Chapter 3
Issues
3.1
The committee received submissions from automotive manufacturers and
engineers and their industry representatives, as well as from state and local
government representatives and academics in South Australia about the impact of
the bill on the automotive industry, related industries, workers, local regions
and the Australian innovation system.
Support for the ATS
3.2
Many submissions sought to demonstrate the positive contribution of the ATS
to the Australian automotive industry and related industries.[1]
For example, the Federal Chamber of Automotive Industries submitted that:
The modest level of assistance provided by both Coalition and
Labor Governments has acted as a catalyst for investment by global brands
in Australian automotive industrial design and engineering capability. This has
also extended to the domestic supply industry, which has grown in support of
the domestic automotive manufacturing. Today, both the domestic car
manufacturers and the supply chain consist of highly trained and professional
engineers and designers that produce advanced equipment and technology for use
in the manufacturing process.[2]
3.3
The Federation of Automotive Products Manufacturers (FAPM)
expressed support for the ATS on behalf of manufacturers engaged in the production
of a comprehensive range of automotive products, stating that:
The ATS program is now more important than ever in assisting
supply chain companies transition in an environment with no local vehicle
manufacturing.[3]
3.4
The Government of South Australia submitted that capped assistance made
available under the ATS had a significant positive effect on a local level:
The ATS has been a significant contributor to local
automotive manufacturing supply chain enterprises, including many family-owned
and operated small and medium-size enterprises, being able to expand their
capacity and capability, and build manufacturing businesses underpinned by
design excellence and innovation.[4]
3.5
Automotive lighting manufacturer Hella Australia Pty Ltd provided
specific evidence that they:
...have benefited from the ATS scheme since its inception as
ACIS, and the funding support made available has been critical to meet the
investment demands necessary to develop and manufacture uniquely local lighting
solutions for our OE [original equipment] customers.[5]
3.6
The committee received evidence about the potential benefit of the ATS
in supporting the industry through the upcoming period of transition, including
towards the development of the Australian innovation system. The Australian
Motor Industry Federation argued that:
...the ATS should be maintained to meet automotive industry
research and development aspirations, product innovation and delivery, and
business regeneration as the nation prepares for a revitalised industry after
the cessation of automobile manufacturing.[6]
3.7
Futuris Automotive Group Ltd was among submitters who supported the
scheme continuing until 2020, arguing that:
The ATS has, and can continue to, deliver significant
benefits to the Australian automotive sector and to the Australian economy
through to 2020.[7]
Duration and level of ATS funding
3.8
Submissions to the committee did not support items 1 and 2 of the bill,
reducing the duration of stage 2 of the ATS by three years to conclude in March
2018.[8]
The committee received evidence about the potential benefit of the ATS in
supporting the industry through the upcoming period of transition. The
Australian Motor Industry Federation argued that:
...the ATS should be maintained to meet automotive industry
research and development aspirations, product innovation and delivery, and
business regeneration as the nation prepares for a revitalised industry after
the cessation of automobile manufacturing.[9]
3.9
Futuris Automotive Group Ltd provided a view that:
The ATS has, and can continue to, deliver significant
benefits to the Australian automotive sector and to the Australian economy
through to 2020.[10]
3.10
The Federation of Automotive Producers and Manufacturers (FAPM) called
for the government to 'review the phasing of the proposed ATS reduction, in
particular cutting the scheme's funding in 2015 by $200 million.'[11]
3.11
Many submissions opposed the provisions of the bill and its reduction of
the duration and level of funding provided by the ATS.[12]
Concerns were raised about
the negative impact of the bill on the automotive industry and related
industries.
For example, Toyota Australia submitted that the proposal 'will place
additional pressure on the automotive sector at a critical time of industry
transition.[13]
3.12
The Australian Motor Industry Federation argued that the reduction in
funding would have an associated impact on investment in the Australian
automotive industry, because:
...[s]ignalling limited or no support through the removal of
$900m from the ATS, the early retirement of the scheme in 2018, and no signal
regarding what government proposes beyond that timeframe, will be regarded as a
negative by those looking to invest.[14]
3.13
Robert Bosch Australia Pty Ltd submitted that 'the scheme has developed
valuable technical skills for this country which are now under threat'.[15]
The FAPM called for government to 'review the phasing of the proposed
ATS reduction,
in particular cutting the scheme's funding in 2015 by $200 million'.[16]
Effect of plant closures on employment and local regions
3.14
Many submitters expressed concerns about the effects of commercial
decisions by Holden, Ford and Toyota to withdraw vehicle and engine production
operations from Australia by the end of 2017.[17]
For example, the Australian Manufacturers and Workers' Union (AMWU) provided
evidence about the potential effect on employment as the automotive sector
downsizes in Australia:
...the loss of the automotive manufacturing sector means the
loss of just under 50,000 direct jobs, many thousands of related jobs (through
both industry expenditure and income multiplier effects), the loss of over
$5 billion in industry value added annually, and the loss of the largest source
of manufacturing research and development in Australia, worth almost $700
million annually as well as $3.6 billion in exports.[18]
3.15
Some submitters were concerned that the global trend away from onshore
automotive manufacturing necessarily has significant flow-on effects for
component manufacturing, the manufacturing services industry and the automotive
aftermarket.[19]
3.16
Specific concerns were raised about the impact of automotive
manufacturing facilities in the local region of northern Adelaide. The
Australian Workplace Innovation and Social Research Centre, University of
Adelaide) submitted that:
The City of Playford in northern Adelaide is forecast to be
the most negatively affected LGA [local government area] in Australia as a
result of the closure. The closure coincides with the wind down of the Air
Warfare Destroyer build. The negative effects on South Australia and northern
Adelaide would be compounded by the importation rather than manufacture of the
replacement for the Collins Class submarines, and policy uncertainty affecting
investment in the renewable energy sector (amongst other things), denying the
state and northern Adelaide their best opportunities for industry
diversification.[20]
3.17
Geelong Manufacturing Council also raised concerns that the bill's
'amendments have the potential to greatly negatively impact members of the
Geelong Manufacturing Council'.[21]
They submitted that:
Geelong continues to experience significant transitioning
arising from a number of factors including the announcements in May 2013 by
Ford Australia of their intention to cease manufacturing in Australia by
October 2016, and February 2014 by Alcoa to cease operations at Point Henry in
2014. This will adversely impact on the economic base of the region and
necessitates a significant response as evidenced through the creation of the
Geelong Region Innovation and Investment Fund announced in 2013.[22]
3.18
This is consistent with the PC report finding that '[e]mployment in
automotive manufacturing is geographically concentrated in south-east
Australia'.[23]
3.19
The committee notes the PC report recommendation that:
Governments should plan for, and ensure the appropriate
resourcing of the delivery of, generally available welfare, training and
employment services for all clients in those regions which may be placed under
pressure through the retrenchment of automotive manufacturing employees.[24]
3.20
The recommendation met with in principle support from the government,
who explained:
The Government will introduce a Skills and Training Programme
to provide pre-emptive support for automotive workers Australia-wide, including
skills recognition and training whilst on-the-job. It will assist automotive
workers transition to new jobs.[25]
Transition
3.21
A number of submitters were concerned about the operation of the
automotive industry during its transition period. The FAPM noted that the
component manufacturers were 'in a period of transition' and argued that
governments 'need
to continue to be part of that transition as we move towards the years where
there will be no vehicle manufacturing in Australia'.[26]
3.22
The Ford Motor Company of Australia argued that there was:
An urgent need by Government to assist the orderly transition
of the automotive supply chain into other parts of the economy.[27]
3.23
The Government of South Australia likewise contended that there was
'an urgent need for government to assist the orderly transition of the automotive
supply chain into global supply chains, or other parts of the economy'.[28]
3.24
Toyota Motor Corporation Australia highlighted the importance of
providing automotive industry participants with certainty until the end of
vehicle manufacturing 'to enable an orderly industry wind down'. It indicated
that the continuation of support beyond 2017 'to assist the automotive
component sector to diversity and seek opportunities in new or emerging growth
sectors'. It stated:
Both suppliers and vehicle manufacturers have made investment
decisions based on the current ATS funding profile and have included relevant
ATS support as part of their decision making processes. Any change will place
additional pressure on the solvency of suppliers and put at risk a progressive
and staged vehicle manufacturing exit.[29]
3.25
The Australian Industry Group also referred to the industry transition
currently under way and was of the view that the government could have 'a constructive
role in assisting automotive component suppliers. It suggested that the
government could ensure that they were 'given time to restructure and diversify
their businesses'. It its view maintaining the ATS would 'enable them to do so
together with the Industry Growth Fund initiatives'.[30]
3.26
The FCAI suggested that in the event that the ATS is abolished, it would
support:
...a new automotive R&D
[research and development] co-investment policy to maintain and grow the
established automotive R&D infrastructure and skills base currently in
Australia. Any such replacement program needs to recognise that Australia can
be a potential source of design and engineering services for global markets.[31]
3.27
In a similar vein, the Futuris Automotive Group recommended:
...maintaining the previously
committed level of ATS funding for R&D activities for the automotive
component sector to support their transition plans and their ongoing R&D
and engineering activities in Australia.[32]
3.28
The committee notes that the 2014–15 Budget Papers provide for funding
to support the industry in the period leading up to manufacture ceasing in
Australia:
Funding of approximately $1.0 billion over five years from
2013–14 will remain available under the Automotive Transformation Scheme to
support vehicle manufacturers and supply chain companies.[33]
Use of ATS funding in a diversified industry
3.29
Some submitters proposed a modification in the use of ATS funding,
including to address the 'policy mistake of not providing support for auto
supply chain diversification'.[34]
The Government of South Australia called for an expansion of ATS guidelines 'to
enable companies to use the funds for diversification strategies, so that they
can enter new markets for a sustainable future'.[35]
Likewise, the Federal Chamber of Automotive Industries (FCAI) submitted that:
...amending the eligibility criteria to facilitate investment
in research and development activities to encourage further investment in
these, and other, facilities would help nurture complex design and engineering
work in Australia, in turn providing significant technical skills for the
country. Such amendments would be particularly important as domestic motor
vehicle manufacturing winds down in Australia.[36]
3.30
The Australian Motor Industry Federation called for 'the Australian
Government to develop a whole-of-industry policy framework for the Australian
automotive industry, suggesting that:
...future support and intervention strategies may be in areas
such as design; engineering; the convergence of consumer electronics,
information technology and mobility; and other niche markets where the nation's
considerable expertise and strengths in innovation can be best utilised.[37]
3.31
The FCAI proposed a new direction for Australia as a leader in
automotive research and development activities (R&D):
Establishing Australia as a global centre of excellence for
automotive R&D is an achievable objective given the right policy settings
and support for academic institutions.[38]
3.32
Likewise, the Geelong Manufacturing Council recommended:
...amending the Regulations to facilitate ongoing investment in
research and development activities and encourage further investment would
nurture complex design and engineering work in Australia and provide
significant technical skills for the country.[39]
3.33
Professionals Australia recommended the establishment of 'alternate
government co-investment in auto R&D,' and argued that 'there is still a
real opportunity to capitalise on the research and innovation capacity of
Australia's automotive engineers.[40]
Industry Growth Centres
3.34
On 18 December 2013, the government announced a wide-ranging industry
initiative comprising targeted support for regions affected by the wind-down of
the
car manufacturing industry, On 30 April 2014, the government stated that it
would establish a $155 million Growth Fund 'to generate the jobs of the future
for employees and supply-chain businesses in Victoria and South Australia
affected by the closure
of local automotive manufacturing operations'.[41]
3.35
Professionals Australia commended the government's decision to commence
rebuilding industry with its investment of '$188.5 million in Industry Growth
Centres to pursue global excellence in areas of competitive strength'.[42]
The City of Playford also welcomed the establishment of the Growth Fund. It
recognised that in the wake of Holden and Toyota closures the fund would
provide $100.6 million 'over six years from 2013–14 towards new jobs,
investments and economic growth in South Australia and Victoria'. It stressed
the importance of 'allowing time and providing a framework for adjustment –
particularly of enterprises and supply chains – to provide opportunity for
companies to diversify to new product and value chains'.[43]
While recognising
the Growth Fund, the AMWU described the initiative as 'woefully inadequate'.[44]
Towards a global automotive manufacturing industry
3.36
The PC report placed the Australian experience of reduced onshore
manufacturing within a set of global economic trends.[45]
The Commission explained:
Motor vehicle producers are increasingly moving to global
platforms and are investing in large-scale plants in low-cost locations in
regions of growing demand, such as Brazil, China, India and Thailand.[46]
In the PC's view, 'attempting to increase Australian production
encounters many constraints due to the nature of the Australian and global
markets.'[47]
3.37
The PC noted that a lack of evidence that it is in the national interest
to provide financial assistance to the manufacturing industry in a downturn or
transition period. Their report commented that:
Many governments are offering significant assistance to
retain or attract automotive manufacturing, but there is little transparent
analysis that would enable an observer to robustly assess the net benefit (or
cost) of this assistance to a nation's economy.[48]
3.38
Interestingly, the PC reported that greater growth in other sectors,
including mining and services, often accompanies a decline of manufacturing in
developed countries, which can offset the immediate effect on employment:
The greater growth of other sectors, such as mining and the
services sector, has resulted in manufacturing recording a relative decline in
its share of market sector value added and investment, as well as employment.
The declining share of the manufacturing sector as a proportion of GDP is a
common trend across developed countries.[49]
3.39
The committee notes the PC's view that as well as imposing costs on
taxpayers, industry-specific assistance such as that provided by the ATS comes
at a cost to the performance of the economy. In their view, it 'dulls the
incentives for firms to improve productivity, seek export opportunities, cease
unsuccessful investments and diversify into other industries.'[50]
Committee view
3.40
The committee recognises the contribution of Australian automotive
manufacturers and producers to the international motor vehicle market and to Australia's
gross domestic product, including during the global financial crisis.
The committee notes that Australia continues to play an important role as an
innovator in research and development of automotive and related technologies. However,
the committee is not persuaded that funding available under the ATS should be
continued beyond the closure of local car manufacturing in Australia in March
2018.
3.41
The committee considers the decision to conclude the ATS in 2017/18 as
proposed by this bill is consistent with the government's election commitment
to measured and responsible spending initiatives.[51]
3.42
Further, the committee is of the view that government must respond to
the changing nature of the industry globally. Rather than extending levels of
funding for manufacturing operations onshore, the government should monitor
opportunities
for the industry to contribute to international research and development, which
will
in turn contribute to a strong and viable future for the national economy.
Recommendation 1
3.43
The committee recommends that the government monitor the allocation of
funding towards and investment in automotive research and development, towards fostering
resilience and diversification among businesses and industry.
Recommendation 2
3.44
Having regard to Recommendation 1, the committee recommends that the
Senate pass the bill in its current form.
Senator Sean Edwards
Chair
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