Car industry in crisis

THE head of the peak industry body representing the car companies in Australia has described the coronavirus pandemic gripping the country as potentially the biggest crisis since World War II and is urging the Morrison government to ensure the automotive sector benefits directly from new economic stimulus packages.

In an interview with GoAuto, Federal Chamber of Automotive Industries (FCAI) chief executive Tony Weber revealed that sales incentive proposals specific to the car sector were being formulated, but said it was too early to divulge details – other than to confirm they were generic in nature and not subsidies tied to low-emissions cars, as the Gillard government attempted to execute in the wake of the global financial crisis a decade ago.

Mr Weber said the FCAI member companies – virtually all of the global car-makers retailing in Australia – had reported slowing traffic in dealerships but he emphasised there was scope for depressed retail sales, which have been on a unbroken downward trend for two years, to bounce back later in the year if the coronavirus crisis does not last for more than a few months.

And asked about revised sales forecasts, the FCAI chief suggested that forecasting was futile in such a fluid environment.

The industry is heading towards its lowest annual sales result since the GFC, tumbling 10.3 per cent to the end of February and now on track to drop below one million units for the first time since 2009.

A confluence of financial, political and environmental issues – from tighter lending practices and a stagnant housing market to drought and bushfire catastrophes – has wounded the industry, but COVID-19 has quickly become an all-consuming new area of concern.

The effects of the virus have already, and will continue to, hit vehicle supplies, product launch programs and consumer and business confidence.

Early government stimulus measures such as investment incentives and the increased instant asset write-off threshold are welcomed by industry, but the crisis has escalated over the past week with new developments such as social distancing practises, the ban on non-essential indoor gatherings of more than 100 people and the sheer saturation of worrying media reports relating to the virus.

“This is not just a domestic issue, a domestic crisis, this is an international crisis in proportions that we haven’t seen before and it’s evolving very quickly on a daily basis,” Mr Weber said.

“So it is hard to put a finger on what this will ultimately mean for the world, the country, and then the automotive industry in this country.

“That’s the parameters in which we’re dealing with here. But clearly the vehicle industry, having had 23 consecutive months of negative growth, starts from a difficult position and the coronavirus pandemic provides even greater challenges on top of that position.

“It is obviously extremely difficult and will be very, very challenging for an industry that has numerous challenges on it already.”

The Australian car industry bounced back strongly from the GFC, but Mr Weber said the coronavirus pandemic could prove to be a bigger, more debilitating crisis.

“I think this has the potential to be the biggest crisis since the Second World War,” he said.

Mr Weber said FCAI members were reporting that “the traffic through the showrooms is slowing” and that although vehicle supply was not a major issue at the moment, the fact that various car-makers had stopped production around the world might obviously impact local stock levels.

“There is just so much unknown with this,” he said. “We’ve never been in these waters before.”

Mr Weber said the message from the FCAI to government was straightforward: “Like every other sector, we need as much help as possible.

“We’re looking for something to try and stimulate the industry. It certainly needs it at the moment. We are starting from a very poor position, having had 23 negative months, and anything that can actually assist the industry would be great,” he said.

Asked about specific incentives, such as the Cleaner Car Rebate scheme proposed (but later scrapped) by the Gillard Labor government to promote the purchase of new vehicles in the aftermath of the GFC, Mr Weber said: “We are tossing up some ideas but we haven’t gone out publicly at this point in time.

“It’s fundamentally just options that stimulate demand, that brings people into the showrooms, whilst that can be handled within the health crisis,” he said.

“I think at this stage it’s a more generic position, rather than specific (to low-emissions cars or similar). I don’t think it need necessarily be linked to any sort of secondary objective.

“Good public policy in these situations is to take a broad brush, rather than trying to achieve multiple aims with your policy.”

While acknowledging the potential emptying of dealership showrooms the current situation was creating, Mr Weber said a relatively quick recovery could build momentum in the marketplace later in the year.

“If we can get over this quickly, the demand that was there will not go away. Those people will ultimately go into the dealership and buy a car, so we could come out of this with more momentum behind us,” he said.

“If this can be addressed relatively quickly, we can have a bounce-back in demand at some point later in the year.”

Mr Weber added that moves to push the peak of the virus out to June/July to ensure the health system can manage, which might in turn prolong the economic impact for industries including automotive, “goes to a ‘greater good’ discussion”.

“This is a very complex issue because for the first time we’ve had a major economic issue to deal with as a nation, and as a world, and we’ve also got it predicated around a health issue,” he said.

“I think the first thing is that we need to work with health authorities and with the government to actually come up with the best solutions to the crisis, and that will put us in the best situation to traipse through it.”

As to whether the FCAI had revised down its sales forecast for the year, Mr Weber said: “We don’t have a sales forecast. We’ll just have to monitor that, and I think it’s too early to be jumping to those kinds of conclusions. We’ll just have to wait and see where this all goes.

“I don’t understand the magnitude or the length of the issue, and I don’t think anyone does at the moment. So making forecasts in that environment is just a fool’s game.”

He also said it was impossible to say how long the crisis might last.

“That is a very complex mix between the health response, the way in which the disease actually works its way through the domestic community, and then what its economic impact is. It’s just too difficult at this point in time to work through that,” he said.

The FCAI chief also said that while the industry supported the tax incentives provided through the federal government’s first stimulus package, it was too early to assess the effectiveness of the measures.

“We have to actually ascertain how generous those incentives are, and what the take-up rate for those tax incentives are in the marketplace,” he said.

“The government has talked about potentially ongoing incentives; they need to think about the automotive industry within that context.”

This will become all the more important if Australia follows other countries and goes into lockdown, meaning businesses will close and the movements of citizens heavily restricted.

Asked about Australian parallels to the fast-evolving situation in the United States, where the auto industry is urging legislators to ensure dealerships are considered essential businesses (that cannot be forcibly closed) considering their vital role in the selling and servicing of cars, Mr Weber said it was crucial that motor vehicles were kept operating during the current crisis.

“It’s really important that in this time we can keep the fleet operating and it is important that the service networks remain open,” he said.

This echoes the position taken by the Australian Automotive Aftermarket Association (AAAA), whose chief executive Stuart Charity told GoAuto this week that automotive component suppliers and repairers should be declared an essential industry if the country goes into lockdown.

Mr Charity said parts supply and automotive repair kept other industries on the move, pointing to emergency vehicles, medical supply, food delivery services and other forms of transportation, as well as the need for consumers to access medical facilities and supermarkets using their own cars.

During the GFC, the Rudd Labor government introduced a variety of measures aimed at stimulating new-vehicle sales, including generous capital investment allowances of 30 per cent (later lifted to 50 per cent) for businesses.

It also introduced a $1.3 billion Green Car Innovation Fund (GCIF) in 2009 that was meant to run over nine years to assist Australian car manufacturers, suppliers and others in the industry, but was abandoned in 2011.

This was part of a $6.2 billion New Car Plan for a Greener Future designed to prop up the local manufacturing sector.

The subsequent Gillard government intended to introduce a $430 million Cleaner Car Rebate (aka ‘cash for clunkers’) scheme in 2010, offering motorists $2000 when trading in a pre-1995 vehicle on a new one that had an average CO2 emissions rating of 220 grams per kilometre or less. The older cars would then be scrapped.

After being pushed back to 2011, and roundly criticised by industry, the plan itself was scrapped in conjunction with the GCIF.