The Productivity Commission has called for an end to taxpayer assistance to the Australia car industry, increasing the likelihood that Toyota will follow the lead of Holden and Ford and decide to cease local production.

A Commission position paper released on Friday found the arguments supporting public subsidies for automotive manufacturing were “weak” and that the wider community would be better off if they were ended.

“Our draft proposal is that there should be no further industry specific funding beyond 2020”, said PC deputy chairman Michael Woods.

The Commission has long opposed sectoral assistance to the car industry, but the latest report comes as the Abbott government is taking a tougher line on business subsidies, led by Treasurer Joe Hockey.

On Thursday, Federal cabinet rejected a plan to contribute $25 million to overhaul the fruit and vegetable processor SPC Ardmona, despite concerns about the impact on 3000 jobs in central Victoria.

The Victorian government has prepared a plan to retain Toyota’s assembly plant at Altona, but the Commission also opposes any supplementary package for Toyota and component manufacturers.

The Commission will release modelling on the likely impacts of funding withdrawal in February. It found that about 40 per cent of car manufacturing jobs were lost between 2006-2013 but that still left a workforce of some 44,000.

But it warned that the Abbott government’s plan to cut $500 million in industry assistance over the next several years could hasten job losses in the car industry and end up costing more than it saved.

It found the $500 million cut from the main funding stream, the Automotive Transformation Scheme, would mostly be felt in the period 2015-2017, before recovering in 2018-2010.

“Any significant or uneven reduction of subsidy funding in the next few years … could elevate risks of earlier closures by Ford and Holden and increase adjustment costs throughout the supply chain, especially where firms close at short notice,” it said.

“It might also negatively affect investment decisions by Toyota and its component suppliers.”

It warned that the amount of funding being withdrawn from ATS “could result in adjustment costs greater than the savings benefits”.

While admitting the withdrawal of funding would lead to job losses, the interim report does not include any estimates. The Commission will release modelling on the likely impacts in February. It found that about 40 per cent of car manufacturing jobs were lost between 2006-2013 but that still left a workforce of some 44,000.

All three cars makers now have world-class engineering and design centres operations in Australia, but these operations are mostly located alongside manufacturing. The Commission argued there was little evidence of “trickle down” economic benefits because the work was being done on in-house projects destined for other countries.

The PC report revealed the government did not envisage the car maker’s R&D centres being eligible for funding from the ATS scheme. This suggests that the high-end design centres will also close, along with the assembly plants.

Ford has announced it will shut its assembly operations in Melbourne and Geelong by October 2016, while Holden will close its Adelaide plant by 2017. This will cut about 2500 direct jobs in Victoria ad 1600 in South Australia.

Source: Productivity Commission
Position Paper

Toyota is seeking investment approval from its Japanese parent to make a new model Camry at its Melbourne plant – which has about 2500 workers – but it has to cut costs and boost productivity to compete with other Toyota plants around the world.

Local management is pushing a plan to cut $3800 from the cost of each locally made car, but a group of workers have won a court injunction preventing it from being to put a vote by the 2500-strong workforce. Employment Minister Eric Abetz will intervene in support of the company’s appeal but this is not expected to be heard until about March.

The PC repeated its criticism of workplace arrangements in the car industry, but concluded the main problem was that big car makers were concentrating their operations in large scale plants in low costs countries.

“All vehicle manufacturers in Australia are producing well below the 200,000 to 300, 000 vehicles needed annually for an assembly plant to be cost competitive.”

The Labor Opposition’s industry spokeswoman, Kim Carr blasted the position paper as a “cold, calculated and baseless attack on Australian automotive workers”.

“This report is designed with a single purpose in mind – to provide political cover for the Abbott Government to put an end to an industry they are ideologically opposed to,” Senator Carr said.

The Commission argued that assistance to the car industry cost $30 billion between 1997 and 2012 but this includes the effect of tariffs on imports as well as direct assistance.