Southern Region Annual Dinner
Melbourne Cricket Ground
Jolimont, Victoria
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From day one, this Government has set out to change the way people see the car industry.
We’ve been forthright about its value and viability.
We’ve made it very clear the industry is here to stay.
It is essential to maintain confidence.
It’s essential to create certainty.
We can’t expect business people to invest their money in an industry that has no future.
We can’t expect workers to invest their lives in trades that won’t be here tomorrow.
We can’t expect researchers to invest their time and energy in ideas that may never find an application.
That’s why Kevin Rudd said and continues to say: “I don’t want to be Prime Minister of a country that doesn’t make things anymore”.
That’s why he said: “we need to have a proper Australian industry plan which deals with the long-term future of our manufacturing sector”.
These aren’t just words.
They reflect a real commitment.
The challenge
We know Australian manufacturers are under a lot of pressure.
We know the automotive sector in particular is facing enormous challenges.
This isn’t an Australian problem.
It’s a global problem.
Nowhere is it more acute than in the United States.
There has been speculation that both General Motors and Chrysler might file for bankruptcy.
Now they’re in merger talks.
Last week we saw the markets valuing General Motors at just US$2.7 billion.
That’s less than the company was worth in 1929.
It’s less than Crown Casino is worth today (US$3.3 billion).
Reason will return to the financial markets sooner or later, but we now have to ask ourselves how much damage will be done to the real economy before that happens.
US manufacturing production fell 5 per cent from September 2007 to September 2008.
Car industry production fell 16 per cent, and the sector is now running at 61 per cent capacity.
Industrial production in the United Kingdom was down 3 per cent in August compared to the same month a year before.
Europe as a whole was down 1 per cent.
The growing uncertainty has hit car sales hard.
US light vehicle sales were down 27 per cent in September compared to the same month a year before.
European passenger vehicle registrations fell 16 per cent in August compared to the same month last year.
Car sales are even slowing dramatically in China and India – both are expected to achieve a growth rate in 2008 that is about a third of last year’s.
Implications for Australia
Is it any wonder we now have a Prime Minister talking about “the comprehensive failure of extreme capitalism”?
Australian manufacturing – and the Australian car industry – now have to deal with the effects of this failure.
Credit is drying up.
New commercial loan commitments to manufacturing fell 44 per cent in the three months to August, compared to the three months to August 2007, when the financial crisis began.
That’s significantly more than the decline in commercial lending overall.
As if things weren’t tough enough already.
As if it wasn’t hard enough battling against a high dollar, high fuel prices, cut-throat competition, and changing consumer preferences.
These conditions have put enormous pressure on the vehicle makers, and even more pressure on the supply chain.
Steve Bracks warned us: “that up to one-third of the 200 Australian automotive component firms could be at risk of exiting the industry over the next few years”.
We’ve already had job losses.
The survey FAPM released this week suggests we could have a lot more if we don’t make the right decisions now.
Positives
We have to be realistic about the situation we’re in, but we also have to be very careful about talking the industry down.
As I said at the beginning, it’s essential to maintain confidence.
That’s why I keep reminding people of the positives.
We’ve still got over 63,000 people working in this industry.
Automotive exports rose 20 per cent to $5.6 billion last financial year.
Spending on automotive engineering R&D rose 11 per cent in 2006-07.
Research and development spending by the industry itself dipped slightly that year, but the automotive sector still accounts for 17 per cent of all manufacturing R&D.
Vehicle sales are down, but we haven’t seen anything like the falls experienced in Europe and the United States.
And of course we’ve got two new models in the pipeline – Toyota’s hybrid Camry and Ford’s four-cylinder Focus.
It’s important to get the balance right here – you can be optimistic without being a Pollyanna, and you can be realistic without being a Jeremiah.
Government action
The Government is very realistic about the difficulties the industry is facing, but we are not going to exacerbate those difficulties by destroying hope.
So what are we doing?
For a start, we’re in constant dialogue with the industry – with the vehicle makers, with FAPM, and with its members.
It’s hard to think of any recent government that has put more energy into this industry – and I’m not just talking about myself – the
Prime Minister has been actively involved in developing the Government’s policy response as well.
We’ve made an early call on the Green Car Innovation Fund to secure production of the hybrid Camry.
Steve Bracks has recommended that the fund should be brought forward and doubled if it’s successful.
We’ve moved to support this and every other Australian industry:
• by increasing liquidity and stability in the Australian financial system; and
• by putting together a $10.4 billion Economic Security Package to stimulate activity and maintain growth.
And we are putting together the most comprehensive plan ever devised for the automotive sector.
The Prime Minister set the agenda in his World Environment Day speech, when he talked about:
• greening the industry;
• getting new models and components into production;
• strengthening the supply chain; and
• increasing global integration.
It’s up to the Government to get the policy settings right, and it’s up to the industry to chart its own course within that framework.
That’s why I’ve been talking in detail to each of the car companies about their strategies – including their investment strategies – for the years ahead.
The Government’s plan is all about attracting new investment.
It’s a plan focused squarely on the future.
It’s a plan to get Australia producing greener, safer, more economical cars – cars Australian consumers will want to buy.
It’s their money we’re talking about, and there has to be something in it for them as well.
The future
The plan will be announced soon.
Once it’s in place, we will continue to work with the industry – vehicle makers and suppliers – to ensure that it is doing the job.
The sector won’t be left on auto-pilot again – not while this Government is around.
An Automotive Industry Innovation Council along the lines proposed by Steve Bracks could be used to drive continuous improvement and renewal.
FAPM itself has proposed signing suppliers up to a code that will commit them to:
• developing capability;
• making adequate provision for worker entitlements;
• increasing exports;
• increasing R&D; and
• bringing Tier 2 and Tier 3 suppliers into global supply chains.
FAPM has suggested that these commitments should be conditional on component makers receiving funding over and above anything recommended by Steve Bracks.
I’d suggest that these are commitments firms would benefit from making anyway.
Frankly, these are not just things that might be worth doing to attract extra support.
They’re things the industry must do if it wants to survive.
If we get serious about innovation – serious about going global – we can aim a lot higher than mere survival.
There is no doubt in my mind that the industry can work through the problems confronting it today and emerge stronger – more creative, more productive, and more competitive.
If we in this room don’t believe that, why should anyone else?
Hope will get us a lot further than despair.
Persistence will get us a lot further than panic.
I’ll say it again:
Confidence is everything – and this industry still has plenty to be confident about.