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Car-makers ‘to wear carbon tax cost’

Carbon price: Toyota Australia says the carbon tax is expected to increase their manufacturing costs by up to $15 million a year – about $112 per locally manufactured vehicle.

$150-a-car carbon bill to impact Aussie motor company bottom lines, not consumers

General News logo11 Jul 2011

STRONG competition from imports is expected to force Australia’s three motor manufacturers to absorb the extra cost of the carbon tax – estimated to be between $112 and $150 a car – rather than try to pass it on to customers.

The industry says the tax will further erode the profitability of the manufacturers, who are “bleeding from the eyes” due to the high value of the Australian dollar that aids importers and discourages exports.

One of them, GM Holden, already has signalled its intention to take up “issues affecting Australia’s ability to compete globally for foreign investment” directly with the federal government.

Holden and the two other manufacturers, Toyota and Ford, are expected to be included in the “top 500 worst polluters” list of manufacturers subjected to the tax that the federal government on Sunday set at $23 per tonne of carbon dioxide.

While Toyota said the tax would add $112 to the cost of each locally built Camry or Aurion, a preliminary estimate by the Federal Chamber of Automotive Industries has set the burden at $150 a vehicle, for a total $30 million bill across the local auto manufacturing industry.

Both estimates are lower than the $220-to-$412 a vehicle suggested by PricewaterhouseCoopers Australia in a report prepared for the FCAI and Federation of Automotive Parts Manufacturers in May.

FCAI chief executive Andrew McKellar told GoAuto that, as well as the carbon tax at the manufacturing level, all vehicles – including imports – would be subject to an extra tax on air-conditioning gases that will add about $20-$23 a car or about $15 million across the industry, bringing the impost on a locally made car to about $170.

80 center imageLeft: FCAI chief executive Andrew McKellar. Below: Toyota Australia president and CEO Max Yasuda.

“So, all up, we would say the total cost is somewhere in the order of $45 million to $50 million a year for the industry as a whole,” Mr McKellar said.

“While that might not sound a lot per car, there wouldn’t be too many brands that would be in a position to pass that on to consumers, certainly not the local manufacturers.

“They will wear that in their margins and in their reduced profitability, and that is not a good thing when it comes to competing for capital from their global parent companies.”

Mr McKellar said the FCAI had urged the government to offset the costs of the tax on local manufacturing industry and start with a nominal carbon tax of $10 or less per tonne.

Neither of these requests had eventuated in the tax package announced by the Gillard government at the weekend, he said.

Mr McKellar said initiatives to encourage the uptake of low emissions technologies by industry – also urged by the motor industry – were a positive aspect of the tax package, but those measures failed to make up for the loss of the Green Car Innovation Fund that has been killed off by the federal government.

“If anything, it doesn’t even take us back to where we were a year ago, but we still have the additional cost coming on to industry,” he said.

“Those are issues which concern us and it won’t make it any easier to secure future investment mandates here in Australia.

“The main impact of those cost increases will be to erode margins and profitability, even more so than they already are.

“It is fair to say that at the moment local manufacturers are bleeding from the eyes from the strong value of the Australian dollar and the strong competitive pressures that they face.

“So to add additional costs to that at this stage of the economic cycle, it is not an economic reform, it is the opposite.”

Mr McKellar urged the government to reassess the impact the tax would have on industry competitiveness.

He said tax on air-conditioning gases should “go back in the melting pot for reconsideration”.

“In the next few years, the industry will be looking to replace those gases with a much lower carbon equivalent, so I think there is a technological solution there in the offing for that part of the problem,” said Mr McKellar.

“To be imposing additional cost won’t speed that process, it will just add cost, and unnecessarily.

“We urge the government to revisit those issues. There needs to be an ongoing dialogue with manufacturing industry because we really do need to rethink the sort of approach that has been put forward here if we are to avoid potentially undesirable consequences.”

Toyota, Ford and Holden all said they were still assessing the detail of the package.

However, Holden said in a statement that it did not fit the Government’s criteria as an ‘emissions-intensive, trade-exposed industry’ (EITE) and therefore would be eligible to only partly offset the impact under the Clean Technology Program.

“Specifically, Holden believes it will be able to apply for co-investment funding for its R&D (research and development) and manufacturing initiatives to help reduce emissions and improve vehicle efficiency through the Clean Technology Investment Program Investment Program, Clean Technologies Food and Foundries Investment Program andClean Technology Innovation Program,” said the Holden statement.

Holden said it supported the need to reduce its carbon footprint, and that of manufacturing in general, and believed the compensation measures were a step in the right direction.

“However, it is important to understand how much competition there will be for funding from other manufacturing sectors,” Holden said.

“It is also critical to understand the extent to which the compensation package will address the competitive disadvantage imposed on local manufacturers who compete in a market where 85 per cent of new vehicle sales are imported models.

“Over the coming days we will be reviewing the details of the scheme to better understand how the package will be implemented.

“In particular, Holden will be discussing with the government the issues affecting Australia’s ability to compete globally for foreign investment.”

Ford Australia is playing its cards closer to its chest, saying it was reviewing the anticipated impact of the carbon pricing scheme.

“Once this is finished Ford will express its views through the Australian Federal Chamber of Automotive Industries,” a Ford spokesman said.

Toyota Australia president and CEO Max Yasuda said Toyota supported action on climate change, but that the carbon tax was expected to increase Toyota Australia’s manufacturing costs by up to $15 million a year – about $112 per locally manufactured vehicle.

“The local automotive industry is currently facing difficult business conditions including the high Australian dollar, increased overseas competition and a fragile local supply chain,” he said.

“In light of these conditions and in the absence of transitional assistance for trade exposed non-energy-intensive industries, such as the automotive industry, Toyota Australia would have preferred a lower starting price ($10-$15) to ease the transition process and free-up capital to invest in low-emissions technologies.

“A high start price of $23 places Australian manufacturing at a disadvantage compared to imports and is a significant challenge for business.”

Mr Yasuda said Toyota Australia was concerned about air-conditioning gases being subject to an equivalent price outside the Clean Energy Future Scheme.

“It is inappropriate to place a cost on gases that currently have no commercially available alternative,” he said.

Mr Yasuda said the new Clean Technology Investment Program did not address the need for a co-investment program, unlike the now defunct Green Car Innovation Fund.

Australian motoring clubs have welcomed the decision to exclude petrol from the carbon tax, but they have asked the government to clarify the details, including whether other fuels are included.

RACV general manager public policy Brian Negus said that, under the tax exemption, families, tradies and small business people would not be targeted by a petrol price increase as a result of the carbon tax.

“However, RACV believes there needs to be more detail on whether these benefits will apply to commerce, industry and the broader community,” he said.

“While RACV welcomes this announcement, clarity is sought on whether other motoring fuels such as diesel, LPG and ethanol will also be exempt from the carbon tax.

“RACV also seeks details on the how this exemption will work, and whether there will be a cent-for-cent offset from fuel excise or whether petrol will simply not be included at all in a carbon tax.”

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