GOA SUPPORTS NEW GM/HOLDEN SMALL CAR

UNCLAS SECTION 01 OF 02 CANBERRA 001316 SENSITIVE SIPDIS STATE FOR EEB, EAP/ANP TAGS: EIND ECON AS SUBJECT: GOA SUPPORTS NEW GM/HOLDEN SMALL CAR REF: ¶1. (SBU) SUMMARY: On 22 December, Prime Minister Rudd announced an agreement with GM Holden and the South Australian Government to support production of a new, fuel-efficient, low-emission small car in Australia. The agreement provides A$179 million (US$122 million) over 3-4 years to Holden under a co-investment agreement that must be matched by the company. All three local car manufacturers will be making 4-cylinder cars by 2011. Ford will build the Focus from 2011, while Toyota is already building the Camry. The GOA's aim is to build the capacity of the local car industry, as well as to lower vehicle emissions - using a flexible approach to industry policy. END SUMMARY. INDUSTRY POLICY RATIONALE FOR THE CAR INDUSTRY ¶2. (U) The Rudd Government is determined to retain and expand the local car industry to help stimulate economic activity in the midst of the global crisis. Prime Minister Kevin Rudd and Industry Minister Kim Carr declared on December 22 that the new small car will "redefine" Holden (General Motors' Australian subsidiary) and, by adding capacity to production of the large Holden Commodore model "will reinforce the long-term sustainability of manufacturing". In a press conference, Rudd affirmed he believed "passionately" in the future of the Australian automotive industry and noted that the intent "is to provide more fuel efficient vehicles and therefore provide a sustainable basis for the continuation of the industry into Australia's long-term future as well". Similarly, Industry Minister Carr stated that "We're in the business of ensuring that we remain one of the 15 countries in the world that can make a car from beginning - that is, from conception through to the showroom floor". In November, PM Rudd rejected the opposition Coalition's advice that the GOA should wait for President-elect Obama's package for US carmakers and instead outlined the A$6.2 billion car plan. DETAILS OF THE HOLDEN SMALL CAR PLAN ¶3. (U) Under the co-investment agreement, the GOA will contribute A$149 million over three years starting in 2009-10 to this project and the South Australia (SA) government will put in A$30 million over four years to support the small car project. The front-wheel-drive, four-cylinder car will be manufactured starting in the third quarter of 2010 at GM Holden's Elizabeth plant in Adelaide, SA. Design and engineering work will be done at Port Melbourne in Victoria. The car is part of the global Delta small car platform and will include both petrol and diesel variants. It will support up to 600 jobs at Holden and up to 600 more jobs in the automotive supply chain. Previously, Industry Minister Carr argued that the A$6.2 billion plan for the car industry would generate A$3 billion of private investment for every A$1 of public funding, although the Opposition questioned the capacity of the US-owned car companies to invest in Australia. The current package appears to endorse a 1:1 ratio of government to industry support for the Holden small car - possibly in recognition of the difficulties faces by GM in the United States. THE GREEN CAR POLICY AND FUEL EFFICIENCY ¶4. (U) The support package for the Holden small car is the first green car grant under the Green Car Innovation Fund. It must be matched by Holden, although its investment will be provided 'on staged levels over the 3 years' rather than upfront. The Rudd government has also announced that it will provide A$35 million to Qgovernment has also announced that it will provide A$35 million to support the production of a Camry hybrid in Melbourne. The Holden small car will be based on a low-displacement, forced-induction petrol engine, for better fuel efficiency. The car reportedly is 20% more fuel efficient and produces 20% less in carbon emissions than current larger vehicles. Carr claimed that families travelling 20,000 km a year would save A$500 a year in fuel costs and produce around 1.7 tonnes less in carbon emissions. Critics of the plan have pointed out that other cars on the road get between 35 and 45 miles per gallon, but the new Holden car will only get 27 miles per gallon. Industry Minister Carr suggested that government assistance for the small car is meant to support the introduction by Holden of hybrid engines and alternative fuel systems, including LPG and E85 (ethanol-blended fuel) and CNG (compressed natural gas). However, Holden has so far committed only to producing petrol and diesel-injected versions of the new vehicle. If market conditions improve, Holden may consider other technologies to reduce emissions. ¶5. (SBU) COMMENT: The Rudd government's package to support local manufacture of Holden's four-cylinder car appears to be a generous and flexible interpretation of the guidelines of the recent A$6.2 CANBERRA 00001316 002 OF 002 billion (US$4.2 b) car plan. Firstly, the ratio of government to industry contribution under the co-investment agreement has eased from 3:1 to 1:1. Secondly, Holden's contribution is not being paid upfront, but over a period of four years. Thirdly, the green car fund has been tapped for grants to Holden, but the proposed model is less fuel-efficient than a range of existing models - despite the GOA's initial intention to sustain new technologies towards the reduction of carbon emissions. The modified automotive strategy likely reflects Carr's conviction that "urgent" action is necessary to revitalize and reinvest the local car industry in Australia. The GOA is now talking with Toyota about the sustainability of local manufacture at its Altona plant. It is likely that (given the A$179 million grant to Holden's small car) increased assistance will be approved for Toyota's Hybrid Camry project, which had already been guaranteed A$35 million by the Rudd government. END COMMENT. MCCALLUM