By Julian Bajkowski and Paul Hemsley
Australian public sector fleet buyers are facing fresh uncertainty over the future of General Motors Holden’s domestic manufacturing operations Australia after the carmaker reportedly demanded another $265 million from the federal government in addition to the $275 million that Canberra has already committed to keep the Aussie icon’s factories open.
The push by Holden for an extra funding could potentially total its taxpayer subsidies to more than half a billion dollars and follows friction between company and state and federal governments over mutual agreements that were meant to guarantee that Holden factory workers in South Australia some job security in an local automotive manufacturing sector in decline.
The rub for government fleet buyers, especially at the federal and state levels, is that there is now heightened uncertainty over future choices of Australian made passenger cars – despite Canberra very publicly leaning on state and local governments to buy locally made cars to keep domestic production alive following Ford’s decision to shut down local production this year.
In the event that Holden ceases local production archrival Toyota could be left in the box seat as the last local manufacturer standing: however real questions remain if the Japanese headquartered automotive giant would still maintain its factories here if its two closest competitors go offshore.
The latest round of political hardball and the uncertainty it brings has left government fleet purchasers with difficult choices even if they do want to buy local.
One problem outlined to Government News by buyers is that uncertain future vehicle supply and support from Holden and Ford may drive down disposal and resale prices because second hand buyers will shy away from discontinued models.
Realising value from resales remains a key consideration for many fleet buyers because it allows them to recoup a proportion of their vehicle investment. While many fleet buyers once leased their fleets, that option has become less appealing in favour of buying as car prices and interest rates have fallen.
Government fleet buyers have also been given mixed messages from Canberra.
In June 2013, former Minister for Innovation Greg Combet criticised councils for buying too many foreign cars and suggested that 70 per cent of council fleets had been purchased from foreign manufacturers. Mr Combet’s statements were quickly followed by a push by former Prime Minister Julia Gillard that local governments should buy Australian made cars to keep support local manufacturing.
However just days after Ms Gillard’s replacement by Kevin Rudd in late June 2013, the Australian Federal Police confirmed that they had purchased the BMW X5 xDrive 50i armoured security vehicles over the locally manufactured Ford Territory.
A spokesperson for Federal Minister for Finance and Deregulation told Government News that the Commonwealth Government “has a mandate to purchase Australian-made cars for its fleet and, in 2011-12, 75 per cent of new vehicles entering the Commonwealth fleet were Australian-made.”
“Our policy requires that, when selecting passenger vehicles within the Australian Government Fleet, they must be made in Australia and have a five star ANCAP safety rating, with exceptions only for certain operational requirements. Of the 11 Australian-made passenger vehicles listed in the Government’s Fleet Vehicle Selection Policy, five are produced by Holden.
Ms Wong’s officer also took another swipe at the state government support for local industry and said that “there is no consistency across governments in Australia when it comes to purchasing Australian-made cars.”
“The Coalition governments of New South Wales, Queensland and Western Australia mainly purchase imported cars. Less than half of the cars in the NSW and Queensland fleets are Australian-made, 42 per cent and 36 per cent respectively. In Western Australia, just 26 per cent of its government fleet cars are Australian-made.”
Meanwhile, Minister for Innovation, Senator Kim Carr reacted to Holden’s demand for more subsidies on ABC radio by remarking that “those figures are quite extraordinary”.
Senator Carr said although that he was not in a position to comment on the details of “conversations that we’re having”, he said that the Labor Government remains “absolutely committed” to ensuring that Australia has a “prosperous automotive industry”.
The issue has now predictably become a political football over policy differences between the Labor Party and the Coalition after Senator Carr and South Australian Minister for Manufacturing Tom Kenyon claimed the Opposition’s policy could spell the end of the Australian automotive industry.
As the value of subsidies is hotly contested from all sides, a plan outlined by federal Shadow Minister for Innovation, Sophie Mirabella would potentially reduce the Automotive Transformation Scheme from $1.5 billion to $1 billion.
Federal Opposition leader Tony Abbott is treading carefully.
Mr Abbott said on Thursday that he thought that “all Australians want to see car manufacturing continue in this country.”
“A first world economy should be able to make motor cars on a long-term viable basis. Certainly the Coalition is more than ready to support the car industry. The only difference between us and the Government when it comes to car industry funding is that we thought $1 billion rather than $1.5 billion was enough to put in the automotive transformation scheme,” Mr Abbott said.
Mr Abbott said that should negotiations between the and government “be continuing and there be a change of government” that the Coalition “would want to ensure that Holden have a credible serious plan to reduce costs and a credible serious plan to boost volumes, particularly to boost exports because in the end what a flourishing car industry in this country needs is a serious export programme.”
He also took a swipe at Holden by pointing to its rival Toyota.
“Toyota to their great credit have integrated their domestic production into their world car plan and it is no coincidence that Toyota is the one profitable car manufacturer in this country,” Mr Abbott said.
“What we would expect from Holden for additional support is a very credible plan to get their cost down and their volumes up.”
South Australia has had a strong interest in Holden keeping its operations going because of its base of operations in the town of Elizabeth. A closure would saddle the state government with the economic fallout of higher unemployment from another factory closure alongside the $50 million subsidy it has already ploughed into company.
The battle over assistance to the industry came to a head when SA Opposition Leader Steven Marshall said that he supported Ms Mirabella’s position, prompting Mr Kenyon to condemn Mr Marshall by saying that Holden would close its operations in SA if the Coalition followed through with its plan.
But Mr Marshall insisted that while Holden might not support a cut in funding by $500 million, the carmaker had backed an inquiry by the Productivity Commission into the “best targeted support”.
“I don’t think it’s about the dollar figure, I think it’s about the type of support,” Mr Marshall said.
He said that the Labor Party has put a “huge amount” of money into the auto sector that hasn’t worked and that the government cannot afford to subsidise an industry which is “completely uncompetitive”.
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