Approximately $21.5 billion would be wiped from the Australian economy if the automotive manufacturing industry collapsed in 2018, according to research commissioned by the Federal Chamber of Automotive Industries (FCAI).
The report found the economies of Melbourne and Adelaide would be “devastated” if Toyota and Holden were to follow Ford and close before the end of the decade, with 33,000 Victorian job losses and 6600 in South Australia, and gross regional product (GRP) not returning to pre-closure levels until the end of 2031.
Conversely, it found that if barriers to export were removed and the industry could return to 2008 export levels (when 160,000 vehicles were exported), Australia’s consumer welfare would increase by $7.1 billion.
The report, based on economic analysis by Monash University’s Centre of Policy Studies and research by the Allen Consulting Group, revealed that automotive manufacturing in Australia receives only around $500 million in government funding each year yet contributes $21.5 billion to the economy (based on an economic welfare net present value calculation).
That funding translates to government assistance of just $18 per person – a “very low figure by international standards” according to the report – while the economic return equates to $934 per person in benefit.
It suggests Australia’s gross domestic product (GDP) would fall by $7.3 billion (in today’s dollars) by 2018 if local automotive production ceased, with foreign owned parent companies redirecting billions of investment dollars to other countries, rather than other industries within Australia.
Without quantifying the impact, it also acknowledges the spill over effects felt by other industries in advanced manufacturing and research and development.
The report concludes that automotive industry assistance is the norm across the world, with most countries offering measures ranging from direct investment support and subsidies to tariffs and non-tariff barriers and various tax concessions, but reveals that the level of support and policy certainty provided by government is not on the same scale in Australia as in other countries.
As has been widely reported, it says there is a serious risk that Australia’s car makers will cease production if globally competitive incentives are not offered.
“The modelling clearly illustrates the importance of the automotive industry to the Australian economy,” the report says.
“The net present value of the negative impact of an industry showdown (calculated to 2031) is $21.5 billion, far in excess of the amount of industry assistance that would likely be provided over that time period.”
FCAI CEO Tony Weber said the report, which will be used as the basis for the organisation’s submission to the Productivity Commission’s review of the automotive sector, showed the value of automotive manufacturing to Australia.
“I want to be clear: financial support for the industry is an investment in Australia and this investment needs to be long term,” Weber said.
“For that investment, Australians receive significant returns through direct foreign investment, employment, skills, training, technology transfer and research. And the investment also generates spill overs that flow into other industries and areas of the economy.
“Without that investment, we lose these long-lasting benefits.”
The Federal Government is not expected to announce any future co-investment deals with Holden and Toyota until after the release of the Productivity Commission’s interim report, which is due on December 20.