfromMexico(riseof$94million)andThailand($60million).

Themajorsourcemarketsforenginesin2006–07weretheUnitedStates($332million),Japan($151million),Mexico($112million),Thailand($75million),Germany($58million)andCanada($38million).

Partsusedinmotorvehicles

Thevalueofimportsofpartsusedinmotorvehicles(includingbrakes,clutchesandgearboxes)was$2.36billionin2006–07.Thisisanincreaseof$146millionsince2002–03,asshowninTableA.6.Thisisduetoincreasesinthevalueofimportsofdriveaxles,roadwheels,safetybelts,radiators,bumpers,suspensionshock-absorbersandsteeringwheels.Theincreaseswerepartiallyoffsetbyasignificantreductioninthevalueofimportsofgearboxes(dropof$140million).

Driveaxles(withdifferentials)

Thevalueofimportsofdriveaxlesincreasedgraduallyfrom2002–03to2005–06–from$10millionto$16million.Thefollowingyear,2006–07,sawadramaticincreaseofover480percentto$95million.Thiswasmainlyasaresultofanincreaseofalmost$66millionfromJapanin2006–07–fromonly$1millionin2005–06.

Roadwheels

Thevalueofimportsofroadwheelswasjustunder$214millionin2006–07,asshowninTableA.6.Thisisanincreaseof$66millionsince2002–03.ImportsfromChinaaccountsfor75percentofthegrowth.

Safetybelts

Thevalueofimportsofsafetybeltsremainedsteadyovertheperiod2002–03to2005–06.In2006–07,importsincreased24percentto$316million.TheincreasewasmainlyduetoincreasesinimportsfromThailand,China,SouthAfricaandJapan.

Gearboxes

Thevalueofimportsofgearboxeswas$424millionin2006–07,asshowninTableA.6.Thisisafallof$140millionsince2002–03.ThedropinthevalueofimportsfromJapanandtheUnitedStatesmorethanaccountsforallofthisreduction,whichwaspartiallyoffsetbyincreasesfromGermanyandFrance.

Otherparts

Thevalueofimportsofsafetyandotherglasshasincreasedsteadily.Between2002–03and2006–07,importsroseatanaverageannualrateof8.8percentto$128million.Chinaaccountedfor85percentofthisincrease.

Between2002–03and2004–05,thevalueofimportsofautomatedregulatorsincreasedatanaverageannualrateof5percenttoreach$566million.However,thevalueoftheseimportshasfallenatanaverageannualrateof2.9percentsincethen–to$534millionin2006–07.ThiswasaresultofthevalueofimportsfromGermanyincreasingby44percentbetween2002–03and2004–05.ImportsfromGermanythenfellby18.7percent(to$107million)inthetwoyearsto2006–07.ImportsofautomatedregulatorsfromtheUnitedStatesincreasedbynearly18percentin2003–04,buthavesincefallennearly25percentto$143million.

Thevalueofimportsofvehiclebodiesincreasedatanaverageannualrateofnearly19percentsince2002–03—to$48millionin2006–07.ThisisattributabletoincreasesinthevalueofimportsfromMexico,Chile,theUnitedStates,Brazil,ItalyandJapan.TheincreaseswerepartiallyoffsetbydecreasesinimportsfromFrance,SwedenandSouthAfrica.

Overtheperiod2002–03to2005–06,thevalueofimportsofelectricalswitchesandapparatusfellatanaverageannualrateof1.1percentto$633million.Theseimportsthenincreased14.4percentin2006–07to$724million.ThiswasaresultofrisesinthevalueofimportsfromChina,Malaysia,theUnitedStates,Japan,theNetherlandsandseveralothercountries.

Between2002–03and2005–06,thevalueofimportsoflampsdecreasedatanaverageannualrateof3.2percentto$171million.Theseimportsthenincreased16.6percentin2006–07to$200million.ThegrowthisattributabletoariseinthevalueofimportsfromChina.


Thevalueofimportsoffrictionmaterialforbrakesandclutcheswassteadybetween2002–03and2004–05,butdecreased29percentto$22millionin2006–07.Thisrepresentsadecreaseofnearly$11millionsince2002–03.ThedropisattributabletoafallinthevalueofimportsfromJapan.

Between2002–03and2004–05,thevalueofimportsofpartsusedinseatsincreasedatanaverageannual

rateof4.8percent.Duringthisperiod,therewasashiftinsourcecountriesfortheseimports,withlargedecreasesfromJapanandThailand,andalargeincreasefromSouthAfrica.However,importsofpartsusedinseatshasfallenby12percentsince2004–05to$73millionin2006–07.Since2004–05,importsfromSouthAfricafellby$34millionwhileimportsfromThailandincreasedby$32million.

table A.1. Australia‘s motor vehicle exports ($’000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Tractors 45,161 6,757 21,039 47,270 54,068

Buses 25,145 12,572 12,136 4,879 6,056

PMVs 2,796,629 2,927,265 2,790,473 3,192,872 2,691,533

Goodsvehicles 75,546 160,528 221,518 175,717 145,789

Specialpurposevehicles

22,311 25,410 27,282 30,121 27,891

total 2,964,793 3,132,533 3,072,448 3,450,858 2,925,336

table A.2. Australia‘s component exports ($’000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Rubbertubesandpipes 17,078 17,176 19,455 18,250 20,808

Tyres 29,183 38,321 39,319 39,762 81,592

Retreadedtyres 8,202 8,501 10,046 13,558 14,615

Frictionmaterialforbrakesandclutches 2,820 3,408 4,412 5,142 4,573

Safetyandotherglass 23,456 18,238 18,786 17,951 20,531

Mirrorsandreflectors 57,235 45,961 78,603 78,613 79,684

Engines 289,036 438,151 456,542 653,083 596,362

Electricalswitchesandapparatus 236,848 120,208 108,163 128,310 184,737

Lamps 12,420 10,946 11,086 9,745 12,676

Chassiswithengines 992 3,074 6,009 6,045 4,946

Bodies 9,057 5,459 4,410 6,058 8,380

Partsusedinmotorvehicles(includingbrakes,clutchesandgearboxes)

1,041,575 883,562 715,228 659,796 660,885

Instrumentsandgauges 29,691 30,557 29,033 38,218 40,885

Speedindicatorsandtachometers 5,574 6,248 14,744 14,258 9,754

Automatedregulators 75,071 133,792 159,854 115,587 58,140

Seats 3,927 3,243 3,371 4,147 4,406

total 1,842,165 1,766,846 1,679,062 1,808,523 1,802,973


table A.3. Selected Australian component exports ($’000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Bumpers 7,296 6,903 7,507 11,797 16,230

Safetybelts 152,776 129,681 126,014 74,342 52,445

Brakesandservos 220,151 206,002 140,770 98,105 100,173

Gearboxes 202,863 142,976 47,580 56,483 96,691

Driveaxles(withdifferentials) 25,273 25,764 34,293 26,181 30,820

Non-driveaxles 1,547 1,490 4,645 1,996 587

Roadwheels 26,287 25,808 22,410 25,222 23,202

Suspensionshockabsorbers 29,320 34,301 31,062 22,311 27,240

Radiators 5,961 5,177 6,098 10,186 15,031

Exhaustpipes 6,731 8,909 5,704 4,983 4,193

Clutches 15,409 9,506 8,001 5,338 5,105

Steeringwheels 3,117 2,600 2,988 2,966 5,328

Airbags* n/a n/a n/a n/a 1,110

Chassisandparts 344,844 284,446 278,156 319,885 282,729

total 1,041,575 883,562 715,228 659,796 660,885

Note:Thistableisasubsetof‘Partsusedinmotorvehicles(includingbrakes,clutches,gearboxesandsoon)’inTableA.2.

*ThisisanewclassificationformedundertheHS2007classification.

table A.4. motor vehicle imports into Australia ($’000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Tractors 800,017 896,418 1,001,929 898,829 770,211

Buses 123,903 129,546 150,996 183,348 165,410

PMVs 10,261,819 11,013,676 11,649,996 12,003,438 13,195,360

Goodsvehicles 2,809,352 3,046,010 3,860,481 4,148,291 5,072,984

Specialpurposevehicles 60,252 83,564 155,180 204,694 203,393

total 14,055,343 15,169,215 16,818,582 17,438,600 19,407,358

table A.5. Component imports into Australia ($’000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Rubbertubesandpipes 133,770 119,202 135,543 134,237 154,124

Tyres 1,114,387 1,102,630 1,243,323 1,365,466 1,710,084

Retreadedtyres 27,005 25,162 26,291 38,558 43,227

Frictionmaterialforbrakesandclutches 33,036 33,753 31,309 20,308 22,234

Safetyandotherglass 91,251 104,304 109,978 119,224 127,669

Mirrorsandreflectors 46,420 43,287 44,934 42,446 44,688

Engines 1,126,742 1,068,020 996,691 941,255 943,048

Electricalswitchesandapparatus 654,433 616,183 642,458 633,008 723,978

Lamps 188,968 172,159 169,015 171,180 199,594

Chassiswithengines 68,664 68,382 121,259 104,486 145,540

Bodies 24,254 27,846 32,257 45,746 48,035

Partsusedinmotorvehicles(includingbrakes,clutchesandgearboxes)

2,215,304 2,014,947 2,133,933 2,110,423 2,361,124

Instrumentsandgauges 166,738 186,030 206,251 228,269 215,072

Speedindicatorsandtachometers 33,220 33,046 36,526 31,676 39,255

Automatedregulators 513,801 540,712 566,482 540,086 534,351

Seats 14,645 13,371 15,131 14,825 16,068

Partsusedinseats 75,345 77,850 82,827 68,580 72,849

total 6,527,984 6,246,886 6,594,207 6,609,772 7,400,937


table A.6. Selected component imports into Australia ($‘000), 2002–03 to 2006–07

Description 2002–03 2003–04 2004–05 2005–06 2006–07

Bumpers 31,939 33,566 35,825 39,830 48,588

Safetybelts 256,384 237,867 252,359 255,325 315,653

Brakesandservos 175,354 160,649 188,005 186,464 188,315

Gearboxes 564,495 471,758 474,717 441,567 424,073

Driveaxles(withdifferentials) 9,921 11,889 14,892 16,340 95,055

Non-driveaxles 16,296 20,485 26,233 26,708 9,214

Roadwheels 147,474 154,868 196,023 196,054 213,536

Suspensionshockabsorbers 52,723 48,992 48,022 47,493 69,127

Radiators 32,216 30,702 35,536 35,833 62,468

Exhaustpipes 29,699 30,788 30,989 35,377 32,100

Clutches 63,820 59,969 61,410 57,477 54,690

Steeringwheels 44,158 43,520 48,287 45,034 60,202

Airbags* n/a n/a n/a n/a 8,838

Chassisandparts 790,825 709,893 721,634 726,921 779,264

total 2,215,304 2,014,947 2,133,933 2,110,423 2,361,124

Note:Thistableisasubsetof‘Partsusedinmotorvehicles(includingbrakes,clutches,gearboxesandsoon)’inTableA.5above.

*ThisisanewclassificationformedundertheHS2007classification.

|111

AppendixB:Automotive Competitiveness And investment sCheme eligibility CriteriA

table b.1. ACis eligibility thresholds

measure description

Minimumvolumeordependency

Anautomotivecomponentproducermustsupplyatleast30,000components,orthecomponentsproducedbythefirminAustraliamustbeworthatleast$500,000andcompriseatleast50percentofallthefirm’sproductionofcomponents.

Automotivemachinetoolingproducershavevalueanddependencyrequirements.

nationalinterestregistration

Afirmthatfailstheminimumvolumerequirementmayseekregistrationinthenationalinterestbecauseofotherkeyfactors.

Originalequipment(Oe) definesOeascomponentsfittedtothevehicleduringassemblyorcertaintypesforpost-assemblyfitment.

Onekindofautomotivecomponent[s.17(1)(a)]

Volumerequirementapplyingto‘onekindofautomotivecomponent’.

Contrivances enablestheSecretarytorefuseregistrationortoderegisterifthepurposeoftheActisnotbeingfurthered.

productiondefinition definesproductionasincludingtheputtingtogetherofparts.

partsforAustralianvehicles

TherequirementisthattheparticipantproducepartsinAustralia.

table b.2. ACis rates of assistance

measure description

Uncappedproduction Creditspaidat15%timesthetariffrate,multipliedbytheproductionvalueofeligiblevehiclessolddomesticallyortonewZealand.

Cappedproduction Creditspaidat10%timesthetariffratetimesproductionvaluefordomesticandnZsales.paidat25%timesproductionvaluetimesthetariffrateforotherdestinations.

R&d Creditspaidat45%ofeligibleR&dinvestment.

plantandequipment Creditspaidat10%ofeligibleplantandequipment(MVps)or25%(MVpcomponentuseandsupplychain).

ContractedR&d MVpsmayclaimACiSforR&dworktheyarecontractedtoperform.ThesupplychainmaynotclaimcontractedR&d.

5%cap Limitsassistancetonomorethan5%ofpreviousyear’ssales.

112| ReVieWOfAUSTRALiA’SAUTOMOTiVeindUSTRY

table b.3. ACis – activity limitations

measure description

OffshoreR&d participantscanclaimthelesserofcostsofownoffshoreresearchand20%oftheAustralianbasedresearch.

ContractedR&d participantsotherthanMVpscannotclaimforworkforwhichtheyarecontractedtoperform.

OutsourcedR&d participantsmaysubcontractR&dtocooperativeresearchcentresortootherparties.

eligibleR&d defineswhatisandwhatisnoteligibleR&d.

Allowedexpenses SeeTableB.4.

20%loading encompassesothercostsnotlistedintheregulations.

table b.4. ACis – allowed expenses

measure description

MeaningofcostsinR&d

Salaryorwages.

Allowances,bonuses,overtimeandpenaltyratepayments.

Leavepaymentsforannualleave,sickleaveandlongserviceleave.

Superannuationfundcontributions,payrolltaxandworkerscompensationinsurancepremiums.

Thecostofprovidinganyvehicleorotherbenefitsincludedintheemployee’sremunerationpackage.

Costsofgraduatedevelopmentprograms.

CostsoftrainingtousesoftwarespecificallyrelatedtotheR&d.

Labourcostsinrespectofemployeesmanaging,directlysupportingorassisting,ordirectlyinvolvedin,therecruitment,traininganddevelopment,oftheemployee.

|113

Appendixc:Support for the automotive induStry in Selected economieS

IntroductIonThisappendixoutlinesthearrangementsofferedbyseveraleconomiestosupporttheirautomotiveindustries.Thesearrangementsareinadditiontotariffsandincludespecificautomotivepoliciesandinvestmentincentives.

natIonal automotIve polIcIesMostmajorautomotive-producingcountriescomplementtheirtariffregimeswithpoliciestoprotectandfosterthedevelopmentofadomesticautomotiveindustry.inmanyinstances,thesepoliciesareaccompaniedbyspecificinvestmentincentivestoattractautomotivefirmstoestablishoperationsinacountryorcountries.Mostofthesepoliciesgenerallyprovidesupply-sidesubsidies,theexceptionbeingFrance.inaddition,inthemorematureeconomiessuchasGermany,thesubsidiesaretargetedatR&d.Formanyoftheemergingeconomies,thesubsidiesaretargetedatproduction(forexample,Thailand).

Thailand

TheautomotivesectorisoneofThailand’sfivedesignatedgrowthindustries(theothersareagribusiness,electronics,fashionandhighvalue-addedservices).Thailandappearstobeontracktoachieveitsobjectiveofbecomingthe‘detroitofAsia’,andproducing1.8millionvehiclesperannumbytheendofthedecade.

Thailand’sBoardofinvestmentattractsinvestmentfrominternationalautomotivecompaniesthroughgenerousincentivesandminimalrestrictions.incentivesincludeincometaxholidaysforuptoeight

years,guarantees,supportservicesandreductionof,orexemptionfrom,importdutiesonmachineryandrawmaterials.Automotiveinvestmentprojectsvaluedat10billionbaht(approximately$330million)andrelatedpartsproductionattractapermanentexemptionofimporttaxonmachinery.Therearenorestrictionsorrequirementsonforeignownership,exportorlocalcontent.Foreignfirmsareallowedtoownlandand,withfewexceptions,tolocatewheretheywish.1

Morerecently,Thailandhasintroducedincentivestoencourageautomakerstosetuplocalproductionbasesfor‘eco-cars’thatmeetthemoststringenteuropeanemissionsstandards.eco-carsaredefinedaseitherpetrol-fuelledvehicleswithanenginesizeofnomorethan1,300cubiccentimetres(cc),ordiesel-fuelledvehicleswithenginesupto1,400cc.Theymustnotconsumemorethanonelitreoffuelper20kilometresandmustemitnomorethan120gramsofcO2perkilometre.2Underthescheme,companiesthatproduceeco-carswillnothavetopaycorporateincometaxesontheirinvestmentsforeightyears,anddutiesonimportedmachinerywillbewaived.3

Mostoftheproposalsaredesignedtoproducecarsforexport.Sevenautomakers,includingToyota,Volkswagen,andindia’sTatahaveproposedeco-carprojectstoThailand’sBoardofinvestment.each

1 Boardofinvestment(Thailand),AGuidetotheBoardofinvestment,Section4.23AutomobileManufacturing,viewedathttp://www.boi.go.th/english/about/section4.pdf.

2 ekvitthayavechnukul,c,‘ecocarApprovals:internationalfirmsapplytobuildnewplants’,Thenation,8december2007,viewedathttp://www.nationmultimedia.com/2007...s_30058542.php.

3 Boardofinvestment(Thailand),Boitopromoteeco-carsMaximumincentivesforintegratedcarAssemblyandKeypartsManufacturingprojects,BoipressRelease,no.87/2/2007(O.41/2),15June2007.

114| ReVieWOFAUSTRALiA’SAUTOMOTiVeindUSTRY |115114| ReVieWOFAUSTRALiA’SAUTOMOTiVeindUSTRY SUppORTFORTHeAUTOMOTiVeindUSTRYinSeLecTedecOnOMieS

automakerisrequiredtoinvestatleast5billionbahttoearntheBoard’staxincentives.AsatJune2008,sixeco-carprojectshavereceivedBoardofinvestmentprivileges,includingHonda,nissanandSuzuki.combinedproductionofthesecarsisestimatedat800,000unitsinthenextsixtosevenyears,whichwouldmakeThailandanimportantproductionbaseforenergy-efficientpassengercars.4

Toyotahasannouncedplanstomakeabroadrangeofalternate-fuelvehiclesandfuelsinThailand,includingaUS$175millionadditiontothedieselenginelineatitschonburiplant.TheJapanAutodigestalsoreportedthatthe“companysaiditalsoplanstomakethecamryHybrid,andcnG[compressednaturalgas]ande85ethanol-capablevehiclesoverthenextseveralyears,andlocalreportssaiditisinvolvedinexperimentswithapromisingnewoilfromaninedibleplantforuseasbiodieselfuel”.5

AspartofitsdrivetoestablishThailandasahubfortheproductionofalternativeenergyorfuelefficientvehicles,theThaiGovernmentisalsoprovidingincentivestoencouragemoremotoriststoswitchtousinge85,ablendof85percentethanoland15percentpetrol.Tothisend,thegovernmenthasexemptedimporttariffsone85carpartsaswellasreducingexcisetaxesfore85-poweredvehicles.However,furtherincentiveswillprobablybeoffered,giventhat14carmanufacturersinThailandhavedeliveredtheirassessmentthatthegovernment’smeasuresandincentivesarestillnotattractiveenoughtoinducemanufacturerstoproducee85vehiclesinThailand.6

Malaysia

TheMalaysianautomotiveindustryisoneofthemostprotectedintheregion.itreleaseditsnationalAutomotivepolicyFrameworkinOctober2005.Theframeworkcontainsfiveobjectivesforthedomesticautomotiveindustry:acompetitiveandviableautomotivesector(particularlyfor‘nationalcar’makers);tobecomearegionalhub;toenhancevalue-addedandlocalcapabilities;topromoteanexport-orientedindustry;andBumiputera(ethnicMalay)participation(includingequitylevels).7

4 McOT,Govt’sincentivesinsufficientfore85carsmadeinThailand,2008,viewedathttp://enews.mcot.net/view.php?id=4618.

5 Fillmore,K,‘ToyotaThailandinvestsindiesels,Hybrids,cnG,e85Vehicles,Biodieselexperiments’,JapanAutomotivedigest,16June2008,p.3.

6 Govt’sincentivesinsufficientfore85carsmadeinThailand,op.cit.7 JabatanperdanaMenteri(primeMinister’sdepartment),

ThenationalAutomotivepolicy,19October2005,viewedathttp://www.maa.org.my/pdf/national%20Automotive%20policy%20Framework.pdf.

Theframeworkcontainsarangeofmeasurestoassistthedevelopmentoftheindustry,including:

anindustrialAdjustmentFundofinterest-�freeloansandmatchinggrantstoassistmanufacturersinfacinggreatercompetitionandliberalisation(akeymeasuretoreplacethepreviousexciserebatefor‘nationalcar’producers–thepreviousexciseregimeallowedpurchasersoflocallyproducedcarssuchastheprotonandperoduatoreceivea50percentrebateonvehicleexcisetax);

incentivestopartsmanufacturersthrough�bilateralfreetradeagreementcooperationprojectsandaGlobalSupplyprogram;

training,R&dandtechnologyacquisitiongrants;�

marketdevelopmentgrantstohelpsmalland�medium-sizedenterprisesdevelopexportmarkets;

ensuringcompliancewithinternationalsafetyand�environmentalstandards;and

taxandnon-taxincentives‘customised’for�specificinvestorsandforfivedesignatedproductioncentres–Gurun(Kedah),BertamandSeberangprai(pulaupinang),pekan(pahang),TanjungMalim(perak),andShahAlamandRawang(Selangor).

Mostincentivesareavailabletobothnationalandnon-nationalcarandpartsmakerstoencouragecontinuedinvestmentinthesector.However,the‘nationalcar’producersreceivethebulkofassistance.

OnlyholdersofanApprovedpermit(Ap)mayimportmotorvehicles,whichlimitsthemtoasmallshareofthetotalmarketandeffectivelyactsasanimportquota.Thereare76holdersofopenApsand37franchiseApholders.TheMalaysianMinistryofinternationalTradeandindustrygivesApsbasedonquota,butdoesnotpublishnamesofapprovedpersons/companiesorvolumes.Generally,importlicenseapprovalsforcommercialvehiclesarenotgiven.TheOctober2005nationalAutomotivepolicyFrameworkannouncedthatApsforcompletelybuilt-upcarswillbephasedoutinthelongerterm,withsomeminorinterimchanges,butdidnotprovideatimeline.8

philippines

Motorvehicleandcomponentmanufacturingassemblyisopentoforeigncompanies.TheMotor

8 ibid.


Vehicledevelopmentprogramprohibitstheimportationofusedvehiclesandprovidesspecialincentivesfortheexportofvehiclesandcomponents.AutomotivepartsmanufacturingislistedasaninvestmentpriorityareaandincentivesareavailableundertheOmnibusinvestmentscode.9

export-orientedcompaniesregisteredwithinvestmentagenciessuchasthephilippinesBoardofinvestment,philippineeconomicZoneAuthority,clarkdevelopmentcorporationandSubicBayMetropolitanAuthorityareentitledtoincentivepackages.Forexample,theBoardofinvestmentisempoweredtograntanincometaxholidayofuptoeightyears.Thelatterthreeagenciescangrantspecialtaxratesof5percentonadjustedgrossincome,plusdutyexemptionsontheimportationofallcapitalequipmentandrawmaterials.

Assemblersandmanufacturerswhodonotoperateacustoms-bondedmanufacturingwarehouseand/orwhosefacilitiesarenotlocatedinsideexportzonesarerefundeddutiespaidonrawmaterialsusedinthemanufactureorproductionofarticlesuponexportationofthesamethroughataxcreditsystem.

in2005,thephilippinesexportedcarsinquantityforthefirsttime.ThiswasduetoFord,whichinvestedUS$250millioninavehicleassemblyplantcourtesyofinvestmentincentives.10

china

ThechineseGovernment’sautomotiveindustrypolicyaimstoprioritisethedevelopmentofitsownautomotiveindustryoverthefurtheropeningofitsmarketstoimports.Thepolicyaimstohavechinese-ownedvehiclemanufacturerssupply50percentofthedomesticmarketandhavechinesevehicleandcomponentmanufacturersandassemblersownalltheiprelatingtotheirproducts.11Thekeyelementsoftheplanareto:

rationalisethenumberofautomotiveproducers;�

achieve40percentexportoftotalcomponent�sales;

restrictforeigncarcompaniestotwojoint�venturespercompany;and

retainthe50percentlimitonforeignholdingsina�jointventure.

9 USTradeRepresentative,nationalTradeestimateReportonForeignTradeBarriers,USTR,Arlington,2008.

10 TheAutochannel,‘philippinestoBecomeFord’sASeAnexportHub’,TheAutochannel,14October2003,viewedathttp://www.theautochannel.com/news/2003/10/14/170568.html.

11 deloitte,FuturedriversofthechinaAutomotiveindustry,deloitte,2006.

Aspartofitsautomotivepolicy,chinaintroducedtheMeasuresontheimportationofpartsforentireAutomobiles.TheUnitedStatesandtheeuropeanUnionhavearguedthattheserulesimposechargesthatunfairlydiscriminateagainstimportedautomotiveparts,anddiscourageautomobilemanufacturersinchinafromusingimportedautomotivepartsintheassemblyofvehicles.AsnotedbytheUSTradeRepresentative:

…therulesrequireallvehiclemanufacturersinchinathatuseimportedpartstoregisterwithchina’scustomsAdministrationandprovidespecificinformationabouteachvehicletheyassemble,includingalistoftheimportedanddomesticpartstobeused,andthevalueandsupplierofeachpart.ifthenumberorvalueofimportedpartsinanassembledvehicleexceedsspecifiedthresholds,theregulationsimposedoneachoftheimportedpartsachargeequaltothetariffoncompleteautomobiles(typically25percent)ratherthanthetariffapplicabletoautomotiveparts(typically10percent).12

Severaleconomies,includingtheUnitedStates,theeuropeanUnionandcanada,haveraisedtheissueintheWorldTradeOrganization.

india

TheindianGovernmentseestheautomotivesectorasa‘sunrisesector’and,inJanuary2007,launcheditsAutomotiveMissionplan.Theplan,whichisajointdocumentpreparedbyindustryandthegovernment,aimstomaketheautomotivesectoraUS$145billionindustry,andcreateadditionalemploymentfor25millionpeopleby2016.italsoenvisagesadditionalinvestmentofaboutUS$40billion.

Theplanencompassesproactiveactioninattractinginvestment,affirmativeactionwithregardtoexpansionofinfrastructure,anddevelopmentofhumanresources.13

Manyfirms,includingTata,Maruti,Suzuki,Toyota,Hondaandnissanhaveestablishedand/orareexpandingtheirautomotivemanufacturingplantsinindia.

india‘s2008–09budgetcontainedexcisedutyreductionsfrom24to14percentforhybridcarsandfullexciseexemptionsforelectriccars.ThereductionintheexcisedutyforhybridcarsmaybenefitTataand

12 USTradeRepresentative,nationalTradeestimateReportonForeignTradeBarriers,USTR,Arlington,2008.

13 MinistryofHeavyindustries&publicenterprises,draftAutomotiveMissionplan2006–2016,September2006.


MahindraandMahindra,whichareplanningtolaunchhybridvehicles,aswellasHonda,whichisplanningtolaunchthehybridcivicintotheindianmarket.14

SouthAfrica

inSouthAfrica,theMotorindustrydevelopmentprogramwasdesignedtohelptheindustryadjustandincreaseitscompetitivenessinthenewpost-apartheidtradepolicyenvironment.Theprogramhasfivemainelements:

agradualreductioninimportdutiesonboth�vehiclesandcomponents;

anexport–importcomplementationscheme�underwhichvehicleandcomponentsexporterscanearntradeable‘importRebatecreditcertificates’tooffsetdutiesonimportedvehiclesandcomponents;

accesstothestandarddutydrawbackprogram�forexporters,underwhichallimportdutiespaidoncomponentsandintermediateinputsusedinexportedvehiclesandcomponentscanberebated;

aduty-freeallowanceonimportedcomponents�onaroundone-quarterofthevalueofvehiclesproducedforthedomesticmarket;and

aproductiveAssetAllowancethatprovidesimport�dutycreditsofaroundone-fifthofthevalueofqualifyinginvestments.

Theincentivesinrespectofcomponentsapplyonlytothosesolddirectlytooriginalequipmentmanufacturers.Thisexcludesfromtheprogramafter-marketcomponents,asectorinwhichSouthAfricamighthavesomeregional,andmaybeevenglobal,comparativeadvantage.15

Theprogramhasbeenreviewedandextendedtwice.itnowisscheduledtocontinueuntil2012,subjecttoareviewthatisstilltobecompleted.

Theautomotiveindustryalsobenefitsfromawidevarietyofotherinitiativesbynational,provincialandlocalgovernments.Theserangefromrestrictionsonimportsofusedcarstotheprovisionofinfrastructure,factoryfacilitiesandspecialfinancialarrangements.FirmsthathaveestablishedoperationsinSouthAfricaincludeBMW,daimlerchrysler,delta,Ford,nissan,ToyotaandVolkswagen.

14 Arun,Lp,AnALYSiS:india’sBudget2008–2009,Frost&Sullivan,14May2008,viewedathttp://www.just-auto.com/article.aspx?id=94799&lk+dm.

15 SouthAfrica.info,‘SAautoindustryridesMidpwave’,SouthAfrica.info,8October2003,http://www.southafrica.info/doing_business/investment/oppurtunities/midp.htm.

UnitedStates

StategovernmentsintheUnitedStates,particularlyinthesouth,havebeenactiveinofferinginvestmentincentivestoautomotivemakers.incentivesincludepropertytaxabatements,lowerelectricityrates,extensionofinfrastructure,paymentstowardworkertrainingprograms,jobcreationtaxcredits(uptoUS$1,000pernewposition)andpre-employmentjobtrainingprograms.Recentexamplesinclude:

Kiaannouncedthatitwouldbuilditsfirst�AmericanplantinWestpoint,Georgia,atacostofUS$1.2billion.Theplant,whichistoopenlaterin2008,willemploy2,500workers.itwillbecapableofproducing300,000carsayearby2009.Tofacilitatethis,KiaisreceivingUS$410millioninstateandlocaltaxcreditsandotherassistance(suchaslandfortheplantandtheconstructionofatrainingfacility),whichtranslatesintoaboutUS$160,000foreachjobattheplant;16

ToyotainvestedUS$230millioninSubaru‘s�indianaplanttoproduce100,000carsayearstartingin2007.ToyotareceivedUS$14millioninincentivestoinvestintheplant‘sexpansion;17

Toyotareceivedanassistancepackageof�US$358.5million(US$293.9millionfromtheMississippigovernmentandUS$64.6millionfromthelocalBlueSpringgovernment)tobuildaUS$1.3billionplantthatwillmanufacture150,000Highlandersby2010;18and

TheUSdepartmentofenergyisproviding�$30millionoverthreeyearsforplug-invehicleprojects.Thefundingwillsupporttheassemblyof80plug-invehiclesforfleettestingbychrysler;theenhancementoflithium-ionbatterypacksandchargingsystems,andthedeploymentofplug-invehicletestfleetsbyGM(whichalsoreceivedsupportfromstateagencies);andFordwillworkwithSoutherncAedisonandJohnsoncontrols–Safttoacceleratemassproductionofplug-inhybrids.19

16 Bernstein,M,‘Kia’snewplant’,BusinessWeek,25October2006.17 Rowley,i,‘ToyotaBreathesnewLifeintoSubaru’,BusinessWeek,29

november2006.18 Healey,J,‘ToyotatobuildMississippiplant’,USAToday,27February

2007,viewedathttp://www.usatoday.com/money/autos/2007-02-27-toyota-plant_x.htm.

19 Johnsoncontrols,Johnsoncontrols–SaftnamedasBatterySupplierforFordTestFleetofplug-inHybridelectricVehicles,mediarelease,Johnsoncontrolsinc.,Milwaukee,June102008,viewedathttp://www.johnsoncontrols.com/publish/us/en/news.html.


Mexico

Mexicohastwomainprogramstostimulatemanufacturing–MaquiladoraandtheprogramforTemporaryimportstoproduceexports,orpiTex–thatlargelyoperateinthesamemanner.Theformerisfocusedoncompaniesthatspecialiseinin-bondmanufacturingandexport,whilethelatterisforcompaniesthatmayhavesignificantdomesticsales.Bothprogramsexemptcompaniesfromimportdutiesandapplicabletaxes(forexample,value-addedtax)oninputsandcomponentsincorporatedintoexportedmanufacturedgoods.inaddition,capitalgoodsandthemachineryusedintheproductionprocessareexemptfromimportduties.20

MexicohasappliedSectoralpromotionprogramstotheseinitiatives.Undertheseprograms,importdutiesonlistedinputsandcomponentsusedtoproducespecificproductsareeliminated,orreducedtoacompetitivelevel.currentlythereare22suchprogramsavailabletomanufacturers,includingmotorvehicleandcomponentproducers.21

inadditiontotheMaquiladoraandpiTexprograms,Mexicoapprovedtheoperationofmoretraditionalfreetradezones.Thenewregimeallowsformanufacturing,repair,distributionandsaleofmerchandise.Therearecurrentlytwoapprovedfreetradezones,bothoperatinginSanLuispotosi.22

Mexico’sotherincentivestothemanufacturingsectorareofferedatthestatelevelandthereforethespecificindustrysectorstheypromotevarydependingontheinterestsofeachstate.Acrossits31states,theseincentivescanbeasdiverseasprojectsubsidiesorotherfinancialassistance,R&dtaxexemptions,payrolltaxexemptions,supplierdevelopmentprograms,employeehousingandstate-paidworkertraining.Furthermore,theseincentivesmaybesubjecttonegotiationdependingontheindustryandthesizeoftheinvestment.

Brazil

Brazilhasrecentlyintroducedspecifictaxreductionsand/orincentivesaimedatstimulatinginvestmentsinspecificsectorsoftheeconomy,includingautomotiveindustries.

20 Rioz,V,Valles,J,&Martinez,L,ManufacturinginMexico:Aplatformforexports,n.d,viewedathttp://www.maquilaportal.com/editorial/editorial132.htm.

21 ibid.22 Mexico’sfirstFreeTradeZone–mayhelpMexico,n/a,n.d.,viewed

athttp://www.mexicolaw.com/Free%20Trade%20Zone%20in%20Mexico.htm.

incentivepackagesofferedtoautomotivemakersincludethefollowing:

VolkswagenreceivedaboutUS$14millionin�financialincentivesfordedicatedinfrastructureandfiscalincentivesworthbetweenUS$83millionandUS$155million;

Renaultreceivedacapitalcontributionofupto�US$300million,interest-freeloans,localtaxexemptions,donationofa2.5millionsquaremetresite,provisionofallthenecessaryinfrastructureandutilitiesatthesite,anda25percentpricereductionforelectricityfortheproject;

Mercedes-Benzreceivedland,grants,taxbreaks�andextensiveinfrastructuredevelopment,includingtheconstructionofaccessroadsandraillinkstotheplantandthedevelopmentofutilitiesandsanitation(withlowerwatercostsfor10years);and

GMreceivedawaiverofstatesalestaxfor�15years,financialincentivesofaroundUS$67milliontopreparethefactorysite,anda254millionreais(US$118million)loanata6percentinterestrate.

Brazilalsohasincentivesaimedatpromotingtheproductionofmotorvehiclestorunonethanol-blendedfuel.23

Slovakia

Slovakiaattractsautomotiveinvestmentsthroughamixofalow-cost(butskilled)labourforceandtaxationandrelocationincentives.SlovakiaisalsoamemberoftheeuropeanUnionandiscentrallylocatedwithinaday’sshippingtimeofmajormarkets.Since2004,theincentivesandlowlabourcostshavehelpedthecountryattractaUS$1.25billionassemblyplantfromHyundai–Kia,aUS$540milliontransmissionplantfromFordandaUS$945millionplantfrompeugeotcitroen.VolkswagenhasrecentlyexpandeditsplantthatmanufacturesTouaregsportsutilityvehicles,ofwhich80percentareexportedtotheUnitedStates.24

Russia

TheRussiancentralandregionalgovernmentsofferanumberofincentivestoattractinvestmentintheirautomotiveindustry.Theseincluderegionalincentivesforestablishingautomotiveproductionplants,andthe

23 Benson,T,‘MoreBraziliandriversTurntoethanol’,ThenewYorkTimes,20October2004.

24 ernst&Young,ThecentralandeasterneuropeanAutomotiveMarket:industryOverview,e&Y,november2007.

118| ReVieWOFAUSTRALiA’SAUTOMOTiVeindUSTRY

constructionofacomponentsmanufacturingclusterinStpetersburg.

Forexample,inKaluga,localauthoritiesprovidedinfrastructureandtaxincentivestoattractaVolkswagenassemblyplantthatistobeginproductionin2008.Volkswagen’sinvestmentintheplantis€370million(US$450million),andtheplantwillhavethecapacitytoproduceabout115,000passatandTouaregmodelsayear.25

France

On29november2006,theFrenchprimeMinisterannouncedadditionalgovernmentaidforR&dexpenditurebytheautomotivesuppliersectorovertheperiod2006–08.TheAgencepourl’innovationindustriellewillrelease€120millionnextyear,overandabovethesumofgrantaidbudgetedthisyear.TheFrenchGovernmentalsoraisedthethresholdfortaxcreditsonR&dexpenditureby100percentto€16million,andsetaside€150millionforassistancetoemployeesofautomotivesuppliercompaniesundergoingrestructuring.Thesectorcurrentlyemploysaround20,000people.

TheFrenchGovernmenthasagreedtofar-reachingtaxincentivesforbothfuelandflexible-fuelvehicles,including:

nomineraloiltaxonethanol,nocompanycar�taxforthefirsttwoyears,reducedregistrationtaxandnovalue-addedtaxonfuelforthefleetcustomer;

theinstallationofupto500e85pumpsbytheend�of2007(installationof186isnearlycomplete,and50arewaitingforapproval)and1,500bytheendof2008;and

thecommitmentoftheFrenchadministrationto�purchase30percentflexible-fuelvehicleswithinitsoverall2008vehiclepurchases(thefigurewas15percentin2007).26

Germany

in2006,theFederalGovernmentofGermanylaunchedanationalHydrogenandFuelcellTechnologyinnovationprogrammeandisprovidingfundingtotalling€500millionforthenext10years.Togetherwithfundsprovidedbytheindustry,thiswillbealong-termprogramwithfundingtotalling

25 emelyanova,e,‘RussiandetroitBeingBuiltinKaluga’,Kommersant,30October2006,viewedathttp://www.kommersant.com/p717463/.

26 Blanco,S,‘Ford’seuropeanflex-fuelsalesjumpup60percent’,Autobloggreen,8February2008,viewedathttp://www.autobloggreen.com/2008/02/08/fords-european-flex-fuel-sales-jump-up-60-percent/.

€1billion.Theobjectiveistosignificantlystepupappliedresearchand,inparticular,developmentactivitiesinthefieldofhydrogenandfuelcells.27

TherearealsomanyincentiveprogramsforinvestorsinGermany,offeredbyeuropeanUnion,federalandstateauthorities.

Japan

AlthoughJapanimposeszerotariffsontheimportationofautomotivegoods,theUSTradeRepresentativestatesthatavarietyofnon-tariffbarriershavetraditionallyimpededaccesstotheJapanesemarket.28

Theindustrybenefitsfromthestronglinksthathavedevelopedbetweenindustry,governmentandpublicresearchinstitutions.TheJapaneseGovernmentstronglysupportsR&dinvestmentinthelatestautomotivetechnologies,includingbatterydevelopmentandpowertrainapplicationsforfuel-efficient,low-emissionsvehicles.Forinstance,Japan’sMinistryofeconomy,TradeandindustrywillspendUS$1.72billionoverfiveyearsfornext-generationpowertrainsandfuelstocutpetrolconsumptionandreducecarbondioxideemissions.Morethan75percentofthefundingwillfocusonhydrogenfuel-celltechnology.29

27 FederalMinistryofeconomicsandTechnology(Germany),nationalHydrogenandFuelcellTechnologyinnovationprogramme,FMeT,n.p.,2006,p.6,viewedathttp://www.iphe.net/Germany/H2Fc%20Strategy%20englV%208May2006.pdf.

28 USTradeRepresentative,nationalTradeestimateReportonForeignTradeBarriers,USTR,Arlington,2008,p.310.

29 Greencarcongress,JapanplanstoSpend$1.72BillionOver5YearstoSpurdevelopmentofLow-carbonpowertrainsandFuels,Greencarcongress,n.p.,28May2007,viewedathttp://www.greencarcongress.com/2007/05/japan_plans_to_.html.

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Appendixd:DetaileD R&D analysis

IntroductIonR&discentraltoimprovingthecompetitivenessandsustainabilityofAustralia’sautomotiveindustry.ThisroleisevenmoreimportantgiventhattheAustralianindustrycannotcompetewiththewagecostsinemergingcountriessuchasChinaandThailand.R&dallowstheautomotiveindustrytomaintainacompetitiveedge,bydrivingdowncostsandincreasingtheuptakeofimprovedtechnologiesandprocesses.

r&d defInItIonsR&dcanbedefinedinseveraldifferentways.itshouldbenoted,however,thattheAustralianBureauofStatistics’definitionof‘businessexpenditureonR&d’(orBeRd)(asdefinedbytheOeCdFrascatiManual)1isnotasbroadastheAustralianCompetitivenessandinvestmentScheme(ACiS)definitionlaidoutintheACiSAdministrativeRegulations2000.ThefiguresquotedbelowfollowtheBeRdclassificationofR&d.FourtypesofactivityapplicabletoR&darerecognisedunderBeRd2:

Pure basic research1. isexperimentalandtheoreticalworkundertakentoacquirenewknowledgewithoutlookingforlong-termbenefitsotherthantheadvancementofknowledge.

strategic basic research2. isexperimentalandtheoreticalworkundertakentoacquirenewknowledgedirectedintospecifiedbroadareasintheexpectationofpracticaldiscoveries.it

1 OeCd,FrascatiManual,proposedStandardpracticeforSurveysofResearchandexperimentaldevelopment,OeCd,paris,2002.

2 AustralianBureauofStatistics,AustralianandnewZealandStandardResearchClassification(AnZSRC),cat.no.1297.0,ABS,Canberra,2008.

providesthebroadbaseofknowledgenecessaryforthesolutionofrecognisedpracticalproblems.

applied research3. isoriginalworkundertakenprimarilytoacquirenewknowledgewithaspecificapplicationinview.itisundertakeneithertodeterminepossibleusesforthefindingsofbasicresearchortodeterminenewwaysofachievingsomespecificandpredeterminedobjectives.

experimental development 4. issystematicwork,usingexistingknowledgegainedfromresearchorpracticalexperience,whichisdirectedtoproducingnewmaterials,products,devices,policies,behavioursoroutlooks;toinstallingnewprocesses,systemsandservices;ortoimprovingsubstantiallythosealreadyproducedorinstalled.

BusIness expendIture on r&d In the automotIve sectorBeRdbytheAustralianmotorvehicleandpartmanufacturingsectorgrewbyanannualaverage7.48percentoverthelastdecadetoreach$654millionin2005–06.3Figured.1showsthatfollowingtheintroductionofACiSinJanuary2001,thelevelofBeRdintheautomotivesectorincreasedby28.5percentbetween2000–01and2001–02(to$490.2million)andby26.2percentbetween2001–02and2002–03(to$618.7million).Figured.1alsoshowsthat,whiletherehasbeenstronggrowthinBeRdsince1998–99inmotorvehiclebodymanufacturing(anincreaseof626percent),thishas

3 AustralianBureauofStatistics,Researchandexperimentaldevelopment,Businesses,Australia,2005–06,cat.no.8104.0andunpublishedABSdata,cat.no.8104.0,ABS,Canberra,2008.itshouldbenotedthattheABSusestheOeCddefinitionofR&d,whichismuchnarrowerthanthedefinitionofR&dusedforACiS.

120| ReVieWOFAUSTRALiA’SAUTOMOTiVeindUSTRY |121deTAiLedR&dAnALYSiS

beenoffsetbymoremoderategrowthinmotorvehiclemanufacturingBeRd(115percentincrease)andautomotivecomponentBeRd(114percentincrease),anda7percentdropinautomotiveelectricalequipmentmanufacturingBeRd.

However,since2002–03,thelevelofBeRdintheautomotivesectorhasplateauedataround$600million.inparticular,asshowninFigured.2,whiletheannualaveragegrowthinautomotivesectorBeRdhastripledsincetheintroductionofACiS,ithaslaggedbehindthegrowthinBeRdbythemanufacturingsectorasawhole(andbytotalBeRd)overthesametimeframe.inaddition,growthinBeRdintheautomotivesectorhasbeenslowersincetheintroductionofACiScomparedwithpre-

ACiSgrowthrates.Thiscouldreflect,inpart,growthfromalowbaseinthe1990sandthe‘plateauing’effectinrecentyears.in2002–03,BeRdfromtheautomotivesectorrepresentednearly22percentoftotalmanufacturingBeRd,butby2005–06thisfigurehaddroppedto17percent.

TheR&dintensityoftheautomotiveindustrywas11.6percentin2005–06.4Thisisaroundthreetimeshigherthanformanufacturingasawholeandaroundninetimeshigherthanfortheeconomy.

4 AsmeasuredbyBeRdasaproportionofindustryvalueadded.

Source:AustralianBureauofStatistics,2008.



Around89percentoftheautomotivesector’sBeRdwasforexperimentaldevelopment,withverylittlepureorbasicstrategicresearch(seeFigured.3).ThissuggeststhattheAustralianautomotiveindustryisfocusedonproductdevelopmentasopposedtothedevelopmentofnewtechnologies.Around90percentofthesector’sBeRdissourcedfromownfunds;theAustralianGovernmentistheothermajorfundingsource,whichincludestheR&dtaxconcessionandcooperativeresearchcentreprograms.

Figure D.3. types of R&D in the automotive sector, 2005–06


Theautomotivesectoremployed3,307researchers,techniciansandothersupportingstaffinundertakingR&din2005–06.Comparedtoa6.9percentannualgrowthinthefive-yearperiodbeforetheintroductionofACiS,theannualgrowthinhumanresourcesdevotedtoR&dhadmoderatedto4.41percent.

AnotherobservationofinterestisthatinthepastdecadetherehasbeenasignificantchangeinthemixofR&demploymentintheautomotiveindustry,withresearchersnowaccountingfornearly60percentofallhumanresourcesdevotedtoR&d–in1995–96,thisfigurewas44.5percent(seeFigured.4).Overthesameperiod,therehasbeenafallintheshareofresearchersdevotedtoR&dforallbusinesses–fallingfrom57.5percentin1995–96to53.9percentin2005–06(withtheshareoftechniciansincreasing).



GrowthinwagesandsalariespaidtothosedevotedtoR&dhasbeenbroadlysimilarforboththeautomotiveindustryandforallbusinesses.Wagesandsalariesintheautomotiveindustrygrewby56percentinnominaltermsoverthe10yearsto2005–06,comparedwith54percentgrowthforallbusinesses.Thisincreaseinwagescanbeattributedtotheincreasingnumberofresearchersovertechnicians(whogenerallyworkunderresearchers)and‘other’support(whoalsoworkunderresearchersandgenerallyperformadministrativeorclericaltasksrelatedtoR&d).

r&d In IndIvIdual automotIve suBdIvIsIons

Motorvehiclemanufacturing

Thissectorconsistsofunitsmainlyengagedinmanufacturingmotorvehiclesormotorvehicleengines.

BeRdbythemotorvehiclemanufacturingsectorincreasedbynearly8percentperannumoverthe10yearsto2005–06.Thiswasmuchhighergrowththanformanufacturingasawhole,butwassignificantlylowerthanfortotalBeRd.Since2000–01,growthinBeRdbythemotorvehiclemanufacturingsectorhasbeenbelowthatformanufacturingandfortotalBeRd.

Between1995–96and2005–06,thetotalofhumanresourcesdevotedtoR&dforthemotorvehiclemanufacturingsectorhasincreasedby82.8percentwhilelabourcostshaveincreasedby166.5percent.

Thishasledtoaveragewagesandsalariesincreasingfrom$75,729in1995–96to$110,418in2005–06.Thisincreaseinwagescanbeattributedtotheincreasingpercentageofresearchstaffcomparedtotechniciansand‘other’staff.in1995–96,only47.5percentofR&dstaffwereresearchers,butthefigureroseto65.9percentin2004–05.

Motorvehiclebodymanufacturing

Thissectorconsistsofunitsmainlyengagedinmanufacturingmotorvehiclebodies(includingbusesandtrucks),caravansandtrailers,andinvehiclemodificationsinvolvingpermanentchangestobodyworkusinganexistingengineandchassis.

BeRdforthesectorincreasedby24.3percentperannumoverthedecadeto2005–06.ithasalsoincreasedbyaverystrong51.2percentsince2000–01,albeitfromaverylowbase.

HumanresourcesdevotedtoR&dhaveexperiencedsimilarstrongincreases.However,theproportionofthemorehighlytrainedresearcherstosupportstaffremainslow(only34.5percentofstaffwereresearchersin2004–05).Thiscanbecomparedtothetotalmotorvehiclesector,where59.7percentofR&dstaffwereresearchers.


Automotiveelectricalandinstrumentmanufacturing

Thissectorconsistsofunitsmainlyengagedinmanufacturingautomotiveelectricalcomponents,automotiveair-conditionersorinstruments.

BeRdbytheautomotiveelectricalandinstrumentmanufacturingsectorfell9.3percentinthe10yearsto2005–06.Overthesameperiod,humanresourcesdevotedtoR&dincreasedfrom209to312person-yearequivalents.itshouldbenotedthattheratioofresearcherstoothersupportstaffhasactuallydecreasedbetween1995–96and2004–05.

Automotivecomponentmanufacturingnotelsewhereclassified(n.e.c.)

Thisclassconsistsofunitsmainlyengagedinmanufacturingmotorvehiclepartsnotelsewhereclassified.itincludesthemanufactureofclutches,gearboxes,radiatorsandmufflers.

Overthedecadeto2005–06,BeRdbythissectorgrewby7.64percentperannum–abovethegrowthformanufacturingasawhole,butbelowthegrowthbythemotorvehiclemanufacturingsectorandfortotalBeRd.

HumanresourcesdevotedtoR&dincreasedby45.4percentintotaloverthe10yearsto2005–06whilelabourcostsforthesectorincreasedby164.8percentoverthesameperiod.ThisledtoaveragecostsperemployeeinR&dincreasingfrom$48,044in1995–96to$87,440in2005–06.Thiscoincidedwithanincreaseintheproportionofresearchstafffrom36.7percentin1995–96to50.4percentin2005–06.

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Appendixe:Quantitative spillover study – patent citations

Technology SpilloverS from and To The auSTralian auTomoTive induSTry. a STudy BaSed on paTenT SpilloverS

byBartVerspagen

MaastrichtUniversityandUnU-Merit17June2008

abstract:

ThisstudyusespatentcitationstomapspilloversfromandtotheAustralianautomotiveindustry.Thepaperstartswithadiscussionofthewayinwhichcitationscanbeusedtomeasurespillovers,andwhatthelimitationsofsuchanapproachare.itthenpresentssomedescriptivestatistics,coveringbothaso-calledindustryofmanufactureperspective(whichconsiderstheautomotiveindustryasasectorthatgeneratestechnologicalchangeitself),andanindustryofuseperspective(whichconsiderstheautomotivesectorasasectorthatsourcestechnologicalchangefromotherindustries,includingitself).inbothcases,themachineryandequipmentsectorisanimportantreceiverofspilloversfromtheautomotivesector,asareotherindustriesproducingtransportequipment.Whenanindustryofuseperspectiveisused,importantamountsofspilloversarealsofoundfor“automotive-using”industriessuchas(land)transport,salesofmotorvehicles,andprivatehouseholds.Thestudyalsofindsthatspilloversfromtheautomotivesectorarerelativelyconcentrated,i.e.,affectarelativelysmallnumberofotherindustries.

126| ReVieWofAUSTRALiA’SAUToMoTiVeindUSTRY |127126| ReVieWofAUSTRALiA’SAUToMoTiVeindUSTRY QUAnTiTATiVeSpiLLoVeRSTUdY—pATenTCiTATionS

1. inTroducTionThisisacommissionedstudyontechnologyspilloversfromandtotheAustralianautomotiveindustry.Thestudyusespatentcitationsasindicatorsofspillovers.Theprimaryproductofthestudy,whichissuppliedintheformofanexcelsheet,isapairofspillovermatricesinwhichtheautomotiveindustryisbotharowandacolumn.Thetwomatricescorrespondtothetwoperspectivesusedinthisstudy:industryofmanufactureandindustryofuse.Thefirstoftheseperspectives,industryofmanufacture,looksatknowledgethatisproducedintheautomotivesector(orothersectors),thesecondperspective,industryofuse,looksatwhereknowledgeisused.

Thisdocumentisorganizedasfollows.inSection2,themethodologyislaidout.Thiscontainsasubsectionwithimportantissuesthatconcerntheinterpretationofthemeasuresthatareprovidedinthisstudy.eventhereadernotprimarilyinterestedinmethodologyshouldreadthissubsection(2.4).Sections3and4containapresentationofthemainresults.Section3looksatspilloversfromtheautomotiveindustry,andSection4atspilloverstotheautomotiveindustry.eachofthesesectionsissubdividedbythetwoperspectives.finally,Section5containssomebroadconclusions.

2. meThodological noTeS

2.1.patentcitationsasmeasuresoftechnologyspillovers1

Thisstudyusespatentcitationsasanindicatoroftechnologyspillovers.ThebasicideaisthatifpatentAcitespatentB,theinventorofAmusthavelearnedsomethingfromB.Whilethisisanintuitiveidea,itbuildsstronglyonthecitationpracticeinscientificpapers,whichisdifferentfrompatentcitations.inordertoarriveatavalidinterpretationofpatentcitations,onemustthereforepayattentiontothewayinwhichpatentcitationsdifferfromcitationsmadeinscience.Thiswillbedone,inabriefway,inthecurrentsection.Theconclusionfromthisbriefoverviewisthatpatentcitationsarevalid,butincompleteandnoisyindicatorsoftechnologyspillovers.

patentscontainreferencestopriorpatentsandscientificliterature.Thelegalpurposeofreferencesinpatentsistoindicatewhichpartsoftheknowledgedescribedareclaimedinthepatentandwhichpartsotherpatentsornon-patentdocumentshaveclaimed

1 ThetextofthissectiondrawstoalargeextentonCriscuoloandVerspagen(2008).

earlier.AsCollinsandWyatt(1988)explain,theapplicant“mustsetoutthebackgroundinsuchawayastoshowhowtheclaimedinventionrelatesto,butisinnovativelydifferentfromwhatwasalreadypublicknowledge”(p.66),andhis/hertaskisalsotoidentifywork“eitherrelatedtobutsignificantlydifferentfrom,orelseausefulsteptowards,thenewinventionorauseoftheinvention”.

patentcitationsaredifferenttoreferencesinjournalarticlesintworespects.first,whileacademiccitationsaremainlytheprerogativeoftheauthor,citationsinpatentsaretheresultsofahighlymediatedprocesswhichinvolvestheinventor,thepatentattorneyandthepatentexaminer(Meyer,2000).Second,articlesinjournalsmaybecitedforavarietyofreasons,notallofthemreflectingrecognitionofworkdonepreviouslyoratransferofknowledge.Authorsmaycitearticlesforstrategicreasons,forexample,becausetheauthorsofthecitedarticlearepotentialreviewers.insteadinventorshaveanincentivenottocitepatentsunnecessarily,asitmayreducetheclaimofnoveltyoftheinventionandthereforethescopeofthemonopolyrightsgrantedbythepatent.

inprinciple,whenapatentcitesanotherpatent,thisindicatesthattheknowledgeembodiedinthecitedpatenthasbeeninsomewayusefulfordevelopingthenewknowledgedescribedinthecitingpatentandthatthecitingpatenthasnoclaimoverthatparticularknowledge.ThisisthelineofreasoningofferedinJaffeetal.(1993),andJaffeandTrajtenberg(1996and1998).Thus,patentcitationsrepresenta‘papertrail’ofknowledgeflowsbetweenthecitingandthecitedinventor,althoughaspointedoutbyJaffeandTrajtenberg(2002)‘onethatisincompleteandmixedwithafairamountofnoise’(p.12).

patentcitationsareanincompletemeasureofknowledgeflowsbecausetheyonlycapturethoseflowsthatresultinanovelandpatentabletechnologyandthereforetheycannotbeusedtomakeinferencesaboutknowledgetransfersthatdonotresultinapatent,suchastacitformsofknowledge,learningviaimitationorreverseengineering.itshouldalsobeemphasisedthatknowledgeflowsareamuchbroaderconceptthansimplywhatiscapturedbypatentcitations.intermsofthedistinctionintroducedbyGriliches(1992),patentcitationsfocusonaspecificformofpureknowledgespillovers.Rentspillovers,whichreflectthefactthatpricesdonotcompletelyembodyqualityimprovementsresultingfromR&dactivities,arecompletelyignored.However,ascorrectlypointedoutbyBreschiandLissoni(2001),


althoughintheorypatentcitationstrytomeasurepureknowledgespillovers,empiricallyitishardtoexcludethoseknowledgeflows(givingrisetopatentcitations)whicharemediatedbymarketsormarketmechanisms.evenwithinthecategoryofpureknowledgespillovers,patentcitations(totheextentthattheyarerelatedtospillovers)areonlyapartofthestory.forexample,inorderforpatentstobecited,boththespillover-receivingandspillover-generatingfirmmustbeactivelyengagedinR&dandapplyforpatentprotection.Thereforeknowledgeflowscanoccurwithoutgeneratingcitations.

patentcitationsareanoisymeasureofknowledgeflowsbecause,thoughsuggestedbytheinventortogetherwithhisattorney,thefinaldecisiononwhichpatentstociteliesultimatelywiththepatentexaminer.Thisimpliesthattheinclusionofagivencitationdoesnotnecessarilyindicatethattheinventorhasknowledgeofthetechnologyunderlyingthecitedpatentand,thus,theydonotrepresentanactualknowledgesourceutilisedbytheinventorinthedevelopmentoftheinvention.inthisstudywewillbeabletoeliminatethissourceofnoise,althoughitispossibletoidentifythreeothersources(Jaffeetal.,1998).Thefirstderivesfromtheinterventionofthepatentattorneywhomaydecidetociteapatentnotconsideredpriorartbytheinventor.Theattorneymaybetryingtoavoidtheriskoffuturelegalbattles(strictlylegalcitation).Thesecondisconnectedwiththepossibilitythatinventorsmighthavelearntaboutthecitedinventiononlyafterthedevelopmentoftheirowninvention(after-factcitation).inthiscasecitationscannotbeinterpretedassourcesofknowledgecontributingtothedevelopmentofthecitingpatent,buttheystillrepresentrealisedknowledgeflowsbetweenthecitingandcitedinventor.Thethirdsourceofnoiseisassociatedwiththecitationofpatentswhich,whilenotdirectlydrawnuponbytheinventorintheinventingprocess,arenonethelessseenasbasictothisprocess(teachingcitation).

SimilarargumentshavebeenraisedbyBreschiandLissoni(2004)againsttheinterpretationofpatentcitationsasaproxyforinter-personalknowledgespillovers.Theseauthorsdistinguishbetweentwotypesofinnovativeeffortsresultinginpatents:cumulativeefforts,i.e.thecitinginventorbuiltupontheknowledgedevelopedbythecitedpatent,andduplicativeefforts,i.e.thecitinginventorduplicatedthecitedinventorresearch.inthelattercasecitationsmighttakeplacewithnoexchangeofknowledgebetweeninventorsandtheyarenotassociatedto

eitherawarenessorintellectualdebtbetweenthecitedandcitingpatent.Whenpatentsaretheresultofcumulativeinnovativeeffortscitationsmightbetheresultofeitherthecitinginventorsearchinpatentsdatabase,whichdoesnotcorrespondtointer-personalknowledgeflows,orwordofmouthdiffusionprocess,whichdoreflectknowledgeflows.

despitealltheselimitations,somerecentstudieshaveshownthatpatentcitationscanbeusedasaproxyforknowledgeflows.Jaffeetal.(2002)surveyedasampleofinventorsofUSpTopatentsandaskedthemabouttheextentandthemodeoftheircommunicationwiththeinventorstheyciteandabouttheextenttowhichapatentcitationwasindicativeofthiscommunication.Theauthorsfoundevidencethatasignificantfractionofthelinksindicatedbypatentcitationsreflectsomekindofspillover.Almost40%oftheinventorsindicatedthattheylearntaboutthecitedinventioneitherbeforeorduringthedevelopmentoftheirinvention.Butinone-thirdofcasestheydidnotknowaboutthecitedpatent,whichcouldbeduetotheinterventionofthepatentattorneyorpatentexaminerinthecitationprocess.duguetandMacGarvie(2005)provideevidenceonthelegitimacyofcitationsinepopatentsasameasureofknowledgeflows.Matchingasampleoffrenchfirms’responsestotheCommunityinnovationSurveywithacountofcitationsmadeandreceivedbytheirepopatents,theauthorswereabletoexploretherelationshipbetweenpatentcitationsandfirms’technologysourcingbehaviour.Theyfoundthatcitationsaresignificantlycorrelatedwiththewayfirmsacquireanddisseminatenewtechnologies.inparticulartheirresultsindicatethatbackwardcitations,i.e.citationsmadetootherpatentsbythesurveyedfirms,werepositivelyandsignificantlycorrelatedwithlearningthroughR&dcollaboration,licensingforeigntechnology,M&A,andequipmentpurchases.Thus,theevidencegatheredinthesetwostudiesgoessomewaytowardsjustifyingtheuseofpatentcitationsbetweenbothUSpToandepopatentsasareasonableproxyforknowledgeflowsregardlessofthedifferencesthatexistbetweenthesetwopatentsystemsregardingtheexaminationprocessandtherequirementsconcerningthedescriptionofthestateoftheart.

2.2.patentcitationsandindustrialclassifications

patentsareclassifiedintechnologicalclassificationsystems.inthecaseofUSpTopatents,whichareusedinthisstudy,thisistheUSpatentClassificationsystem,whichcurrentlycontainssome450main


classes,andseveral10,000sofsubclasses.Thesetechnologicalclassesdonothaveanunequivocalrelationtoclassificationsystemsforeconomicactivities,suchastheStandardindustrialClassification(SiC).Therefore,inordertobeabletodescribetechnologyspilloversbetweenindustries,onthebasisofpatentcitations,aconcordancebetweentheUSpCandSiCisneeded.

Thisstudyusestheso-calledoeCdTechnologyConcordance(Johnson,2002).Thisconcordancetableisbasedonthefactthat

“between1972and1995,theCanadianintellectualpropertyofficesimultaneouslyassignedipCcodesalongwithanindustryofmanufacture(ioM)andsectorofuse(SoU)codetoeachofover300,000grantedpatents.forexample,intheipCofB05(sprayersandatomisers),acosmeticsatomisermighthaveanioMintheglasscontainerindustryormetalvalveindustry,whileapesticidesprayermighthaveanioMinthechemicalfertiliseroragriculturalmachineryindustry.Sectorsofuse(SoUs)wouldalsodiffer,withthecosmeticsatomiserusedinthepersonalhygieneorcosmeticssector,andthepesticidesprayerusedinfieldcropsectors.The[...][oTC]utilisedtabulatedinformationonall300,000patentstodeterminetheprobabilitythatapatentwithaspecificipChasaparticularioM-SoUcombination.SinceothernationsonlyreportipCinformation,thoseprobabilitiesallowresearcherstoinfertheioM-SoUdetailsofapatentbasedpurelyonthelegaltechnologicaldetailsofferedbytheipCgrouping.”(Johnson,2002,p.5).

itisimportanttonotethatthisapproachisessentiallyastatisticalapproach,i.e.,itusesinformationonthelargesetof300,000patents,ratherthanprovidingadetailedpictureofeachindividualpatent.intheexampleofpatentsinclassB05intheabovecitation,onefindsfourdifferentindustriesofmanufactureofthepatents:theglasscontainerindustry,themetalvalveindustry,thechemicalfertiliserandtheagriculturalmachineryindustry.TheconcordancethenappliesaprobabilitytoallpatentsinB05tobeineitheroneofthesefourindustries(e.g.,eachindustrya0.25probability).ButnotethateachindividualpatentinB05willmostlikelycoveronlyasubsetofthefourindustries,asindicatedintheexamplebythecosmeticsatomiserorpesticidesprayer.Theconcordance,however,willassignallfourindustriestoeachpatent.

ThisisanimportantcaveatoftheoTC,sinceitmayleadtoabiasintheestimationsofspilloversprovidedhere.forexample,supposethatacountryhasnofirmsatallinthechemicalfertiliserandtheagriculturalmachineryindustry.Asaresult,patents

inB05willreferonlytotheglasscontainerindustryandthemetalvalveindustry.ButtheoTCwillassignthepatenttothefourindustries,ratherthanjustthetwothatarerelevantforthisparticularcountry.(ofcourse,thisisanextremeexample,andreal-worldcaseswillyieldmoresubtlebiases).

Thereareother,moretechnical,issueswiththeoTC.ThemostimportantoneisthattheoTCprovidesaconcordancebetweentheinternationalpatentClassification(ipC)andSiC.However,thepatentdatabasethatisusedinthisstudyprimarilyclassifiespatentsintheUSpC.Thus,inordertousetheoTC,USpCclassesmustbetranslatedtoipCclasses.Thisisdoneusinginformationfromtheepoespacenetdatabase,whichprovides,foreachUSpatent,ipCcodes.2itmustbenotedhowever,thatsinceeachconcordanceinitselfisanapproximation,theuseofmultipleconcordancesisnotpreferred,althoughunavoidable.Also,theconcordancedoesnotuseanyinformationontheactualfirmwhoappliedforthepatent.Thus,forexample,apatentthatisassignedtotheautomotiveindustrymaybefiledbyafirmthatinfactisinadifferentindustry.

intheend,theoTCisareliableconcordancetable,andinadditionitprovidesaninterestingopportunitytoassignpatentstotwotypesofindustries:industryofmanufacture,orindustryofuse.Thisdistinctioninitselfhasbeenusedtomapspillovers.forexample,VanMeyl(1997),constructedamatrixoftechnologyspilloversassumingthatknowledgespillsoverfromtheindustryofmanufactureofapatenttotheindustryofuse.Suchaprocedureavoidstheuseofpatentcitationsalltogether,sinceitreliesonlyonasinglepatent.

Thecurrentstudy,aimedatusingpatentcitations,appliestheindustryofmanufacturevs.industryofusedistinctioninadifferentway.itwillproducetwotypesofspilloverestimates.onefromtheindustryofmanufactureperspective,whichistheusualperspective,andonefromtheindustryofuseperspective.inthefirstcase,themeasureforspilloversfrom(to)theautomotiveindustrycapturestheknowledgethatoriginatesintheautomotiveindustry,andaskswhichspilloversthisknowledgeproduces(uses).inthesecondcase,theindustryofuseperspective,thespillovermeasurestartsbyaskingwhichknowledgeissourcedbytheautomotiveindustry,andsubsequentlyaskswhichspilloversthisproduces(uses).

2 AnalternativeistousetheUSpTo’sownUSpC-to-ipCconcordance,butthisishardertoimplementinapracticalway.


2.3.implementationissues

Thisstudyusestheso-callednBeRpatentdatabase(JaffeandTrajtenberg,2002).ThisincludespatentsintheUS,butincludingpatentsawardedtoforeignapplicants(e.g.,Australianfirms,organizationsorpersons).TheversionofthedatabasethatwasusedincludesallpatentsgrantedduringtheperiodJanuary1975–december2002.AlthoughmorerecentdataareinprincipleavailabledirectlyfromtheUSpTo,thesedatadonotbenefitfromacrucialfeatureinthenBeRdatabase,whichisthefactthatapplicantnamesinthenBeRdatabasehavebeenstandardized.Thisallowstheresearchertoexcludeso-calledself-citations,i.e.,citationpairswherethecitingandcitedapplicantarethesame.Thisstudyalwaysexcludestheseself-citations.3

13,303patentswithAustralianinventorwereidentifiedforthecompleteperiod1975–2002.Thesepatentsarethebasisforallresultsdescribedinthisstudy.UsingthenBeRcitationdatabase,the13,303AustralianpatentswereusedtoconstructcitationpairswherebothcitingandcitedpatentareAustralian.Afterremovingrecordswithincomplete

3 notethatthenBeRdatabasedoesnotidentifyselfcitationswheretherelationshipbetweencitedandcitingapplicantsismoresubtle,e.g.,whenthecitedfirmisadaughterofthecitingfirm.onlytheself-citationswherecitedandcitingapplicantarethesameorganizationareexcluded.Sinceprivateinventorsarenotidentifiedbytheirname,butinsteadonlybyacodeindicating“privateinventor”,allcitationsfromaprivateinventortoaprivateinventorwereincluded.

information,57,609ofsuchcitationpairsremained.About4%oftheseareidentifiedasself-citations,andhencewereexcludedfromtheanalysis.

figure1providesanoverviewofhowthenumberofcitationpairsvariesperyear.inordertoprovideabetterpictureofwhentheinventionactivitiesactuallytookplace,thefigureusestheapplicationyearofthecitingpatent,ratherthangrantyear.Thenumberofcitationpairsrisessteadilyintime,startingfromaverylownumberintheearly1970s.itreachesapeak5,854patentsin1998,afterwhichthenumberdropssharply.Thisdropisentirelyexplainedbythetruncationofthedatabasetopatentsgrantedbefore2003.Manyofthepatentsappliedforintheperiod1999–2002wouldnothavebeengrantedbytheendof2002,andhencebeexcludedinthedatabase.inaddition,itusuallytakesafewyearsbeforeapatentreachesapeakinreceivedcitations(JaffeandTrajtenberg,2002),andhencemanyofthecitationsofthepatentsgrantedinthelastcoupleofyearsinthedatabasewouldnotyetbeincluded.Asaresult,thedatafortheperiodafter1999areratherunreliable,andwillbeexcludedfromtheanalysis.

197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002


Also,thecitationsintheearlyperiodofthedatabaserefertoasmallnumberofpatentsonly.Thisisexacerbatedbythefocusontheautomotiveindustry,whichcomprisesonlyasmallpart(between3and8%)ofthetotaldata.Hencethefocusoftheanalysiswilllieontheperiod1991–1999.in1991,therewere81(industryofmanufacture)or112(industryofuse)automotivepatents.Thisnumberwassmallerintheyearsbefore1981,leadingtounreliableestimatesofspillovers.

Withintheperiod1991–1999,thesharesofspillover-receiving(fromtheautomotiveindustry4)industriesarerelativelystable.figure2providesanillustrationofthisfindingfortheindustryofmanufactureperspective(similarfindingsarisefortheindustryofuseperspective).Althoughthereareyear-by-yearfluctuations(especiallytowardstheend),thesedonotseemtobeverysystematic.Hencetheanalysisbelowwillprovideresultsaggregatedoverthefullperiod.Aggregationisdonebyasimplenon-weightedaverageofthe%ofthetotalsperyear.

4 Theterm“automotiveindustry”isusedtodescribeSiC34,ofwhichthefulltitleis“Manufactureofmotorvehicles,trailersandsemi-trailers”.Seetheappendix.


2.4.notesforcautiousinterpretationoftheresults

Themethodologicalnotessofarhavealreadyincludedafewpointsthatshouldleadtocarefulinterpretationoftheresults.Thesepointscanbesummarizedasfollows:

1. patentcitationsareincompleteandnoisyindicatorsofspillovers.inparticular,theycaptureso-calledpureknowledgespillovers,butdonotprovideanadequatepictureofspilloversrelatedtoeconomictransactions(so-calledrentspillovers).Moreover,usingpatentcitationsasindicatorsofspilloversimpliesacertainerrormargin,becausenotallcitationsinfactpointtospillovers.

2. TheoeCdTechnologyConcordance(oTC)thatisusedtoassignpatentstoindustryisbasedonastatisticaldescriptionof300,000Canadianpatents.TotheextentthatAustralianpatentsintheUSaredifferent(intechnologicalcontent)fromtheCanadiansample,theconcordancemaycontainspecificbiases.Moreover,thefactthatwehadtouseaUSpC–ipCconcordancebeforetheoTCcouldbeappliedintroducesanadditionalerrormargin.

ontopofthis,oneimportantfurtherconsiderationapplies:

3. Thereareimportantdifferencesbetweenindustrieswithregardtothepropensitytopatent,i.e.,withregardtothefractionofallinnovationsthatarepatented.itiswell-knownthatnotallinventionsarepatented(Levinetal,1987),andthedegreetowhichthisisthecasediffersbyindustry(e.g.,itisgenerallyconsideredtobehighinpharmaceuticals,andlowinaerospace).industriesthathavealowpropensitytopatentwillalsotendtocitelessotherpatents.Hencethedifferencesinthepropensitytopatentwilltendtointroducebiasesinthecitationmatrixbetweenindustriesthatisthebasisforthisstudy.

inordertoreducethisbiasasmuchaspossible,thestudywilluseamatrixthatdescribes,foreachspillover-generatingindustry,whichfractionofitstotalspilloversgotowhichindustry.inotherwords,inaspillovermatrixwheretherowindicatesthespillover-generatingindustry,andthecolumnthespillover-receivingindustry,thecellswillbestandardizedbydividingbytherow-sum.Asaresult,thesumofeachrowwillbeequaltoone.

3. SpilloverS from The auTomoTive induSTry

3.1.industryofmanufactureperspective

ThelargestspilloverreceivingindustryfrompatentsoriginatingintheAustralianautomotiveindustryistheautomotiveindustryitself.overtheperiod1991–1999,itcaptures38%ofallspillovers.Aclosesecondisthemachineryandequipmentindustry(35%).Allotherindustriesreceivelessthan6%ofspilloversfromtheautomotiveindustry.figure3providesagraphicaldescriptionofspilloversfromtheautomotiveindustry.Thefigureshowsclearlythatspilloversfromtheautomotiveindustryareveryconcentrated:twoindustries(includingtheautomotiveindustryitself)captureabouttwothirdsoftotalspillovers.Thisnotionofconcentrationwillbeinvestigatedinacomparativeperspectivebelow.

Figure 3. percentual distribution of spillovers from the automotive industry, 1991-1999, industry of manufacture perspective

Someindustriesarelargerspilloverreceiversthanothers.inparticular,themachineryandequipmentsectorisalargereceiverofspilloversfromallindustries.onaverage,itreceives30%(unweightedaverageoverindustries)ofallspilloversduringthe1991-1999period.Henceitmaybearguedthatitcomesasnowsurprisethatthisindustrycapturessuchalargeshareofspilloverscomingfromthe


industryofmanufactureperspective.Thesecondlargestreceiverofautomotivespilloversremainsthemachineryandequipmentindustry,whichreceives20%ofautomotivespillovers.Buttogether,thesetwoindustriesaccountforasmallershareoftotalautomotivespilloversthanbefore(slightlyover½now,vs.abouttwothirdsbefore).otherindustriesthatreceiveasizeableshareofautomotivespilloversareconstruction(4.9%),healthandsocialwork(4.4%),andothermanufacturing(3.0%)5.

Thelargespilloverreceivingindustries,ingeneral,inthecaseoftheindustryofuseperspectivearethemachineryandequipmentsector,healthandsocialwork,construction,officemachinery,andothermanufacturing.Thus,thesectorsthatreceivealargeshareofautomotivespilloversarealsothesectorsthatreceivealargeshareofspilloversintotal.Thus,itmakessensetolookattherelativestrengthofautomotivespilloverlinks,definedasbeforebytheshareofspilloversreceivedfromautomotivedividedbytheaverageshareofspilloversreceivedfromallindustries.

inthiscase,therearesevenindustriesthathaveavalueoftherelativespilloverintensitythatishigherthan1,whicharedocumentedinTable1.Thesevenindustriescanbesubdividedintwogroups:transportequipmentindustries(includingtheautomotiveindustryitself)andautomotiveuserindustries.ThefirstgroupisontopofthelistinTable1.Thelattergroupconsistsofsaleofmotorvehicles,landtransport,andprivatehouseholds.Thesethreeindustriesdonotproduceanypatents,orveryfewpatents,themselves,andhencedonotreceiveanyspilloversfromtheautomotiveindustrywhentheindustryofmanufactureperspectiveisused.

Asmayalreadybeexpectedfromtheresultsinfigure4,concentrationofspillover-receivingindustriesissmallerinthecaseoftheindustryoruseperspective.inthiscase,thereare64industries,sothemaximumpossiblevalueofHisalso64.TheaveragevalueofHfoundacrossallindustriesis11.0,themedianvalueis10.9.Theautomotiveindustryagainranksbelowthis,withavalueof5.5,whichindicatesthatspilloversemanatingfromtheautomotiveindustryarerelativelyconcentrated.

5 iintendtoinvestigatemorecloselywhichtechnologyclassesareresponsiblefortheindustries“healthandsocialwork”and

“construction”.

automotiveindustry.otherlargespillovercapturingindustriesareothermanufacturing,otherchemicals,andinstruments.Twoofthelatterthreeindustriesalsorankhighasspilloverreceiversfromtheautomotiveindustryinfigure3.

inordertobringoutthedistinctivefeaturesoftheautomotiveindustryinaclearerway,onemaylookattherelativespillover-receivingintensity,whichisdefinedastheshareofspilloversreceivedfromtheautomotiveindustry,dividedbytheaveragesharereceivedfromallindustries.Anumberhigher(lower)than1indicatesthatanindustryreliesrelativelyintensivelyonspilloversfromautomotive.Therearefour(outof53)industriesinthesamplewithavaluehigherthanone:theautomotiveindustryitself(13.6),rail-andtramwaylocomotivesandrollingstock(2.63),othertransportequipment(2.03)andthemachineryandequipmentsector(1.18).Allothersectorsshowavaluelessthan1,whichindicatesthattheytendtoreceivealowerpercentualshareofspilloversfromtheautomotivesectorthantheyreceivefromothersectors.

finally,theissueofconcentrationofspilloverswillbeaddressed.Anindicatorthatmeasuresconcentrationistheso-calledinverseherfindahlindicator,which,forindustryj,isdefinedasHj=1/∑

ix2

ji,wherexjiistheshareofindustryjspilloversthatindustryireceives.ThemaximumpossiblevalueofHis53(thenumberofindustries),thisvalueisfoundifspilloversareequallydistributedoverall53industries.Theminimumpossiblevalueis1,whichresultsifallspilloversareconcentratedinoneindustryonly.

Amongthe53industries,theaveragevalueofHis5.0,themedianvalueis4.9.Sincethisisconsiderablysmallerthanthetheoreticallypossiblevalueof53,spillover-receiverstendtoberatherconcentrated.Themaximumvalueinthesampleis10.8(inmachineryandequipment).Thevaluefortheautomotiveindustryis3.6,whichisevenabitmoreconcentratedthantheaverage.13industrieshaveasmallervalueforHthanfoundintheautomotiveindustry.

3.2.industryofuseperspective

Asinthecaseoftheindustryofmanufactureperspective,theindustryofuseperspectiveidentifiestheautomotiveindustryitselfasthelargestreceiverofautomotivespillovers.figure4showsthedistributionofautomotivespilloversoverreceivingindustries.Thepercentageofautomotivespilloversthatremainsintheindustryisnow36.4,whichisslightlylowerthaninthecaseofthe


Figure 4. percentual distribution of spillovers from the automotive industry, 1991–1999, industry of use perspective

table 1. industries that receive more than an average share from the automotive industry, industry of use perspective

sic code

description % received from automotive divided

by average % received

34 Manufactureofmotorvehicles,trailersandsemi-trailers

9.07

352 Manufactureofrailwayandtramwaylocomotivesandrollingstock

3.59

359 Manufactureoftransportequipmentn.e.c.

2.29

29 Manufactureofmachineryandequipment

1.42

50 Saleofmotorvehicles 1.30

60 Landtransport 1.22

95 privatehouseholds 1.04

4. SpilloverS To The auTomoTive induSTry

4.1.industryofmanufactureperspective

Therearethreeindustriesfromwhichtheautomotiveindustryreceivesmorethan10%oftheirtotalspillovers.Thesearetheautomotiveindustryitself(38.2%),rail-andtramwayrollingstockandlocomotives(16.4%)andothertransportationequipment(16.2%).Theautomotiveindustryreceives2.8%ofthetotalspilloversfromtheaverageindustry.

Thereare12industriesforwhichtheautomotiveindustryreceivesalargerthan2.8%shareoftotalspillovers.TheseindustriesarelistedinTable2.

table 2. industries from which the automotive industry receives more than an average share, industry of manufacture perspective

sic code

description % to automotive divided by 2.8 (= average %

received by automotive)


13.6


5.82


5.75

52 Retailtrade,exceptofmotorvehiclesandmotorcycles;repairofpersonalandhouseholdgoods

3.52

353 Manufactureofaircraftandspacecraft

2.63

61 Watertransport 1.61

22 publishing,printingandreproductionofrecordedmedia

1.51


1.36

28 Manufactureoffabricatedmetalproducts,exceptmachineryandequipment

1.15

17 Manufactureoftextiles 1.14

36 Manufactureoffurniture;manufacturingn.e.c.

1.06

K Realestate,rentingandbusiness

1.02

4.2.industryofuseperspective

Usingtheindustryofuseperspective,thethreeindustriesfromwhichtheautomotiveindustryreceivesthelargestshareoftheirspillovers,arethesameasintheindustryofmanufactureperspective.Thesethreeindustriesaretheautomotiveindustryitself(36.4%),othertransportationequipment(18.9%),andrail-andtramwayrollingstockandlocomotives(16.8%).Table3liststhe14industriesthatarerelativelyintensivesupplierstotheautomotiveindustry.


5. concluSionSTheautomotiveindustryinAustraliaisanindustryfromwhichspilloversarerelativelyconcentrated.itservesonlyafewotherindustrieswithlargequantitiesofspilloversfromitsowntechnologicalactivities.Theindustriesthatareamongtheonesreceivingalargeamountofspilloversfromtheautomotiveindustryaremachineryandequipment,othermanufacturing,andtheothertransportationequipmentindustries(mostlyrailroadequipmentandothertransportationequipment).

Applyinganindustryofuseperspectiveaddstothistheimportanceofanumberofautomotiveuserindustriesasindustriesthatreceivealargefractionofautomotivespillovers.Theseincludesaleofmotorvehicles,landtransport,andprivatehouseholds.

table 3. industries from which the automotive industry receives more than an average share, industry of use perspective

sic code

description % to automotive divided by 4.0 (= average %

received by automotive)


9.07


4.71


4.19

50 Saleofmotorvehicles 2.44

353 Manufactureofaircraftandspacecraft

1.94

95 privatehouseholds 1.87

60 Landtransport 1.82


1.66

36 Manufactureoffurniture;manufacturingn.e.c.

1.39

351 Buildingandrepairingofshipsandboats

1.25

63 Supportingandauxiliarytransportservices

1.23

28 Manufactureoffabricatedmetalproducts,exceptmachineryandequipment

1.14

20 Manufactureofwoodandwoodproducts

1.14

51 Wholesaletrade 1.04


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andCorporateChange10,975-1005.

Breschi,S.andf.Lissoni,2004,Knowledgenetworksfrompatentdata:methodologicalissuesandresearchtargets,mimeo,CeSpRi,Milan

Collins,p.andS.Wyatt,1988,Citationsinpatentstothebasicresearchliterature,Researchpolicy17,65-74.

Criscuolo,pandB.Verspagen,2008,doesitmatterwherepatentcitationscomefrom?inventorversusexaminercitationsineuropeanpatents,mimeo,UnU-Merit.

duguet,e.andM.MacGarvie,2005,Howwelldopatentcitationsmeasureflowsoftechnology?evidencefromfrenchinnovationsurveys,economicsofinnovationandnewTechnologies14,375-394.

Griliches,Z.,1992,ThesearchforR&dspillovers,ScandinavianJournalofeconomics94,S29-S47.

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Jaffe,A.B.,M.TrajtenbergandR.Henderson,1993,Geographiclocalizationofknowledgespilloversasevidencedbypatentcitations,TheQuarterlyJournalofeconomics108,577-598.

Jaffe,A.B.andM.Trajtenberg,1996,flowsofknowledgefromuniversitiesandfederallabs:modellingtheflowofpatentcitationsovertimeandacrossinstitutionalandgeographicalboundaries,

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Jaffe,A.andM.Trajtenberg,2002,patents,Citationsandinnovations:AWindowontheKnowledgeeconomy(MiTpress,Cambridge,MA).

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Levin,R.C.,Klevorick,A.K.,nelson,R.R.andS.G.Winter,1987,“AppropriatingtheReturnsfromindustrialResearchanddevelopment,”BrookingspapersoneconomicActivity

Meyer,M.,2000,Whatisspecialaboutpatentcitations?differencesbetweenscientificandpatentcitations,Scientometrics49,93-123.

VanMeyl,H.,1997,‘MeasuringtheimpactofdirectandindirectR&dontheproductivityGrowthofindustries:UsingtheYaleTechnologyConcordance’,economicSystemsResearch,9,pp.205-212.


appendixcode iom? description

1 1 Agriculture,huntingandrelatedserviceactivities

2 0 forestry,loggingandrelatedserviceactivities

5 1 fishing,operationoffishhatcheriesandfishfarms;serviceactivitiesincidentaltofishing

10 1 Miningofcoalandlignite;extractionofpeat

11 1 extractionofcrudepetroleumandnat.gas;servicesincidentaltooilandgasextractionexcludingsurveying

12 0 Miningofuraniumandthoriumores

13 1 Miningofmetalores

14 1 otherminingandquarrying

15 1 Manufactureoffoodproductsandbeverages

16 1 Manufactureoftobaccoproducts

17 1 Manufactureoftextiles

18 1 Manufactureofwearingapparel;dressinganddyeingoffur

19 1 Tanninganddressingofleather;manufactureofluggage,handbags,saddlery,harnessandfootwear

20 1 Manufactureofwoodandproductsofwoodandcork,exceptfurniture;manuf.ofarticlesofstraw,plaiting

21 1 Manufactureofpaperandpaperproducts

22 1 publishing,printingandreproductionofrecordedmedia

23 1 Manufactureofcoke,refinedpetroleumproductsandnuclearfuel

241 1 Manufactureofbasicchemicals

242,ex.

2423

1 otherchemicalproducts,ex.pharmaceuticals

2423 1 Manufactureofpharmaceuticals,medicinalchemicalsandbotanicalproducts

243 1 Manufactureofman-madefibres

25 1 Manufactureofrubberandplasticsproducts

26 1 Manufactureofothernon-metallicmineralproducts

27 1 Manufactureofbasicmetals

28 1 Manufactureoffabricatedmetalproducts,exceptmachineryandequipment

29 1 Manufactureofmachineryandequipmentn.e.c.

30 1 Manufactureofoffice,accountingandcomputingmachinery

31,ex.

313

1 electricalmachineryandapparatus,ex.cablesandwires

313 1 Manufactureofinsulatedwireandcable

321 1 Manufactureofelectronicvalvesandtubesandotherelectroniccomponents

322 1 Manufactureoftelevisionandradiotransmittersandapparatusforlinetelephonyandlinetelegraphy

323 1 Manufactureoftelevisionandradioreceivers,soundorvideorecording/reproducingapparatus

331 1 Manufactureofmedicalappliancesandinstrumentsandappliancesformeasuring,checking,testing,navigatingandotherpurposes,exceptopticalinstruments

332 1 Manufactureofopticalinstrumentsandphotographicequipment

333 1 Manufactureofwatchesandclocks

34 1 Manufactureofmotorvehicles,trailersandsemi-trailers

351 1 Buildingandrepairingofshipsandboats

352 1 Manufactureofrailwayandtramwaylocomotivesandrollingstock

353 1 Manufactureofaircraftandspacecraft

359 1 Manufactureoftransportequipmentn.e.c.

36 1 Manufactureoffurniture;manufacturingn.e.c.

37 0 Recycling

40 1 electricity,gas,steamandhotwatersupply

41 0 Collection,purificationanddistributionofwater


code iom? description

45 1 Construction

50 0 Sale,maintenanceandrepairofmotorvehiclesandmotorcycles;retailsaleofautomotivefuel

51 1 Wholesaletradeandcommissiontrade,exceptofmotorvehiclesandmotorcycles

52 1 Retailtrade,exceptofmotorvehiclesandmotorcycles;repairofpersonalandhouseholdgoods

55 0 Hotelsandrestaurants

60 1 Landtransport;transportviapipelines

61 1 Watertransport

62 0 Airtransport

63 1 Supportingandauxiliarytransportactivities;activitiesoftravelagencies

641 0 postandcourieractivities

642 1 Telecommunications

J 0 financialintermediation

K 1 Realestate,rentingandbusiness

72 1 Computerandrelatedactivities

73 1 Researchanddevelopment

75 1 publicadministrationanddefense;compulsorysocialsecurity

80 0 education

85 1 Healthandsocialwork

o 1 othercommunity,socialactivity

95 0 privatehouseholdswithemployedpersons

Legend:CodegivesSiCcode,‘iom?’indicateswhetherindustryisincludedasindustryofmanufactureintheAustraliansample,seeJohnson(2002).

|139

AppendixF:Qualitative spillover case studies

Project summaryThedepartmentofinnovation,industry,ScienceandResearchinvitedTechstratResearchptyLtdtoconductasmallqualitativestudyofknowledgespilloversfromtheautomotivesectortoothersectors.Techstratconductedinterviewsatsixcompanies–Toyota,Bosch,Broens,edAG,Marand,andOzpress–andtheUniversityofMelbourne,andidentifiedthethreeclassesofspillovers:

spilloversfromautomotiveworktoothernon-�automotiveworkconductedwithinthecompany;

spilloverstosuppliers;and�

spilloverstoothers.�

sPillovers within the comPanyThecategoryofspilloverswithinacompanyfellintofivesubgroups.First,andmostobviously,allthefirmsstudiedappliedtheengineeringandproductioncapabilitiestheyhaddevelopedfortheautomotivesectortoothersectors.Forexample,Ozpress,whichisasmallpressingshop,nowpressespartsforride-onlawnmowersinmuchthesamewayasitdidforcarparts.Asthecompaniesbecamelargerandmoresophisticated,sodidthecapabilitiesandsystemstheyappliedtotheseothersectors.notwithstanding,theworkwasfundamentallypredicatedonthecompany’sexperienceintheautomotivesector.

Second,andrelatedly,threeofthecompanies–Bosch,MarandandOzpress–alsotranslatedkeyphilosophiesandapproachestheyhadappliedtotheirautomotiveworktoworktheydidinothersectors.Forexample,whileBosch’sprincipalworkisintheautomotivesector,itappliesthesamebasic

approaches(theBoschproductionsystem,whichisverysimilartotheToyotaproductionsystem)toitsworkinconsumergoods,buildingtechnologyandindustrialsystems.

Third,threeofthecompaniesidentifiedcapabilitiestheydevelopedfromtheirautomotivework,andsawwaysinwhichthesecapabilitiescouldbeappliedtoothersectors.Thesecompanieshaveusedthisasavehicleforenteringnewsectors.Forexample,edAGenteredthemilitaryrefurbishmentmarketonthebasisthatbybringingprojectandprogrammanagementskillsfromtheautomotivesector,itcoulddramaticallyreducethecostofsupply.Thisspilloverhascreatedincomefromoverseasandlocalhighlyskilledjobs.

Fourth,someofthecompaniestookapproachesfromtheirautomotivesectorworkandappliedthemtotheirinternaloperations.Forexample,Broensusestotalqualitymanagementprinciplesinthewayitconductsitsentirebusinessoperations.

Finally,attheUniversityofMelbournetheautomotivesectorcreatesacontextforteachingfluidmechanicsandthermodynamics.Althoughmanyothercontextscouldbeusedintheteaching,thefactthatthereisalocalautomotiveindustryallowsthelecturerstobringinexamplesfromtheindustryingeneral,andfromtheirconsultingandresearchexperienceinparticular,tomakethematerialmoreinterestingandrelevantforthestudents.

sPillovers to suPPliersSpilloverstosuppliersfellintotwogroups.Thefirstinvolvedmovingsuppliersintodifferentsectorsasthe

140| ReVieWOFAUSTRALiA’SAUTOMOTiVeindUSTRY |141QUALiTATiVeSpiLLOVeRCASeSTUdieS

Second,companieswouldtransferexpertisetocompaniesoutsidethesector.TwoofthecompanieswereinvolvedintheinnovationinsightsprogramrunbytheVictorianGovernment.Aspartoftheprogram,theywouldhostregularvisitsfromothercompaniesthatwantedtolearnabouttheirproductionsystems.Oneintervieweewasamemberofabenchmarkinggroupcomprisingcompaniesprincipallyfromtheminingsector.Onbenchmarkingtourstherewouldbetransferofexpertisebetweenthecompanies.

Third,fourofthecompanies–Toyota,Bosch,BroensandMarand–wereactivelyinvolvedwithlocalTAFecollegesinthecreationoftrainingprograms,bothfortheiremployeesandforothers.Thisoftenincludedhostingemployeesfromothercompaniestousetheirfacilitiesaspartoftheirtraining.Furthermore,studentsintheseinstitutionswillbenefitfromlecturerswithspecificknowledgeofautomotiveindustrypracticessuchastheToyotaproductionsystem,whichcanthenbeappliedtootherindustries.

Finally,researchersattheUniversityofMelbournewereinterestedintransferringknowledgeandartefactsfromtheautomotiveindustrytoothersectors.Forinstance,theenginesmanufacturedattheFordGeelongplantortheHoldenportMelbourneplanthadlowercostsandwerehighlyefficientpotentialstationarypowersources.Theycouldbeusedveryefficientlyforapplicationssuchasrunningtheair-conditioningcompressorsonlargebuildingsdirectly,insteadofusingelectricmotors.

ThesedifferentusesaresummarisedinTableF.1.

companiesthemselvesmoved.Forinstance,Marandisattheheadofthesupplynetwork(Tier1)ofmanysuppliers(Tiers2and3).Asithasmoveditsownworkintoareassuchasmaintenanceequipmentforrailwaymanagement,ithastakenitssupplierswithit.

Thesecondspilloverinvolvedtransferringparticularcompetenciestosuppliersaspartoftheautomotivework.Thesupplierspresumablycanusethesecompetenciesintheirworkforothersectors.Forinstance,Boschappliedsignificantresourcestohelpitssuppliersincreasetheeffectivenessoftheirlogistics,theircostofsupply,andthequalityoftheirproducts.Thistransferofcompetenciestosupplierscanpotentiallybeusedinothernon-automotivesectors.SupplierdevelopmentprogramssuchasthoseundertakenbyToyotaensurethatitsworld-classproductionmethodologyandpracticesarepassedontotheentiresupplychain.

sPillovers to othersSpilloverstoothersfellintofourgroups.First,employeesleavethecompaniesstudiedandworkinothersectors.Twogroupsareofparticularnote.Someofthecompanies,suchasBroensandMarand,havelargeapprenticeshipprograms.Manyoftheirapprenticesleaveandworkinothersectors.Further,senioremployeeswithparticularexperience(suchasexperienceworkingwiththeToyotaproductionsystem)movetocompaniesinothersectorswiththespecificmandatetotransfertheirexpertisefromtheautomotivesectorintothatothercompany.


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toyotaToyotaAustraliaisoneofthreecarmanufacturersintheAustralianautomotiveindustry,andmanufacturesboththeCamryandtheAurionmodelsatitsplantinAltona,Melbourne.itemploysabout4,500staffinitsAustralianoperations.

Toyotaachievedthe‘TripleCrown’inAustraliaasof2007,beingthebiggestsellerofvehiclesinthepassengerandcommercialclasses,andoverall.MuchofthissuccesscanbeattributedtoToyota’sfocusonefficiencythroughtheapplicationoftheToyotaproductionsystemandthephilosophyofcontinuousimprovement.ThesetechniquesandsystemsarethenpassedontoToyota’spartnershipnetworkthroughprogramssuchasC21andASeA,aswellasToyotaAustralia’sownhigh-intensitysupplierdevelopmentprogram.

Spillovers

Spilloverstothesupplychain

ToyotahasbroadlyinfluencedbusinessthinkingandpracticeinAustraliathrougharangeofspillovermechanismsfromsupplierdevelopmentthroughtoskillstraining.SupplierstoToyotareceivealargeamountofsupportandtrainingaboutleanoperations,designskills,manufacturingefficiencyandquality,peoplemanagementandotherknowledgeareas,whichtheycanuseintheirsupplytootherindustries.Othercompaniesstudiedinthisset(forexample,MarandandBroens)illustratesuchactivitiesfromthesupplierperspective.

AnotherspilloverToyotapointstoisintheareaofcapitalexpenditure.SuppliershavetheconfidencetoinvestintoolingbecauseofthepresenceofToyotaandothermotorvehicleproducersinthemanufacturingindustry.Quiteoftenthisequipmentisusedforsupplytootherindustries,andthiscapacitywouldotherwisenotexistinAustralia.Anexampleistheplasticsindustry,forwhichToyotaandothersintheautomotiveindustrybuildthenecessarybaseload,capacityandexpertiseforthelocalindustrytobeviable.inturn,theplasticindustryisabletosupplyotherindustriessuchaselectronicsandconstruction.Toyotaexecutivesclaimthatbaseindustriessuchasglassandrubberbenefitfromsimilarspilloversfromtheautomotiveindustry.

in2007,ToyotaopenedtheToyotainstituteAustralia,whichrunsavarietyofcoursesintheToyotaproductionsystemforsuppliers(manyofwhichsupplyotherindustries),althoughthereisan

intentiontoopenittoawidergroupofcompaniesinthenearfuture.ArelatedinitiativeisC21,runbytheVictorianGovernment,whichoffersforumsonleanmanagement,basedontheSMRJ(Small&MediumenterprisesandRegionalinnovation,Japan)systembroughttoAustraliafromJapanbyToyota.

ToyotasupportsgroupssuchastheSocietyforManufacturingexcellenceand,throughitsmultiplepresentationstosuchforums,hasseenitsinfluencegobeyondtheautomotivesectorandevenbeyondthemanufacturingsector.Forexample,participantsinforums,suchashospitals,arenowadoptingtoolslikevaluestreammappingandleanoperations.

R&dandinnovationspillovers

ToyotaundertakesasignificantamountofresearchanddevelopmentinAustralia.Thereareimportantknowledgespilloverstoresearchpartners,suchasCSiROanduniversities,whicharefacilitatedbyToyota’sAustralia-basedresearchandtechnologycentre.Severalresearchprojectshaveresultedintechnologythatbenefitsnon-automotiveindustries.Toyotaalsopractisesaglobalmodeloftechnologydevelopmentandresearch.ThetechnologyToyotausesinAustraliaisoftenworld-besttechnology,andsomeofitspillsovertootherindustries.

Toyotaisanadvancedcompanywhenitcomestoprocessinnovation.KnowledgeabouthowtoachieveastrongcultureofprocessinnovationisataveryhighlevelwithinToyota.ThisknowledgeisoftentransferredtootherindustriesthroughToyota’sparticipationinconferencesandothermanufacturingsectorevents,whicharewellattendedbyrepresentativesfromotherindustries.Toyotamanagersareregularspeakersandsessionleadersatavarietyofconferences,notjustindustry-specificmeetings.ThisincludesparticipatingspeakersfromwhollyownedToyotasubsidiariesinAustraliasuchasAisin.Forexample,ToyotaandAisinexecutivesgaveatwo-hourpresentationto40universitylecturersandprofessorswhoteachoperationsmanagementandrelatedsubjectsatsome30universitiesinAustraliaaspartofthe2007AnZAMconference.

Trainingandeducationspillovers

Toyotagenerallymakesalargeinvestmentinteachingandtraining,andadvancingoftheskillsofitsstaff.Thiseffortleadstotwomaintypesofspillovers.First,peopleleaveToyotaandtakeprocessknowledgewiththemoftheToyotaproductionsystemandToyotaleadershipphilosophy.Forexample,amajorbankandanumberofminingcompaniesarecurrently


undertakinginitiativestoadapttheToyotaproductionsystemintotheircontexts.indeed,someofthosecompaniesspecificallytrytohireorpoachex-Toyotamanagersinordertospeeduptheirlearningandimplementationprocesses.Managementconsultantsalsoplayaroleinthesespillovers,inspreadingknowledgeoftheToyotaproductionsystemandleanmanagementintoothersectors.However,itisimportanttorecognisethatthekeysourceofthecoreofthisexpertiseoriginatedinToyotaandisstronginAustraliabecauseofToyota’smanufacturingpresence.

AnothertypeofspilloveroccursthroughthemoreformalpartnershipsToyotahaswitheducationalinstitutions.Throughthesestructures,learningfromToyotaispassedontoparticipantsfromotherindustriesortothosewhowillendupinotherpartsoftheeconomy.SpecificallythisincludesaclosepartnershipwithMtelizaBusinessSchool(MelbourneBusinessSchoolandownedbyMelbourneUniversity),whichToyotahasbeenworkingwithforsixyears.Thisbeganwiththemeeting‘ToyotaLeaders1’andthenfollowedonwith‘ToyotaLeaders2’,whichincludestransferofknowledgeonglobalToyotacontent.Toyotacontentbenefitsotherindustryparticipants.ToyotastaffmixwithinstructorsandotherindustrypeopleandtheToyotaproductionsystem‘rubsoff’asaspillover.

AcloserelationshipexistswiththeChisholminstitute,whichsupportsToyota’stradeskillsdevelopmentprogram.ThereisalsoatradesteacheronsiteattheAltonaplant.VictoriaUniversityhasbeeninvolvedinhumanmovementactivityforthehealthandsafetyteaminitiatedandsponsoredbyToyota.Ontheretailside,ToyotainstituteAustraliahasapartnershipfortrainingwithKanganBatmanTAFe.ToyotaalsoworkswithregionalTAFesallaroundAustraliatosupporttheskillsdevelopmentofmechanicsinitsdealerships.TheseskillsspillovertootherindustriesaspeoplemoveandcoursesareofferedtoothersectorswhichdrawontheToyotacourse.

Thefourspecificexamplesaboveleadtoimprovedcurriculuminawiderangeofcourses,throughinstitutionallearningandspilloverstootherprogramsthatserviceotherindustries.

Toyotaisalsooftenadestinationforexecutivesfromotherindustrieswhoareonstudytours,andwanttovisit,studyandlearnaspectsof‘TheToyotaWay’,whichtheythenuseinotherindustriesandcompanies.StudentsfromschoolsanduniversitiesarewelcomedbyToyotaatitsfactory.

environmentalstandardsspillovers

ToyotaAustraliahassethighenvironmentalstandardsthroughitsToyotaearthCharter,whichhassetapolicyandstandardthatothercompaniesandindustryplayersarelearningfromandaspireto.ToyotahasbeenveryopentoresearchersinAustraliawhohavestudieditsmethodsandpublishedresultsintheliteratureforotherstolearnfrom.Forexample,arecentAustraliantextbook,OperationsManagement,publishedin2008byCambridgeUniversitypress,featuresadetailedcasestudyofToyota’senvironmentalmanagementprocessesinitssupplierdevelopmentnetwork.

Toyotaisrapidlymovingforwardonthetriple-bottom-lineapproach,andspendsalotofeffortandmoneyonconservation,theenvironment,communityengagementandsocialoutcomes.ithasdevelopedadvancedmethodsintheseareas,whichitdeploysinAustraliaandpublishesforotherstoadaptanduse.OthercompaniesandindustriesarelearningaboutToyota’sbestpracticesinAustraliaandareadaptingthesepracticesintotheirownoperations.

BoschTheBoschGroup,headquarteredinGermany,isaglobalsupplieroftechnologyandservices.intheareasofautomotiveandindustrialtechnology,consumergoods,andbuildingtechnology,some271,000associatesgeneratedsalesof€46.3billion(approximately$75.9billion)in2007–08.TheBoschGrouphasmorethan300subsidiariesandregionalcompaniesinroughly50countries.

Boschemploysover2,300associatesinAustraliaandnewZealand,withactivitiesspanningthethreebusinesssectorslistedbelow.Theregionalheadquarters,whichhashadmanufacturingoperationsinAustraliasince1954,islocatedinClayton,Victoria.Thissitehasbeenimplementingtheglobalcompanyinitiative,theBoschproductionsystem,similartotheToyotaproductionsystem,since2004.ForBoschworldwide,theproductionsystemhasledtothedevelopmentofothersystemsincludinganengineeringsystem,asalessystem,andanHRsystem.ThesesystemshavealsobeendeployedinAustraliaandrolledacrossfromautomotiveintootherindustriesthatBoschserves,thusactingasaformofinternalspillover.


BusinesssectorsofBoschAustralia

Automotivetechnology–Bosch1. performsdesign,development,applicationandmanufacturingofautomotivecomponentsandsystemsfordomesticandexportmarkets.Boschalsodistributesproductsfortheautomotiveaftermarket.

Consumergoodsandbuildingtechnology–Bosch2.distributesproductsfromaportfolioconsistingofpowertools,householdappliances,gashotwatersystemsandsecuritysystems.

industrialtechnology–BoschRexroth,partof3.theBoschGroup,providesdesignengineerswithmotioncontrolproducts,machineautomationandapplicationsengineering.

Spillovers

innovationinsightsprogram

Boschisanactivepartnerintheinnovationinsightsprogram,aninitiativeoftheVictoriandepartmentofinnovation,industryandRegionaldevelopment.ThisprogramgivesbusinessestheopportunitytovisitVictoria’sleadingmanufacturersandlearnaboutworldbestpractice.RobertBoschAustraliahasbeenimplementingtheBoschproductionSystem(‘leanmanufacturing’)foranumberofyearsnow.AspartoftheglobalBoschnetwork,itisabletosourceleanmanufacturingbestpracticesfromotherBoschplantsaroundtheworldandimplementtheminAustralia.inApril2008RobertBoschAustraliahosteditsinnovationinsightsopendaytodemonstratetoandexchangeleanmanufacturingideaswithvisitorsfromotherenterprises.Visitorscouldlearnaboutleantoolssuchas5s,visualsystems,milkruns,supermarkets,customertactandeffectiveproblemsolving.Thirty-nineattendeesvisitedBoschfromdifferentbusinesssectorsincludingautomotive,pharmaceutical,healthandhumanservices,finance,aerospace,food,beverageandgeneralmanufacturing.

Theautomotiveindustrywasthepioneerof‘leanmanufacturing’,withaphilosophythataimstocontinuouslyimproveacompany’sefficiencyandcompetitiveness.programssuchasinnovationinsights,allowotherindustriestobenefitfromthespilloverofknowledgeandexperienceinbestpracticeandoptimalprocessinggainedintheautomotiveindustry.

internalRobertBoschAustraliaspillover

Bosch’sexperienceintheautomotivesector,inparticularleantechniques,isspillingoverintootherpartsofitsdistributionbusiness(suchasconsumergoods),withlogisticsefficiencies,planningandwarehousingtechniques.

employmentandskills

TheshortageofskillsintheAustralianemploymentmarkethasledtoanoutflowofBoschAutomotiveTechnologypersonnelwithexperienceinleantechniques,industrialengineeringandprocessengineeringintosectorsincludingfinance,aerospace,miningandothergeneralmanufacturingindustries.Forexample,Boschcitesinstancesofitsengineersmovingintofinance,miningandaerospacecompanies,aswellasstartingindependentconsultingfirms,specificallytoapplytheirleanproductionknowledgegainedfromwithinBosch.Theseothersectorsarebenefitingfrombestpracticeknowledgelearntintheautomotivesector.

BoschhasestablishedaBoschLearningCentreinAustralia,inwhichitconductsalargeamountoftraining.AcertificateiVprogramhasbeenpartlycreatedinpartnershipwithKanganBatmanTAFe,whichbringsstaffon-sitetoco-developknowledge,thecurriculumandmaterials.TheexchangeofknowledgebetweenBoschAustraliaandtheTAFeisaclearexampleofknowledgespillover,formingpartofprogramsrolledouttootherindustries.

Supplierdevelopmentprograms

Boschhelpsitslocalsupplierswithlogisticseffectivenesssupport,andalsoassessesitssuppliersontotalcostofsupplyandonquality.Thisassistssuppliers(forexample,Tier3firms)todevelop,andtheseskillscanbeusedinsectorsoutsidetheautomotiveindustry.Boschusesitsownexpertlogisticsandsupplychainexpertise,andusesleanmanagementpracticestoassistitssupplierstoimprovetheirleancapabilities.

Otherspillovers

Thespecial-purposemachinebuildingdivisionbuildsequipmentforautomotiveandotherindustrytechnologymanufacture.Thedivisionsourcesmaterialsandservicesoutsideoftheautomotivesector–forexample,electrical,mechanical,softwaredesign,andmanufacturing–toconstructnewmachineryandtechnologicalsolutionsforthecompany.


Other(smaller)manufacturingindustriessourcingfromautomotivesupplierssuchasBoschleveragefromexistinganddevelopedattributesderivedintheautomotiveindustryincludingqualitystandards,just-in-timedelivery,andcompetitiveglobalpricing.

BroensBroensisanAustralianprivatelyownedcompany,establishedinthelate1970s,offeringadvanceddesign,precisionmanufacturingandengineeringsolutions,andservingtheautomotiveandanumberofothersectors.itsrangeofproductsincludestheproductionoftooling,componentsandspecialpurposeequipment.Aspartofthat,Broenshasdevelopeditsownsignificantipinpowersteeringsystems.

incorporatingthelatesttechnology,Broens’corecapabilitiesincludeturn-keyprojectmanagement,innovativedesign,3dmodellingsoftware,mechatronics,automation,andadvancedmanufacturing.Thecompanypridesitselfonitshighstandardsofqualitycontrolanditsstronginvestmentinthedevelopmentofits185staff.Theseareessentialingredientstobecompetitiveasasuppliertotheautomotivesector.Fromthoseroots,Broensbranchedintoothersectorsonthebackoftheseadvancedcapabilities.

Broens’manufacturingshopfloorinSydneyisspreadoversome12,000squaremetres.itconductstoolingdesignandmanufacture,pressedmetaloperations,stamping,machiningandassemblyincludingmechanical,electrical,pneumaticandhydraulicsystems.AccordingtotheManagingdirector,MrCarlosBroens,“WebuildspecialpurposeequipmentforTier1and2suppliers.Wedesignandbuildourownmachinesforthepowersteeringindustryandwealsoproducecomponents”.

Spillovers

TheengineeringbaseatBroenscamefromitsgeneralprecisionandautomotiveindustryparticipationandthenspilledoverintoitsworkintheaerospace,marine,mininganddefenceindustries.MrBroensassertsthatwithouthiscompany’sexperienceintheautomotiveindustry,theirengineeringcapabilitieswouldbelimited.Thosespilloverswerepartofadeliberatediversificationstrategy,astheautomotivesectorhasbecomeverypricesensitiveand‘China-dominated’duetotheircheapcostoflabour.Asaresult,profitmarginsintheautomotivesectorwerereduced,leadingBroenstoadoptastrategyofdiversification

intoothersectorsstartingwithaerospaceandthendevelopingintothemarine,mininganddefencesectors.

Thequalitysystem,whichwasdevelopedandestablishedbyBroensasanautomotivemanufacturer,wasasignificantspilloverandacornerstoneforBroens’successinothersectors.Theautomotivesectorhasthemostrigorousqualityrequirementsandprocessstandards,andthisexperiencewasinvaluablewhenworkinginotherindustries.

intheaerospaceindustry,thelessonslearnedandskillsdevelopedatBroensthroughitsinvolvementintheautomotivesectorhaveclearlybeentransformedforthenewrequirements,andareusedforcarbonfibreproductsandassemblyfixtures.Withcomputernumericallycontrolledmachiningcapabilityofupto18mx6m,andaninternationalsupportnetwork,Broenshasmovedsignificantlyforwardinaerospace,basedonitsautomotivebeginnings.

inthemarinesector,Broensfocusesonthesignificantyachtingmarket,whereitproduceskeelsandbulbs.Usingspecialistmaterials,Broensdeliversdifferentiateddesignandproducts,upto18minlengthand30tonnesinweight;andbasedonitsautomotiveexperience,itproducestheseproductstotolerancesof+/-0.1mm.Broensalsooffersfullymachinedforgedsteelsandstainlesssteelstructurestoitscustomers.

Broenshasbenefitedfromtakingitscapabilitiesintotheminingsectorbyproducingexplorationanddrillingdevices.Broensisundertakingmassproductionofdrillingcomponentsinthisindustry.Broensisusingthemanufacturingexcellenceanddesigncapabilityderivedfromitsworkintheautomotiveindustryforthechallengesofthisintenseandspecialisedfield.

defencesectorclientshavealsobenefitedfromBroens’automotive-developedexpertise.Basedonitsautomotiveknowledge,Broenshassoldengineeringservicesinthedefencesector,anddesignedandbuiltspecial-purposeequipmentandvehiclesystems.ithasalsoproducedcomponentsforweaponsystems,andaddedtoitsportfoliovehicle-basedsystemssuchasgroundsupportequipmentandaircraftloaders.

MrCarlosBroensindicatedthatthespectrumofspilloversthatwereadaptedfromautomotivetoothersectorsiswide,andincludesotherexpertiseinareassuchassoftware,hydraulicsandelectronics.


Ontheskillsfront,Broenscanpointtosomeinterestinghumancapabilityspillovers.Astheshortageofskillspresentedabarriertofurthergrowthanddiversification,thecompanyengagedin‘acceleratedtraining’ofitsstaff.Some28percentofBroens’workforceareapprentices,representingaverylargeproportionoftotalstaff.BroensestablishedapartnershipwithTAFenSWforthatpurpose,andtheseskills-buildingeffortsspillintootherindustriesthroughstaffturnover.TAFecoursesaredeliveredonsiteusingadedicatedtrainingareaandaclassroomfacility.TAFeteachersonBroens’sitebenefitfromhavingaccesstothelatestequipment,technologyandcutting-edgemethods.Thefirmhostsapprenticesfromothercompaniesonitssite,whoaretrainedalongsideBroens’staffandapprentices.ThesecompaniesincludeQantas,GoyenControlsandnepeanengineering.Thisisaclearandvaluableskillandknowledgespillover.

eDaG australia Pty ltDedAGAustraliaptyLtdisasubsidiaryofedAGGmbH&Co.KGaA.TheGermanparent,with5,000employeesin30locationsglobally,isthelargestindependentengineeringservicescompanyintheautomotivesector.Thegrouphasannualsalesof€700million($1.1billion),comprising80percentfromtheautomotivesectorand20percentfromtheaerospacesector.Mostoftheaerospaceworkisforaeuropeanaircraftmanufacturer.Theglobalparentisafull-servicesuppliertotheautomotiveindustry,performingbothproductdevelopmentforcars,anddevelopingproductionequipmentformanufacturingcarsandtrucks.Recentfull-carprojectsincludeamidsizeupperclassvehicleforaGermanmanufacturerandastationwagonvariantforaFrenchmanufacturer.Similarly,thecompanyundertakesproductdevelopmentfortheaerospaceindustry.Forsomeprojects,asignificantproportionoftheworkinvolvescoordinatinganumberofcontractorsandmanagingtheoverallproject,ratherthandoingalotoftheengineeringinhouse.

ThecompanyenteredtheAustralianmarketin1999.Annualturnoveris$20million,whichisabout2percentofthatoftheglobalgroup.Thelocalcompanydoesproductdevelopmentworkintheautomotivesector,anddiversifiedintoaerospaceanddefenceworkin2006.Aerospaceanddefenceworkisnowabout10to20percentofturnover.Thecompanyexpectsthistogrowto50percentofitsworkintwoyearsduetoacombinationofdecliningautomotivesectorwork,andincreasingworkintheothersectors.iftheautomotivesectorworkdropsbelow50percent,

itmaynotbeviabletocontinuetheAustralianoperations.

Work

edAGworksonallpartsofthecarexceptthechassisanddrivetrain(forexample,bodypanels,frontbumpers,wheels,cockpits,etc.).ThebasicprocessinvolvesanindustrialdesignergivingedAGapictureofwhatiswanted,andedAGengineeringittomakeitreadytomanufacture.Forabumper,forexample,edAGwillstartwithaconcept,andthenengineeritsothatitaccommodatesallthelights,hasadequateairflowfortheradiator,andprovidesadequateimpactprotection.

Thecompany’ssecondareaofworkisinthemodernisationofmilitaryhardware.CurrentlythisworkisexclusivelyfortheAustralianarmy,thoughedAGhopestomoveintonavalandairforceworkinthefuture,asitbuildscompetenceinworkingwiththemilitary.Thearmyhasmanyvehiclesthatareupto40yearsoldthatneedtobefittedwithnewequipment.Becauseveryfewmilitaryvehiclesareidentical,thetypicalproductionrunforoneoftheseretrofititemsis20–40units.Thisisaboutthesamesizeasatypicalproductionrunforaprototype.Consequently,thecompanyiswellpositionedtodothissortofwork.Furthermore,forlargerproductionruns(morethan100units)itisrelativelyeasyforedAGtooutsourcethefinalproductiontoanotherfirmwithahigherlevelofautomation.

Asnoted,edAGhopestomoveintonavalwork,anindustrythathasretrofitworkandalsoworkengineeringtheinstallationofequipmentontonewships.Theinterfacebetweenthatequipmentandtheshipalsohastobeengineered.edAGseesanopportunityinnavalwork,butthelocalpurchaser(thedefenceMaterielOrganisation)isreluctanttorequiretheoverseasprimesuppliertouselocalcapabilities.Thisisamajorbarriertospilloversintothissector.Similarworkispresumablyavailablefortheairforce,thoughtheexistingsuppliersinthatsectorarewellsetuptomeetthisneed.

edAGdoestwotypesofworkintheaerospacesector.First,itdoesone-offdesignandengineeringforVipplanes.Forinstance,VipplanesmayhaveseveralfittingssuchasbedsandLCdscreens.Theconnectionsbetweenthosefittingsandtheairframeswillneedtobeengineeredtomeetsafetyrequirements,vibrationneeds,andsoforth.Second,edAGrecentlyboughtabusinessinBrisbanetodoturnkeyrefurbishmentoftheinteriorsystemsofaeroplanes.Theideaistoprovideaone-stop


shopthatcansupportseveralofthelocalairlines,andenablethemtoavoidhavingtheirowninteriorworkshop.Whenaplanecomesinformajormechanicalmaintenance,edAGwillpullouttheentireinterioratthesametime,repaintit,andrepairorreplacealltheequipmentbeforeputtingitallbacklookingnewerandfresher.Replacementsandrepairsofinteriorcomponentsoftenrequirespecialistengineeringandfabrication.Thepotentialclientsincludesmalllocalairlines(suchasRexandSkyWest)aswellasindividualowners.

Knowledgespillovers

Therearetwowaysinwhichknowledgespillsoverfromautomotiveworktootherwork.ThefirstisthattherearesometypesofworkthatedAGdoesinothersectorsthatispremisedonitsworkintheautomotivesector.Thatis,itcouldnotdotheworkifitdidnothavetheexperienceintheautomotivesector.Thisisthecaseforalltheirworkinitsaerospacesector.Becausethisisahighlyregulatedandmatureindustry,edAG’sentrydoesnotinvolvetheintroductionofnewcapabilitiestothatsector(unlikethemilitaryrefurbishmentexample).

Second,edAGwasabletoenterthemilitaryretrofitmarketbecauseithaswell-developedprojectmanagementtechniquesthatoriginatefromworkintheautomotivesector.Becausetheautomotivesectorissocompetitive,ithasmethodologiesfordesigning,prototypingandrefiningproductsandformanagingtheprojectsoastoensureitmeetsthelaunchwindow,usuallyundercost.Theseareattributesthatareattractivetodefenceprocurementofficers,sincedefencecontractorshavenotpreviouslyhadastrongtimeandcostfocus.Whenpersuadingthemilitarytoadoptnewprojectplanningtechniques,itmakesahugedifferencetobeabletopointtoalocalcarmanufacturerdoingthesethings.edAGisgettingincreasingamountsofdefencework,whichsuggeststhatwhatithastoofferisvalued.

Secondaryknowledgespilloversandbarrierstoknowledgespillovers

TherehavebeenknowledgespilloverstoedAG’ssuppliersinthesensethatthecompanyhasmovedthesuppliersintothedefenceandaerospacemarkets.edAGisnotawareofitsworkintheautomotivesectorleadingitssupplierstodevelopnewskillsandcapabilitiesthatareusedbeyondthesector.However,thatdoesnotmeanitisnotoccurring.Themainbarriertothespillovershasbeenlearninghowtodealwiththenewindustrysectors.intheaerospacesector,especiallyitsrefurbishment

work,edAGhasneededtobemoremeticulouswithitsdocumentationandteachitsengineersandtradespeoplethisdiscipline.edAGhasfoundentryintothedefencesectordifficult.intheearlystagesofitsworkinthesector,edAGwasinajointventurewithacompanywithextensivemilitaryexperience.Thedifferenceinthemindsetsoftheengineersinthetwoindustrieswasprofound,andprovedalmostimpossibletoworkaround.Subsequently,edAGabandonedthepartnership.Similarly,procurementinthetwoindustriesisdramaticallydifferent.intheautomotivesector,a$7millioncontractwilltypicallyhavea20-pagespecification,andmanyoftheotherdetailswillbetransferredincomputer-aideddesignfiles.indefence,a$150,000contractmayrunto150pages.edAG’sengineersandtradespeoplefinditchallengingtocarefullyreada150-pagecontractinordertoextractwhatisactuallyrequiredofthem.ithastakenedAGconsiderabletimeandefforttolearnhowtoworkwiththemilitary.

maranDMarandbeganitsmetalcuttingandtoolmakingintheautomotiveindustry,workinginitiallyforHoldensome40yearsago.directorandownerTonyellulnotesthat“[t]heknowledgeandexpertisefromcarenginemanufacturinghasdirectlyledandallowedustocompeteandprosperinotherindustriesrecently,suchasaerospaceandrail”.

Marandhasdevelopedandretainsits‘precisioncapability’,andthatispartofwhatspillsoverintootherindustriesandspursgrowth.Maranddevelopsproprietaryknowledge,firstandforemostinautomotive,andthentransfersthisintootherindustriesandactivitystreams.ithasnowmaturedtothepointwherespilloversarealsoflowingbackintoitsautomotiveindustryworkfromitsnewerbusinesses.

Spillovers

Railindustryspillover

Railwasthefirstexampleofa‘new’industryMarandenteredbasedonitsexpertisedevelopedintheautomotiveindustry.Maintenancesupportofrollingstockisasubstantialtask,requiringlargepiecesofcomplexequipment.Marandcreatedasubsidiary,AtlasRail,whichdesigns,manufacturesandinstallscommissionssuchasmaintenancesystems.Thesesystemsofequipmentusedtobeimported,leadingtoenormouseconomicvaluederivedfromimportreplacement.MarandhasclientsalloverAustralia,


includingQueenslandRail,BHpBilliton,RioTintoandFortescue,whicharealloperatorsofrailsystems.

Tonyellulnotes,“Ourabilitytocreatetherailbusinessescamedirectlyfromourknowledgegainedinautomotiveovertheyears”.Railcustomersarenowwantingnotjustthehardware,but‘fullturn-keysolutions’,andMarandisnowusingitsknowledgegainedfromtheautosectortoimplementleanoperationsinmaintenanceforminingclients,whichisanotherclearformofknowledgespillover.AtlasRailhascreatedjobs,value-addedandlocalisedwhatwaspreviouslyimportedexpertiseandequipment.

Marandhasalsosoldtheseequipmentandmaintenancesystemsintopassengerrailnetworks,forexampleinnewSouthWales.Thisbusinesshasalsodevelopedfurtherbywinningordersfromlightrail,andtramsoperatorcustomers.

Aerospacespillover

diversificationwasadeliberatebusinessstrategyforMarand,becausetheautomotiveindustryinAustraliais‘lumpy’forprecisiontoolmakingcompanies.Marandtookitscapabilitytootherindustriessuchasaerospace,andinthepastfiveyears,MarandhasbecomeaTier1suppliertoBoeinginAustralia.TonyellulhastakenseniorBoeingexecutivestovisitFordinAustraliatoclearlydemonstratefirsthandhowsmoothlyworkcanflow,usingequipmentbuiltbyMarand.MarandnowhascontractswiththeJointStrikeFighterformaintenanceequipmenttoolsandsystems.ThereisamultimillionsystembeingusedontheJointStrikeFighterprototype.MarandisalsonowaTier1suppliertoLockheedintheUnitedStates.discussionsareunderwaytolockinalong-termcontract(until2036).ThiswouldmeanestablishingfacilitiesintheUnitedStatesandeuropeandbecomingaglobalsupplier,basedontheexpertisegeneratedintheautomotivesectorthatexistsinitsMoorabbinfacility.duetoitssuccesswiththeJointStrikeFighterprogram,plansanddiscussionsareunderwayforMarandtoparticipateintwootherprogramsintheaerospacesectorincludingwork:

withandforBoeing,withassistancefromthe�OfficeofAustralianindustryCapability,whichinvolvesMarandexploringnewdevelopments;and

witheAdS(Airbusandeurocopter),whichis�developingasimilarprogramofworkingwithaglobalcorporateprocurementteamtobuildopportunity.

AccordingtoTonyellul,“[a]llthiswasbasedonautomotivederivedcapability”.TenyearsagoMarandwasan85percentautomotivesectorsupplier.Thisreducedto45percentin2008,duetospilloversandgrowthinotherindustries.

peopleandtraining

Marandhasanapprenticeprogram,andknowledgespilloveroccurswhensomeoftheseapprenticeseventuallyleaveandsetupbusinesseselsewhere.HolmesglenTAFeteachershavebeenstationedatMarandtolearnanddevelopcourses.

Marandalsohasagenciesitoperatesforimportedequipment,inwhichknowledgegainedfromautomotiveworkisappliedtootherindustries,includingfood,plastics,construction,buildingmaterials,timber,androboticsapplicationselsewhere,allbasedontheautomotivecore.Asanagentofforeignmanufacturers,Marandhasuseditsexperiencewiththatequipmentgainedfromtheautomotivesector,tothenfindapplicationsandsalesandservicecontractsinthoseotherindustries.inotherwords,justasMarandspillsoveritsapplicationofproprietaryknowledgeontheproductsthatitdesignsandproducesinhouseandthroughitssupplynetwork,sotoodoesitworkthiswayin(spilloversfrom)third-partyequipmentmadeoverseas.

MarandpointsoutthatitisbecauseofthesmallautomotiveindustryinAustraliathatfirmssuchasMarandmustdiversifytosurviveandprosper.AlargeautomotiveindustrysuchasJapan’sallowsfirmstogrowandberobustjustbysupplyingautomotivecustomers,butthisisnotthecaseforAustralia.Marandfrequentlyusessubcontractors,anditclaimsthattheskillsandknowledgethatitpassesontoitsmanysubcontractorsalso‘spillover’intoothersectors.

ArecentspilloveratMarandisprojectmanagementandprogrammanagementknowledge,whichwasfirstgainedintheautomotivesector.Marandcananddoesnowworkinotherindustriesusingthisexpertise.ThisskillallowsittomovefromTier1statusintheautomotivesectortobecomeTier1intheJointStrikeFighterprogram,andothersimilarprojects.italsogivesMarandtheprogrammanagementcapabilitytobuildTier2networksinaerospaceasithadlearnedtodointheautomotivesector.

Benefitsfromspillovers

ThesespillovershavebeenanintegralpartofastoryofgrowthandprofitforMarand.inthepast10


yearsthecompanyhasgrownfrom75peopleand$8.5millionturnoverwithnoexportsand85percentautomotiveindustrywork,tobemuchlargerandstronger.itfirstbecameaTier1suppliertoFord.Asasystemintegrator,Marandproducedtotalturn-keydesignandintegrationforFord,Barra,OrionandTerritorymodelsinrecentyears.By2007Marandhad195employees,with$50millionturnoverofwhich45percentisautomotiverelated.Marand’sexportsare25percentofitsbusinessandgrowing.itisalsoaprofitablebusiness.

Thisstrongperformancehascomefromachangeofstrategyinthepastdecade,fromaninternalfocustoawidernetworkofTier2and3supplychainpartnerssupplyingvariousMarandcustomers.Thisisanotherformofspillover,tocreate,buildandstrengthenothercompaniesupthesupplychain,throughautoandotherwork.Marandhelpsthesepartnersinwin-winrelationships,throughknowledgeandskillsgainedbythecompany.About100peopleinothercompaniesareworkingdirectlyonMarandcontracts.

insummary,spilloversatMarandhavebeenakeysourceofgrowth,suchthat70percentofitsbusinessservicesandproductscomefromnewofferingsthatitdidnothavewhenitwasapureautomotiveindustrysupplieradecadeago.Thishasbeenbasedoncorecapabilitiesofflexibilityandinnovation.

ozPressOzpresscommencedoperationasK&KFastenersin1970inaconvertedparachute-dryinghutattheBallaratairport.duringtheearly1970sthebusinessexpandedandspreadintoanadjoiningaircrafthangar,whichhousedtheindustrialmetalpresses.Thedemandsofinternationalcompetitivenesssawthebusinessrelocatein1989tothecurrentfacilityattheWendoureeindustrialestate.Throughthemid-2000s,thecompanywasintwolinesofbusiness–pressingsandwiringloomsfortrucks.Thebusinessgrew,butOzpressstartedtolosethewiringloomwork(presumablytooverseascompetitors).Afterachangeintheownershipstructurein2005,itstartedtotradeasOzpressptyLtdandmovedexclusivelytopressing,weldingandsmallassemblies.Thecompanycurrentlyemploys29people,ofwhom23workinproduction.

Clients

Thecompanyhasfourmajorclientsandanumberofminorones.Fifty-sixpercentofitsworkisdirectlyforToyota(thatis,asaTier1supplier).ithasbeen

withToyotaeversinceToyotastartedproducinginAustralia.

FifteenpercentofOzpress’sworkisfordanaptyLtd,and9percentisforCooperStandard(Australia)ptyLtd.danaproducesdrivetrainsubassemblies(thatis,axles,differentials,suspensionmodules),andCooperStandardmanufacturesvehiclecomponents,particularlylubricationsystems,noisecontrolandvibrationsystems,andotherbodyandchassisproducts.Forthesecompanies,Ozpressprovidespressingsthatarethenincorporatedintolargerassemblies.dana,CooperStandard,andothersub-assemblymanufacturershavepressingoperationsoftheirown.Ozpresshopestoexpanditsbusinessbytakingthisworkoverfromthem,sotheycanfocusonassembly.

FourteenpercentofOzpress’sworkisforVictaLawncareproducts,principallymakingpartsforlawnmowers.Victausedtopressitsownpartsinhouse,andthendecided,inabout1999,tooutsourcethework.Ozpressreceivedcontractsforanumberofthesmallparts,whilethelargerpartswenttoothermanufacturers,suchasG&A.L.Harrington.Aswiththeautomotivework,mostofOzpress’sworkisonpressingsandsmallweldedassemblies(forexample,asinglenutweldedonapressedplate).MostofOzpress’sworkisforhigh-endmachines(suchasride-onmowers).

Theremaining6percentoftheworkfallsintotwogroups.Abigpartofitispartsandaccessories,generallyfortheautomotiveindustry.Typicallythisinvolvespressingasmallnumberofunitsofapartthatthecompanyhaspressedinthepast–foravehiclemodelthatisnotmanufacturedanymore.TheremainderissmallrunsforsomenicheclientssuchasHella(vehiclelights)andStratco(footingplatesforoutdoorpergolas).Thecompanyisalsolookingtoexpandintootherindustries,particularlypartsformineralsprocessingequipment.

Workprocess

AtypicaljobwillbeginwhenOzpressiscontractedbyaclienttomanufactureapart.TheclientwillprovideOzpresswithadrawingandaspecification.Ozpresswillthenapproachatoolmaker(itscurrenttoolmakerisinChina),whowillmakeatoolthatcanbeusedtomanufacturethepart.Thattoolwillbethepropertyoftheclient,notOzpress.However,Ozpresswillberetainedtousethattooltostampoutthedesignatedpartforaslongastheclientwants(generallyforthelifeoftheproduct).


Thecompanygenerallywinscontractsforoneortwonewpartseachyear.inarecentFordmodel,thecompanywasaskedtoproducefourdifferentpartsforsupplytoCooperStandard.Thecompanyproducesover30partsforthecurrentToyotaCamryandAurion.

Knowledgespillovers

OneofthemainknowledgespilloversisfromtheautomotiveworktotheworkforVicta.inthenarrowsense,alltheworkforVictaispredicatedonautomotivework,inthattheyusethesamebasictechnologyforbothindustries,andwereintheautomotivesectorfirst.Withouttheautomotivework,thecompanywouldnotbeviable.

Morebroadly,thecompany’srelationshipwithToyotahasmeantthatitsqualityandefficiencyareconstantlyimproving.itappliesthesameefficiencyandqualityimprovementtechniquestoitsVictawork,andinsodoing,reducescostandincreasesqualitytheretoo.OzpressusestheToyotaproceduresfortheVictaworkfortworeasons.First,itmeansithaslowercostandhigherquality.Second,itmeansOzpresshasconsistencyinoperationsandmanagementthroughoutthecompany.

OneareawhereOzpresshasimproveddramaticallyisinthecommissioningofnewparts.inthepast,Ozpresswouldbesentadesignfromthetoolmaker,inordertomakesometrialparts.ifthepartswereoutofspecification,Ozpresswouldtinkerwiththetooluntiltheywerewithinspecification,andthenitwouldacceptthattoolandbeginproduction.Suchatool,however,wouldbe‘buggy’.Thatis,itwouldhavedefectswhichmeantthatitgenerateddifficultiesinmanufacturingortheoccasionalout-of-specificationpart.

incontrast,intheToyotasystemtheprojectismanagedmorecarefullyandsystematically,fromconceptdesign,totooling,totheprocedureforrunningthenewtool.everytoolgoesthroughthreetesting(andmodification)phasestomakesureitisright,includingrunningitatthefullproductionrateforaperiod.Consequently,whenthepartgoesintoscaleproduction,itcanreliablyproducetothespecificationforlongperiodsoftime.TheseskillsgainedfromtheToyotaproductionsystemhavegivenOzpressthenecessarycapabilitytomakehigh-qualitytoolsfromconcepttoproduction.Theseskillscanbeappliedinothernon-automotivesectorsinwhichOzpressoperates.

Moregenerally,ToyotagivesOzpresscostandqualitytargetsandthenteachesittoolsandtechniquestomeetthem.Thosetoolsandtechniquesarespreadthroughoutthebusiness.

Athirddomainforknowledgespilloversisthroughtheirsuppliers.Thecompany’smainsuppliersareToyotaTsusho(steelandnuts),excellentplatingandAllianceelectroplaters(paintingandcoating),Coldforgeproducts(rivetsandbolts),anditstoolmaker.WiththeexceptionofAllianceelectroplaters,Toyotadoesnotinteractwiththesuppliers.Rather,itsimplyexpectsOzpresstoensurethatitsstandardsaremet.Theeffect,however,isthatOzpressteachesitssuppliersabouttheToyotaproductionsystem.inthecaseofAlliance,Toyotaisveryconcernedaboutenvironmentalemissionsfromelectroplaters,andsoithasanongoingaccreditationprogram,eventhoughitisasecond-tiersupplier.

Anotherdomainforknowledgespilloversisthroughplantvisitsfromothercompanies.Theyhaveoneortwoayear.Forexample,in2008agroupof17peoplefromtheTasmanianFoodAssociationcamethrough,broughtbytheTasmanianGovernmentandtheVictorianinnovationinsightsprogram.Visitorsincludedrepresentationsfromapotatochipmanufacturerandanabattoir.OzpresswasabletodemonstratetheskillsthatToyotahastaughtsothevisitorscouldgetideasfortheirownplants.in2007,ithadagroupthroughaspartofmanufacturingweek.

Thecompanyhasjoinedabenchmarkinggroupthatprincipallyinvolvesminingsuppliers.Thegroupaimstotravelsoverseastolookatothercompaniesandfacilitateknowledgetransferbetweenparticipantsonthosetrips.

the university of melBourne DePartment of mechanical enGineerinGTheprincipalintervieweeforthiscasestudywasdrMichaelBrear,whoisaseniorlecturerinthedepartmentofMechanicalengineering,whereheisinvolvedinteaching,researching,andconsultingintheareasofthermodynamicsandfluidmechanics.Thedepartmentundertakesarangeofconsultancyworkfortheautomotiveandothermanufacturingindustries.Anothergroupinthedepartmentalsodoesresearchwithintheautomotivesector,focusingonthedynamicsofmechanicalsystems.inparticular,theyhavedonealotofworkonautomotivebraking.Moregenerally,thedepartmenthasdepthinthetraditionalareasofmechanicalengineeringincluding


dynamics,fluidmechanicsanddesign.itdoesnothavemuchdepthinproductionengineering,industrialengineeringandsupplychainmanagement.

SpilloversfromthedepartmentofMechanicalengineeringoccuronthreelevels.Atthefirst,thedepartmentteachesstudentsfundamentalanalyticcapabilitiesthatareindependentofthedomainofstudy.Forexample,undergraduatestudentslearnhowtoanalyseproblemssystematically.postgraduatestudentslearnhowtodesign,carryout,andwriteupexperiments.Atthesecondlevel,therearespilloverswithinthespecificdomainofstudy.Thatis,thebasicengineeringprinciplesofthermodynamicsandfluidmechanicsarefundamentallybuiltfromthelawsofphysics.Thoseprinciplesfinduseoutsidetheautomotivesector.Atthethirdlevel,thereareparticulartechnicalartefactsandtechniquesproducedfortheautosectorthathaveapplicationinotherdomains.

Level1spillovers–spilloversofgenericengineeringskills

Thesespilloversarisebecausetheautomotiveindustryprovidesausefulcontextforstudyingthermodynamicsandfluidmechanics.Thetheoryisgenerictomechanicalengineering,andsoisnomorespecifictotheautomotivesectorthantoanyothersectorthatmightinformtheworkofthedepartment.However,thefactthatthereisalocalautomotivesectormeansthatthefacultyareabletomakethetheorymeaningfulforstudentsinmanyways–particularlybybringinginexamplesfromtheirresearchandconsulting,andbyholdingupthecarrotofpossibleemployment.Further,thelocaloriginalequipmentmanufacturerstakeonundergraduatestudentsforso-called‘co-op’yearsinwhichstudentstakeayearoutfromtheirstudiesandworkfulltimewithinthecompanywithequivalentresponsibilitiesasgraduates.Thisprogramhasprovenverysuccessfuleducationallyforthestudentsanduniversities.Theimportantthingsstudentslearnaregenericskills.Theytakethemwiththemwherevertheygetwork.Forexample,manystudentsgotoworkinbankingandfinancialservicesormanagementconsultinginadditiontotraditionalengineeringdisciplines.

Level2spillovers–spilloversofthermodynamicsandfluidmechanics

Becauseofthestrongresearchandconsultinglinkstotheautomotivesector,thesectorinformsbothundergraduateandgraduatetraininginthermodynamicsandfluiddynamics(inthecaseoftheinterviewee’sresearchgroup)anddynamicsof

machines(inthecaseoftheotherresearchgroup).Thefacultyandstudentsthendevelopexpertiseinthermodynamicsandfluidmechanics(ordynamicsofmachines)andcanapplythemtoanyengineeringproblemthatisrelevant.

Forexample,thegroupthatdoesresearchonautomotivebrakinghasrecentlybeenconsultingtoandresearchingwithprecisionmachinetoolmanufacturers.Thefacilitiesandcapabilitiesdevelopedbythegroupwhileundertakingautomotiveresearchandconsultinghasbeenenablingitsresearchandconsultingtotheseotherindustries.

Similarly,thebasicprinciplesoffluidmechanicsandthermodynamicsareoffundamentalimportancetoallaspectsofcombustion.Assuch,studentsofthermodynamicsandfluidmechanicscanapplywhattheylearntopowergenerationtechnologiessuchasgasturbines,boilers,windturbinesandsolarcollectors.Similarly,theycanusethislearninginallaspectsoftransportationincludinginternalcombustionenginedesign(petrol,diesel,hydrogen,naturalgas),jetenginedesignandhybridpowersystems.So,forexample,recentconsultingclientsofthedepartmenthaveincludedamanufacturerofsmalljetengines,atruckmanufacturer,andchemicalengineerswhowantedtomakegasolinefrommethane,andwantedtogenerateelectricityfromtheprocess.

Thesespilloversalsotakeamuchmoreconcreteform,asspilloversofspecifictechnologieswithintheresearchlaboratory.inparticular,thesoftwareorhardwaretoolsmightbedevelopedorpurchasedforautomotivework,andthenusedinresearchforotherareasofappliedthermodynamicsandfluidmechanicssuchasgasturbines.

Level3spillovers–specificartefacts

Thesespilloversinvolvethecreationofspecificartefactswithintheautomotivesector,andthentheirapplicationtoothersectors.Theyfallintotwosubcategories.Thefirstgroupinvolvesdomainsinwhichthebasicengineeringdisciplinesapply,butinwhichtheautomotivesectorisaheadofothersectors.Forexample,automotiveenginedesigners,whoaretrainedbytheuniversity,canapplytheirextensiveexperienceofmakingproductscheaplyandreliablyintosectorssuchasaerospace,wheretraditionallytheengineeringismorefocusedondeviceperformanceratherthandeviceperformanceforagivencost.Justasroadvehiclesarebecomingmoretechnologicallyadvanced,sotooareaircraftbeingforcedtobecomecheaperandlighterbecause


ofcompetition,andthespilloverbetweentheseindustriesisoftentwo-way.inasfarasanothersectorfindsthereisneedforthesecapabilities,thenknowledgecanbeexpectedtospilloverfromtheautomotivesectortotheothersector.

Thesecondgroupinvolvesthetransferofspecificartefactsfromtheautomotivesectortoothersectors.Forexample,becauseofthecompetitivepressure,andtheamountofengineeringeffortthatgoesintotheirdesign,automotiveenginesareverywellengineeredandveryefficient.CertainAustralian-builtengines,whiletooheavytoenablelowerfuelconsumptionforpassengervehicles(becausetheyhavecastironblocks)arenonethelessveryefficient,andthereforehavemanypotentialapplicationsasastationarypowersource.Assuch,theypotentiallyhaveenormoususeasstationaryenginesoutsideofvehicles.Anautomotiveenginecanbereconfiguredtoproduceabout30kilowattsofpowerveryefficiently;moreefficientlythan,say,gasturbines.Thisparticularspilloverhasnotoccurredextensivelyinthepastbecausevehiclemanufacturersgenerallybuildtheirenginesonlyforuseincars,andminimisationofgreenhousegasemissionsisonlynowbecomingastrongbusinessincentive.

Thereareanumberofapplicationsinwhichtheseenginesareeitherusedorcouldbeused.Forexample,insteadofrunningitsair-conditionerselectrically,ahospitalmightuseanautomotiveengine(runningnaturalgasorLpGasthefuel)torunthecompressorsinitsair-conditioningsystem.itcouldthencapturetheheatfromtheengineexhaust,andusethattoboilwaterandsoraisesteamforheatingoritslaundry.Thisapproachtoair-conditioninggeneratesmuchlowerlevelsofgreenhousegasesthanusingcentralisedpowerfromcoal-firedpowerstations,andmoregenerallyisreferredtoas‘cogeneration’.indeed,cogenerationisalreadybeingusedextensivelyineuropeandtheUnitedStatestoachievelargereductionsincarbonemissionsfromsuchapplications.

Thepotentialspilloverisenormous.Fivepercentoftheelectricityusedintheindustrialworldisusedtocompressair.Tento20percentofAustralia’sgreenhousegasemissionscomefromheating,ventilationandair-conditioningsystems.

|153

AppendixG:Comparative in-serviCe emissions testing

Vehicles FordFalconAU2001stationsedanbi-fuelretrofitventurigassystem.

Odometer95,000kilometres.

HoldenVSAcclaim1996sedanbi-fuelretrofitventurigassystem.

Odometer215,000kilometres.

Testcycleeuro3inbothcases(AdR79/01Type1test).

Fuelcommerciallyavailable.

Mechanicaltune:basiccheckfororiginalspecificationandfuelfunctionalityandoriginalexhaustcatalyststillretained.TestperformedinJune2008usinganationalAssociationofTestingAuthoritieslaboratory.

table g.1 Comparative in-service emissions test using aDr 79/01 cycle, ULp vs Lpg

Ford Falcon aU Futura wagon 4.0L sCt 269 odo 95,154

FUeL HC: g/km Co: g/km Co2: g/km nox: g/kmCombined cycle L/100

km

ULp 0.479 2.606 270.9 1.509 11.54

LpG 0.173 0.994 240.95 1.29 14.89

Holden vs acclaim sedan 3.8L pDt 166 odo 213,942

ULp 0.525 4.216 278.77 2.365 12.46

LpG 0.479 6.724 247.63 1.658 15.91

notes:

Allfuelsusedwerefromtheretailsector(standardpumpfuels).

Boththe2001AUFalconand1996VSCommodorewerefittedwithstandardfumigationsystems,parnell/iMpCO.

ToachieveadirectcomparisonthelatestAdR79/01testmethodwasused(euro3level).

Whenreviewingtheresults,bothvehiclespassedtheirrelevantAdRrequirementfortheirdateofmanufacturebutfailedcurrent79/01.

TheCO2gainswerebothover10%.

importanttonotethekilometresofbothvehicleshighlightingthebenefitsofolderinstallationsbeinginstalled.

Bothvehicleshavetheiroriginalcatalyticconverters.

nooptimisationwascarriedoutoneithervehiclepriortothetest.Bothvehicleshadmechanicalinspectionsensuringbothfuelselectionandvehicle/engineperformedsatisfactorily.

Source:LpGAustralia.

|155

AppendixH:Government fleet purchasinG arranGements

prefer aust. made?

target and date 8- cylinder

6- cylinder

4- cylinder

lpG hybrid other comment

australian Government

Yes increaseproportionoffleetvehicleswithscoresintophalfoftheGreenVehicleGuide(GVG)(10.5orgreater)from18%to28%

Queensland AnnualemissionsfromQFleetwillbereducedby:

15%byendof2010

25%byendof2012

50%byendof2017

Referredtoa30/6/2007benchmark.

Minimum5.5GVGgreenhouseratingforpassengervehicles.

Minimum3.5ratingforlightcommercial

Choiceofvehiclebasedonemissionsratherthannumberofcylinders.

proportionofdiesel,hybrid,microlightandsmallvehiclesinpassengerfleettoincreaseby50%

80%oflightcommercialfleetwillusedieselorLpG.

petrolvehiclestousee10whenavailable.

new south Wales

eachagencytoachieveanaveragescoreforitsvehiclesof12/20byendof2007–08.

20%reductioninemissionsby30June2008(2004–05baseline)

no,exceptinspecificcases

Atleast1%ofagencyfleettobehybrid

e10tobeusedwhereavailable

act 10%fleetwillcomprisefuelefficient,lowemissionsvehicles(fourstarorhigherinGVG)by2008.

no phasingout,unlessrequiredforspecificcases

preferred Hassmallfleet

156| ReVieWoFAUSTRALiA’SAUToMoTiVeindUSTRY

prefer aust. made?

target and date 8- cylinder

6- cylinder

4- cylinder

lpG hybrid other comment

victoria Yes Requiredfor>30,000km/year

Requiredfor>30,000km/year.

Committedtoafleetof150hybridvehicles

tasmania AllpassengervehiclestomeetGVGGreenhouseratingof5.5orbetterby2010.

Alllightcommercialand4Wdvehiclesmustmeetratingof3.5orbetterby2010.

south australia

Yes SATacklingClimateChangeStrategystatesthattheSAGovernmentwill“reduceemissionsfromthegovernmentvehiclefleetbyconverting50%ofstategovernmentcarstoloweremissionfuelsby2010;andreduceemissionsgeneratedbygovernmenttravelbyapplyinggreenhousefriendlycorporatetravelpoliciesforthelocationofgovernmentworkplaces,commuting,aircraftandtaxiuse,andvehiclesalarypackaging.”

TheClimateChangeandGreenhouseemissionsReductionAct2007alsosetsaSouthAustraliantarget“toreduceby31december2050greenhousegasemissionswithintheStatebyatleast60%toanamountthatisequaltoorlessthan40%of1990levelsaspartofanationalandinternationalresponsetoclimatechange”.

37%ofpassengerandlightcommercialvehiclesoperateonlower-emissionsfuels

Hassmallfleetofhybrids

Loweremissionfuelsincludeconventionalfuelsusedinefficientpowertrainssuchashybridvehiclesandhighefficiencycommonraildieselengines.

Western australia

no Allowedforspecificcases

preferred 25%of6-cyclindervehiclestobeonLpG

Willpurchasehybridfleet

Willusealternativefuelsinfleet

newstrategybeingdeveloped.

northern territory

Reduceemissionsfromgovernmentpassengerfleetby5%perkilometretravelledbyJune2007(2003–04levels)

|157

Appendixi:State and territory Stamp dutieS and regiStration feeS – indicative exampleS

Jurisdiction Stamp duty arrangement Stamp duty amount

initial registration (one year)

ctp insurance total cost (est.)

newSouthWales 3%ofthenewcarpriceincludingGSTupto$45,000and5%foranyamountthatisover$45,000

$900.00 $303.00 $334.00 $1,537.00

AustralianCapitalTerritory

3%ofthenewcarpriceincludingGSTupto$45,000and5%ofeachdollarover$45,000

$900.00 $264.50 $386.75 $1,551.25

Victoria 2.5%ofthenewcarpriceupto$35,000–4%ofthetotalnewcarpricewhenbetween$35,000and$45,000and5%ofthetotalnewcarpricewhenover$45,000

$750.00 $172.80 $391.60 $1,314.40

WesternAustralia 2.75%ofthenewcarpriceupto$15,000–aslidingscalebetween$15,000and$40,000from2.75%to6.5%,and6.5%foreverydollarover$40,000

$1,275.00 $259.60 $225.23 $1,759.83

Tasmania 3%ofthenewcarpurchasepriceupto$35,000,11%foreverydollarbetween$35,000and$45,000and4%foreverydollarover$45,000

$900.00 $230.45 $338.00 $1,468.45

Queensland 2%ofthepurchasepriceforhybrids,3%for4cylindervehicles,3.5for6cylindervehiclesand4%forV8sandabove

$900.00 $272.05 $285.20 $1,457.25

Queensland(basedonanew$30,000ToyotaCamryHybrid)

2%ofthepurchasepriceforhybrids

$600.00 $163.95 $285.20 $1,049.15

northernTerritory 3%ofthenewcarpriceincludingGST

$900.00 n/a $426.30 $1,326.30

SouthAustralia $60forthefirst$3,000ofthenewcarpurchaseprice,and4%ofthetotaldollaramountexceedingthe$3,000

$1,140.00 $113.00 $371.00 $1,624.00

nationalaverage $958.13 $230.77 $344.76 $1,533.66

notes:

Tablebasedonanew$30,000passengermotorvehicle,4-cylinder,under1.5tonnes,andpurchasedfornon-commercialpurposes.

insurancepremiumswereprovidedbytherelevantauthorityineachstateorterritoryandarebasedonanewCommodore,garagedinthecapitalcity,withadriveraged40yearsasat1October,2006.

initialregistrationincludesmandatorycostssuchastransactionfees,vehicleinspectionsandlicenceplates.

|159

AppendixJ:KEY AUTOMOTIVE STATISTICS

ThisAppendixcontainsextractsfromKeyAutomotiveStatistics,publishedannuallybythedepartmentofinnovation,industry,ScienceandResearch.itcanbeviewedatwww.innovation.gov.au/industry/Automotive/pages/Automotiveindustry.aspx.

Motor vehicle sales in australia

Table J.1. New motor vehicle sales in Australia, 1994 to 2007

Year Passenger Light trucks/ SUVs Heavy trucks Total

Units (%) Units (%) Units (%) Units (%)

1994 460,698 74.8 137,252 22.3 18,336 3.0 616,286 100

1995 488,372 76.0 136,449 21.2 17,736 2.8 642,557 100

1996 492,058 75.7 142,830 22.0 15,161 2.3 650,049 100

1997 540,353 74.8 165,711 22.9 16,578 2.3 722,642 100

1998 584,360 72.4 203,941 25.3 19,368 2.4 807,669 100

1999 547,575 69.6 218,848 27.8 20,422 2.6 786,845 100

2000 553,673 70.3 213,571 27.1 19,856 2.5 787,100 100

2001 529,452 68.5 224,270 29.0 18,959 2.5 772,681 100

2002 540,240 65.5 262,937 31.9 21,132 2.6 824,309 100

2003 588,511 64.7 297,167 32.7 24,133 2.7 909,811 100

2004 589,985 61.8 336,763 35.3 28,481 3.0 955,229 100

2005 608,804 61.6 348,170 35.2 31,295 3.2 988,269 100

2006 598,394 62.2 332,638 34.6 31,634 3.3 962,666 100

2007 637,019 60.7 375,732 35.8 37,231 3.5 1,049,982 100

Source:VFACTS,retailsales

160| ReVieWoFAUSTRALiA’SAUToMoTiVeindUSTRY |161KeYAUToMoTiVeSTATiSTiCS

Table J.2. Total market share, by marque in Australia, 1994 to 2007

Marque Market share (%)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Toyota 20.6 18.8 18.6 17.4 19.6 19.5 20.2 18.3 19.2 20.5 21.1 20.5 22.2 22.5

Holden 18.8 19.2 19.2 16.6 19 19.7 19.7 21.4 21.6 19.3 18.6 17.7 15.2 14

Ford 20.3 21.5 20.3 18 15.9 16.1 14.5 13.8 13.2 13.9 14.2 13.1 11.9 10.3

Mazda 5 4.4 4.1 4.3 3.4 3.4 3.5 4.4 4.7 5.8 5.8 6.7 6.6 7.4

Mitsubishi 12.2 10.1 9.4 11.4 10.4 8.9 9.3 8.8 8.2 8 6 5.8 5.6 6.2

Honda 2.6 2.2 2.5 2.4 3.2 3.6 3.8 2.7 2.9 3.4 3.8 4.8 5.6 5.8

Nissan 4.1 3.7 3.9 4.5 5.7 6.2 5.8 5.6 6.1 6.4 6.7 5.7 5.5 5.7

Hyundai 4 5.4 7.5 8.3 7.1 6 5.8 5.2 4.1 3.4 4.5 4.9 4.8 4.8

Subaru 1.4 1.2 1.3 2 2.5 3.2 3.4 3.5 3.4 3.3 3.5 3.6 3.9 3.7

Other 11 13.5 13.2 15.1 13.2 13.4 14 16.3 16.6 16 15.8 17.3 18.7 19.6

Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Source:VFACTS,retailsales


Tabl

e J.

3. S

ales

vol

ume

and

mar

ket s

hare

in A

ustr

alia

, by

mar

ket s

egm

ent,

2000

to 2

007

2000

2001

2002

2003

2004

2005

2006

2007

Mod

el li

neU

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)

Pass

enge

r

Ligh

t89

,977

11.4

66,9

428.

766

,235

876

,716

8.4

83,9

448.

895

,890

9.7

116,

086

12.1

127,

891

12.2

Smal

l15

4,05

019

.616

2,04

621

164,

943

2017

5,65

119

.318

1,16

019

218,

013

22.1

219,

358

22.8

232,

388

22.1

Med

ium

40,6

285.

237

,387

4.8

38,9

514.

747

,164

5.2

49,9

835.

286

,234

8.7

87,6

249.

192

,579

8.8

Larg

e19

8,76

625

.319

0,30

324

.618

8,34

822

.820

3,52

422

.418

1,67

819

167,

381

16.9

136,

606

14.2

139,

677

13.3

Upp

erla

rge

6,82

30.

77,

334

0.8

9,34

60.

9

peo

ple

mov

ers

11,7

361.

512

,140

1.6

12,7

911.

611

,852

1.3

15,2

321.

615

,738

1.6

15,4

421.

616

,202

1.5

Spor

ts9,

544

1.2

8,82

01.

113

,988

1.7

10,1

751.

18,

903

0.9

18,7

251.

915

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1.7

18,9

361.

8

pre

stig

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3.8

22,7

732.

924

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329

,167

3.2

37,0

793.

9

Luxu

ry19

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2.5

29,0

413.

830

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3.7

34,2

623.

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,006

3.4

Tota

l pas

seng

er55

3,67

370

.352

9,45

268

.554

0,24

065

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8,55

164

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9,98

561

.860

8,80

461

.659

8,39

462

.263

7,01

960

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Ligh

t tru

cks

Ligh

tbus

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619

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70.

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Vans

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SUVs

105,

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116,

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59,5

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270

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7

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50,6

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90.

195

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747

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1,53

20.

21,

494

0.1

Tota

l lig

ht tr

ucks

213,

571

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2926

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8,17

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235

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110

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00.

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585

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881.

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312

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12,2

921.

315

,370

1.5

Bus

es1,

125

0.1

746

0.1

615

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589

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838

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925

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Tota

l hea

vy tr

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19,8

562.

518

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2.5

23,6

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TOTA

L VE

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787,

100

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r‘u

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ce:V

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ehic

ler

etai

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Tabl

e J.

4. S

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vol

umes

and

seg

men

t sha

res

of lo

cally

pro

duce

d an

d im

port

ed p

asse

nger

mot

or v

ehic

les,

by

mar

ket s

egm

ent,

2000

to 2

007a

2000

2001

2002

2003

2004

2005

2006

2007

Mod

el li

neU

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)

Ligh

t and

sm

all s

egm

ents

Loca

llyp

rodu

ced

00

00

00

00

00

00

00

00.

0

impo

rts

244,

027

44.1

228,

988

43.3

231,

178

42.8

252,

367

42.9

265,

104

44.9

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51.6

335,

444

56.1

360,

279

56.6

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l lig

ht/s

mal

l24

4,02

744

.122

8,98

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2,36

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0,27

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ry4

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25,1

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518

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864.

524

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424

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820

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3.8

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153.

421

,903

3.7

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lmed

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40,6

287.

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192,

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l lar

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8,34

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3,52

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1,67

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54,

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Mon

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62,

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42,

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ce:V

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ler

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es


Tabl

e J.

5. N

ew p

asse

nger

mot

or v

ehic

le s

ales

vol

umes

and

mar

ket s

hare

s in

Aus

tral

ia, b

y ve

hicl

e an

d pu

rcha

ser

type

, 200

0 to

200

7

2000

2001

2002

2003

2004

2005

2006

2007

Segm

ent

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Uni

tsSh

are

(%)

Flee

t PM

V sa

lesa

Sm

alls

egm

entb

53,6

099.

764

,978

12.3

76,1

7414

.174

,234

12.6

78,0

7213

.289

,647

14.7

105,

484

17.6

116,

054

18.2

Med

ium

seg

men

t20

,041

3.6

17,6

063.

314

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2.7

19,5

473.

322

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3.7

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740

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6.8

45,5

567.

2

Lar

ges

egm

ent

150,

769

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144,

924

27.4

144,

099

26.7

159,

346

27.1

144,

964

24.6

126,

712

20.8

104,

871

17.5

101,

521

15.9

oth

erc

30,6

325.

534

,236

6.5

39,2

777.

340

,531

6.9

42,3

147.

240

,124

6.6

17,0

202.

821

,851

3.4

Tota

l flee

t PM

V sa

les

255,

051

46.1

261,

744

49.4

274,

081

50.7

293,

658

49.9

287,

410

48.7

279,

154

45.9

268,

287

44.8

284,

982

44.7

Pri

vate

PM

V sa

les

Sm

alls

egm

ent

190,

418

34.4

164,

010

3115

5,00

428

.717

8,13

330

.318

7,03

231

.721

6,40

835

.522

9,96

038

.424

4,22

538

.3

Med

ium

seg

men

t20

,587

3.7

20,6

873.

924

,420

4.5

27,6

174.

727

,923

4.7

29,1

624.

846

,712

7.8

47,0

237.

4

Lar

ges

egm

ent

47,9

978.

745

,379

8.6

44,2

498.

244

,178

7.5

36,7

146.

226

,532

4.4

31,7

355.

338

,156

10.8

oth

er39

,620

7.2

37,6

327.

142

,486

7.9

44,9

257.

650

,906

8.6

57,5

489.

521

,700

3.6

22,6

333.

6

Tota

l pri

vate

PM

V sa

les

298,

622

53.9

267,

708

50.6

266,

159

49.3

294,

853

50.1

302,

575

51.3

329,

650

54.1

330,

107

55.2

352,

037

55.3

Tota

l PM

V sa

les

553,

673

100

529,

452

100

540,

240

100

588,

511

100

589,

985

100

608,

804

100

598,

394

100

637,

019

100

not

e:

a.in

clud

ess

ales

top

riva

teb

usin

esse

san

dgo

vern

men

t.b.

Sm

alls

egm

enti

nclu

des

light

and

sm

allv

ehic

les.

c.

oth

erg

roup

com

pris

esp

eopl

em

over

s,s

port

s,p

rest

ige

and

luxu

ryv

ehic

les.

Sour

ce:V

FAC

TS,v

ehic

ler

etai

lsal

es


Table J.6. SUV, light truck and heavy truck sales volumes and market shares in Australia, by marque, 2003 to 2007

Marque 2003 2004 2005 2006 2007

Units Share (%)

Units Share (%)

Units Share (%)

Units Share (%)

Units Share (%)

Toyota 83,765 26.1 93,510 25.6 92,579 24.4 99,072 27.2 102,324 24.8

Ford 37,103 11.5 51,100 14 58,149 15.3 47,966 13.2 48,794 11.8

Nissan 37,364 11.6 38,818 10.6 35,929 9.5 39,890 11 45,225 11.0

Holden 42,852 13.3 53,172 14.6 51,634 13.6 38,119 10.5 41,832 10.1

Mitsubishi 23,887 7.4 24,062 6.6 28,520 7.5 26,471 7.3 37,277 9.0

Subaru 17,167 5.3 18,510 5.1 18,424 4.9 19,447 5.3 19,967 4.8

Mazda 13,085 4.1 12,546 3.4 11,436 3 10,085 2.8 19,781 4.8

Honda 10,685 3.3 9,450 2.6 9,673 2.5 10,627 2.9 12,646 3.1

Other 55,392 17.4 64,076 17.5 73,121 19.3 72,595 19.9 85,117 20.6

TOTAL 321,300 100 365,244 100 379,465 100 364,272 100 412,963 100.0

Source:VFACTS,vehicleretailsales


Tabl

e J.

7. S

UV

and

truc

k sa

les

volu

mes

and

seg

men

t sha

res

in A

ustr

alia

, by

mod

el, 2

001

to 2

007

2001

2002

2003

2004

2005

2006

2007

Mod

el li

neU

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)

SUVs

and

ligh

t tru

cks

Ford

Ter

rito

rya

00

00

00

13,5

834

23,4

546.

718

,364

5.5

17,2

904.

6

Ford

Fal

con

utili

tya

16,9

557.

617

,883

6.9

20,2

126.

820

,123

618

,384

5.3

15,8

584.

813

,758

3.7

Hol

den

Adve

ntra

a0

00

00

02,

500

0.7

3,15

30.

92,

543

0.8

655

0.2

Hol

den

utili

ty4

x2a

11,1

735

13,7

915.

317

,211

5.8

20,8

136.

218

,877

5.4

13,3

774

11,5

113.

1

Hol

den

utili

ty4

x4a

00

00

00

1,55

90.

51,

325

0.4

697

0.2

90.

0

oth

er19

6,14

287

.522

8,78

387

.825

9,74

487

.427

8,18

582

.628

2,97

781

.328

1,79

984

.733

2,50

988

.5

Tota

l lig

ht tr

ucks

224,

270

100

260,

457

100

297,

167

100

336,

763

100

348,

170

100

332,

638

100

375,

732

100.

0

Hea

vy tr

ucks

3.50

1 –

7.5

tonn

es

Mits

ubis

hiC

ante

rb1,

322

17.4

1,27

812

.11,

391

16.4

1,72

718

2,05

718

.41,

791

15.6

1,95

515

.5

oth

er6,

276

82.6

9,29

187

.97,

089

83.6

7,85

882

9,13

481

.69,

697

84.4

10,6

2484

.5

3.50

1 –

7.5

tonn

es to

tal

7,59

810

010

,569

100

8,48

010

09,

585

100

11,1

9110

011

,488

100

12,5

7910

0.0

7.50

1 –

15 to

nnes

isuz

ub1,

670

42.9

1,80

941

.41,

881

38.9

2,31

138

.92,

785

39.8

2,58

136

.33,

121

37.3

Hin

ob1,

187

30.5

1,33

630

.61,

725

35.7

2,14

036

2,30

032

.92,

420

342,

725

32.6

Mits

ubis

hib

447

11.5

422

9.7

474

9.8

585

9.8

963

13.8

1,09

415

.414

5517

.4

oth

er58

815

.179

818

.375

715

.791

115

.394

413

.51,

021

14.3

1,05

612

.6

7.50

1 –

15 to

nnes

tota

l3,

892

100

4,36

510

04,

837

100

5,94

710

06,

992

100

7,11

610

08,

357

100.

0

Ove

r 15

tonn

es

inte

rnat

iona

la12

0.2

350.

413

0.1

790.

721

01.

720

31.

726

31.

7

Ken

wor

tha

678

10.1

1,31

916

.41,

658

16.2

2,28

918

.92,

283

18.6

2,05

316

.72,

757

17.9

Mac

ka71

510

.669

78.

690

98.

91,

076

8.9

1,12

39.

11,

082

8.8

1,33

98.

7

Volv

oa94

214

858

10.6

1144

11.2

1,16

49.

61,

137

9.3

1,13

89.

31,

383

9.0

Mits

ubis

hib

145

2.2

148

1.8

473

4.6

567

4.7

684

5.6

788

6.4

1059

6.9

Mer

cede

sb17

52.

627

93.

542

64.

242

23.

540

83.

334

52.

836

72.

4

oth

er4,

054

60.3

4,72

758

.65,

604

54.8

6,53

553

.96,

429

52.4

6,68

354

.48,

202

53.4

Tota

l ove

r 15

tonn

es6,

723

100

8,06

310

010

,227

100

12,1

3210

012

,274

100

12,2

9210

015

,370

100.

0


2001

2002

2003

2004

2005

2006

2007

Mod

el li

neU

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)U

nits

Shar

e (%

)

Bus

es

Volv

oa1

0.1

00

00

00

00

00

00.

0

oth

era

745

99.9

615

100

589

100

817

100

838

100

738

100

925

100.

0

Tota

l bus

es74

610

061

510

058

910

081

710

083

810

073

810

092

510

0.0

Tota

l hea

vy tr

ucks

18,9

59

23,6

12

24,1

33

28,2

81

31,2

95

31,6

34

37,2

31

TOTA

L24

3,22

9

284,

069

32

1,30

0

365,

044

37

9,46

5

364,

272

41

2,96

3

not

e:

a.A

ssem

bled

/man

ufac

ture

dlo

cally

b.

not

ass

embl

ed/m

anuf

actu

red

loca

lly

Sour

ce:V

FAC

TS,v

ehic

ler

etai

lsal

es

Tabl

e J.

7. S

UV

and

truc

k sa

les

volu

mes

and

seg

men

t sha

res

in A

ustr

alia

, by

mod

el, 2

001

to 2

007

(con

tinue

d)


Mo

tor

veh

icle

pr

od

uct

ion

in a

ust

ra

lia

Tabl

e J.

8. P

rodu

ctio

n of

loca

lly-m

ade

pass

enge

r m

otor

veh

icle

s, d

eriv

ativ

es a

nd S

UVs

, 199

7 to

200

7

Mod

el19

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

07

Ford

Fal

con

fam

ily to

tal

88,0

1083

,436

86,0

7285

,829

73,3

8883

,607

104,

990

92,7

4779

,595

60,8

4749

,701

dom

estic

mar

ket

84,1

5278

,345

80,4

1080

,890

68,7

6877

,382

97,0

6986

,389

73,9

7256

,470

46,1

59

expo

rtm

arke

t3,

858

5,09

15,

662

4,93

94,

620

6,22

57,

921

6,35

85,

623

4,37

73,

542

Ford

Ter

rito

ry to

tal

18,2

6628

,431

20,6

2318

,877

dom

estic

mar

ket

16,2

7423

,710

17,9

8816

,607

expo

rtm

arke

t1,

992

4,72

12,

635

2,27

0

Hol

den

Com

mod

ore

fam

ily to

tal

92,1

7411

6,55

611

7,47

612

5,60

012

9,66

514

3,16

115

3,32

116

5,25

215

1,90

112

5,85

510

7,79

5

dom

estic

mar

ket

89,4

8010

7,26

097

,401

98,8

2110

1,07

411

1,41

611

7,26

211

2,97

191

,710

79,8

2871

299

expo

rtm

arke

t2,

694

9,29

620

,075

26,7

7928

,591

31,7

4536

,059

52,2

8160

,191

46,0

2736

,496

Hol

den

Vect

ra to

tal

2,81

710

,122

7,55

1

dom

estic

mar

ket

2,37

57,

276

5,13

2

expo

rtm

arke

t44

22,

846

2,41

9

Mits

ubis

hi M

agna

fam

ily to

tala

59,2

7546

,506

34,7

6638

,451

43,5

0246

,437

34,7

6321

,418

18,6

7210

,493

10,3

21

dom

estic

mar

ket

41,5

7936

,957

24,7

9826

,415

24,2

8722

,387

24,7

7715

,893

16,1

7410

,438

10,0

74

expo

rtm

arke

t17

,696

9,54

99,

968

12,0

3619

,215

24,0

509,

986

5,52

52,

498

5524

7

Toyo

ta C

amry

fam

ily to

talb

57,5

8680

,609

85,0

4687

,916

91,7

8178

,790

106,

897

104,

864

105,

481

103,

619

111,

891

dom

estic

mar

ket

30,0

7746

,598

40,3

9233

,605

26,6

0828

,971

40,6

8539

,546

36,4

9226

,172

26,9

02

expo

rtm

arke

t27

,509

34,0

1144

,654

54,3

1165

,173

49,8

1966

,212

65,3

1868

,989

77,4

4784

,989

Toyo

ta A

valo

n to

tal

14,3

398,

838

7,75

66,

697

4,99

03,

741

dom

estic

mar

ket

13,8

058,

776

7,50

76,

697

4,99

03,

741

expo

rtm

arke

t53

462

249

00

0

Toyo

ta A

urio

n to

tal

7,99

137

,040

dom

estic

mar

ket

5,79

024

,351

expo

rtm

arke

t

2,

201

12,6

89

TOTA

L P

RO

DU

CTIO

N31

9,26

635

3,89

234

7,82

335

9,68

634

7,17

435

9,75

140

6,66

840

7,53

738

7,82

132

9,42

833

5,62

5

Dom

estic

mar

ket

267,

509

295,

503

264,

618

258,

668

229,

513

247,

663

286,

490

276,

063

245,

799

196,

686

195,

382

Expo

rt m

arke

t51

,757

58,3

8983

,205

101,

018

117,

661

112,

088

120,

178

131,

474

142,

022

132,

742

140,

243

not

e:

a.in

clud

esM

agna

,Ver

ada,

dia

man

tea

nd3

80m

odel

s.

b.p

rodu

ctio

nan

dex

port

figu

res

for

Toyo

taC

amry

incl

ude

‘com

plet

ely

knoc

ked

dow

n’u

nits

(una

ssem

bled

veh

icle

s).

Sour

ce:d

epar

tmen

tofi

nnov

atio

n,in

dust

ry,S

cien

cea

ndR

esea

rch

indu

stry

sur

vey


Table J.9. Value of production of locally-made passenger motor vehicles and derivatives, 1997 to 2007

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Production value ($b) 7.23 8.18 8.18 7.74 7.97 7.99 8.48 8.89 8.41 7.84 7.74

Source:departmentofinnovation,industry,ScienceandResearchindustrysurvey

Table J.10. Quality performance of locally-made PMVs, 2000 to 2006

Category Model Sample average faults per vehicle

2000 2001 2002 2003 2004 2005 2006

Medium ToyotaCamry(4) 0.7 0.9 0.8 0.8 0.6 0.7 0.5

Mediumcategoryaverage 0.8 0.8 0.7 0.6 0.6 0.6 0.5

Large FordFalcon 1.5 1.2 1.3 1.4 1.3 1.3 1

HoldenCommodore 1.1 1.1 1.2 1.2 1.3 1.2 1.2

ToyotaAurion n/a n/a n/a n/a n/a n/a 0.7

ToyotaCamry(V6) 1.1 0.7 0.9 0.8 0.7 0.8 0.6

Mitsubishi380 n/a n/a n/a n/a n/a n/a 0.6

ToyotaAvalon 1 1.4 0.7 0.9 1.1 1.1 n.a

MitsubishiMagna 0.9 1 0.9 0.9 1 0.7 n.a

Largecategoryaverage 1.1 1.1 1 1 1 1 0.8

note:Faultsdataderivefromresponsestosurveysofprivatenewcarbuyersinthefirstthreemonthsofownership.

Source:ACnielsen,2006newCarBuyerSurvey

Table J.11. Sales of components by Federation of Automotive Product Manufacturers member companies, 1997 to 2007

Year Domestic sales ($b) Export sales ($b) Total sales ($b) Annual growth (%)

1997 4.98 0.72 5.70 2.7

1998 5.10 0.75 5.85 2.6

1999 5.69 1.05 6.74 15.2

2000 5.28 1.17 6.45 -4.3

2001 5.31 1.18 6.49 0.6

2002 6.09 1.37 7.46 14.9

2003 7.02 1.31 8.33 11.7

2004 6.46 1.17 7.63 -8.4

2005 6.31 1.02 7.32 -4.0

2006 5.15 1.19 6.34 -13.4

2007 6.17 1.51 7.67 21.0

note:Salesfiguresareincurrentprices

Source:FederationofAutomotiveproductManufacturers


pr

ices

Tabl

e J.

12. Q

uart

erly

inde

x of

mot

or v

ehic

le p

rice

s, C

onsu

mer

Pri

ce In

dex

(CPI

) and

ave

rage

wee

kly

earn

ings

, 199

8 to

200

7

Year

Qua

rter

CPI (

all

grou

ps)a

CPI (

mot

or

vehi

cles

)a

Aver

age

wee

kly

earn

ings

b

AA

IR a

ffor

dabi

lity

inde

xc,d

Year

Qua

rter

CPI (

all

grou

ps)a

CPI (

mot

or

vehi

cles

)a

Aver

age

wee

kly

earn

ings

b

AA

IR a

ffor

dabi

lity

inde

xc,d

1998

Mar

ch12

0.3

111.

413

7.0

123.

020

03M

arch

141.

310

6.1

169.

015

9.3

June

121.

010

9.1

138.

012

6.5

June

141.

310

5.1

172.

916

4.5

Sept

embe

r12

1.3

106.

913

9.5

130.

5Se

ptem

ber

142.

110

4.6

174.

916

7.2

Dec

embe

r12

1.9

106.

014

1.1

133.

1D

ecem

ber

142.

810

3.8

177.

517

1.0

1999

Mar

ch12

1.8

105.

514

0.9

133.

520

04M

arch

144.

110

1.9

178.

717

5.3

June

122.

310

5.1

142.

113

5.2

June

144.

810

2.0

178.

617

5.1

Sept

embe

r12

3.4

105.

814

1.9

134.

1Se

ptem

ber

145.

410

0.2

181.

518

1.1

Dec

embe

r12

4.1

104.

114

4.7

139.

0D

ecem

ber

146.

510

1.7

184.

718

1.6

2000

Mar

ch12

5.2

104.

614

5.8

139.

420

05M

arch

147.

510

0.3

187.

918

7.2

June

126.

210

4.6

147.

714

1.2

June

148.

499

.219

0.3

192

Sept

embe

r13

0.9

102.

015

0.4

147.

5Se

ptem

ber

149.

899

192.

319

4.4

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Table J.13. Australian dollar value against selected international currencies, 1998 to 2007

Year Quarter Yen US Dollar Euro Won Year Quarter Yen US Dollar Euro Won

1998 March 86 0.67 n/a 1025 2003 March 71 0.60 0.55 722

June 86 0.63 n/a 865 June 77 0.65 0.56 780

September 83 0.59 n/a 783 September 76 0.66 0.58 769

December 74 0.62 n/a 781 December 79 0.73 0.60 866

1999 March 75 0.63 0.57 758 2004 March 82 0.76 0.62 893

June 79 0.66 0.63 772 June 78 0.71 0.59 824

September 72 0.65 0.61 779 September 78 0.70 0.58 817

December 67 0.65 0.63 751 December 80 0.77 0.58 819

2000 March 67 0.62 0.64 695 2005 March 82 0.78 0.60 792

June 62 0.59 0.63 657 June 83 0.77 0.61 776



2001 March 62 0.52 0.57 666 2006 March 86 0.74 0.61 712

June 62 0.51 0.59 663 June 86 0.75 0.59 713



2002 March 69 0.52 0.60 684 2007 March 94 0.79 0.60 742

June 69 0.56 0.59 690 June 101 0.83 0.62 773



Source:ReserveBankofAustraliaStatisticalTableF11

trade

Table J.14. Value and growth of automotive exports, 1998 to 2007

Year Vehicle exports Components exports Total exports

Value ($b) Annual growth (%) Value ($b) Annual growth (%) Value ($b) Annual growth (%)

1998 1.30 2.7 1.28 -10.8 2.57 -5.4

1999 1.76 35.7 1.49 17.1 3.25 26.3

2000 2.42 37.9 1.80 19.9 4.22 29.9

2001 3.26 34.6 1.68 -6.6 4.94 17.0

2002 3.08 -5.6 1.77 3.9 4.85 -1.8

2003 2.98 -3.4 1.77 -0.3 4.74 -2.3

2004 3.03 1.7 1.68 -4.9 4.71 -0.7

2005 3.47 14.7 1.71 2 5.19 10.2

2006 3.06 -11.8 1.82 6.2 4.88 -5.8

2007 3.24 5.7 1.87 2.6 5.11 4.6

note:exportfiguresareinnominalprices

Source:departmentofForeignAffairsandTrade,STARSdatabase


Table J.15. Automotive exports by destination, 2002 to 2007

Region 2002 2003 2004 2005 2006 2007

Exports ($ m)

Share (%)

Exports ($ m)

Share (%)

Exports ($ m)

Share (%)

Exports ($ m)

Share (%)

Exports ($ m)

Share (%)

Exports ($ m)

Share (%)

Middleeast 1,801 37.1 1,893 39.9 1,745 37.1 1,944 37.5 2,205 45.2 2,299 45.0

newZealand 720 14.8 825 17.4 758 16.1 789 15.2 653 13.4 754 14.8

nAFTA 1,111 22.9 791 16.7 1,026 21.8 805 15.5 657 13.4 568 11.1

RepublicofKorea

365 7.5 449 9.5 324 6.9 386 7.4 389 8 399 7.8

eU25 170 3.5 145 3.1 209 4.4 242 4.7 309 6.3 233 4.6

ASeAn 255 5.3 185 3.9 188 4 247 4.8 202 4.1 216 4.2

China 16 0.3 58 1.2 65 1.4 285 5.5 91 1.9 200 3.9

SouthAfrica 30 0.6 68 1.4 78 1.7 188 3.6 84 1.7 103 2.0

Japan 164 3.4 105 2.2 85 1.8 64 1.2 61 1.2 67 1.3

Restofworld 221 4.5 224 4.7 230 4.9 237 4.6 233 4.8 268 5.2

Total 4,853 100 4,743 100 4,708 100 5,187 100 4,884 100 5,106 100

note:Figuresinnominalprices

Source:AustralianBureauofStatistics

Table J.16. Exports of new completely built-up passenger motor vehicles, derivatives and SUVs, 1999 to 2007

Year Units Annual growth (%)

1999 83,205 42.5

2000 101,018 21.4

2001 117,661 16.5

2002 112,088 -4.7

2003 120,178 7.2

2004 131,474 9.4

2005 142,022 8.0

2006 132,742 -6.5

2007 140,243 5.7


Table J.17. Exports of components, 1997 to 2007

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Component ($ m) ($ m) ($ m) ($ m) ($ m) ($ m) ($ m) ($ m) ($ m) ($ m) ($ m)

Engines 405 291 356 472 270 180 255 300 434 575 515

Engine parts 199 146 153 172 146 159 146 153 150 132 128

Other components 844 841 985 1,156 1,262 1,431 1,364 1,227 1,129 1,113 1,225

Total 1,448 1,278 1,494 1,800 1,678 1,770 1,765 1,680 1,713 1,820 1,868

note:exportfiguresareinnominalprices.



Table J.18. Value and growth of automotive imports into Australia, 1998 to 2007

Year Vehicle imports Components imports Total imports

Value ($b) Annual growth (%) Value ($b) Annual growth (%) Value ($b) Annual growth (%)

1998 9.38 23.3 5.15 16.3 14.54 20.7

1999 9.92 5.7 5.09 -1.2 15.01 3.2

2000 11.17 12.6 5.78 13.4 16.94 12.9

2001 11.61 4.0 6.02 4.2 17.62 4.0

2002 13.20 13.7 5.71 -5.1 18.91 7.3

2003 14.52 10.0 5.77 1.0 20.29 7.3

2004 15.72 8.2 5.81 0.7 21.52 6.1

2005 17.46 11.1 5.99 3.1 23.45 8.9

2006 18.36 5.2 6.16 2.9 24.52 4.6

2007 20.91 13.9 7.04 14.3 27.95 14.0

note:Figuresareinnominalprices


Table J.19. Automotive imports into Australia: By source country, 2002 to 2007

Source 2002 2003 2004 2005 2006 2007

Imports ($m)

Share (%)

Imports ($m)

Share (%)

Imports ($m)

Share (%)

Imports ($m)

Share (%)

Imports ($m)

Share (%)

Imports ($m)

Share (%)

Japan 8,820 46.6 9,330 46 9,675 45 9,572 40.8 9,129 37.2 9,448 33.8

eU25 4,176 22.1 4,702 23.2 4,686 21.8 5,208 22.2 5,135 20.9 6,128 21.9

nAFTA 2,972 15.7 2,788 13.7 3,153 14.6 3,090 13.2 3,618 14.8 3,966 14.2

ASeAn 951 5 1,241 6.1 1,337 6.2 2,159 9.2 2,681 10.9 4,483 16.0

RepublicofKorea

767 4.1 784 3.9 949 4.4 1,222 5.2 1,546 6.3 1,687 6.0

SouthAfrica 435 2.3 579 2.9 581 2.7 887 3.8 995 4.1 768 2.7

China 165 0.9 217 1.1 303 1.4 387 1.6 523 2.1 660 2.4

Taiwan 168 0.9 163 0.8 181 0.8 199 0.8 319 1.3 284 1.0

SouthAmerica

180 0.9 159 0.8 170 0.8 199 0.8 136 0.6 95 0.3

RestofWorld 278 1.5 325 1.6 489 2.3 523 2.2 443 1.8 445 1.6

Total 18,910 100 20,288 100 21,523 100 23,445 100 24,524 100 27,944 100

note:Figuresareinnominalprices.


Table J.20. Imports of completely built-up vehicles, passenger motor vehicles and other motor vehicles, 2000 to 2007

Year CBU PMVs (units) Other vehicles (units) Total vehicles (units) Annual growth (%)

2000 319,471 234,083 553,554 6.5

2001 330,464 210,657 541,121 -2.2

2002 316,431 264,966 581,397 7.4

2003 354,520 296,209 650,729 11.9

2004 366,547 327,842 694,389 6.7

2005 436,750 360,770 797,520 14.9

2006 476,251 368,521 844,772 5.9

2007 506,136 426,089 932,225 10.4



eMployMent and labour productivity

Table J.21. Australian automotive industry employment, 1997–98 to 2005–06Industry sector 1997–98 1998–99 1999–00 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06

Motor vehicle manufacturinga

19,719 18,168 16,519 23,243 25,600 26,600 28,100 27,800 27,100

Motor vehicle body manufacturingb

8,443 7,888 10,260 9,908 10,900 10,300 11,600 12,400 15,300

Automotive electrical and instrument manufacturingc

4,734 5,001 5,287 5,085 4,200 3,000 3,200 3,500 3,000

Automotive component manufacturingd

22,262 20,414 22,422 24,424 21,800 25,200 26,800 24,200 21,800

Total 55,158 51,471 54,488 62,660 62,500 65,100 69,800 67,900 67,100

note:a.AnZSiCCode2811.b.AnZSiCCode2812.c.AnZSiCCode2813.d.AnZSiCCode2819.

Source:AustralianBureauofStatisticscat.no.8221.0

Table J.22. Local vehicle producer labour productivity, 1997 to 2007

Year Production volume (units)a Production value ($b)b Employmentc Average vehicles produced per employee

Average production value per employee

1997 319,266 7.23 20,540 15.5 $351,996

1998 353,892 8.18 22,371 15.8 $365,652

1999 347,823 8.18 21,394 16.3 $382,350

2000 359,686 7.74 20,378 17.7 $379,821

2001 347,174 7.97 19,975 17.4 $398,999

2002 359,751 7.99 20,914 17.2 $382,041

2003 406,668 8.48 23,119 17.6 $366,798

2004 407,537 8.89 22,485 18.1 $395,375

2005 387,821 8.41 20,908 18.5 $402,238

2006 329,428 7.84 18,390 17.9 $426,319

2007 335,625 7.74 17,751 18.9 $435,947

note:a.includescompletelyknockeddown(unassembled)vehiclesforexport.b.innominalprices.c.includesproductionandnon-productionemployees.


174| ReVieWoFAUSTRALiA’SAUToMoTiVeindUSTRY

profitability and r&d expenditure

Table J.23. Profit performance of local vehicle producers, 1997 to 2007

Year Vehicle manufacturing Total PMV activitiesa

Net trading profit (loss) ($m) Return on sales (%) Net trading profit (loss) ($m) Return on sales (%)

1997 344 4.9 518 5.4

1998 389 5.0 502 4.6

1999 311 3.9 391 3.8

2000 427 5.1 384 3.3

2001 298 3.4 184 1.3

2002 383 4.6 411 2.5

2003 316 2.7 449 2.6

2004 (115) -1.0 247 1.3

2005 (590) -6.5 (569) -3.4

2006 (705) -8.0 (502) -2.8

2007 (722) -8.6 (449) -2.5

note:Figuresrepresentprofitbeforetax(currentprices)forHolden,FordAustralia,ToyotaMotorCorporationAustraliaandMitsubishiMotorsAustralia.a.includespassengermotorvehiclemanufacturing,salesofimportedpMVsandsharedvehicles,salesofimportedcomponentsaspartsandaccessories,andcomponentproductionforlocalsaleandexport.


Table J.24. Australian automotive industry R&D expenditure, 1997–98 to 2005–06Financial year R&D expenditure ($’000) Annual growth (%)

1997–98 359,456 14.8

1998–99 316,626 -11.9

1999–00 347,945 9.9

2000–01 381,349 9.6

2001–02 490,164 28.5

2002–03 618,719 26.2

2003–04 638,570 3.2

2004–05 607,903 -4.8

2005–06 654,204 7.6

note:expenditureisincurrentpricesandisforAnZSiCindustryGroup281,Motorvehicleandpartmanufacturing

Source:AustralianBureauofStatisticscat.no.8104.0,unpublisheddata.

|175

Appendixk:review processes

Announcement of the Automotive Review 2008On14February2008,theMinisterforinnovation,industry,ScienceandResearchannouncedtheReviewofAustralia’sAutomotiveindustry(‘theReview’),tobeconductedbytheHonSteveBracks.TheannouncementincludedtheReview’stermsofreferenceandnotedthatMrBrackswouldbesupportedbyanexpertpanel.Theannouncementalsostatedthat:

theReviewwouldprovideaninterimreporttothe�AustralianGovernmentby31March2008,andafinalreportby31July2008;

theproductivityCommissionwouldberequested�toundertakemodellingoftheeconomy-wideeffectsoffutureautomotiveassistanceoptions;and

theReviewwouldhaveregardtotheissues�raisedintheconcurrentReviewofthenationalinnovationSystem.1

TheAustralianGovernmentdepartmentofinnovation,industry,ScienceandResearchprovidedsecretariatsupporttotheReview.

AppendixnprovidesalistofReviewparticipantsandtheirrespectiveroles.

1 Carr,k(Ministerforinnovation,ScienceandResearch),Governmentannouncesreviewofautomotiveindustry,mediarelease,14February2008,viewedathttp://minister.innovation.gov.au/SenatortheHonkimCarr/pages/GOVeRnMenTAnnOUnCeSReVieWOFAUTOMOTiVeindUSTRY.aspx.

StAkeholdeR conSultAtionSTheReviewestablishedawebsiteatwww.innovation.gov.au/automotivereviewandanemailaddressautomotivereview@innovation.gov.autoassistwithdisseminationofinformationto,andengagementwith,thepublic.

inaddition,lettersweresenttoidentifiedstakeholdersinformingthemabouttheReviewaswellasanticipatedtimeframesandprocesses.

TheReviewheldmeetingsandinterviewswitharangeofstakeholders–seeAppendixMforalistofstakeholderorganisationsconsulted.

inteRim RepoRt And public SubmiSSionSOn31March2008,theReviewdelivereditsinterimreporttotheAustralianGovernment.Alsoonthatday,theReviewpubliclyreleasedabackgroundpaperanddiscussionpaper,andinvitedpublicsubmissions.2

Theclosingdateforpublicsubmissionswas14May2008,butsomesubmissionswerelodgedafterthatdate.intotal,133submissionswerelodgedwiththeReviewpriortothisreport’sprintingdeadline–seeAppendixLforthelist.eachsubmissionreceivedwaspostedtotheReview’swebsiteunlesstheoriginatorrequestedthatitssubmissionbetreatedasconfidential.

2 Refertowww.innovation.gov.au/automotivereview.


pRoductivity commiSSion’S economic modellingOn4April2008,theAssistantTreasureraskedtheproductivityCommissiontoundertakeeconomicmodellingoffutureautomotiveassistanceoptions.3ThescenariosforthevariouspolicyoptionswererequestedbytheReview.On5June2008,theproductivityCommissionpubliclyreleaseditsreport,Modellingtheeconomy-wideeffectsofFutureAutomotiveAssistance–productivityCommissionResearchReport.4

infoRmAtion SouRceSinpreparingthisfinalreport,theReviewdrewonavarietyofsourcesforinformationincludingpublicsubmissions;stakeholderconsultations;publiclyavailableaswellasunpublishedinformation;theproductivityCommission’sreport;andresearchspecificallycommissionedbytheReviewonspilloversfromtheautomotiveindustry.

3 Availableathttp://www.pc.gov.au/study/automodelling/additionalinformation/letter.pdf.

4 Availableathttp://www.pc.gov.au/study/automodelling/study/finalreport.

|177

AppendixL:Public submissions to the Review of AustRAliA’s Automotive industRy

submission no. originator

1 ArnoVanWinden

2 engineeringanddesignAGgroup

3 JohnRSiddons

4 LoriserikKentHemlof

5 industryCapabilitynetworkLtd

6 Lancedover

7 BillAsikas

8 CarolO’donnell

9 LeonieFrancis(TSTCarpetManufacturers)

10 CharlieMaddaluno

11 GuyCaruana

12 RMAx

13 Michaelpope

14 peterGill

15 WesleyKozlowski

16 KevinBaker

17 KeithRhodes

18 Geoffperry

19 CentreforeducationandResearchinenvironmentalStrategies

20 electorateofHindmarsh

21 internationalCardistributionprogrammeAustraliaptyLtd

22 MikeStelzig

23 AustralianAutomotiveResearchCentre

24 Georgederagopian

25 MilanTerzic

26 Alanparker

27 denso

28 FrankWill

29 JosephScalzo

30 philBrowne

31 FR-1


32 ContinentalptyLtd

33 CampbellJames

34 JonathanSutton

35 VictorianGovernment

36 KevinFennell

37 desO’Callaghan

38 innovationAustralia

39 AutomotiveAlternativeFuelsRegistrationBoard

40 WilliamJolly

41 TruckindustryCouncil

42 Viridian

43 LauchlanMcintosh

44 AustralianAcademyoftheHumanities

45 SaveGeelongManufacturingCommittee

46 HenkelAdhesives

47 SoftwareprojectengineeringptyLtd

48 iMpCOTechnologiesptyLtd

49 pKMMulti-FuelptyLtd

50 peterevans

51 AndrewClose

52 europeanCommission

53 SuperCheapAuto

54 nationaliCTAustralia

55 peterphillips

56 AutomotiveTrainingAustraliaLimited

57 AustralianproductivityCouncil

58 engineeringanddesignAGgroup

59 LighterFootprints

60 AutoCRC

61 AustralianManufacturingWorkers’Union,FederationofVehicleindustryUnions,AustralianWorkers’UnionandnationalUnionofWorkers–jointsubmission



62 SuzukiAustraliaptyLtd

63 nLCptyLtd

64 AustralianConservationFoundation

65 AustralianAutomotiveAftermarketAssociation

66 LpGAustralia

67 SGFleetAustraliaptyLtd

68 HellaAustraliaptyLtd

69 AdvancedManufacturingAustralia

70 RobertBosch(Australia)ptyLtd

71 McLeanManagementConsultants

72 UniversityofSouthAustralia

73 FuturisAutomotiveGroup

74 FordMotorCompanyofAustraliaLtd

75 palmplastics

76 nationalCivicCouncil

77 Aeronauticalandextraenergye.V

78 BusinessSA

79 AirinternationalThermal(Australia)ptyLtd

80 ToyotaMotorCorporationAustralia

81 drMichaelBrear

82 philBarton

83 AustralianperformanceVehiclesptyLtd

84 RenewableFuelsAustralia

85 eMCTechnologiesptyLtd

86 BluescopeSteelLimited

87 ToyotaBoshokuAustralia

88 drivetrainSystemsinternationalptyLtd

89 KanganBatmanTAFe

90 MTMptyLtd

91 FederationofAutomotiveproductsManufacturers

92 edwardO’Brien

93 AustraliannewCarAssessmentprogram

94 peterVeal

95 AustralianFleetManagersAssociation

96 CSiRO

97 OrbitalAustraliaptyLtd

98 VictorianAutomobileChamberofCommerce

99 FederalChamberofAutomotiveindustries

100 peterpudney

101 Aisin(Australia)ptyLtd

102 SouthAustralianGovernment

103 KenMansell

104 AustralianAutomobileAssociation

105 MotorTradesAssociationofQueensland

106 WilliamBuckBusinessAdvisors

107 GMHoldenLtd

108 RoyalAutomobileClubofQueensland

109 OceanengineeringSystemsCnG


110 pivotalengineeringLtd

111 Stephendarday

112 Youthequityinc

113 departmentofForeignAffairsandTrade

114 nRMA

115 RoyalMelbourneinstituteofTechnology

116 derekHealey

117 departmentofeducation,employmentandWorkplaceRelations

118 AustralianAutomobiledealersAssociation

119 insuranceAustraliaGroup

120 QueenslandGovernment

121 TuranAhmed

122 CityofGeelong

123 Australianinstituteofpetroleum

124 Victorianemployers’ChamberofCommerceandindustry

125 AustralianindustryGroup

126 McMillanShakespeare

127 GeelongManufacturingCouncil

128 davidTaweel

129 ChristopherGellie

130 BobCharters

131 davidFrick

132 JohnLyons

133 Christopherdobbyns

|179

AppendixM:stakeholder meetings and consultations

AssociAtionsAdvancedManufacturingAustralia

AustralianAutomobileAssociation

AustralianAutomotiveAftermarketAssociation

AustralianConservationFoundation

AustralianindustryGroup

AustralianManufacturingWorkers’Union

AustralianWorkers’Union

FederalChamberofAutomotiveindustries

FederationofAutomotiveproductsManufacturers

FederationofVehicleindustryUnions

industryCapabilitynetworkLimited

LpGAustralia

MotorTradesAssociationofAustralia

nationalUnionofWorkers

TruckindustryCouncil

Automotive component suppliersAisin(Australia)

ARB

AustralianAutomotiveAir

BishopTechnologyGroup

densointernationalAustralia

discBrakesAustralia

FuturisAutomotiveGroup

OrbitalCorporation

Ozpress

concurrent reviewsGarnautClimateChangeReview

ReviewofAustralia’sexportpoliciesandprograms

ReviewofAustralia’sTextile,ClothingandFootwearindustry

ReviewofthenationalinnovationSystem

consultAntsAustralianAutomotiveintelligence

Autopolis

deloitte

FirmstoneandFeil

GrantThornton

Lateraleconomics

publicRelationsexchange


Government orGAnisAtionsAustrade

AustralianGovernment

CommonwealthScientificandindustrialResearchOrganisation

departmentofClimateChange

departmentofenvironment,Water,HeritageandtheArts

departmentofForeignAffairsandTrade

departmentofinfrastructure,Transport,RegionaldevelopmentandLocalGovernment

departmentofinnovation,industry,ScienceandResearch

departmentofTradeandeconomicdevelopment

productivityCommission

Treasury

VictorianGovernment

SouthAustralianGovernment

motor vehicle importersMazdaAustralia

HondaAustralia

Mercedes-BenzAustralia/pacific

motor vehicle producers – AustrAliAnGMHolden

FordMotorCompanyofAustralia

MitsubishiMotorsAustralia(uptoMarch2008)

ToyotaMotorCorporationAustralia

motor vehicle producers – foreiGnGeneralMotors

FordMotorCompany

ToyotaMotorCorporation

other orGAnisAtionsAutomotiveSupplierexcellenceAustralia

AutomotiveTrainingAustralia

Biomax

CooperativeResearchCentreforAdvancedAutomotiveTechnology(AutoCRC)

projectBetterplace

V8SupercarsAustralia

|181

Appendixn:Review PARTiCiPANTS

Review leader: HonSteveBracks

expert panel: MrnixonApple

MrTimHarcourt

MrpeterUpton

drelizabethWebster

Secretariat: MrGeoffLewis(Manager)

drFrancedesaubin

MrVernLim

MrMarkMussared

MrdougWilliamson

|183

AAA AustralianAutomobileAssociation

AAAA AustralianAutomotiveAftermarketAssociation

ABS AustralianBureauofStatistics

ACIS AutomotiveCompetitivenessandInvestmentScheme

ACP automotivecomponentproducer(ACISregistrationcategory)

ADRs AustralianDesignRules

AMTP automotivemachinetoolingproducer(ACISregistrationcategory)

ANCAP AustralasianNewCarAssessmentProgram

AP ApprovedPermit

APEC Asia-PacificEconomicCooperation

ASEA AutomotiveSupplierExcellenceAustralia

ASEAN AssociationofSoutheastAsianNations

ATA AutomotiveTrainingAustralia

AutoCRC CooperativeResearchCentreforAdvancedAutomotiveTechnology

BERD businessexpenditureonresearchanddevelopment

CNG compressednaturalgas

CO2 carbondioxide

crossover SUVwithsomecharacteristicsofapassengercarutilityvehicle

DDA DohaDevelopmentAgenda

DFAT DepartmentofForeignAffairsandTrade

DIISR DepartmentofInnovation,Industry,ScienceandResearch

EU EuropeanUnion

FAPM FederationofAutomotiveProductsManufacturers

FBT fringebenefitstax

FCAI FederalChamberofAutomotiveIndustries

FTA freetradeagreement

GCC GulfCooperationCouncil

GCIF GreenCarInnovationFund

GDP grossdomesticproduct

AbbreviAtions And definitions


GHG greenhousegas

GM GeneralMotors

GST goodsandservicestax

GVG GreenVehicleGuide

HR humanresources

ICNL IndustryCapabilityNetworkLimited

IP intellectualproperty

largevehicle passengercar,hatch,sedanorwagon,sixto12cylinders

LCT luxurycartax

lightvehicle passengercar,hatch,sedanorwagon,threeorfourcylinders,withanenginecapacityupto1,500cubiccentimetres

LPG liquefiedpetroleumgas

LS lowsulphur

mediumvehicle passengercar,hatch,sedanorwagon,fourtotwelvecylinders,withanenginecapacityof1,901cubiccentimetresandupward

MVP MotorVehicleProducer(alsoanACISregistrationcategory)

n.e.c. notelsewhereclassified

NRMA NationalRoadsandMotoristsAssociation

PMV passengermotorvehicle

ppm partspermillion

PULP premiumunleadedpetrol

R&D researchanddevelopment

smallvehicle Passengercar,hatch,sedanorwagon,fourtosixcylinders,withanenginecapacityof1,501cubiccentimetresplus

spillovers economicbenefitsfromasectorthathavepositiveeffectsonothersectorsorindustries

sportsvehicles coupeorconvertible,threeto12cylinders

SUV sportsutilityvehicle;two-orfour-wheeldrive,highgroundclearance,closedcargospace

TAFTA Thailand–AustraliaFreeTradeAgreement

TCO tariffconcessionorder

Tier AlayeredstructureintheautomotivesupplychainsuchthataTier1supplierprovidesgoodsand/orservicestoanMVP,aTier2supplierprovidesgoodsand/orservicestoaTier1supplier,Tier3toTier2,andsoon

TQM totalqualitymanagement

upperlarge passengercar,hatch,sedanorwagon,sixto12cylindersvehicle

ULP unleadedpetrol

ULS ultra-lowsulphur

UNECE UnitedNationsEconomicCommissionforEurope

WTO WorldTradeOrganization

|185

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