The Business

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Holden strikes gov deal for $275m

Updated March 23, 2012 00:13:36

Holden has struck a deal with the Federal, Victorian and South Australian governments for a $275 million investment.

Source: The Business | Duration: 3min 24sec

Topics: automotive, economic-trends, manufacturing, federal-government, federal---state-issues, states-and-territories, work, activism-and-lobbying, programs-and-initiatives, australia, canberra-2600, sa, vic


TICKY FULLERTON, PRESENTER: Holden has struck a landmark deal with the Federal, Victorian and South Australian Governments to keep building cars in Australia for the next decade.

The company says the $275 million taxpayer investment will deliver $4 billion in benefits.

While industry groups have welcomed the deal, some economists argue governments have been sold a lemon.

Neal Woolrich reports.

NEAL WOOLRICH, REPORTER: Holden has been making cars in Australia for over 60 years, and they'll be staying for another 10 years at least under a deal with the federal, Victorian and South Australian governments. But it will cost the public purse $275 million.

GREG COMBET, INDUSTRY MINISTER: This major investment is designed to make Holden's operations competitive when the Australian dollar is around parity with the US dollar now and in years to come.

TIM WILSON, DIRECTOR, INSTITUTE OF PUBLIC AFFAIRS: Governments are being played for suckers. There's no ambiguity that car companies go to different governments and see how much money they can extract.

NEAL WOOLRICH: Australian car manufacturing employs around 50,000 workers directly and 200,000 indirectly. Industry groups have welcomed the latest assistance package and the Government says without it, Holden would have left Australia.

JULIA GILLARD, PRIME MINISTER: Holden's estimate is that that will generate more than $4 billion of value to the Australian economy. This is truly a strategic co-investment, not a handout.

TIM WILSON: I don't think that figure is credible and of course it always comes at a cost. The billions of dollars that the Government throws into the car industry comes from it being used in more productive sectors which would be a far more valuable use of money than if we keep throwing good money after bad.

NEAL WOOLRICH: Under the agreement, Holden will stay in Australia until 2022, invest a billion dollars itself and build two new lines of next generation cars.

MIKE DEVEREUX, MD, HOLDEN: Australia does not compete on a level playing field and without co-investment this country would struggle to attract new capital investment.

MARTIN FEIL, MD, FIRMSTONE AND FEIL: What we've got now is not even a product agreement, but an individual vehicle brand agreement, and I think that you go almost to the point of nonsense when you start to get to that sort of level. And it has to be something that isn't really based on any sort of coherent and continual sort of policy.

NEAL WOOLRICH: Martin Feil generally supports industry assistance, but says this deal seems to be more based around political than economic considerations.

MARTIN FEIL: Everybody in Australia benefits from the revenue that the Government collects in taxes one way or another, and it's a nonsense to suggest that one small part of it shouldn't benefit. We've gone from 27 per cent down to 8 per cent of GDP in manufacturing.

NEAL WOOLRICH: Tim Wilson from the free market think tank the Institute of Public Affairs says the local car industry hasn't adapted to what consumers want and he's also concerned about the way in which industry assistance is now being provided.

TIM WILSON: In the past we gave money to car companies to get them off tariffs, to make them competitive and to get them engaged in export markets so they were sustainable businesses.

Now, the Government is co-investing in these companies and is basically paying them to stay onshore and in the process, are just extracting basically a form of political bribe from government.

NEAL WOOLRICH: With Holden back in the driver's seat for the time being, it's now up to Ford and Toyota to see what sort of long-term deal they can strike for themselves.