REVIEW OF AUSTRALIA'S AUTOMOTIVE INDUSTRY 2008
Overview of this file:

The Australian automotive industry is an important part of the Australian economy,employing over 61,000 people and earning export income of $4.7 billion. The industry undertakes significant investment in plant and equipment and research and development. It also has extensive linkages to other parts of the economy.

The industry has undergone an extensive reform program, especially since the Button Plan in 1985 when the industry was protected by tariff quotas and a tariff of 57.5 percent. The removal of quotas and the lowering of protection led to some rationalisation of the industry and made imports more accessible to consumers. It has also seen the industry become more internationally competitive and export focused.For example, exports of automotive products have gone from virtually nothing to around $4.7 billion in 2007, making automotive one of Australia's top ten export earners (and the largest manufacturing export earner). It also places the automotive
sector ahead of more traditional exports such as wine, wheat and wool. This is despite the large reductions in automotive tariffs.

The automotive industry was last reviewed in 2002 by the Productivity Commission.In response, the Australian Government confirmed the reduction in the tariff on passenger motor vehicles and parts from 15 percent to 10 percent from 2005 and legislated a further reduction to 5 percent from 2010. The Government also reaffirmed its commitment to the industry with the continuation of funding under the Automotive Competitiveness and Investment Scheme.

However, since the last Review the environment in which the industry operates has changed. The Australian dollar has appreciated significantly against major automotive producing countries, affecting the competitiveness and profitability of the local industry. Australia has also entered into several free trade agreements, including with the automotive producing countries of the US and Thailand. Changing consumer tastes have seen the market share of the local vehicle producers falling from 30 percent in 2002 to 19 percent in 2007.

In addition, there are many emerging challenges being driven by environmental concerns and the industry's need to contribute to greenhouse gas abatement. Further, climate change is high on the public policy agenda. This raises other challenges for the industry, including the use of innovative processes and technology to increase fuel efficiency.

This discussion paper highlights some of the challenges the industry faces. It also examines Australia's current automotive policy arrangements and asks whether these are appropriate to meet these challenges. The issues paper is accompanied by a background paper which provides more detail on the industry and the policy environment.

This discussion paper has been released to stimulate debate and submissions on these and other issues so as to help the Automotive Review prepare a final report to Government.

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