Cash for clunkers: good or bad for local industry?

Australian automotive manufacturing could be hit hard by the cash for clunkers rebate and the new vehicle emissions targets proposed by Prime Minister Julia Gillard.

In the $3 billion cash for clunkers scheme in North America last year, foreign brands were the biggest beneficiaries because they had a wider variety of fuel-efficient vehicles than did local makers.

Japanese and Korean car makers increased their market share in North America during the program. And eight out of the top ten cars purchased under the US cash for clunkers scheme were foreign brands.

Despite this, the Federal Chamber of Automotive Industries, the peak body that represents Australian car makers as well as vehicle importers, has come out in support of the Prime Minister's proposals.

In a statement issued over the weekend, FCAI chief executive Andrew McKellar said: "The car industry welcomes any move to support motorists who want to upgrade to safer and more fuel-efficient vehicles.

"One in five vehicles on Australian roads is more than 15 years old with many of those not meeting the environmental and safety standards we now expect.

"A key part of any strategy to reduce carbon emissions from road transport must address the impact older cars have on the environment.

"The industry will obviously need to work through the finer detail of this proposal before it can be implemented."

Only two Australian-made vehicles currently would qualify for the proposed $2000 cash for clunkers rebate: the Camry Hybrid (pictured) and the regular four-cylinder Camry because they fall under the 220g/km eligibility limit.

The Holden Commodore (221g/km), Toyota Aurion (233g/km), Ford Falcon (236g/km), and Ford Territory (276g/km) in their current guises would be ineligible for the $2000 rebate that is proposed from January 2011 to the end of 2014.

Furthermore, only one Australian-made car falls under the proposed 190g/km CO2 fleet average limit due to be introduced in 2015 -- the Toyota Camry Hybrid with a rating of 142g/km.

Australian-made cars that emit more than 190g/km can still be sold beyond 2015 -- but manufacturers would have to sell a higher proportion of imported, fuel-efficient vehicles to offset the sales of the locally-made cars.

Ford faces the toughest challenge. The long term future of Ford's Victorian manufacturing operations is already under a cloud given weak sales of locally-made models in recent years.

But the 2015 CO2 target will only make the situation more difficult for Ford. The Australian-made Falcon sedan and ute, and Territory soft-roader account for more than half of all Ford sales locally (55 per cent so far this year).

Ford is poised to introduce a diesel-powered Territory and a four-cylinder Falcon next year, but it will still need to dramatically increase the number of small imported vehicles it sells so that it can offset the CO2 figures for its locally-made vehicles.

Indeed, the $2000 cash rebate would likely encourage Ford to expedite the importation of more small cars that would qualify under the cash for clunkers scheme over the next four years.

Meanwhile, the Commodore, Australia's biggest selling car for the past 14 years, accounts for about a third of all Holden sales. But the Commodore is due to be joined next year by the four-cylinder Cruze small car on the Adelaide production line, helping offset its CO2 fleet average.

Toyota is perhaps in the strongest position when it comes to locally-made cars because the Camry and Aurion are already not far off the 2015 CO2 target -- and both models account for just 16 per cent of all Toyotas sold in Australia. Instead, Toyota's challenge will be to reduce the emissions of its imported four-wheel-drives and commercial vehicles, or sell a higher proportion of small cars.

Given the imminent challenges facing local car makers to introduce costly fuel-saving technology, the Federal Opposition leader Tony Abbott reminded the media that a Cash for Clunkers scheme had been rejected by the Federal Industry Minister Kim Carr in February 2009.

He told the AAP news agency over the weekend: "Kim Carr dismissed these programs as wasteful, complicated, an unnecessary use of finite resources. Bringing this program in, the government seems to have humiliated the industry minister who was dead against these when they were first mooted last year."

Shadow Industry Minister, Sophie Mirabella, later issued a media release: "[The cash for clunkers scheme] will threaten local jobs and send millions of dollars to overseas multinational car companies.

"On first glance, today's announcement by Julia Gillard seems to be another hastily-devised initiative that could deliver a serious blow to workers in our car industry.

"We'll have a closer look at the idea, but this has all the early hallmarks of a scheme that will favour foreign car manufacturers and be open to considerable rorting and abuse.

"Overseas experience shows these programs favour cheap imports over locally-made cars. Popular Australian cars like the Ford Falcon and the Holden Commodore are already being excluded under this initiative."

The chief executive of the Federal Chamber of Automotive Industries, Andrew McKellar, says the industry wants to be consulted by the Government before it finalises the legislation.

McKellar told the Carsales Network this morning: "The detail on how the scheme will work is yet to be determined. You cannot say at this stage if it will disadvantage local makers or importers. There could very well be a target reduction for how each individual car maker. It has not been determined if the scheme will work this way or be based on the carbon footprint of the total number of vehicles it sells. These are all options but they need to be evaluated and discussed with industry before any legislation is finalised."

Read the latest Carsales Network news and reviews on your mobile, iPhone or PDA at www.carsales.mobi