Finance Finance News Car industry suppliers facing grim future

Car industry suppliers facing grim future

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Car parts suppliers say they are facing a grim future, despite a multi-million dollar grant to help them diversify their manufacturing businesses.

In less than three years Australia’s car manufacturers Toyota, Holden and Ford will stop making cars in Australia and move offshore.

Some $155,000 in state and federal government funding is available to help manufacturers with the transition.

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But some have criticised the scope of the funding and say the eligibility criteria for the cash is too limiting.

Jim Griffin is the chief executive of Melbourne-based automotive parts supplier Diver Consolidated Industries, and national president of the Federation of Automotive Products Manufacturers.

He said a $20-million grant for diversification only allowed for the purchase of new equipment and would not help many suppliers already struggling with the sector’s downturn.

“To make a grant program only available for new capital when we’ve got an abundance of under-utilised capacity already I think is a little short-sighted,” Mr Griffin said.

He said many parts suppliers did not want to buy new equipment. They wanted to find new markets and use their existing gear.

About 140 companies supply the automotive industry and Mr Griffin said competition would be tough.

“I would think that we could see 20,000 people out of a job easily in the next couple of years,” he said.

First round for grant applications closed

The first round of applications for grants for the $20-million diversification fund has closed and the Federal Government said applications were being assessed. It would not reveal how many applications were received.

Federal Industry Minister Ian Macfarlane did not rule out changes to the $155-million growth fund.

Ian Macfarlane toured Holden with Jay Weatherill last month
Industry Minister Ian Macfarlane touring a Holden plant in 2013.

“If there are areas where we think the guidelines need to be changed, we’ll consider that in consultation with both the South Australian and Victorian governments,” he said.

Calvin Stead understands the difficulties that parts suppliers are facing. He was chief executive of Autodom when it collapsed in 2012 and 300 Victorian workers lost their jobs.

He said the company was burdened with high redundancy overheads and did not have the money to downsize.

“The problem is that if you didn’t start to diversify three or four years ago it may be too late and if you don’t actually have a project that you can apply those grant funds to, it’s probably not going to help you,” Mr Stead said.

He said the grant money would be better spent helping parts suppliers downsize.

“Those companies more likely need a shot in the arm to be able to restructure and downsize so they can focus on diversification rather than daily managing their cashflows,” Mr Stead said.

Automotive Transformation Scheme under threat

Car parts suppliers say one of the biggest threats to their survival is the Federal Government’s plan to slash $500 million from the Automotive Transformation Scheme (ATS).

Since 2008 the ATS has been providing suppliers with a quarterly cash injection to help them break even.

A budget cut has passed the Lower House and will go to the Senate this month.

Mr Macfarlane said it was time for the measure to go.

“It has not developed and not guided an industry to be internationally competitive,” he said.

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“It has built an industry that is totally reliant on taxpayer subsidies to survive.”

Mr Griffin said the cutback would be devastating for car parts suppliers.

“For the Government to now pull $500 million out of that plan for the next couple of years, effectively what it is doing is taking money out of the system that we had already expected to get,” he said.

“It’s money that we believed was going to come to us for investment that we have already made.”

Critics of the measure, including Independent Senator Nick Xenophon, plan to block it in the Upper House.

Mr Xenophon said if the cuts went ahead the sector would struggle to diversify before 2007.

“If this $500 million is ripped away from the auto sector there will be no chance for transformation for 140 companies – many of them based in South Australia and Victoria,” he said.

“I don’t think the Government has the numbers to get this through.”

The measure is likely to be voted on in the Senate when it returns later this month.


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