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RHEHAAA/WHITE HOUSE WASHINGTON DC

UNCLAS SECTION 01 OF 02 CANBERRA 000624 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB AND EAP/ANZ 
White House for NSC and NEC 
 
E.O. 12958: N/A 
TAGS: EFIN ECON AS
 
SUBJECT: AUSTRALIAN CAR INDUSTRY BENEFITS FROM INCENTIVES 
 
CANBERRA 00000624  001.2 OF 002 
 
 
¶1. (SBU) The Australian car industry has experienced a recovery in 
vehicle sales due to a range of government policy initiatives. 
While imports account for 85% of the Australian market, local 
producers Ford, GM Holden and Toyota have nevertheless benefited 
from economic stimulus policies and particularly from the May Budget 
decision to extend the business investment allowance to cars.  The 
motor vehicle industry is also benefiting from improved consumer and 
business confidence. END SUMMARY. 
 
 
OUTLOOK FOR THE AUSTRALIAN CAR INDUSTRY 
 
¶2. (SBU) The Australian car industry experienced one of its best 
months of on record in June 2009 fuelling new hopes that the 
Australian economy may yet avoid recession.  (Note:  June is usually 
a good month due to companies seeking purchase vehicles before the 
end of the fiscal year on June 30. End note.) New motor vehicle 
sales hit 102,850 in June 2009, up 36% from May and only 3.5% below 
the June 2008 record.  This was driven largely by business purchases 
aiming to beat the end of the financial year, which surpassed 
private car sales for the first time since 2004.  Sales of passenger 
cars and SUVs also registered a second successive month of growth in 
May, suggesting the worst of the downturn in the motor vehicle 
industry has passed.  Sales hit a low of 70,400 in March (down 22.4% 
from a year earlier).  With demand recovering, a total of 75,470 
vehicles were sold in May (down 12.6% from a year earlier). The 
biggest turnaround has been in commercial vehicles: utilities, panel 
vans and trucks, which had fallen 24.8% in April 2009. However, 
there was an 11.3% jump in May following a generous increase in 
investment allowances for small business in the May budget. Sales in 
June were only 8.3% below their level of a year ago. Toyota was the 
market leader over the first 6 months of 2009 with 94,233 vehicles 
(of which 15,031 or 16% were manufactured locally) compared to 
56,152 for Holden (28,440 or 50.6%) and 46,456 for Ford (25,281 or 
54.4%).  Overall, the share of local producers (Ford, Holden and 
Toyota) fell from 16% to 15% in the first half of 2009, compared to 
the same period a year earlier. Mitsubishi had stopped producing 
cars by 2009, having built just under 3,000 units in the first half 
of 2008. The two U.S. car producers, Ford and Holden have weathered 
the economic downturn reasonably well with a fall in sales in the 
first half of 2009 of 10.8% and 12.6% respectively - compared to a 
fall of 35% for Toyota's locally produced sales.  Importers now 
dominate the Australian vehicle market and imports from Thailand 
(with which Australia signed an FTA) now exceed the total for local 
manufacturer (see table above).  Overall, Japan is the dominant 
supplier to the Australian market with 36% of imports and 39% of the 
total market (locally produced sales plus imports) in addition to 
imports sourced from Japanese subsidiaries in Thailand. 
 
POLICY APPROACH ON THE CAR INDUSTRY 
 
¶3. (SBU) The Government first introduced a 10% temporary tax break 
for new business investment last October in its first response to 
the financial crisis.  This increased to 30% in February 2009 and, 
Qthe financial crisis.  This increased to 30% in February 2009 and, 
in the May budget, to 50% for small businesses with a turnover of $2 
million or less. The deadline for the scheme has been extended from 
June to December. The Australian Taxation Office estimates that the 
allowance enables a business to claim total tax deductions of 
$42,885 on the purchase of a $70,000 motor vehicle. Previously, it 
would only have been able to claim depreciation of $14,295. The 
industry also benefited from improved consumer and business 
confidence in Australia. 
 
Table 1: Vehicles Sales in Australian Market (no.,%) 
--------------------------------------------- --------- 
Source  June YTD 08 June YTD 09 Change (%) 
--------------------------------------------- --------- 
Locally made 
Ford    28,345  25,281 -10.8 
Holden   32,556  28,440 -12.6 
Toyota   23,158  15,031 -35.1 
Total local  87,000  68,759 -21.0 
 
Imported 
Japan   202,313  162,769 -19.5 
Korea   53,230  55,136  +3.6 
Thailand   84,496  72,949 -13.7 
 
CANBERRA 00000624  002.2 OF 002 
 
 
Total imported  455,695  386,464 -15.2 
Total market  542,695  455,223 -16.1 
--------------------------------------------- ---------- 
Source: Federal Chamber of Automotive Industries 
 
IMPACT OF POLICY INCENTIVES ON CAR SALES 
 
¶4. (SBU) The Rudd government's decision to extend the investment 
allowance to cars for the first time was a reaction to the fall of 
6.1% in business investment in the March quarter and has impacted on 
higher commercial car sales to reverse this trend. Australian 
business generally took advantage of the last months of the 30% 
investment allowance rate (which ended on 30 June 2009) to bring 
forward vehicle expenditures.  Small business (with turnover below 
A$2 million) also brought forward expenditure on cars to take 
advantage of a 50% tax break, which will continue to run to end of 
¶2009.  In addition, firms and individuals have benefited from the 
Government's series of economic stimulus packages and concessions to 
small business to allow phased payment of tax in some cases. 
Australian Chamber of Commerce and Industry (ACCI) Acting Chief 
Executive Greg Evans says the business tax break for new plant and 
equipment purchases is helping to foster investment.  "The specific 
elements of the Government's stimulus package have also contributed 
to an improvement in confidence amongst retailers as well as 
spurring an upswing in housing activity." Industry Minister Kim Carr 
noted that sales to business were 12% higher than they were a year 
ago. Senator Carr said the boost to Australia's car sales had been 
achieved much more efficiently than in Europe, where governments 
have launched expensive programs to encourage people to sell their 
old cars to the wreckers. 
 
¶5. (SBU) COMMENT:  The impact of the Rudd government's temporary and 
generous incentives to business to buy new vehicles has been both 
quick and significant. It is as yet unclear how annual sales figures 
will be affected by the policy initiatives as some sales were 
brought forward to take advantage of tax incentives - although the 
industry has benefited from the short run stimulus.  END COMMENT.