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DE RUEHBY #1134/01 3170405
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R 120405Z NOV 08
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 0495
INFO RUEHWL/AMEMBASSY WELLINGTON 5510
RUEHBN/AMCONSUL MELBOURNE 5750
RUEHDN/AMCONSUL SYDNEY 3958
RUEHPT/AMCONSUL PERTH 4020

UNCLAS SECTION 01 OF 02 CANBERRA 001134 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/ANP 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETRD AS
SUBJECT: NEW AUSTRALIAN CAR PLAN ANNOUNCED 
 
REF: A) Canberra 100; B) Melbourne 125 
 
¶1. (U) Summary.  On November 10, Prime Minister Kevin Rudd and 
Industry Minister Kim Carr released the GOA's response to the Bracks 
Review of the car industry. The 'New Car Plan for a Greener Future' 
aims to make the car industry more responsive to changing consumer 
demand, environmental policy and difficult world conditions. The 
plan is a A$3.2 billion, ten-year initiative to be brought forward 
to start in 2009. It is expected to stimulate A$12 billion in new 
car investment by 2020. The car industry has supported the plan; 
others are critical. While the car manufacturers have presented 
themselves as Australian as meat pie, some are criticizing handing 
over the equivalent of A$300,000 per auto company employee to three 
foreign companies. End summary. 
 
OUTLINE OF THE CAR PLAN 
 
¶2. (U) The A$7.7 billion (US$5.1 billion at current exchange rates) 
automotive industry presents itself as critical to Australia's 
economic future because it employs over 60,000 and plays a role in 
national R&D, overall exports and some defense-related capability. 
Prime Minister Rudd has said he will not "abandon" car production, 
which he sees as a "cornerstone" of manufacturing. The GOA in its 
response remained committed to cutting tariffs on imported vehicles 
as previously scheduled from 10 to 5 per cent in 2010, "resulting in 
the third-lowest tariff regime among economies with a well-developed 
automotive industry". Rudd said that Australia will continue to 
pursue a free trade agenda because the future of the industry lies 
in innovation and global integration, not industry protection with 
"old fashioned quotas and tariffs." 
 
¶3. (U) The Government's New Car Plan increases the total level of 
assistance to A$6.2 billion between 2008-09 and 2020-21, of which 
A$3 billion is already committed, and A$3.2 billion is net new 
funding. Between 2011 and 2020, the industry will receive A$3.4 
billion in an Automotive Transformation Scheme (ATS). A Green Car 
Innovation Fund of A$1.3 billion will encourage companies to 
manufacture low-emissions vehicles and move to consolidate component 
manufacturing. Overall, the plan is expected to generate $16 billion 
in investment in the industry, in new capacity and new technologies. 
The Automotive Competitiveness and Investment Scheme will smooth the 
transition to the ATS (A$79.6 million) from 2010. There is A$116.3 
million to promote structural adjustment in the components sector 
for labour market adjustment. A further A$20 million from 2009-10 
will assist suppliers integrate into national and global supply 
chains. There will be A$6.3 million from 2009-10 for an enhanced 
market access program. 
 
SOME DETAILS 
 
¶4. (U) The Automotive Transformation Scheme will replace the 
Automotive Competitiveness and Investment Scheme (ACIS) Stage 3, 
which was to run from 2011 to 2015. The new scheme puts more 
emphasis on investment in research and development to increase 
competitiveness and productivity - particularly in the supply chain. 
It will include (1) capped assistance of A$1.5 billion over 2011 to 
2015 (up from the A$1 billion planned for ACIS Stage 3); and (2) new 
capped assistance of A$1 billion over 2016 to 2020. Assistance will 
be in the form of grants rather than duty credits. Capped funding 
will continue to be split 55 per cent to vehicle producers and 45 
per cent to the supply chain. All participants will be eligible to 
claim 15 per cent of their investment in approved plant and 
equipment (the supply chain can currently claim 25 per cent and 
Qequipment (the supply chain can currently claim 25 per cent and 
vehicle producers 10 per cent). Supply chain participants will be 
eligible to claim 50 per cent of their investment in approved R&D 
(up from 45 per cent), and the list of eligible R&D activities will 
be streamlined. Recruitment and management will no longer count as 
R&D activities. 
 
ENVIRONMENTAL ASPECTS OF CAR ASSISTANCE 
 
¶5. (U) The Green Car Plan will feature an expanded A$1.3 billion 
Green Car Innovation Fund to provide Australian car companies with 
the opportunity to receive Government funding to design and sell 
environmentally friendly cars. The Innovation Fund involves the GOA 
matching industry investment in green cars on a one to three dollar 
basis over a ten year period from 2009. The Green Car Plan is part 
of the GOA's green investment strategy to "transform Australia's 
economy into a low-carbon emission, internationally-competitive 
economy of the future". It aims to support the production in 
Australia of "competitive, low-emission, fuel-efficient vehicles in 
Australia". Further, a A$10.5 million expansion of the LPG vehicle 
scheme immediately doubles payments to purchasers of new vehicles 
using LPG technology. 
 
INDUSTRY AND UNION RESPONSES TO THE CAR PLAN 
 
 
CANBERRA 00001134  002 OF 002 
 
 
¶6. (U) Australia's car industry has welcomed the GOA's plan to take 
the sector to 2020. Ford Australia President Marin Burela is 
encouraged by the Government's announcement. Ford announced last 
month it would shed 450 workers in Melbourne and Geelong; now Burela 
says he does not see any need for further job cuts. GM/Holden 
Chairman Mark Reuss also greeted the report, saying it encouraged 
long term innovation and investment. The Federal Chamber of 
Automotive Industries says the onus is now on manufacturers to 
embrace more environmentally friendly technologies. The Australian 
Manufacturing Workers Union unsurprisingly supports the car plan 
since it could attract more than A$16 billion in investment to the 
industry and perhaps slow or stop further job losses. 
 
AND SOME CRITICISMS 
 
 
¶7. (U) Others were critical.  Graham Spurling, the former managing 
director of Mitsubishi's Australia operation, which closed earlier 
this year (ref A), said this gave the car companies a "free ride" on 
R&D, and said the focus should have been on making car components 
manufacturers more efficient and financially viable (the sector is 
fragmented and made up largely of small firms). Other critics noted 
that under the plan, companies would have to put up money before 
getting any GOA funds - and GM and Ford may not be in a position to 
do so. Others have said this was just the GOA pandering to unions. 
The libertarian Institute for Policy Analysis doubts the plan will 
help and said the auto industry's problem was simply that they have 
failed to make vehicles that consumers want. 
 
¶8. (SBU) A number of contacts at the Treasury Department, the 
Department of Prime Minister and Cabinet and the Prime Minister's 
Office have told us over the past few months that additional 
assistance to the auto industry was a foregone conclusion - the only 
question was the level. All privately said that assistance to the 
auto industry is difficult to justify in purely economic terms. The 
three manufacturers (who will receive the vast majority of the aid) 
will receive assistance worth over A$300,000 per employee. Even 
looking at the impact on the overall auto sector, the new plan comes 
to over A$50,000 in government assistance per employee. One Treasury 
contact pointed out that this amounts to a very large subsidy for 
three foreign companies. 
 
COMMENT 
 
¶9. (SBU) No surprises here. The Rudd government has continually 
expressed its support for the car industry and 'New Car Plan for a 
Greener Future' aims to restructure the industry and make it more 
internationally competitive. The plan tries to harness the 
environmental policy aims of increasing fuel efficiency and reducing 
greenhouse emissions with the political imperative of trying to 
preserve the viability of the largest part of Australia's 
manufacturing sector. It is notable though that, despite pressure 
from Ford and Holden, the GOA stuck to its commitment not to change 
the scheduled reduction of tariffs on autos. 
 
¶10. (SBU) Comment, continued.  The closure of Mitsubishi and job 
losses among Ford, Holden and component suppliers have led to a 
sense of urgency over the industry's prospects for survival. The GOA 
hopes this package will help increase both confidence in the 
industry and business investment to support a more competitive 
industry. But the Australian automotive sector will remain 
vulnerable. It is a low-volume producer in a country that already 
imports 80 percent of vehicles sold in the domestic market. It is 
part of an increasingly competitive international market, and Holden 
Qpart of an increasingly competitive international market, and Holden 
and Toyota are heavily reliant (and therefore vulnerable) on exports 
to the Middle East. The one ray of light is the fall in the value of 
the Australian dollar, which should make domestically manufactured 
vehicles more competitive.  End comment. 
 
MCCALLUM