Economy

Toyota’s hybrid announcement positive; automotive future grim: Thomson

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Later today, Prime Minister Kevin Rudd will announce that Toyota Australia will start producing a hybrid version of its Camry model at its plant in the Melbourne suburb of Altona.

The announcement has been heavily hyped as good news for Australia’s embattled car industry, but don’t get too excited – this is hardly the systemic change the Australian automotive industry needs. Toyota Australia won’t start building the hybrid Camrys for two years, and production is likely to build slowly to 10,000 a year. Given Toyota Australia pumps more than 150,000 out of the Altona plant each year, it’s not quite time to declare Australia’s car industry has become green.

Toyota’s announcement is a bit of good news for the car industry after a grim couple of weeks, which have really highlighted the perilous state of the sector.

First there was the big increase in the oil price and subsequent increases at the petrol pump have sparked ridiculous calls for political intervention to cut fuel-related taxes and bring fuel costs down.

Then on 4 June, Rudd used World Environment Day to trumpet his Government’s plans to introduce a $500 million fund to encourage the nation’s car makers to build more environmentally friendly cars.

But the political gods clearly did not like the cheeky timing of this “announcement” (the policy is actually about eight months old and was announced during the election campaign). Hours after Rudd’s speech in Parliament, the Government was made to look very silly by the Productivity Commission, which released a report claiming the green car fund is “unlikely to lead either to innovation spillover or lower greenhouse emissions”.

Just two days later, GM Holden announced it was a shutting its four-cylinder engine plant in Melbourne.

Against this backdrop of bad news, Federal Industry Minister Kim Carr has been desperately trying to talk up the car industry’s “sustainable future”. He’s been selling the green car fund, talking about how he wants Ford Australia to increase its exports and even hinting he will abandon plans to reduce tariffs on imported vehicles. This week he jets off to Detroit for meetings with executives at the headquarters of Ford and General Motors. Carr says he’ll be trying to get commitments for new investment in their Australian operations.

It’s hard not to feel sorry for Carr – with so many jobs in the automotive sector on the line (and particularly so many union jobs), he must be seen to be doing something for the car industry. But with some of his public statements – particularly his pronouncements that Ford Australia needs to lift its exports and Ford and GM should increase their investment in Australia – he is starting to sound a little silly.

In fact, he’ll be lucky not to be laughed at when he gets to Detroit. The bosses at Ford will probably show him a chart with the Australia dollar’s upwards movement over the last two years and politely suggest that they are not likely to stump up the cash needed for Ford Australia to start a big export program given there is little chance of actually breaking even.

Executives at both companies will probably also show Carr some sales charts for the US (GM’s sales are down around 23% in 12 months and Ford’s have plunged about 17%) and explain how they lose about $US1000 on each car they do sell. They might also remind him about the string of recent plant closures, widespread job cuts and financial losses. “We’re hurting here Kim,” the bosses will say. “Gas prices keep going up, everyone’s losing their homes and those damn greenies keep telling people that their trucks and pick-ups are bad for the environment. We’ve got enough problems at the moment – not sure we’ll be able to afford to pump money into those Aussie operations.”

But next week might not be all bad for Carr. While the trip to the US won’t be easy, there is at least Toyota Australia’s hybrid Camry announcement. The idea behind the Rudd Government’s green car fund – that the Australian automotive sector needs to make its large cars cheaper to run and more environmentally friendly – is actually a good one.

The problem for Carr and the Government is that it just doesn’t matter how much assistance they offer the car industry (and Australia spends plenty, gifting the industry more than $1 billion a year, or, as the Productivity Commission so eloquently put it, $300,000 of taxpayers’ money for every job “saved” in the car industry).

Car makers cannot make decisions to build hybrid engines, switch from building large cars to small cars or start new export programs because of government assistance or because ministers say it’s a good idea. They make decisions on these things because it fits with their global strategies.

And that’s why the long-term futures of Ford Australia and GM Holden are grim – it is difficult to see where they fit in the strategies of their ailing global parent companies. While the Camry model built by Toyota Australia is part of Toyota’s global product range, Ford’s Falcon and Holden’s Commodore are global orphans and not built anywhere else.

That would be OK when these models have big, profitable export markets, but they don’t. Building a car is also OK when the cars are selling well in Australia, but they are not – sales of the Falcon slumped to a 45-year low last year and Commodore sales are at their lowest point in a decade.

Sticking a hybrid engine in the Commodore and Falcon would help to cut running costs of these cars and might even boost sales. But it’s also possible that Australian tastes have simply moved on. Will Ford and GM – themselves struggling to keep afloat – want to take the risk in such a small market? Probably not.

A version of this article appeared on Business Spectator.

 

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