Chapter 3
Better supporting automotive manufacturing
3.1
This chapter explores the policy challenge of supporting the automotive
manufacturing industry's transition through the wind-down of local vehicle
production and beyond. It also considers what immediate amendments are required
to the main government support program, the Automotive Transformation Scheme,
to ensure that the funding already committed to by government is able to be
deployed to assist automotive manufacturing.
The policy challenge is complex
3.2
Automotive manufacturing in Australia is currently undergoing a period
of change that will leave the industry looking profoundly different in 2018. Many
of the companies and associated workforce have been, and will continue to be,
affected by the ongoing reduction, and eventual cessation, of local passenger
motor vehicle production.
3.3
While some stakeholders do not consider that there is a future in
automotive manufacturing in Australia, this view is not shared by the
committee. The committee is of the view that automotive manufacturing, and
advanced manufacturing more generally, certainly does have a future in
Australia and has an important role in ensuring Australia has an advanced,
diversified economy.
3.4
The Automotive Australia 2020 Roadmap project, commissioned by the
Australian Automotive Industry Innovation Council and undertaken by the AutoCRC,
identified four areas of long term sustainability and opportunity for the
industry in electrification, light-weighting, gaseous fuels, and data and
communications.[1]
3.5
The Roadmap projects highlight the enormous potential of the Australian
industry to remain at the cutting edge of global advances in technology and
product design, including electric vehicles and new battery technologies, carbon
fibre, alternative fuels such as hydrogen and LPG, autonomous vehicles,
intelligent transport systems and telematics.
3.6
The challenge for policy makers is to attract new automotive and
advanced manufacturing industry investment, while providing enough support for
manufacturers to make a successful transition without compromising the
viability of existing businesses. According to the Federation of Automotive
Products Manufacturers:
The level of economic and strategic significance associated
with the Australian automotive industry is substantial as is its ability to
transform to having a greater focus around advanced manufacturing activities.
This makes the challenge for policy makers now to retain as much of the
industry and its capability as possible for the benefit of the nation's
economic future.[2]
3.7
The committee agrees with those stakeholders that highlighted the
important role that automotive manufacturing plays in supporting other advanced
manufacturing industries. For example, the Federal Chamber of Automotive
Industries considered that:
...an orderly transition out of domestic automotive manufacturing
will not mean the end of Australia's advanced engineering and manufacturing
capabilities. However, sensible government support through this period is
crucial.[3]
3.8
Indeed, there are parts of the automotive manufacturing sector that will
continue to operate, and may even expand, after motor vehicle production
ceases. According to the Federation of Automotive Products Manufacturers:
Policymakers should remain open to the prospect that a new
entrant may want to enter the Australian market, given the sophisticated
automotive and advanced manufacturing capability that still exists in
Australia.[4]
3.9
The committee notes that although vehicle manufacturing will cease by
the end of 2017, Ford and Holden have committed to maintaining significant
design and development facilities in Australia. These facilities are, and will
continue to be, important contributors to Australia's industrial design and
development capabilities. The Federal Chamber of Automotive Industries noted
that:
...while the cessation of large-scale domestic manufacturing is
regrettable, Australia can continue to have a valuable link into this important
industry through its high-value, innovation-intensive design and product
development operations well beyond domestic manufacturing...
However, if Australia is to maintain the technical and design
advantage it currently enjoys across automotive product development, then as a
country we must have ongoing and consistent internationally competitive policy
settings and assistance.[5]
3.10
There is also potential to expand component manufacturing associated
with the automotive aftermarket, particularly for export markets. However, the
committee notes the concerns of the Australian Automotive Aftermarket
Association that any policy aimed at supporting the transition of original
equipment component manufacturers should be designed to grow the market, rather
than compete directly with existing manufacturers that are already viable.[6]
3.11
Also of importance to the committee is reducing, to the extent possible,
the job losses from the cessation of vehicle production, particularly where
these skills can be redeployed into other automotive manufacturing roles. The
Australian Manufacturing Workers' Union submitted that:
It is crucially important, both in order to save as many jobs
as possible and in order to preserve an advanced manufacturing, design and
engineering capability, that Australia implement a policy that will sustain our
automotive manufacturing skills and capabilities and support the
diversification and growth of sub-industries such as the aftermarket and
specialist parts industry.[7]
3.12
If done well, appropriate policies have the potential to increase the
number of high-skilled jobs associated with high-value niche products and
advanced manufacturing.
Defining the industry for public
policy
3.13
From a public policy perspective, Australia's automotive sector has
traditionally been associated with activities relating to passenger motor
vehicles, particularly the manufacturing of these vehicles. This approach may
have been appropriate in the past, however, this is no longer the case given
international developments, advances in technology and services across the
entire industry, and with domestic production due to cease by the end of 2017.
3.14
The Australian Automotive Aftermarket Association referred to what it
believed was the effect of the Australian Government's narrow focus of the
automotive manufacturing industry on passenger vehicle manufacturers and their
suppliers:
Over time, the continued narrowing of automotive industry
policy has cost the Australian community. The cost is the missed opportunities
to build upon the breadth and complexity of automotive production...There are
some very real and effective options for government to build upon the
profitable automotive segments whilst easing the demise of passenger motor
vehicle manufacturing.[8]
3.15
Without new sources of investment in domestic production it may be that Australia's
new passenger vehicles will all be imported at some point in the foreseeable
future. Be that as it may, the Australian automotive industry will continue to
have a manufacturing presence through the assembly and manufacture of small
scale specialist road and off-road vehicles; heavy vehicles; agricultural,
mining and lifting machinery; vehicle bodies and trailers; and other related
activities.[9]
3.16
The focus on the automotive manufacturing industry has also overlooked
the significant restructuring which has occurred in the downstream sector of
the industry, including the retail service and repair sectors.[10]
The downstream automotive industry will continue to undergo structural
adjustments in the short to medium term as a result of the cessation of local
production by the end of 2017. The substantial size and contribution of the
downstream automotive industry, relative to the automotive manufacturing
industry, highlights the importance of reconsidering the approach to the
automotive industry.
3.17
Reflecting these changing industry dynamics, governments could, by
taking a wider approach to defining what constitutes the automotive industry,
facilitate policy development aimed at fostering the growth of the industry as
a whole. If a broader definition of the automotive industry were to be adopted,
it could include passenger vehicles, motorcycles, caravans and trailers, buses,
trucks and special purpose vehicles (such as racing vehicles, quadbikes and
all-terrain vehicles, and mining and agricultural machinery). This approach was
supported by the AutoCRC which submitted that:
...we consider 'automotive' refers to any form of self-powered
vehicle, not purely light passenger vehicles.[11]
3.18
In addition, the automotive sector may have lessons to offer other
industries. In particular, manufacturing activities in other sectors benefit
from the dissemination of capabilities developed by automotive component
manufacturers and vehicle producers. There are numerous examples where
knowledge of such capabilities has already been transferred in areas relating
to improved productivity, quality control, engineering design and prototyping,
models of capital investment and management of global supply chains.[12]
3.19
The Motor Trades Association of Australia and the Australian Motor
Industry Federation noted that the automotive industry is characterised by
diversification, segmentation, fragmentation, specialisation and wide
geographic distribution. As a result, it has been difficult, if not impossible,
to drive whole-of-industry public policy.[13]
They have called for a shift in policy focus to areas of the automotive
industry beyond car manufacturing:
There needs to be improved mechanisms for those developing
and implementing policy affecting the entire automotive industry, to coordinate
and improve transparency of decision making...
What is particularly required is:
-
cohesive policy framework for the
entire industry;
-
an understanding of the critical
issues facing each sector;
-
clear understanding of policy
direction for industry stakeholders;
-
clearly defined policy outcomes
that are measureable and can be implemented.[14]
3.20
Indeed, developing a coordinated policy for the entire automotive
industry was one of the driving factors in setting up this inquiry. The
dissenting report of the inquiry into the Automotive Transformation Scheme
Amendment Bill 2014 [Provisions] acknowledged that the issue is broader
than just motor vehicle production and noted that:
Leadership is needed to ensure a smooth transition from
automotive manufacturing to a new, revitalised automotive industry that can
retain the considerable knowledge, skills and experience of the existing
automotive workforce while creating new employment opportunities for future
generations.[15]
3.21
The committee considers that an overarching and internationally
competitive policy framework is necessary to ensure that Australia remains a
prosperous nation supported by a broad-based economy.
Recommendation 1
3.22
The committee recommends that the Australian Government work with
stakeholders—across industry, unions and state and territory governments—to
develop an internationally competitive automotive industry policy framework for
the entire industry, recognising the strategic role the industry can continue
to play in a diversified economy. Government departments should coordinate
their efforts to attract new automotive investment and maintain existing skills
and capabilities, using the Automotive Australia 2020 Roadmap as a guide.
Reforming the Automotive Transformation Scheme
3.23
The Automotive Transformation Scheme (ATS) is the main program by which government
provides financial assistance to the local automotive manufacturing industry.
3.24
The ATS is a legislated entitlement scheme—through the Automotive
Transformation Scheme Act 2009 (ATS Act)—that provides assistance to
registered participants for the production of motor vehicles and engines, and
for investment in allowable research and development and allowable plant and
equipment.[16]
The object of ATS was to encourage competitive investment and innovation in the
Australian automotive industry, and to place the industry on an economically
sustainable footing.
3.25
Originally, a total of over $3.3 billion was estimated to be available
under the scheme from 2010–11 to 2020–21. Two kinds of assistance were
available—capped and uncapped assistance. Capped assistance was limited to $1.5
billion in stage 1 (2010–11 to 2015–16) and $1 billion in stage 2 (2016–17 to
2020–21), while uncapped assistance was estimated at $847 million in total.
3.26
Prior to the 2013 Federal Election, the then opposition announced that
it would reduce funding available through the ATS by $500 million.[17]
Following the election, this measure was introduced in the 2013–14 Mid-Year
Economic and Fiscal Outlook (MYEFO), which set out a $500 million saving from
ATS capped assistance over the financial years 2014–15 to 2017–18.
3.27
Further savings to the ATS were then proposed in the 2014–15 Budget. The
budget measure sought to terminate the scheme from 1 January 2018, saving a
further $400 million.[18]
3.28
In doing so, the government planned to save $900 million from the ATS
across the remaining life of the scheme. It introduced legislation to this
effect into the parliament on 24 September 2014. The Bill passed the House of
Representatives on 2 October and was introduced into the Senate on the
same day. In March 2015, the government decided that it no longer wanted to
pursue legislative changes to the ATS and discharged the bill from the notice
paper.[19]
3.29
The proposed changes were described by the Federation of Automotive
Products Manufacturers as:
...not only detrimental to the prospects of the industry
transitioning to a new paradigm, they will contribute to the loss of automotive
manufacturing being a 'house of cards' scenario as opposed to a soft landing.[20]
3.30
Although the legislative measures to reduce funding available through
the ATS have now been withdrawn, a significant amount of the assistance that
had been earmarked for the ATS is unlikely to be paid out because the amount of
assistance provided through the ATS is contingent on the level of vehicle
production and various other eligibility criteria.
3.31
The 2015–16 Budget papers forecast that the government will only
allocate $105 million between 2014–15 to 2020–21 in ATS funding, with the
remaining underspend moving into consolidated revenue.[21]
3.32
Rather than banking underspending on the ATS as a budget saving, the
committee considers that any underspend in this assistance should be made
available for the industry to make the most of any opportunities that may arise
to diversify into new markets or sectors. In order to achieve this, however,
the ATS Act and its associated regulations require some changes. Regarding this
point, the Ai Group submitted that:
The businesses and the employees in automotive supply chains
are a valuable part of Australia's industrial ecosystem. They have important
roles to play in the restructuring of the Australian economy as we build a
stronger and more resilient foundation that is less reliant on the investment
in mining and energy projects and the high commodity prices that have featured
so prominently in the last decade. However, the challenges within the industry
mean there is a need for substantial reorientation of the design of the
Automotive Transformation Scheme to ensure those businesses who can continue to
operate can do so. Ai Group believes this reorientation of the ATS must be
finalised as a matter of urgency especially given the weakening economic
conditions in Australia.[22]
3.33
At a minimum, the committee considers the current level of ATS funding
needs to be maintained through to 2021 as provided for in the ATS Act. In
addition, current underspends in the ATS should be rephased from stage 1 to
stage 2. This will provide certainty to industry participants to plan until
vehicle production ceases; help maintain access to banking finance in an
increasingly stringent lending environment; and assist in funding
diversification activities.[23]
3.34
Consistent with the need to develop an overarching automotive industry
policy framework, the committee believes that the Automotive Transformation
Scheme should be reconceptualised as a broad, automotive-related advanced
manufacturing, engineering and design program that is intended to maintain
skills and industrial capabilities, and mitigate the loss of jobs by supporting
supply chain diversification, new manufacturing investment and jobs growth.
3.35
Accordingly, the object of the ATS Act should better reflect this new
reality. When the ATS was legislated, it was assumed that vehicle production
would continue through the entire period of the scheme. However, this has not
eventuated and there is a need for targeted support to assist manufacturers to
diversify and transform, particularly component manufacturers.
3.36
A number of stakeholders submitted that the focus of the ATS should be
retargeted. For example, the Australian Manufacturing Workers' Union considered
that the ATS should be given a new purpose and support the industry transition
to the design and/or production of cars; aftermarket parts and accessories; low
emission components, engines and infrastructure; and advanced components,
systems and materials for global supply chains producing cars and other
vehicles.[24]
3.37
The Federation of Automotive Products Manufacturers noted that the automotive
manufacturing environment had changed:
The planned departure of the three Australian vehicle
manufacturers fundamentally changes the policy objectives of ATS...The tailoring
of the ATS rules in a number of areas will be critical in allowing the existing
rules to be amended to achieve the necessary outcomes.[25]
3.38
And the Federal Chamber of Automotive Industries indicated they would:
...support updating the object of the ATS Act to better reflect
the new direction the industry is moving in. Accordingly the FCAI would support
a new object that specifies that the ATS is designed for the promotion and
growth of an advanced automotive industry in Australia.[26]
3.39
Accordingly, the committee considers that the object of the ATS Act should
be updated to specify that the ATS is designed for the promotion and growth of
advanced automotive industries in Australia, including manufacturing components
and materials, developing and commercialising new technologies, and engineering
and design work for domestic and offshore automotive customers when that work
is performed in Australia.
3.40
In addition, a number of the ATS rules and eligibility criteria require
amendment to encourage further investment in research and development.
3.41
The Federation of Automotive Products Manufacturers outlined a number of
ways that the definition of research and development could be broadened to
support diversification:
Currently, none of the ATS participants can claim R&D
relating to non-automotive products or services. Clearly, in the new post-2017
industry paradigm, an ability to claim R&D relating to products or services
in non-automotive industry sectors will be a key to industry survival.
A further policy conclusion is that the ATS rules will need
to change to allow for the claiming of R&D relating to products or services
for non-automotive industry sectors, subject to the application of strict
competitive neutrality provisions...
The concept of an eligible automotive service in regulation
1.9 also needs to be broadened beyond passenger motor vehicles and light
commercial vehicles to cover any kind of vehicle mentioned in Chapter 87 of the
Tariff (such as large trucks), or that has the essential character of such vehicles.[27]
3.42
FAPM also noted potential limitations posed by the once-a-year
restriction on moving between ATS registration categories:
As the diversification process unfolds, a key aspect of the
administration of ATS that will need to change is the ease of movement between
registration categories. Currently, the ATS only provides for a 'once a year'
registration window, whereby regulation 2.14 requires applications for ATS
registration to occur for an ATS year, to be received by AusIndustry by 31 December
of the preceding year. This is a severe impediment to mid-year movements
between registration categories that will be required as the industry
transitions.
The other related issue is the ease with which ATS
participants can change registration categories. At present, the annual
re-registration requirement would pose an impediment, but there is also doubt
about whether a participant's ATS investment and sales history would also move
across to a new registration category. This aspect requires a number of changes
to be made to Part 2 of the regulations in particular.[28]
3.43
The Federal Chamber of Automotive Industries also supported changes to
eligibility criteria for the ATS:
Rather than cutting and closing the ATS, 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.[29]
3.44
The AutoCRC proposed that all Australian-based research and development
activities should be eligible for ATS funding:
...the present exclusion from ATS eligibility of
Australian-based R&D [research and development] conducted by ACPs
[Australian Component Producers] on behalf of and under contract with overseas
automotive customers will seriously inhibit opportunities for growth and
diversification by ACPs into regional automotive markets, thus threatening
their ability to survive the forthcoming cessation of vehicle production in
Australia.
We therefore propose that the ATS Regulations be amended
to allow eligibility of Australian-based R&D conducted by ACPs on behalf of
non‑ATS registered parties.[30]
[emphasis in original]
3.45
The Federal Chamber of Automotive Industries similarly supported changes
to the ATS rules to allow for the claiming of research and development activity
contained within engineering services activity across the registration
categories.[31]
3.46
A number of stakeholders also suggested that ATS funding should be
available for possible new niche motor vehicle production or new sources of
investment. Simmons Global proposed that the focus on existing vehicle
production could be widened:
...given the imminent withdrawal of the remaining Australian
[vehicle] manufacturers, it is considered prudent to redesign the assistance
arrangements to specifically cater to potential new entrants. This would
involve assistance for new vehicle development costs prior to production.[32]
3.47
The committee considers that it is necessary to amend the ATS rules and
eligibility requirements to support manufacturers to continue to secure complex
design and engineering work, and provide greater support for diversification
initiatives.
Recommendation 2
3.48
The committee recommends that the Australian Government maintain
the current level of Automotive Transformation Scheme (ATS) funding through to
2020–21 as provided for in the ATS Act, and allow current underspends in the
ATS to be rephased from stage 1 (ending 2015–16) to stage 2 (ending 2020–21).
Recommendation 3
3.49
The committee recommends redefining the Automotive Transformation
Scheme (ATS) into a broader, automotive-related advanced manufacturing,
engineering and design program that is intended to maintain skills and
industrial capabilities and mitigate the loss of jobs by supporting supply
chain diversification, new manufacturing investment and new opportunities for
growth and investment throughout the whole of the automotive industry.
Recommendation 4
3.50
The committee recommends that the object of the Automotive
Transformation Scheme Act 2009 be updated to better reflect the current
situation within industry and the need for targeted support for diversification
and transformation activities, particularly in the automotive manufacturing
supply chain. The new object should specify that the ATS is designed for the
promotion and growth of advanced automotive industries in Australia, including:
manufacturing components and materials; developing and commercialising new automotive
technologies; and engineering and design for both domestic and offshore
customers when that work is performed in Australia.
Recommendation 5
3.51
The committee recommends that the Automotive Transformation
Scheme (ATS) rules and eligibility criteria (governed by the Automotive
Transformation Scheme Regulations 2010) should be amended, in consultation with
industry, to encourage further investment in research and development (R&D)
so that manufacturers can continue to secure complex design and engineering
work and to provide greater support for diversification initiatives. Amendments
to ATS regulations to be considered include (but are not limited to):
-
amend the ATS rules to allow for the claiming of R&D relating
to products and services for non-automotive industry sectors to facilitate the
transition of manufacturers out of motor vehicle production;
-
amend the ATS rules to allow for the claiming of R&D and
engineering services across the registration categories for both domestic and
offshore automotive customers when that work is performed in Australia;
-
amend the definition of automotive services so that the concept
of eligible automotive services is broader than passenger motor vehicles and
light commercial vehicles (and covers all modes of mobility);
-
remove the once a year registration requirement to allow for ease
of movement between ATS registration categories as the transition within the
industry progresses;
-
amend the ATS rules to allow motor vehicle producers to remain
eligible for the scheme, even in the event of declining production volumes; and
-
amend the ATS national interest provisions to ensure these
provisions are utilised to enable new entrants to the scheme and to attract new
investment. Amendments to national interest provisions should include removing
the current requirement that the Minister must not grant an ATS participant
permission to continue registration under this regulation for a period of more
than two successive ATS years.
Senator
Sam Dastyari
Chair
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