Automotive Transformation Scheme Amendment Bill 2014

Mr FLETCHER (Bradfield—Parliamentary Secretary to the Minister for Communications) (20:52):  I am very pleased to rise to speak on the Automotive Transformation Scheme Amendment Bill 2014. This is an important bill, which gives effect to decisions announced by the government in the context of the 2013-14 Mid-Year Economic and Fiscal Outlook—the MYEFO—and gives effect to budget decisions taken by the government in respect of the Automotive Transformation Scheme.

In the time available to me this evening, I would like to make three points. Firstly, Australia has had for some years an automotive industry which by world standards is subscale and uncompetitive. Secondly, Labor in government refused to acknowledge this reality, whereas the coalition government, the Abbott government, has acknowledged this economic reality and has acknowledged that to promote our competitiveness as a nation we need to move away from industries such as automotive, in terms of where funding goes, and play to our strengths as a nation. And, thirdly, consistent with that, this bill makes sensible savings by reducing the extent of public subsidy to an industry which is no longer competitive in world terms.

Let me turn to the first point, that the automotive industry has been for some years in Australia subscale and uncompetitive. Let us look at the figures for domestically made cars in recent years and the market share captured by domestically made vehicles. Between 2007 and 2012, in just five short years, domestically made cars fell from 19 per cent of total car sales in Australia to less than 13 per cent. In other words: consumers were voting with their feet and that resulted in a situation where an industry that was already subscale by world standards became even more subscale.

Let us have a look at the numbers in terms of automotive manufacture globally. These are the figures for the 2013 year from the global automotive peak body. In 2013 there were 87.3 million vehicles manufactured: China manufactured 22.1 million; the United States, 11 million; Japan, 9.6 million; Germany, 5.7 million; Korea, 4.5 million. And where was Australia? The total production from Australia sounds like a rounding error when compared to the numbers that I have quoted. Production for Australia in 2013, according to the world automotive industry peak body, was 215,926 vehicles—a tiny, tiny fraction of global production.

And why is this important? It is important because automotive manufacturing is a scale game, and if you cannot have large-scale production and large production runs, then you cannot be world competitive in your pricing, and that is a fundamental difficulty that the Australian automotive sector have got into. I need hardly add that that very small quantum of production was spread across multiple manufacturers, so the production run per manufacturer was even smaller by world standards. Therefore, the question in public policy terms becomes: does it make sense to be putting public money into subsidising an industry that is clearly struggling to be competitive? Is this a good allocation of public money?

The issue about global competitiveness for Australia is one that needs to be recognised as we think about spending taxpayers' money. We need to think about the global competitiveness of Australia. The Business Council of Australia recently released a report from consulting firm McKinsey entitled Compete to Prosper: Improving Australia's global competitiveness, which makes the point that a great deal of Australia's industry assistance has been allocated to declining sectors, and, sadly, the automotive sector has been one of those. We are clearly in a position where we have allocated as a nation very substantial subsidies, very substantial amounts of public money, to an automotive sector which, as the figures demonstrate, is struggling to be competitive. Indeed, according to the Productivity Commission, total support to the automotive industry between 1997 and 2012 has been around $30 billion. During that period, the number of vehicles manufactured locally was slightly over five million and so, working through the maths, the support per vehicle over this period was approaching $6,000. A very substantial amount of public money to subsidise one particular industry, and yet, as the numbers I have quoted indicate, it is an industry that is struggling to survive in a highly competitive global market.

We have recently seen from Holden the worst ever loss being announced—$553 million for the calendar year 2013, taking its total losses to approximately $1 billion over the past eight years—and Ford recently announced its third worst ever loss—$267 million, taking its total losses to $1.1 billion over the past eight years. So given these fundamental competitive dynamics, the inevitable result has been a decision by the global automotive manufacturers to cease manufacturing in Australia. It is hardly surprising that they have done that when you look at the tiny production runs in this country, the difficulty in operating economically and the many other difficulties that they face. What did then chief executive of Holden in Australia, Mike Devereux, say when he announced Holden's decision to close in December 2013? He had this to say:

… Australia's automotive industry is up against a perfect storm of negative influences including the sustained strength of the Aussie dollar against almost all major trading currencies, the relatively high cost of production and the relatively small scale of the local domestic market.

… building cars in this country is just not sustainable.

These are not easy decisions, and nobody is saying—the government is certainly not suggesting for a second that the departure of automotive manufacturing in Australia is going to be easy for the country or for the affected communities.

Debate interrupted.

Mr FLETCHER (Bradfield—Parliamentary Secretary to the Minister for Communications) (12:14):  I am pleased to continue my remarks on the Automotive Transformation Scheme Amendment Bill. At the point before the debate was interrupted last night, I was observing that the economic realities in the fundamental uncompetitiveness of the Australian automotive industry do not make the transformation that needs to be faced any easier. It may be a reality, it may be inevitable but that does not make it an easy transition for those in the industry, for employees, for the businesses or, of course, for the affected communities. But while it is not an easy transition, the status quo is simply not a viable status quo and this is something that any responsible government must recognise.

Tragically, the previous Rudd-Gillard-Rudd governments refused to recognise the reality and instead preferred to keep throwing taxpayers' money at an unsustainable industry. Labor consistently refused to acknowledge economic reality. Indeed, in 2013 then Prime Minister Gillard insisted that the car manufacturing industry remained viable in Australia. She reassured the workers of Ford that the government would make a special effort to assist them. There were continuing handouts to the automotive industry with $42 million of taxpayers' money paid to assist the development of two Ford Eco vehicles which, unfortunately, failed to meet the requisite environmental criteria for some state government fleets.

You would have thought that the Labor Party would learn from experience. Suggesting that additional money be thrown at industries which are unviable, unsustainable and, critically, businesses the management teams of which had decided to exit Australia in such circumstances is the height of folly, the height of irresponsibility. You would have thought that the Labor Party would have learnt from experience and would have recognised that reality. But unfortunately that was not the case.

When we saw the announcement from General Motors just before Christmas that Holden would cease manufacturing vehicles in Australia, what was the response from the Leader of the Opposition? In February 2014 he said:

Government subsidies for car makers are essential for keeping manufacturing alive.

He was determined to keep throwing taxpayers' money at that industry. He was determined to wilfully close his eyes to the evidence even from the managers of the businesses themselves that this was not a sustainable industry.

What did we hear from former Rudd government minister Senator Carr—Kim Il Carr as he is known quite appropriately? He made the completely unsubstantiated claim that the Coalition could save Holden for as little as $150 million a year and could secure the entire Australian automotive industry by spending double that—just spend a bit more. Despite the fact that the management teams of these companies were saying 'this is not a sustainable business', as far as SenatorKim Carr was concerned, if we just spent a little bit more and a bit more then we could solve this problem. It was a wilful refusal to acknowledge reality.

It is very important to acknowledge that senior General Motors executives said the decision to exit manufacturing in Australia was driven by basic scale economics, not by government incentives or by reductions in them. The decisions to exit manufacturing in Australia by 2016 in the case of Ford and by 2017 in the case of Holden and Toyota, were taken by the manufacturers themselves. All three manufacturers indicated that the level of government support was not the reason for their decision to cease manufacturing vehicles in Australia. But the Labor Party remained wilfully blind to the economic realities. Why? Because in part, as usual, they were dancing to the tunes of the union masters.

What did we hear from the former secretary of the Australian Workers Union? In 2012 he gave a speech at the National Press Club complaining that manufacturing jobs had disappeared. What was his solution? Unsurprisingly, it was more government assistance for the car industry and for the manufacturing industry. He went on to say:

The Australian Workers Union does not want to see Australian industry to lose. We want Australian industry to win. We want Australia to rediscover its industrial policy vision.

What is that code for? I will tell you what that is code for: that is code for more taxpayers' money being shovelled in to subsidise an industry which is manifestly uncompetitive. Let us be clear. Of course we want Australian industry to succeed. Of course we want Australian manufacturers to prosper. But it is a fool's paradise to imagine that manufacturing can prosper on the basis of subsidies from government. Manufacturers need to be competitive and they need to be world competitive if they are to survive. There are plenty of instances of Australian manufacturers being innovative, being world competitive. But they need to find market segments where they can compete and they need to do it on the basis of their own expertise, knowledge and capacity—not on the basis of decisions made in Canberra. The Abbott government recognises that competitiveness is critical for our economy. To promote competitiveness, we need to move away from a mindset of dependency and play to our strengths.

This bill is one which will make sensible savings in public expenditure by reducing an ongoing subsidy to an uncompetitive industry. The automotive transformation scheme will close from 1 January 2018 after motor vehicle manufacturing in Australia ceases. This bill amends the automotive transformation scheme legislation to give effect to this decision. Savings of some $900 million in total will be achieved and will be directed to repairingthe budget bottom line, filling the yawning chasm of deficit we were left by the previous government and to fund other important government priorities. But approximately $700 million remains in assistance for this industry.

This is an important bill which secures economies and recognises the economic reality, the reality that the other side of politics wants to stay wilfully blind to. This is not an industry in which we can remain competitive on the present terms.