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Bearded and bearish in his dark, three-piece suit, Kim Carr, Minister for Innovation, Industry, Science and Research, leans forward and finger-taps the desk to add emphasis to his words: “It is an industry that I believe this country can’t afford to lose,” he says. The Senator from Victoria is talking about the Australian car making industry. And Carr undoubtedly is able to influence whether the nation’s three remaining manufacturers – Ford, Holden and Toyota – stay put or, like Mitsubishi in March, shut down their production lines.

It’s onto Kim Carr’s desk that a heavy document will drop with a dull thud in late July this year. Officially titled the Review of Australia’s Automotive Industry 2008, it’s more commonly called the Bracks Review. Former Premier of Victoria Steve Bracks, aided by a panel of four experts, is the man in charge of taking a long, hard look at the Australian car industry. Once his review is delivered, there will be a wait of several months while the Industry Minister and his Labor government colleagues in Canberra decide what should be changed. Carr expects that a white paper outlining the government’s fresh new package of automotive industry policies will be ready sometime before the end of the year.


While Carr doesn’t want to discuss the Bracks Review’s possible findings or speculate on the policies that might follow from it, he’s happy to explain exactly why he believes car manufacturing is so damned important. “This is a business that produces in excess of $27 billion per annum of economic activity,” he says. The car industry is a major contributor to Gross Domestic Product (especially in the car-factory states of Victoria and South Australia), its exports earn more than $5 billion a year (more than any of our agricultural products, and second only to minerals), the business is very good for Australia’s balance of payments, it’s a high spender on research and development, and it generates big-time tax revenue. And don’t forget, Carr continues, that the industry’s economic reach is huge. Car makers are important customers of other Australian industries, including glass, plastics, steel and electronics.

Move on to the social benefits of having a car industry in Australia, and Carr shifts up a gear, planting the passion pedal at the same time. “It’s high-quality employment,” he says of the 65,000 or so jobs in the automotive sector, around 15,000 employed directly by Ford, Holden and Toyota. “Manufacturing employment is to be highly valued.” Carr also understands the car industry means more than work on the production line. “It’s an industry that attracts enormously passionate people, who are committed to it as an art, in some senses,” he observes.

“Now, there are 12 countries around the world that are able to make a car, from conception through to production,” Carr says. “We’re one of them. Do we want to remain one of them?”

This is the big question. And answering it takes more than a word or two...

It’s not hard to find reasons to be pessimistic about the future of Australia’s car industry. Andrew McKellar, chief executive of the Federal Chamber of Automotive Industries, says the “competitive environment” in which Australia’s car makers operate is changing fast. The FCAI, based in Canberra and representing all car manufacturers and importers, pinpoints three major issues in its submission to the Bracks Review; the sustained appreciation of the Australian dollar, rising fuel prices and the effect this is having on consumer preferences, and the global nature of the commercial pressures affecting car makers (like those faced by Mitsubishi in Japan as it decided what to do with its Adelaide factory). These, truly, are major problems.


The strength of the minerals boom-boosted Australian dollar makes imported cars more affordable here, and cars made here more expensive in the export markets where an increasing proportion are sold. According to McKellar, these days more than 40 percent of the cars made in Australia are shipped to customers overseas. For Toyota, the strongest exporter, this is a problem. “We didn’t expect the Aussie dollar would become such a strong currency,” says the Harvard-educated president and chief executive officer of Toyota Motor Corporation Australia, Max Yasuda. “No economist expected this to happen.” At the bottom line, the effect of the sky-high dollar is to turn black ink to red. An export program that was a nice earner at 2002 exchange rates is a guaranteed loser now.

The steeply rising price of fuel is denting the appeal of the large, six-cylinder Falcon, Commodore and Aurion models that are important to all three local manufacturers. Even before the crude oil price crunch, buyers were deserting big, Australian-made sedans, tempted by the ever-growing range of alternatives offered by the ever-increasing number of imported brands. With the price of a litre of regular unleaded petrol above $1.50, this trend is accelerating hard. To date in 2008, Australians have bought as many Thai-made as home-made vehicles. Japanese-made cars are now Australia’s firm favourite, selling at more than double the rate of locally made models.

Finally, all three of Australia’s car makers are wholly owned subsidiaries of global companies. If their parents in the USA or Japan catch cold, there’ll be runny noses at the Australian factories of Ford, Holden and Toyota.

As the Australian car industry struggles to deal with these threats, there’s an insistent chorus of criticism from often self-appointed experts. The country’s assembly lines turn out stupid cars of mediocre quality, they say, all the while enjoying massive hand-outs from government. We’d all be better off, they stridently conclude, if all the cars sold here were imported.



The Industry Minister is familiar with the argument, and regards it with something close to contempt. “I call them the ‘Economics Club’,” Carr begins. They believe, he says, that Australian manufacturing shouldn’t be supported by government, that the country should instead focus on digging up minerals, and tourism.

“I say that we need a balanced economy,” Carr counter-attacks. “I say that advanced industrial countries around the world don’t share the view of the Economics Club, articulated in the editorials of some of our dailies and which show an acute hostility to the automotive industry.”

But it’s stuff you won’t read in the daily papers that should be of concern to those who, like Carr, care deeply about the future of car making in this country. In candid moments, and strictly off the record, experienced senior people from each of the nation’s three surviving car makers have confided their concerns. That car making simply won’t be viable here a decade from now the way things are going; that if production lines shut down, desirable and highly skilled jobs in product design, engineering and development will inevitably go, too; that the new government’s planned Green Car Innovation Fund seems to be a flawed and almost unworkable policy.

On the record comments, from people with genuine expertise, are not much more reassuring. “We’re on a knife-edge right now, I think,” Subaru Australia chairman Trevor Amery says of the local automotive industry. Although he heads an import-only business, this experienced executive’s personal belief is that Australia should nurture its car makers. “My preference is to find a way to keep local manufacturing in Australia viable,” he says. While from “a pure economic point of view” there may be no need for a car industry, Amery points out that we don’t ‘need’ to participate in the Olympic Games, either.

If lost, it’ll be for keeps, warns Robert McEniry. The Mitsubishi Motors Australia Limited president and chief executive officer knows what he’s talking about; he was the man who made the decision early this year that Mitsubishi’s assembly plant in the Adelaide suburb of Tonsley Park should be closed down. He knows the brand won’t ever return to manufacturing here, and worries that others may suffer a similar fate.



“If the automotive manufacturing industry was to significantly decline,” McEniry says, “then there are a lot of skills and opportunities that are lost, and will never be recovered”. The problem is that other countries are also striving to make themselves an attractive home for car makers’ millions.

While the Bracks Review will hear a broad variety of opinions before formulating its recommendations to the Federal Government, it’s the policy decisions that inevitably will follow that are what really counts. These will deal with three main areas; assistance, protection, and incentives to hasten innovation.

First, and perhaps most important, is the assistance package. It’s currently known as the Automotive Competitiveness and Investment Scheme. “In general terms, you’d have to say that the industry would not be here without ACIS,” says Kim Carr, bluntly.

Devised by the previous government, ACIS was designed to deliver assistance valued at $7.2 billion over a 15 year period from 2001. The workings of the scheme are so complicated that it’s poorly understood both inside and outside the car business.

The complex nature of ACIS, and the way politicians talk about it, is behind the widespread public perception that the Australian car industry sucks vampire-like on the nation’s lifeblood, Rob McEniry believes. There’s strong public perception that ACIS’s huge headline amount is what’s handed out each year, rather than the 15-year life of the scheme, McEniry continues.

McEniry points out that ACIS assistance isn’t in the form of cash. Rather, car makers are issued with import duty credits, which allow them to avoid paying tariffs on imported components and cars.

“The actual cash received, particularly following our repayment to the state government here, is zero,” McEniry says. “Zero dollars.” Through Mitsubishi Australia’s decade-long period of decline, its Japanese parent invested $1.8 billion in the Adelaide operation and the local economy, he continues. “That was real cash money, shareholders’ cash money.”

ACIS, which rewards production and investment, didn’t do much for Mitsubishi, says McEniry. The 380 was almost sales-proof from the moment of its 2005 launch and the parent company didn’t have a lot of money to invest in struggling subsidiary operations, like Tonsley Park. As a result, there wasn’t much ACIS aid for Mitsubishi Australia as it slid steadily downwards.

But ACIS, or its post-Bracks Review successor, is of vital importance to Australia’s three surviving car makers. “Without ACIS, it’s going to be really hard to renew cars like VE [Commodore] here,” said Mark Reuss, the American appointed General Motors Holden chairman and managing director in January. With the current generation of Holdens scheduled for a major update around 2012, Reuss says Detroit will take a close look at the Federal Government’s new policies before deciding to spend money on upgrading both the car and the factories that make it. “We’ve got product life-cycles, you know ... and if we don’t have it [ACIS], it’s a tough sell,” he says.


Ford Australia president Bill Osborne, another recently appointed American, agrees. “[With] the current ACIS scheme, the credits are extremely important to not just Ford, but to all of us in the industry,” he says. “I think it’s enlightened policy to at least maintain the framework that has kept the industry healthy ... relatively healthy ... over the last several years.”

Like Bill Osborne, Toyota Australia chief Max Yasuda hopes the Bracks Review will lead to some changes in the structure of ACIS. Specifically, to the ‘modulation’ of the scheme’s assistance levels. You don’t want to know the details – trust me on this – but the effect of modulation is that when a car maker spends a buck making a car, buying a machine tool or doing some R&D, they can’t be sure how much ACIS assistance this will earn them. It’s going to be less than a buck, for sure, but how much less varies. This uncertainty is a major problem when executives such as Osborne, Reuss and Yasuda are asking their parent companies to sign-off on major investments here.

Max Yasuda takes it a step further. The existing ACIS timetable halves the level of Federal Government assistance, from $2 billion every five years to $1 billion, from 2011. The Toyota Australia chief would like the schedule revised. “We want the current level of ACIS support to be kept for a little bit longer,” Yasuda says.



In contrast to the modulated flow of import duty credits that is ACIS, everyone understands tariffs. The current 10 percent duty charge on imported passenger vehicles adds real dollars to the price of cars not made here. The rate is scheduled, under existing policy inherited from the previous government, to be cut to five percent (the same as for SUVs or 4WDs and light-commercial vehicles at present) from 2010. All three car makers want the tariff rate for cars held at 10 percent beyond 2010. While swings in the value of the dollar can do much more damage to the business bottom line of Australian car makers, holding the tariff does provide a small and helpful buffer when times are tough.

“We really do think a tariff pause here would be helpful for the local manufacturing base,” says Holden’s Mark Reuss. “Tariffs need to be maintained as is,” says Ford’s Bill Osborne. Toyota’s Max Yasuda also wants a pause, but would understand if Canberra can’t do it. “If this (tariffs) becomes a critical issue for the Australian government, we don’t insist,” he says. “We are just asking, to consider to extend the length of tariff reduction a little while.”

Tariffs, and ACIS, are well understood by Australia’s car industry leadership. The Green Car Innovation Fund, a pre-election Labor party policy promise, is different. The idea? To set aside $500 million, to be doled out to car makers specifically for ‘green’ projects over a five-year period beginning in 2011. By car industry standards this isn’t big money, especially when it’s to be divided between component makers as well as car manufacturers...

Designed to woo environmentally concerned voters during the 2007 election campaign, the Green Car Innovation Fund is painfully short of detail. The Bracks Review is expected to make recommendations on the kind of programs that will get the money.

Ford’s Bill Osborne says it’s foolish for the government to expect that the fund might attract basic R&D programs to Australia. “Things like green car research is usually centralised,” he says. “A company of our size and our global footprint, we wouldn’t undertake research for a green car in every market in which we operate. It’s just unlikely.”


What concerns Holden’s Mark Reuss is that the fund’s millions will go only to a narrow range of technologies. “There’s not one silver bullet on this,” he says. Biofuel compatible engines, LPG-only engines, compressed natural gas-burning engines should all qualify for aid from the fund, as should projects to develop lightweight body materials and improve the energy efficiency of manufacturing. It shouldn’t be available only to build, say, a petrol electric hybrid car in Australia.

The unspoken concern here is that Toyota will claim the lion’s share of the Green Car Innovation Fund, by building a hybrid version of the next-generation Camry here from 2011. The new car will be engineered and developed in Japan and North America, as the current generation was, and Australia could simply import the parts needed to assemble a hybrid Camry variant on its Altona assembly line.

Toyota’s Max Yasuda admits that hybrid production in Australia is being considered. “We are thinking about hybrid production in this country,” he says. And how likely is it to happen? “Mmm. It’s hard to say, but I think it will have a very good chance.”

Yasuda can’t be 100 percent sure, because Toyota will wait to see the Bracks Review recommendations and the policy that follows before deciding to make the next generation Camry, hybrid included, in Australia from 2011. “This Industry Review, as I said, is very, very important to persuade our parent company to make a further investment in Australia,” he says. “We have to have a viable case to put forward.”

The bosses of the US car makers aren’t so direct.

Mark Reuss is hopeful that Holden will still be in the car-making business a decade from now. “We can make that happen.” Bill Osborne of Ford, who says he approaches every job assignment as though he’s going to retire in it, responds differently. “Let me just say, I didn’t come here to close the place down...”

Industry Minister Kim Carr knows how much is riding on the Industry Review and what will follow from it. Is he optimistic that Australia will have a car industry 10 years from now? “I am confident, if the right policy decisions are made.”



“I want to see a plan for this industry that I can say will develop over 10 years,” Carr says. “Because the lead times are so long in this industry, because the investment decisions are so large … and because the skills that come with the creation of the automobile in this country are so important to so many aspects of our economy and our society, this is very important work for all of us to be engaged in.”

Australia may have only 0.5 percent of the world’s car industry, but it also has an Industry Minister who seems genuinely 100 percent committed to holding on to what the nation has got. But will Kim Carr be able to convince the rest of Canberra to see it his way? The 65,000 people working at car-company assembly lines, component makers’ factories, engine-building plants, design studios, engineering centres, proving grounds, and administrative headquarters will be hoping he’s a very persuasive man.