Toyota.

The policy paper will increase the pressure on Toyota, Australia’s sole remaining car manufacturer. Photo: Jason South

Australia faces the end of an era, with the Productivity Commission recommending the federal government stops providing financial assistance to the embattled local car industry.

As revealed by Fairfax Media, the Productivity Commission says the justification for subsiding car makers is ''weak and that ongoing industry-specific assistance to the automotive manufacturing industry is not warranted''.

The commission's final report on the automotive sector is not due to be handed down until the end of March, but the policy paper released on Friday will increase the pressure on Toyota, Australia's sole remaining car manufacturer.

It is also a further blow for the Victorian economy, which is already reeling from the decisions of Ford and Holden to close their factory doors, and Thursday's federal government decision not to provide $25 million of assistance to fruit processor SPC Ardmona.

In a strongly worded report, the Productivity Commission stated that ''current government funding should be reassessed to determine when subsidies should end'' and assistance for Toyota ''should cease in 2020, and not be extended or replaced with other specific assistance''.

It sends a clear message that, when the Automotive Transformation Scheme ends in 2020, there should be no more help for car makers or parts suppliers.

The Victorian government is now believed to be preparing for the worst, and is focusing on what assistance it can obtain for a much-needed restructure of the state economy after recent blows to the manufacturing sector.

Federal Treasurer Joe Hockey engaged the Productivity Commission in November to examine the car industry's ''productivity, investment, profitability, international competitiveness, exports, workforce structure and practices, skills levels and long-term sustainability''.

In a 206-page position paper, the Productivity Commission found:

  • There is ''no compelling evidence that the benefits to industries outside the automotive industry are significantly greater than those generated by other activities'';
  • Claims of a ''multiplier effect'' made by Labor and the union movement for supporting government investment in car manufacturing ''fail to consider the cost of that assistance to taxpayers and the alternative uses of resources in other industries in the economy'';
  • ''Governments should only offer assistance to any industry if it is in the best interests of the community overall''; and
  • The automotive manufacturing industry has been receiving ''decades of transitional assistance'' but is not commercially viable.

Should Toyota join Ford and Holden in closing its factory doors in Australia, Industry minister Ian McFarlane estimates 30,000 jobs could be gone from the industry in less than three years.

'Marshall' battery maker quits local production

The report came as South Australian-based Exide Batteries - makers of the well known "Marshall" battery - announced late on Friday that it would quit local manufacturing by the end of 2014.

Exide's decision to quit manufacturing will lead to about 70 job losses.

It's understood the company has contracts to supply Holden, Ford and Toyota and will fulfill these contracts from its overseas plants.

The company's marketing director, Andrew Duncan, said the company had explored all options but it would move to sourcing all batteries from overseas suppliers.

"Whilst we are deeply saddened about losing some of our team, this announcement delivers long term viability and allows us to continue to provide best in class product and a new range that will secure continued supply and value to our customers,'' he said.

We have to be 'unfront' about difficulties: Macfarlane

Mr Ian Macfarlane said the findings in the position paper were "stark" and underscored the significant challenges ahead for the auto sector, including the need for economic and regulatory reforms.

"That doesn't mean Australia should walk away from the sector, but it does mean that we have to be upfront about the difficulties the industry faces,'' he said.

Mr Macfarlane said the paper reinforced the government's decision to intervene in the ongoing court case between Toyota and its workers over its attempt to vary its current workplace agreement.

"The government will consider the matters relating to the Automotive Transformation Scheme and how to ensure this program is best delivered,'' he said.

Toyota Australia had no comment to make on the report.

The car parts industry alone employs 18,000 people in Victoria and 6000 in South Australia.

Toyota, Australia's biggest car maker, will make a decision on whether to manufacture its next generation Camry in Australia later this year.

In May last year Ford announced it would cease production in Australia, with an estimated 1200 Victorian workers to lose their jobs in October 2016.

Then, in December, General Motors Holden announced it would also end local manufacturing, a move that would force 2900 staff out of jobs, including 1300 in Victoria.

Labor industry spokesman Kim Carr questioned the economic modelling that underpinned the commission's findings.

"Like all modelling it depends on the assumptions you put in. They have an unparalleled hatred of the auto industry, which their call to end government procurement of Australian-made cars shows,'' he said.

"The loss of jobs of as our automotive capabilities wind down is not understood by the commission. They have a naïve belief about how the auto industry works and they aren't interested in anyone who has an alternative point of view."

Report will force Toyota's hand: union

The Australian Manufacturing Workers Union also lashed the Commission's findings, which it predicted would kills "tens of thousands of jobs".

But vehicles division national secretary Dave Smith said the findings, which would act as cover for the government's pre-determined decision to cut funding to the sector, were not surprising.

"If we want all economic benefits for South Australia and Victoria, if we want all the benefits to our national economy, and all the benefits for the thousands of workers - then we must be investing in the Australian car industry,'' he said.

"Today's report and the decision taken by the government will likely force Toyota's hand to end manufacturing in Australia."

Victorian Premier Denis Napthine said he ''vehemently disagreed'' with the federal government over future subsidies for Toyota, and said ''we believe there is a role for government to work with the car industry''.

Speaking on 3AW, the Premier said the Productivity Commission ''fails to understand the importance of the skill base and success in our manufacturing industry''.

In a further blow to Toyota, the Productivity Commission has urged the federal, Victorian and South Australian governments to axe fleet purchasing policies that favour Australian-manufactured vehicles, in particular the Melbourne-made Camry.

''These policies restrict the choice of cars available for government use, which can impose costs on taxpayers,'' the commission states. ''Any benefits of such policies to the automotive industry in  Australia appear to be limited. These policies should be removed, particularly if there is only one motor vehicle producer in Australia after 2017.''

The Productivity Commission says the impact on parts of the economy, particularly in already disadvantaged regions of Victoria and South Australia, will be severe if Toyota also ends local production.

''Loss of employment and economic activity will be concentrated in some regions, with some already having relatively high rates of unemployment and disadvantage,'' states the report.

The commission says ''regional adjustment programs'' are of ''limited value'' and instead recommends ''infrastructure investment and labour adjustment programs'' to help impacted families and communities.

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