NEW AUSTRALIAN CAR PLAN ANNOUNCED

UNCLAS SECTION 01 OF 02 CANBERRA 001134

SENSITIVE
SIPDIS

DEPT FOR EAP/ANP

E.O. 12958: N/A
TAGS: EIND ECON ETRD AS
SUBJECT: NEW AUSTRALIAN CAR PLAN ANNOUNCED

REF: A) Canberra 100; B) Melbourne 125


1. (U) Summary. On November 10, Prime Minister Kevin Rudd and
Industry Minister Kim Carr released the GOA's response to the Bracks
Review of the car industry. The 'New Car Plan for a Greener Future'
aims to make the car industry more responsive to changing consumer
demand, environmental policy and difficult world conditions. The
plan is a A$3.2 billion, ten-year initiative to be brought forward
to start in 2009. It is expected to stimulate A$12 billion in new
car investment by 2020. The car industry has supported the plan;
others are critical. While the car manufacturers have presented
themselves as Australian as meat pie, some are criticizing handing
over the equivalent of A$300,000 per auto company employee to three
foreign companies. End summary.

OUTLINE OF THE CAR PLAN


2. (U) The A$7.7 billion (US$5.1 billion at current exchange rates)
automotive industry presents itself as critical to Australia's
economic future because it employs over 60,000 and plays a role in
national R&D, overall exports and some defense-related capability.
Prime Minister Rudd has said he will not "abandon" car production,
which he sees as a "cornerstone" of manufacturing. The GOA in its
response remained committed to cutting tariffs on imported vehicles
as previously scheduled from 10 to 5 per cent in 2010, "resulting in
the third-lowest tariff regime among economies with a well-developed
automotive industry". Rudd said that Australia will continue to
pursue a free trade agenda because the future of the industry lies
in innovation and global integration, not industry protection with
"old fashioned quotas and tariffs."


3. (U) The Government's New Car Plan increases the total level of
assistance to A$6.2 billion between 2008-09 and 2020-21, of which
A$3 billion is already committed, and A$3.2 billion is net new
funding. Between 2011 and 2020, the industry will receive A$3.4
billion in an Automotive Transformation Scheme (ATS). A Green Car
Innovation Fund of A$1.3 billion will encourage companies to
manufacture low-emissions vehicles and move to consolidate component
manufacturing. Overall, the plan is expected to generate $16 billion
in investment in the industry, in new capacity and new technologies.
The Automotive Competitiveness and Investment Scheme will smooth the
transition to the ATS (A$79.6 million) from 2010. There is A$116.3
million to promote structural adjustment in the components sector
for labour market adjustment. A further A$20 million from 2009-10
will assist suppliers integrate into national and global supply
chains. There will be A$6.3 million from 2009-10 for an enhanced
market access program.

SOME DETAILS


4. (U) The Automotive Transformation Scheme will replace the
Automotive Competitiveness and Investment Scheme (ACIS) Stage 3,
which was to run from 2011 to 2015. The new scheme puts more
emphasis on investment in research and development to increase
competitiveness and productivity - particularly in the supply chain.
It will include (1) capped assistance of A$1.5 billion over 2011 to
2015 (up from the A$1 billion planned for ACIS Stage 3); and (2) new
capped assistance of A$1 billion over 2016 to 2020. Assistance will
be in the form of grants rather than duty credits. Capped funding
will continue to be split 55 per cent to vehicle producers and 45
per cent to the supply chain. All participants will be eligible to
claim 15 per cent of their investment in approved plant and
equipment (the supply chain can currently claim 25 per cent and
Qequipment (the supply chain can currently claim 25 per cent and
vehicle producers 10 per cent). Supply chain participants will be
eligible to claim 50 per cent of their investment in approved R&D
(up from 45 per cent),and the list of eligible R&D activities will
be streamlined. Recruitment and management will no longer count as
R&D activities.

ENVIRONMENTAL ASPECTS OF CAR ASSISTANCE


5. (U) The Green Car Plan will feature an expanded A$1.3 billion
Green Car Innovation Fund to provide Australian car companies with
the opportunity to receive Government funding to design and sell
environmentally friendly cars. The Innovation Fund involves the GOA
matching industry investment in green cars on a one to three dollar
basis over a ten year period from 2009. The Green Car Plan is part
of the GOA's green investment strategy to "transform Australia's
economy into a low-carbon emission, internationally-competitive
economy of the future". It aims to support the production in
Australia of "competitive, low-emission, fuel-efficient vehicles in
Australia". Further, a A$10.5 million expansion of the LPG vehicle
scheme immediately doubles payments to purchasers of new vehicles
using LPG technology.

INDUSTRY AND UNION RESPONSES TO THE CAR PLAN


CANBERRA 00001134 002 OF 002



6. (U) Australia's car industry has welcomed the GOA's plan to take
the sector to 2020. Ford Australia President Marin Burela is
encouraged by the Government's announcement. Ford announced last
month it would shed 450 workers in Melbourne and Geelong; now Burela
says he does not see any need for further job cuts. GM/Holden
Chairman Mark Reuss also greeted the report, saying it encouraged
long term innovation and investment. The Federal Chamber of
Automotive Industries says the onus is now on manufacturers to
embrace more environmentally friendly technologies. The Australian
Manufacturing Workers Union unsurprisingly supports the car plan
since it could attract more than A$16 billion in investment to the
industry and perhaps slow or stop further job losses.

AND SOME CRITICISMS



7. (U) Others were critical. Graham Spurling, the former managing
director of Mitsubishi's Australia operation, which closed earlier
this year (ref A),said this gave the car companies a "free ride" on
R&D, and said the focus should have been on making car components
manufacturers more efficient and financially viable (the sector is
fragmented and made up largely of small firms). Other critics noted
that under the plan, companies would have to put up money before
getting any GOA funds - and GM and Ford may not be in a position to
do so. Others have said this was just the GOA pandering to unions.
The libertarian Institute for Policy Analysis doubts the plan will
help and said the auto industry's problem was simply that they have
failed to make vehicles that consumers want.


8. (SBU) A number of contacts at the Treasury Department, the
Department of Prime Minister and Cabinet and the Prime Minister's
Office have told us over the past few months that additional
assistance to the auto industry was a foregone conclusion - the only
question was the level. All privately said that assistance to the
auto industry is difficult to justify in purely economic terms. The
three manufacturers (who will receive the vast majority of the aid)
will receive assistance worth over A$300,000 per employee. Even
looking at the impact on the overall auto sector, the new plan comes
to over A$50,000 in government assistance per employee. One Treasury
contact pointed out that this amounts to a very large subsidy for
three foreign companies.

COMMENT


9. (SBU) No surprises here. The Rudd government has continually
expressed its support for the car industry and 'New Car Plan for a
Greener Future' aims to restructure the industry and make it more
internationally competitive. The plan tries to harness the
environmental policy aims of increasing fuel efficiency and reducing
greenhouse emissions with the political imperative of trying to
preserve the viability of the largest part of Australia's
manufacturing sector. It is notable though that, despite pressure
from Ford and Holden, the GOA stuck to its commitment not to change
the scheduled reduction of tariffs on autos.


10. (SBU) Comment, continued. The closure of Mitsubishi and job
losses among Ford, Holden and component suppliers have led to a
sense of urgency over the industry's prospects for survival. The GOA
hopes this package will help increase both confidence in the
industry and business investment to support a more competitive
industry. But the Australian automotive sector will remain
vulnerable. It is a low-volume producer in a country that already
imports 80 percent of vehicles sold in the domestic market. It is
part of an increasingly competitive international market, and Holden
Qpart of an increasingly competitive international market, and Holden
and Toyota are heavily reliant (and therefore vulnerable) on exports
to the Middle East. The one ray of light is the fall in the value of
the Australian dollar, which should make domestically manufactured
vehicles more competitive. End comment.

MCCALLUM