Toyota threat on tariffs

AUSTRALIA’S peak automotive industry body has called for local car-makers to be compensated for the soaring Aussie dollar following last week’s warning from Toyota Motor Corporation (TMC) that crippling exchange rates and future import tariff reductions could put the future of its Australian manufacturing operations in doubt.

Senior TMC executives on Thursday described the sustained double whammy of the Australian dollar trading at a 23-year high and the scheduled reduction in 2010 of the new-car import duty from 10 to five per cent, which makes local exports more expensive and imports cheaper respectively, as “a very serious problem”.

The office of South Australian premier Mike Rann this week confirmed that the state, which is home to Holden and Mitsubishi assembly plants and whose automotive industry is reported to have lost an estimated 7500 jobs in the past decade, has called on the federal government to retain the current tariff until at least 2015, when the existing federal motor industry subsidy plan expires.

Now the Federal Chamber of Automotive Industries (FCAI) has weighed in on the call, to whichever party is in government beyond the November 24 federal election, to support the industry via a tariff freeze if the Australian dollar continues towards parity with the US dollar, as is expected.

Australian new-car sales are expected to top the million mark for the first time this year, but so far in 2007 locally-built vehicles account for less than 20 per cent – down from almost half a decade ago as large-car sales continue to decline.

Left: Camry production at Altona.

Toyota is Australia’s leading vehicle exporter and expects to export around 90,000 vehicles this year, or up to 65 per cent of annual production (representing about $1.6 billion of $3 billion in total Australian vehicle exports), at its Victorian plant, which employs 3500 of its 4500-strong national workforce.

But Toyota says it is losing money on Camry and Aurion exports to the Middle East and that lower tariffs will increase competition for its homegrown models locally.

Exports from GM Holden, Australia’s only other significant vehicle exporter beyond New Zealand, fell from a record 60,000 in 2005 to 46,000 in 2006 (representing about 37 per cent of vehicles built), but are expected to pick up as Holden begins to deliver 30,000 Pontiacs to the US from the end of the year.

Since the export deal within General Motors was done, however, the dollar has climbed from US73 cents to above US90 cents, slowing Holden’s plan to export its new Ute and upcoming Sportwagon to the US.

However, new chairman and managing director Chris Gubbey said at the Australian International Motor Show in Sydney earlier this month that Holden’s philosophy is that what it loses in exports through high exchange rates it gains in imports.

Speaking more bullishly at Toyota’s traditional closing function for the Tokyo motor show last Thursday, TMC executive vice-president Tokuichi Uranishi told Australian journalists that decreasing the 2010 tariff to five per cent, in line with four-wheel drive imports, would threaten the viability of its Camry factory in Melbourne, which competes for export business with six other Camry factories globally.

“We are carefully looking at the movement of future arrangement of the import duty. Frankly speaking, if your government will reduce import duty, definitely export business (to Australia) will be more economical than local production,” he said.

“Considering the competitiveness and cost comparison, minimum tariff should be (kept to) 10 per cent. “Toyota loves free trade, but at the same time once we build an operation we have to protect that operation. It is a dilemma. Local production is very tough. If possible, we want to continue. We are currently looking at the future.

“We believe the auto industry in your country is very important. Once we start (manufacturing) we definitely want to keep (manufacturing). But it depends on (government) policy,” he said.

Uranishi-san said the increasing value of the Australian dollar also undermined the competitiveness of Australian vehicle manufacturing for TMC.

“Strong Australian dollar is making local cost competitiveness weaker and weaker. Export business is suffering very seriously from the strong Australian dollar. It’s a very serious problem for us, for the export business,” he said.

“I want to keep our operation in Australia, but the surrounding business condition should be within a reasonable range.

“We have lots of alternatives. We are doing business, therefore we have to seriously compare which is the most economical way. If import duty will be reduced further, and with the dollar, local production will be getting very tough.

“We are suffering seriously from the current exchange rate with the export business. The current rate is very severe,” he said.

Uranishi-san said any potential new “car plan” needed to go beyond tariffs to cover the wider range of vehicle assembly issues in Australia.

“The reduction of import duty cannot realise the stronger competitiveness of an industry. Auto industry is about assembly. Car manufacturer cannot improve everything because we buy almost 70 per cent from outside suppliers.

Therefore it is essential to build a very strong supplier network,” he said. FCAI chief executive Andrew McKellar, who met with Uranishi-san in Tokyo on Friday and hopes to fast-track discussions ahead of the next Automotive Competitiveness and Investment Scheme (ACIS) review due in mid-2008, is preparing to lobby both the Coalition and the Labor party to help counter the crippling affects of the rising Australian currency.

Mr McKellar said the rising value of the local currency warranted increased funding. “It has had a major competitive impact on local manufacturing and there is a very strong case to do something right now. I would call on both of the major political parties to acknowledge that point,” he said.

Mr McKellar said the FCAI was hopeful of securing increased assistance for Australian car-makers, regardless of which party is in power.

“I would hope that, whoever wins on November 24, we would be able to sit down and work through those issues and ensure the policy arrangements that are in place today can be adjusted accordingly so that we are able to achieve their intended objective,” said Mr McKellar, adding that the FCAI is committed to the existing ACIS funding plan to assist to local manufacturers, but believes extra money should be made available.

“I’m not arguing that we can compensate for the full impact … the full impact, the competitiveness of the local manufacturers, the exchange rate appreciation that we have seen affected their competitiveness to the tune of several hundreds of millions of dollars.” Currently, ACIS is in its second stage, which runs through to 2010, and has pledged a total of $7 billion between 2000 and 2015 in the form of import tariff rebates on vehicles and components. It is believed the industry has received up to $4 billion in tariff exemptions to date.

Mr McKellar hopes whoever is in power will take the review seriously and release extra funding soon. “Both parties have made a commitment to go through the process. What I would say to both of the major parties is that that review is critical,” he said.

“Notwithstanding that review, there is a very strong case, right now, today, that the industry support arrangements, through ASIS, need to be looked at. They need to be adjusted to at least partially compensate for the impact of exchange rate appreciation.” The Australian dollar was worth around US50 cents when the last ACIS review was held in 2002. Mr McKellar said it could only get worse for the local car-makers.

“People are walking around talking about parity with the US dollar and Japanese yen, so this is an extraordinary transformation and it has had a huge impact on the local manufacturers,” he said.

Ford Australia president Tom Gorman said the current economic conditions were tough. “It is hard at 90 (cents US) and parity would make it even harder, but each one of us has a different business,” he said.

“If you look at the Holden or Toyota model, they are really being adversely affected because of their export portfolio. You will have to get an answer from them as to the impact it is having, but I’m sure it is quite severe.

“For us, we don’t have quite the export footprint, but the counter is that it gives (Japanese) yen-based, (Thai) baht-based and (US) dollar-based competitors a significant pricing advantage in the market which many of them are exercising, whether it be price reduction or content additions.” Mr Gorman said Ford Australia currently imported about 40 per cent of the cars it sold, but expected that to increase with the arrival of the new imported Mondeo model. Like Mr Gubbey, he conceded the strong Australian dollar made importing more profitable.

“That has made our business a little more challenging, but on the flipside, products we import, the profits on those are improving.” Mr Gorman said the upcoming funding review with whoever is in government would be an important forum for the local car-makers to discuss the manufacturing environment.

“What is really necessary is to maintain dialogue and explain the challenges that the industry really faces,” he said.

“Then it is a case of: is there anything we can do as an industry/government partnership that is going to make sure our business is going to remain competitive.”

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