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Play the game, says Holden boss

Be aware: Holden boss Mike Devereux says he understands why Australia doesn't protect its car industry as viciously as some other countries, but it doesn't change the fact that the US and Germany allocate far more tax dollars to it per person than we do.

Government protection of domestic auto industry is the global norm, says Holden boss

Holden logo24 Jun 2013

IT IS “fairytale” stuff to think the domestic car industry can flourish here with the world’s lowest tariffs and the world’s lowest level of government assistance, according to GM Holden chairman and managing director Mike Devereux.

Mr Devereux told a meeting of the American Chamber of Commerce in Australia last week that so long as other governments “viciously” protected their own car industries, ours must pay heed if it wants to encourage continued investment.

“Australia doesn’t play the game that way, and I understand why. We have a very different code of ethics both in business, in government and the media,” he said.

“We play the game honestly, whether it’s emissions, whether it’s free trade, whether it’s taxing.”

Unfortunately, says Mr Devereux, “the world is not a nice place”, and Australia has to be aware that the level of direct government assistance to car-makers here is, according to Holden, much lower than in the US and Germany.

“Countries are vicious in the protection of their industries, and I think to ignore this stuff is just illogical,” he said. “Every country plays this game in a relatively sophisticated, direct way.

“For us not to play the game as aggressively as every other country in the world and assume we can have relatively high input costs – labour, electricity and transport – almost zero tariffs and low government assistance and that everything will be okay, that is a fairytale land that we do not live in. I don’t live in it.

“There are structural historic things that are before us and to ignore that reality puts us all at peril for what type of country this might be five or 10 years from now.”

Mr Devereux said that whenever assistance to the car industry was discussed, it was always about how much money is handed out in Australia each year, with no reference to what happens overseas.

“And it amounts to $17.80 (of taxpayer money) per person, but the discussion never focuses on other countries,” he said.

“In the US the cost per person is $250 compared to $17.80 here and in Germany it’s $95. The focus on the amount is a constant negative that has created image problems for the industry here.”

 center imageFrom top: GM Holden chairman and managing director Mike Devereux and VF Commodore production.

Assistance to car-makers comes generally in the form of tariffs, cash grants or even tax audits for people who buy imported vehicles.

The Holden boss also argued there were other policies that essentially amount to protection. In one country, where the insurance companies are government-owned, the premium on an imported car is 2.5 times the premium for a locally made car.

“That’s not really newsworthy because it’s not sexy, but it is government assistance,” he said.

Holden is already planning for the next-generation Commodore replacement, with speculation rife that it will move to a slightly smaller global front-wheel-drive platform.

In the meantime, Holden has received $275 million in state and federal grants, and has made a $1 billion commitment to develop the next Australian Cruze small car.

But the company last week said its future production was under threat from high costs that make it uncompetitive to build cars in Australia. Holden last week flagged pay cuts and even more possible job losses ahead of a radical move to save its Australian car-making business.

"We need to be making final decisions on the investments later this year," said Mr Devereux at the Chamber of Commerce briefing.

Mr Devereux said that for car manufacturing to continue here into the longer term, three things were needed.

The first was that the local car-makers needed to make cars Australians wanted to buy, which Mr Devereux says Holden has better addressed with the current Cruze and cheaper and more hi-tech VF Commodore.

Second, he said the industry needed to make every effort to be as efficient as possible before accepting any taxpayer grants.

Third, the industry needs clear, consistent and competitive government policy over long periods of time.

Mr Devereux said GM Holden was the only local car-maker to have detailed the amount of assistance it had received in the last 12 years – $1.8 billion total.

“That $1.8 billion (in grants) generated $32.7 billion of economic activity in paying people to move things, buying parts from suppliers, employing people, and hundreds of millions in PAYG tax,” he said.

“If we didn’t have car-making here, there would be a $32 billion hole in the economy that would have to be filled by Australians doing something else.

“Yes, it’s a lot of money, but the ecosystem of manufacturing automobiles in this country generates a massive amount of scale in logistics, the supply chain, basic skills for metalworking, and that’s why 19 of the Group of 20 countries have an automotive industry.

“And the only G20 that does not make cars, Saudi Arabia, wants to make cars because it doesn’t want to just be a hole in the ground.

“They want their people to be able to make things for the day when isn’t any oil in the ground. They think like this.

“They are looking 100 years ahead and asking what will this country look like?“I’m not saying we need to look 100 years ahead, but we certainly need to look five, 10, 15 years ahead.”

Mr Devereux said the UK was a shining example of what assistance could achieve.

After watching annual vehicle production slide from a peak of 1.9 million in the 1970s to around 900,000 10 years ago, the UK started a co-investment scheme.

“They have a regional development fund that has attracted $10 billion of foreign and direct investment in the last two years,” he said.

“They do have economies of scale that we don’t have here and they do have direct access to the EU and they have a 10 per cent tariff wall.

“They have a relatively sophisticated approach to it. It has been a remarkable turnaround.”

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