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Anger over PC report

No drive: The Productivity Commission does not believe hybrid cars should be built in Australia and that we should not be concerned about losing local manufacturing because of the resources boom.

Rudd dismissive and FCAI ropable over Productivity Commission auto findings

General News logo10 Jun 2008

PRIME Minister Kevin Rudd and his industry minister Kim Carr are in Japan and the US respectively to shore up support for the Australian automotive industry less than a week after a report by the nation’s independent Productivity Commission found that the resources boom will compensate for any potential downturn in the local car export industry.

The PC’s econometric modelling of Australia’s largest manufacturing industry, released on June 5 after being commissioned by the major review of Australia’s automotive industry headed by Steve Bracks, was roundly attacked by the Federal Chamber of Automotive Industries as being flawed.

The report was released on world environment day – the same day Mr Rudd addressed federal parliament with a speech that the FCAI said demonstrated the PM understood the car industry better than the Commission.

The FCAI, the Australian car industry’s peak representative body, said the PC report ignores a number of key factors in its economic modelling and makes it apparent why the federal government did not choose the PC to conduct the first major review of the Australian auto industry since 2002.

Mr Bracks is due to hand down his review’s final report on July 31 and will either support or reject the findings of the PC, which claims the planned reduction in new-car import duty will not cause a reduction in overall productivity because the mining sector will compensate for any shortfall.

The finding is precisely what General Motors Asia Pacific president Nick Reilly warned against in a press conference during his visit to GM Holden’s Port Melbourne facility in May, when he said Australia should not let its manufacturing industry die just because other parts of the economy were booming.

“The economy has done very well because of the boom in commodities and that has led to the strength in the Australian dollar, which is fine, but it is going to affect manufacturing generally and Australia has to have an export component to its manufacturing whether it be cars or anything else,” he said.

80 center imageLeft: Prime Minister Kevin Rudd.

“Nobody will be pleased in five years' time if commodity prices drop, the Australian dollar drops and we are looking for trade out of Australia and we don’t have a manufacturing industry here any longer.

“You need to be very cognisant of that and take steps to make sure that you don’t lose your manufacturing base.

“My personal view is that you have to be mixed and if you get over-reliant on one element of it and that element goes negative you can be in a real weakness.” The FCAI was quick to pounce on the PC report, which concluded that the federal Labor government’s promised $500 million Green Car Innovation Fund “is unlikely to lead either to innovation spill over or lower greenhouse emissions” and that Australians should be reliant on imported, rather than locally built, hybrid vehicles.

“Based on the prime minister’s speech in parliament and the commission’s econometric modelling of the industry, Kevin Rudd has a much better understanding of the industry than the Productivity Commission,” said FCAI chief executive Andrew McKellar in a press release issued the same day.

“To state that an innovation fund aimed at reducing emissions will not result in innovation or reduced emissions shows the commission’s poor understanding of the competitive influences in the industry.

“The commission’s report ignores the fact that the automotive industry is Australia’s most valuable exporter after mining and that product innovation is essential to maintaining global competitiveness.” The FCAI said it was “deeply concerned” that the PC concludes that the closure of more manufacturing facilities in Australia “can also help remaining firms to reduce their unit costs of production and improve their viability”.

“This statement is extremely disturbing for the industry because it is based on the false assumption that the cost to the economy of the closure of one or more vehicle manufacturers will be picked up by other car makers in the economy,” Mr McKellar said.

“There is absolutely no evidence from the industry’s restructuring over the past 25 years that could be used to justify this assertion.” The FCAI said it will commission independent analysis into the impact of government policy decisions on the industry and the economy, and dismisses the PC’s estimate that “each job saved in the industry requires around $300,000 in support each year from the Australian community”.

“This assumes that if the government abolished tariffs and the investment support program that employment in the automotive industry would contract by seven per cent but the outcome would be far worse and possibly cut jobs by 100 per cent,” said Mr McKellar.

In a separate announcement the same day, the FCAI welcomed the government’s pledged green car fund, due to commence in 2011, assured the PM it can “meet the challenges of producing more environmentally friendly vehicles” and endorsed Mr Rudd’s world environment day vision, to “help motorists and the environment”.

“The three Australian manufacturers are already improving the fuel economy and emissions from their vehicles but we acknowledge that more can be done,” said Mr McKellar.

“The local industry is ready to take on these global challenges and it is why the outcomes of the current review will be critical to the future of Australian car manufacturing.

“The Green Car Innovation Fund will assist car makers switch to more efficient vehicles and is a good example of the Government showing that it is serious about supporting local manufacturing and responding to climate change,” he said.

In his world environment day ministerial speech earlier that afternoon titled ‘Towards a new car plan for Australia’s future: More fuel-efficient cars to help motorists and the environment’, Mr Rudd revealed three “pillars of action” by which his government would tackle climate change.

“Reducing Australia’s greenhouse gas emissions at least cost adapting to the impacts of climate change we can’t avoid and helping shape a global solution, which is why my first official act as prime minister was to ratify the Kyoto protocol,” he said.

“We are committed to reducing greenhouse gas emissions by 60 per cent on 2000 levels by 2050. We will implement emissions trading as the primary mechanism for achieving this target. And the government will develop additional complementary measures that help reduce overall costs. We recognise that the adjustment will not be easy.

“Australia needs a car industry. Australia needs a car industry that uses frontier technologies to increase fuel efficiency and reduce greenhouse emissions. Australia needs a car industry clever enough and far-sighted enough to make motoring more affordable to working families and less costly to the planet.

“Innovation will be central to a new car plan for Australia, so will the needs of working families, working Australians and those doing it tough. We will boost our manufacturing capacity. We will be protecting our environment. It will be a plan for the future. It will be a plan for the long-term future and a plan for a new generation of greener, more fuel-efficient cars.”

Prime Minister Kevin Rudd's address to the nation on Thursday, June 5:

“Today is World Environment Day. It is an important time for us all to recognise that our future economic prosperity is intimately linked with the ongoing health of our environment. Nowhere is this more apparent than in the challenge of climate change.

Because the impacts of climate change will have serious and irreversible economic consequences for the entire planet, apart from environmental consequences.

In Australia, the effects of climate change are already a reality: we have been experiencing the worst drought in living memory and our inland rivers are running dry. CSIRO predicts that the situation will get worse, with lower rainfall and higher temperatures.

Climate change is the challenge of our generation. But it’s also an opportunity to build a modern Australia, so we can meet the challenges of the future. The costs of action are far less than the costs of inaction and economic modelling confirms that we can achieve significant emission reductions while maintaining strong economic growth.

This year the theme of World Environment Day is ‘Kick the habit: towards a low carbon economy’. The challenge for us is an economic challenge. To ensure a smooth transition to a low-carbon economy. To reduce emissions at least cost to the economy and to help develop the technologies and the industries of the future. The costs to the economy and the community will be less if we act responsibly now.

The government has a comprehensive strategy for tackling climate change built on three pillars of action: reducing Australia’s greenhouse gas emissions at least cost adapting to the impacts of climate change we can’t avoid and helping shape a global solution—which is why my first official act as Prime Minister was to ratify the Kyoto protocol.

Reducing Australia’s greenhouse gas emissions at least cost Adapting to the impacts of climate change we can’t avoid and helping shape a global solution, which is why my first official act as prime minister was to ratify the Kyoto protocol.

We are committed to reducing greenhouse gas emissions by 60 per cent on 2000 levels by 2050. We will implement emissions trading as the primary mechanism for achieving this target. And the government will develop additional complementary measures that help reduce overall costs. We recognise that the adjustment will not be easy. Rising energy and petrol prices are already hurting Australian families and Australian businesses.

That’s why we’re: helping Australians take practical action to improve energy efficiency and save money in their homes with rebates, low-interest loans, energy-saving standards and better information and supporting investment in developing and commercialising new low-emission technology like carbon capture and storage, solar thermal and geothermal energy technologies.

And we’ll be developing additional measures to help as emissions trading comes in. The government is committed to helping Australian families and businesses make the transition to a low-carbon economy and to help all Australians do the same. One part of our response to climate change involves the development of more fuel-efficient transport.

Australia needs a car industry. Australia needs a car industry that uses frontier technologies to increase fuel efficiency and reduce greenhouse emissions. Australia needs a car industry clever enough and far-sighted enough to make motoring more affordable to working families and less costly to the planet.

Petrol is expensive. It takes a big chunk out of household budgets. It adds to the pressure on working families. And it isn’t a new problem. There have been plenty of ups and downs, but the trend is clear. Unleaded hasn’t been less than 80 cents a litre since 2000. It hasn’t been less than a dollar since 2004. Over the last 12 months, it has averaged $1.34.

Huge countries like China and India are industrialising fast. Living standards are rising around the world. More and more people are chasing less and less oil. There is no denying that demand is on the rise.

According to the International Energy Agency, the transport sector’s share of oil consumption has been increasing steadily at around 0.5 per cent a year, mainly due to the growing number of road vehicles.

The global car fleet increased tenfold from 53 million in 1950 to 532 million in 2000. The best guess is that there are 622 million passenger vehicles on the world’s roads today, and a few years ago the OECD predicted we would have a billion cars by 2030.

Increasing demand isn’t just pushing up petrol prices. It is also threatening the environment. Worldwide transport sector CO2 emissions grew by 1.4 billion tonnes—or 31 per cent—between 1990 and 2003 (ITF-OECD).

If we are serious about tackling climate change, we have to start driving cleaner and greener. That means increasing the fuel efficiency of cars. It means developing new vehicle technologies and using alternative fuels. This is not about demonising cars and motorists. It’s about ensuring that the car remains a viable, affordable, environmentally sustainable transport option.

Let’s not forget why cars became so central to our lives in the first place. The humble family sedan has helped us conquer the tyranny of distance. It has given us a degree of freedom unimaginable to our ancestors. It has increased prosperity and equity by giving all Australians access to a wider range of goods and services.

It has made it easier to stay in touch with family and friends. It has been an important social dividend. But if we want to go on reaping these benefits—if we want our children to enjoy the same kind of personal mobility that we have—we have to get smarter about how we build cars and how we use them. And that’s where the Australian automotive industry comes in.

Ford Australia boss Bill Osborne has suggested we are one of only fourteen countries worldwide with the know-how to design, engineer and manufacture a car from scratch. We should be using that know-how to develop new car solutions not just for Australia, but for the world.

There is no denying the industry’s capabilities. It employs 66,000 skilled workers and accounts for 17 per cent of R&D investment in the manufacturing sector. Its demand for sophisticated services, materials and intermediate inputs drives innovation across the economy.

Yet it is also an industry at the crossroads. Since 1996, the industry has lost over 11,000 jobs. Earlier this year, we lost Mitsubishi in Adelaide. And it is likely that there will be further rationalisation in the sector in the future.

But the sector is also looking for new opportunities and a new growth path in a changing global environment. Creating a new generation of fuel-efficient cars may not only make motoring more affordable and reduce our carbon footprint. It may also revitalise the Australian automotive industry.

These are all things worth fighting for. These are things which the Australian government stands ready to fight for in partnership with the automotive industry.

International trends

Rising petrol prices and environmental concerns are not unique to Australia. They are driving what KPMG calls a tectonic shift in consumer demand towards greater fuel efficiency right around the world. Fuel efficient does not necessarily mean small.

People are demanding lower fuel consumption in every vehicle class. The two fastest-growing segments in most markets are small cars and SUVs. Australia is no exception to this bipolar trend. It is unclear how long our love affair with the SUV will last.

Only this week, GM in the US announced a dramatic readjustment to its product mix in response to higher fuel prices and changing consumer preferences. It will close four North American truck and SUV plants and focus of fuel-efficient vehicles—including a new petrol-powered four-cylinder compact, an expanded range of hybrids, and the electric Chevy Volt.

These changing preferences—or at least the trend towards smaller cars and smaller engines—are reflected in the emission figures. In the decade from 1995 and 2004, average emissions from new cars sold in the EU-15 fell from 186 grams of CO2 per kilometre to 163 grams. In Australia, CO2 emissions have fallen 10 per cent, from 252 grams per kilometre in 2002 to 226 grams last year. These are encouraging trends, but we need to do much better.

Under the bonnet

Much of the focus around the world is on alternative fuels. Ethanol and other biofuels have several advantages. They are renewable, they can be blended with traditional fuels for use in existing vehicles, and they can be distributed through existing channels.

On the downside, conflicts can occur when agricultural land or wilderness is turned over to growing biofuel feedstocks. Clean diesel is hardly an alternative fuel in Europe, where half of all new cars are diesel powered, but it is still a novelty in light vehicles elsewhere. Diesel produces 25 per cent less CO2 than petrol, but more nitrogen oxides and particulates.

The modification of existing vehicles or vehicle designs for LPG is straightforward. Gas is a less efficient fuel than petrol, but, because it is significantly cheaper, using gas can still result in lower running costs.

LPG is a good short-term alternative to petrol, which is why we have retained the LPG vehicle scheme. Hybrid cars have been capturing the headlines since Toyota released the Prius in 1997.

PricewaterhouseCoopers estimates that 541,000 full hybrids were produced in 2007, and that this should quadruple to 2.2 million by 2015. Further down the track there is hydrogen. There is a general expectation in the industry that hydrogen fuel cells are the technology of the future.

There are plenty of other fuel-efficient ideas we can exploit right now. We can make vehicles lighter and more aerodynamic. We can downsize engines. We can supercharge and we can turbo-charge. These are all important measures.

The Australian Industry

Is the Australian automotive industry equal to the affordability challenge? Is it equal to the challenge of climate change? We on this side of the House believe that it is.

The transformation of this industry over the past 25 years has been astonishing. Today the industry is export focused and innovation driven. It is increasingly integrated into global supply chains. It has earned a place at the international table on the strength of its engineering and its design.

This is due in no small part to the visionary industry policy of the Hawke government—known, in honour of its chief architect, as the Button car plan. Tough decisions had to be taken and big investments had to be made to improve efficiency and productivity. The challenges facing the industry 20 years ago have in large part been addressed. Now there are new challenges.

Can the industry reinvent itself once more? We believe it can. The process has already begun. Holden offers a dual-fuel petrol-LPG variant of its Alloytec V6, while Ford produces vehicles with a dedicated LPG E-Gas engine. Ford has also announced that it will be assembling the four-cylinder Focus in Australia from 2011 and renewing its commitment to exports. Toyota already produces a four-cylinder Camry here.

Globally, the company has stolen a march on its rivals in hybrid technology, and it is doing exceptionally well in the domestic market. All three domestic manufacturers recognise that their survival as niche players in a cutthroat global market depends on their capacity to innovate.

Towards a new car plan for Australia’s future

The government’s view is that we need an Australian automotive sector that is sustainable in all senses – economic, social and environmental. It is to boost productivity, innovation, exports and skills by harnessing the creativity of every player in the industry.

Two decades ago the industry needed a plan to consolidate, increase its efficiency and lift its international competitiveness. Today it needs a new plan to drive the development of next-generation, fuel-efficient vehicles – to help motorists’ budgets and to help the environment. That is why, in planning for the future, fuel efficiency, including hybrid technology, will lie at the heart of a new car plan for Australia to help motorists and to help the environment.

The Australian government has commissioned a review of the Australian automotive industry to help inform policy settings. Like any new area of government policy, there will be a range of views on industry and climate change policy settings. There always will be, there always have been and there are today as well.

Departments, agencies, industry, academics, and non-government agencies often have different views on policy and all have something to contribute to the debate. Some argue for an activist industry policy. Others will argue against such a policy.

Governments of all persuasions have recognised the need for balanced policy when it comes to the car industry – for regular review and for assessing the situation each time in light of the prevailing economic conditions.

For example, in 1997 the Howard government decided not to proceed with planned tariff reductions because it thought industry needed more time to adjust.

In 2002, the Howard government decided on an industry support program – the Automotive Competitiveness and Investment Scheme – that it described as going ‘far beyond what was recommended by the Productivity Commission review’.

Now there are new considerations for industry and climate change policies: the global challenge of climate change and the need to reduce carbon emissions and the challenge of rising fuel costs and the need to reduce fuel consumption.

The government’s view is that we cannot stand to one side as these challenges emerge. The government has a responsibility to act, in partnership with industry – working with industry to address the environmental challenge and the fuel challenge faced by motorists.

The government has already demonstrated its intention to act in this area, establishing the $500 million – the half-billion dollar – Green Car Innovation Fund. The fund will operate for five years from 2011 to accelerate the development and manufacture of low-emission and fuel-efficient vehicles in Australia.

The government will contribute $1 from the fund for every $3 put up by industry. The government will not be committing the entire fund to one vehicle, company or technology. Any idea with a serious chance of reducing the carbon and other environmental impacts of Australia’s vehicle fleet will get a hearing.

When all is said and done, we do not just want a green car we want a green car industry—an industry that can provide secure, high-skill, high-wage jobs by meeting the global demand for a wide range of greenhouse-friendly technologies, and an industry that is itself a model of clean and green production.

As an added incentive, the government has issued a green car challenge to the local industry, pledging to purchase value-for-money, environmentally sensitive vehicles for the Commonwealth fleet if they are produced in Australia.

We could see 4,000 green cars in the Commonwealth fleet by 2020. Going green will mean lower operating costs for the government, just as it will for motorists struggling under the pressure of high petrol prices.

At today’s fuel prices, a family currently driving 20,000 km a year in a conventional six-cylinder petrol car that achieved 11 litres per 100 kilometres could expect to save somewhere between $300 and $1,100 per annum on fuel costs by switching to green car technologies.

For a high-tech, green, petrol-powered car of the same size with cylinder deactivation, turbo-charging or direct injection, the saving could be $330 a year. For a diesel car it could be $374 a year.

For an LPG powered car it could be $1,092 a year. As for petrol-electric hybrids, the saving could be $990 a year. Multiply these savings over the life of the vehicle, and you begin to make a real difference to the family budget.

Above the bonnet

What about above the bonnet as well? Advances in vehicle technology will be critical to increasing fuel efficiency and reducing greenhouse emissions, but they can never be the whole story. Producing green cars must be part of a larger effort to reduce greenhouse emissions across the board.

That is what our emissions-trading system will do. Emissions trading will be the biggest economic and structural reform in Australia since the 1980s. It will take some adjusting to. There can be no doubt, however, that the cost to business and Australian families, and Australian workers more generally, will be far greater if we fail to act than if we take responsible action now.

One way to minimise greenhouse gas emissions is to keep the traffic moving. To do that, we need well-planned cities and good transport infrastructure. That is why the government is committed to a more integrated and coordinated approach to city management and development.

We have also established Infrastructure Australia to audit our infrastructure needs and prioritise infrastructure investments around the country. We have announced the establishment of the $20 billion Building Australia Fund, which will invest in nation-building, productivity-boosting, congestion-clearing infrastructure from 2009-10. Infrastructure Australia’s investigations will guide how money from the fund is spent.

Finally, we can green Australian motoring by giving motorists better information that will help them buy and drive with fuel efficiency in mind.

The future

Greening Australian motoring will require continuous innovation. A steady supply of fresh ideas will be required to create and sustain a fuel-efficient and environmentally friendly car industry here in Australia.

Participants in the sustainability stream at the 2020 Summit stressed the need for rapid development of low-emission technologies. They argued for a significant increase in R&D to drive innovation.

Innovation is often about radical, long-term change. It can also be about incremental change with short-term pay-offs. The King review commissioned by the UK government concluded that fuel consumption for new vehicles could be cut by 30 per cent within the next five to 10 years using existing technologies. Such innovations here would mean real benefits for Australian motorists, for Australian industry, for Australian jobs and for the planet.

It is a transformation that can begin right now in 2008 as we forge a new plan for the Australian car industry based on the findings of the review which is currently underway.

This is an important policy direction for the future, as is a policy direction to enhance our investment in urban infrastructure. As I have said in this place before, how is it that we reached the 21st century with our major cities in this country still unable to boast one significant metro system among them? This is a priority which must be addressed for the future – helping motorists with more fuel-efficient cars but also helping reduce the commuting time for those cars on the road.

Innovation will be central to a new car plan for Australia, so will the needs of working families, working Australians and those doing it tough. We will boost our manufacturing capacity. We will be protecting our environment. It will be a plan for the future. It will be a plan for the long-term future and a plan for a new generation of greener, more fuel-efficient cars.”

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