Download Federal Chamber of Automotive Industries (FCAI)

Federal Chamber of
Automotive Industries
The Australian automotive
industry and a changing
competitive environment
December 2011
Draft
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December 2011
Executive summary
PwC has been engaged by the Federal Chamber of Automotive Industries (FCAI) to prepare a report informing on the:
• current economic profile of the automotive industry within Australia
• competitive challenges facing the industry stemming from changing macroeconomic and trade conditions
• industry investment policies currently being perused by overseas governments.
The Australian automotive industry
continues to be a substantial
contributor to the Australian
economy:
• directly employing up to 59,000
people in manufacturing
• generating broader industry gross
value add of $23.5 billion per year
(on par with the utilities and
hospitality sectors)
• exporting automotive vehicles and
components worth $3.6 billion
during 2010
• investing $5.8 billion in research
and development over the last 10
years.
The challenges facing the Australian
automotive industry are
predominantly externally generated,
arising from the broader economic
integration between Australian and
international economies:
• Access to Finance – the longer-term
impact of the global financial crisis
(GFC) has been a global reduction in
available finance for
investment in automotive
manufacturing.
PwC
• Increased Competition for Investment
Attraction – as a result of the global
economic downturn, overseas
governments intervened to diversify
and strengthen their manufacturing
base. In comparison, the level of
assistance and co-investment received
by Australian manufacturers is
relatively low.
• Exchange Rate – as a result of the
mining boom the $A has appreciated
markedly, increasing the
competitiveness of imported cars in the
domestic market and reducing the
competitiveness of Australian exported
automotive products.
• Reciprocal Market Access – the
Australian Government unilaterally
reduced the general automotive tariff
from 10% to 5% in 2010, yet other major
automotive manufacturing nations have
responded to the economic down-turn
by increasing protective barriers.
Moreover, based on current tariff and
excise arrangements, Australia’s free
trade agreements do not appear to be
providing export market access for
Australian vehicle manufacturers.
3
The strength of the new vehicle market • Investment attraction –
in Australia masks the challenges facing
current patterns of co-investment
the Australian vehicle manufacturing
by overseas governments imply
industry. Australian vehicle production
very strong competition for global
has dropped by over 40% since a peak
automotive industry investment.
in 2004. The majority of this reduction
This investment is needed to
has occurred since the global economic
produce the next generation of low
downturn and is as a consequence of:
emission vehicles in Australia.
• increased competition (due to tariff
reductions and strengthening of the
A$) in the Australian domestic
market resulting in a reduction in
locally produced vehicles from 30%
to 15% of the domestic market
• weakened consumer confidence and
changes in consumer demand for
smaller, low emission, vehicles.
• Sound Fiscal Environment – in
the longer term, many of the
overseas governments that have
re-established co-investment
programs will not necessarily have
the fiscal capacity to sustain these
investments. This contrasts with
Australia, which has a relatively
sound fiscal position.
Going forward, given the global
economic environment, it is reasonable
to expect that:
• New Auto Investment – broad
macroeconomic, trade and consumer
trends (i.e. the higher $A, expansion
of free trade agreements without
reciprocal market access) will
continue. These are challenges to
which the Australian automotive
manufacturers will need to respond
with new investment and increased
productivity.
December 2011
Table of contents
Industry profile
5
Macroeconomic trends
11
Government support
15
Industry outlook
24
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December 2011
Industry profile:
Role in the economy
Automotive manufacturing provides significant economic benefits in terms of employment,
value adding, R&D and exporting. The industry is the largest contributor to manufacturing
output, employment and R&D.
The automotive industry provides employment for high-value design and engineering skills
and builds capability in Australia that has spillover benefits for other industry sectors.
The industry also requires a large and stable workforce that can be located around major
employment centres.
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December 2011
Industry profile: Role in the economy
Economic output
The Global Financial Crisis (GFC) in 2008 re-intensified the debate
around the importance of a diversified economy underpinned by a
strong manufacturing base.
Within Australia, the automotive industry represents an estimated 1.92%
of total gross domestic product (GDP). This equates to annual industry
gross value add of $23.5 billion.
The sharp downturn and subsequent weakness in high value add services refocused attention on labour intensive manufacturing industries, like the
automotive industry. Many governments have responded through increased
investment designed to retain and attract automotive manufacturing. The
methods and extent to which this has occurred is discussed in further detail
in Section 2 – A changing competitive environment.
This level of economic output puts the industry on par with the utilities and
hospitality sectors. The automotive sector’s numerous linkages to other
parts of the economy also ensures a high spill over, or flow through effect of
industry investment into the broader economy.
Chart 1: Industry share of GDP FY11
Public Admin
5%
Education
4%
Health and social
6%
Other
10%
Professional & Admin
9%
Manufacturing
9%
Car manufacturers
0.21%
Mechanics
0.26%
Real estate
3%
Automotive
1.92%
Financial
11%
Retailers
1.12%
Agriculture
3%
Mining
9%
Media
3%
Transport
5%
Hospitality
2%
Trade
9%
Utilities
2%
Construction
8%
Parts dealers
0.21%
Parts manufacturers
0.11%
Source: ABS (2011) Cat. 5206.0; IBIS World Australia Automotive Industry Report Series (2011)
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December 2011
Industry profile: Role in the economy
Production and sales
Chart 2: Motor vehicle sales in Australia
The size of the automotive market has increased by 32% since
2000, reflecting an annual growth rate of around 2.8%.
1,200,000
While sales did stall during the GFC, renewed domestic demand in 2010
for passenger vehicles and SUVs has seen domestic demand return to
pre-GFC levels.
1,000,000
Sales (units)
800,000
600,000
There has been a decline in the local production of motor vehicles from
its peak in 2003 and 2004. Key features of this downward trend include:
400,000
•
production for the domestic market contracting at an annual rate of
approximately 9%
•
production for the export market growing steadily through to 2008 at
an annual rate of approximately 4.7%, but fell away sharply in 09/10.
200,000
0
00
01
02
Passenger
03
04
05
06
Light Trucks/ SUVs
07
08
09
10
In 2001, just under 30% of total domestic demand was served by
domestic vehicle production. This figure has halved, with just under
15% of total domestic demand served by domestic vehicle production in
2010. The implication of declining domestic production set against
increased domestic demand has been an increase in importation of
vehicles to fill the gap.
Heavy Trucks
Source: DIISR, Key Automotive Statistics (2010)
Chart 3: Motor vehicle production in Australia
450,000
This shift is a function of changes to the domestic and international
competitive environment, as well as shifting consumer preference. These
forces, and both their current and potential impact upon the automotive
industry within Australia, are discussed in detail in Section 2 – A
changing competitive environment.
Production (units)
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2001 2002
2003
2004
2005
Domestic market
2006
2007
2008 2009
2010
Export market
Source: DIISR, Key Automotive Statistics (2010)
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December 2011
Industry profile: Role in the economy
Exports
Chart 4: Changing value of automotive exports
The export of automotive vehicles and components was worth
$3.6 billion dollars during 2010.
7
This comprised the export of approximately 94,000 vehicles (40% of total
domestic production), generating export revenues of $2.1 billion, and $1.5
billion in components.
Export Value ($ billion)
6
5
The long term revenue from automotive exports has increased (Chart 4)
despite the decline in the units exported (Chart 3, previous page). This
implies that the export value per unit exported rose from 2000 through to
2008, with total exports exceeding $5 billion due to increasing efficiencies
and a favourable currency.
4
3
2
More recently, the stalling of consumer demand for vehicles resulting
from the GFC and the strength of the $A have led to a reduction in the
number of vehicles exported (down 55% between 2008 and 2009) and a
near halving of their export value.
1
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Vehicle
Australia’s key export markets include the Middle East (44% of exports),
New Zealand (13%) and the countries within the NAFTA bloc (9%). The
composition of these top trading partners is important because both the
Middle East and the US were severely affected by the GFC and there was a
corresponding decrease in demand for vehicles in these markets.
Components
Source: DIISR, Key Automotive Statistics (2010)
Furthermore, the recent appreciation of the $A has been most pronounced
against the $US (against which many Middle Eastern countries peg their
currency), implying lower price competitiveness in these markets since the
GFC. This point is elaborated upon further in Section 2 – A changing
competitive environment.
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December 2011
Industry profile: Role in the economy
Employment
Chart 5: Employment within the automotive industry
The automotive industry directly employs up to 59,000
people in local manufacturing.
400
The estimates of employment in automotive manufacturing range
from 52,000 as reported by IBIS World up to approximately 59,000
as reported by the Department of Innovation, Industry, Science and
Research. This employment within manufacturing forms the base of
the local automotive industry, not only through its job creation, but
wider support for the localised supply chain which includes parts
manufacturers.
Employment ('000)
350
300
250
172
168
181
176
178
177
172
171
173
114
116
120
124
130
135
137
140
147
65
70
68
67
65
64
58
54
52
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
200
150
100
50
0
Manufacturing
Servicing
Employment within the wider automotive industry has grown
steadily over the past decade. However, this total growth masks
declining employment in automotive manufacturing which currently
makes up 14% of employment within the industry, down from 20%
in 2002/03. The total industry employment growth is being driven
by automotive servicing, which accounts for an estimated 72% of all
people employed within the industry.
Retail / wholesale
Source: IBIS World, Australia Automotive Industry Report Series (2011) reports an estimated
59,000 people employed within the automotive manufacturing industry in 2010, DIISR.
Chart 6: Automotive employment vs. other industries
The overall automotive industry currently employs 372,000 people.
This includes the 52,000 people directly employed in manufacturing
(IBIS World estimate), 147,000 employed in servicing and 173,000
employed in retail/wholesale activities.
1400000
1200000
1000000
800000
400000
This total employment figure of 372,000 in the automotive industry,
implies that the industry employs more people than the:
200000
•
Agricultural sector (336,000)
0
•
Mining sector (212,000)
•
Utilities sector (electricity, gas and waste services) (149,000).
600000
Source: ABS, IBIS World, Australia Automotive Industry Report Series (2011)
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December 2011
Industry profile: Role in the economy
Productivity and innovation
Chart 7: R&D expenditure in automotive industry
Research & Development in the automotive industry has
averaged 8.1% growth over the past 10 years. During this
time, a total of $5.8 billion has been invested.
$900m
$800m
$700m
$600m
$500m
$400m
$300m
$200m
$100m
$m
Chart 8 displays labour productivity (in terms of production value per
employee) in the automotive sector. As demonstrated, productivity has
grown at an annualised rate of:
Source: DIISR, Key Automotive Statistics (2010)
25
$500,000
20
$400,000
15
$300,000
10
$200,000
5
$100,000
0
$0
Average production value per employee
(RHS)
Average vehicles produced per employee
Chart 8: Productivity
$600,000
3.3% p.a. over the five year period 2005-2010
•
2.2% p.a. over the ten year period 2000-2010.
Since 2005, this growth in productivity has been driven primarily by a
decrease in the number of employees, rather than growth in output.
Output fell by 26% over the period, while there was a 36% fall in the
number of employees.
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
30
•
The Australian manufacturing sector as a whole has also demonstrated
moderate labour productivity growth over this period. Labour
productivity (measured in terms of Gross Value Added per hour
worked) grew at an annualised rate of 1.8% p.a. over the ten years to
2010 and has grown by 1.6% p.a. since 2005.
This growth reflects a similar trend to the automotive sector; output
over the 2005-2010 period grew by just 0.7% over the period, with
productivity gains driven by a 7% reduction in hours worked.
Average production value per employee (RHS)
Average vehicles produced per employee (LHS)
Source: DIISR, Key Automotive Statistics (2010)
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December 2011
Macroeconomic trends
“When commodity prices normalise or when resources are depleted,
tradeable sectors which have disappeared might simply not
reappear”*
This is especially true for the automotive manufacturing industry. The capital intensive nature
of operations and high level of international competition would act as barriers to the industry
re-establishing within Australia if under-investment and eroding competitiveness during the
resource boom leads to a relocation of manufacturing plants to more competitive environments.
There are a number of macroeconomic trends currently contributing to this erosion of
competitiveness, including:
•
The strength of the A$, intensified through Australia’s concentrated export markets and
openness to imports
•
Reduced access to, and increased competition for, capital
•
Rising transport fuel costs
•
Changing consumer demand
•
Reduced access to capital
•
Increasing costs of energy.
Source: Australian Government, Federal Budget 2010/11, Statement 4: Benefiting from Our Mineral Resources:
Opportunities, Challenges and Policy Settings
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December 2011
Macroeconomic trends
Exchange rates
The value of the Australian Dollar (A$) has a direct impact on
the profitability of the local automotive manufacturers.
Chart 9: Historical performance of the $A
1.2
With 40% of local production exported, the recent strength and volatility
of the A$ against the currencies of major trading partners and export
destinations hampers export competitiveness and creates uncertainty
around long term investment decisions.
US$ per A$
1.1
Long term
average: 0.72
1
0.9
Chart 9 demonstrates the recent strength and volatility against historical
trends while Chart 10 demonstrates the appreciation of the A$ against
major vehicle export destinations since mid 2010. Key observations and
implications include:
0.8
0.7
0.6
0.5
0.4
Dec-1983
Dec-1992
Dec-2001
•
The A$ has appreciated most against the United States Dollar (US$), a
function not only of the strength of the Australian economy, but also
the weakness of the US economy. Australia’s largest automotive export
market is Middle Eastern countries (in 2010 44% of total exports)
which peg their currency to the US$. Combined with exports to the
US, the price competitiveness of close to 50% of Australian automotive
exports are therefore tied to movements, and the current strength, of
the A$ against the US$.
•
Against other key trading partners the A$ has also strengthened by
around 10%- 15%.
Dec-2010
Source: RBA (Monthly data,2011)
Chart 10: Appreciation of $A
135
135
1 June 2010 = 100
Appreciation of $A, Index
130
130
$US
125
125
120
120
115
115
€
110
110
105
105
¥
100
95
01-Jun-10
In the short-term, global economic uncertainty will continue to result in a
volatile A$. In the long-term, sustained Chinese economic growth is
expected to support a strong A$ which will remain high by historical
standards.
100
95
01-Oct-10
01-Feb-11
01-Jun-11
01-Oct-11
Source: RBA (Daily data, 2011)
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December 2011
Macroeconomic trends
Industry performance and investment
Chart 11: Industry investment as % of total GDP
9
The automotive industry is also facing a reduction in available finance.
This stems from increased funding costs that have affected all industries
post the GFC. This is being intensified by the impact that the required
capital investment by the Australian resource sector is having upon other
industries. This impact is shown in Chart 11 which demonstrates the
increased competition for investment against the mining industry.
% of GDP
8
Manufacturing
and services
7
6
5
In the long term, lower levels of capital investment are likely to limit the
relative technological and productivity growth within the manufacturing
sector. This not only stunts growth during the commodity boom (as
demonstrated in Chart 12); it makes it harder for these sectors to rebound
once the commodity boom comes to an end.
4
Mining
3
2
1
As pointed out by the Federal Treasury (2011):
0
89
91
93
95
97
99
01
03
05
07
09
11
When commodity prices normalise or when
resources are depleted, tradeable sectors which
have disappeared might simply not reappear.
Year ended 30 June
Source: ABS (2011)
Chart 12: Growth by industry, before and during the mining boom
Average annual growth
(per cent) 1997-98 to
2003-04
6
56
This statement emphasises that the ability of an industry to rebound after a
sustained commodities boom may be stifled, potentially beyond the point of
recovery. This is especially true for the automotive industry. The capital
intensive nature of operations and high levels of international competition
would act as barriers to re-establishment within Australia if underinvestment leads to a relocation of manufacturing offshore.
Construction
Services
46
Agriculture,
forestry & fishing
36
In the event that there is a ‘hollowing out’ of industry during a resources
boom, the Australian economy becomes exposed to the risk that it is not
able to offset the decline in commodity prices by expanding non-resources
activities in a timely fashion.
Manufacturing
26
Electricity, gas,
water & waste
services
16
-1
0
1
2
Mining
3
4
Average annual growth (per cent) 2003-04 to 2009-10
Interpreting this chart:
A point close to the diagonal line indicates that the industry grew during the boom at a
similar rate to the six year period prior to the boom. A point north (south) of the diagonal
indicates that the industry grew slower (faster) during the boom. (The chart is presented in
gross value added, 2008-09 dollars. Services exclude construction and utilities.)
5
Source: Commonwealth Government, Federal Budget 2011/12,
Statement 4: Benefiting from Our Mineral Resources
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December 2011
Macroeconomic trends
Oil prices and consumer sentiment
Chart 13: Increasing oil prices and automotive fuel prices
600
Higher oil prices and global economic uncertainty are resulting in
changing consumer preferences.
1 June 2000 = 100
500
Increasing oil prices impact upon the Australian automotive industry in the
following ways:
400
•
increasing the cost of production through higher input and distribution
costs
300
•
reducing, or substituting domestic demand for vehicles due to higher fuel
costs
•
Shifting demand from larger to smaller (including diesel) vehicles.
200
100
Despite volatility, the price of oil has increased by over 200% during the
period 2001 to 2011 (Chart 13). Australia has been shielded from the full
impact of the rising global oil price by the appreciation of the $A.
0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
West Texas Intermediate (Indexed)
CPI - Automotive fuel subgroup (Indexed)
The full magnitude of the world oil price increases have not directly flowed
through to consumers, with the costs of automotive fuel increasing by just
under 60% across the period 2001 to 2011. However, over the past year the
rebounding price of oil has translated to increasing consumer fuel costs, with
both oil and petrol prices rising by 13.9%. This trend has contributed to a shift
to smaller and lower fuel consumption vehicles, and diesel engines.
Source: ABS (2011), Cat. 6401.0, WTI $US per barrel, http://www.economagic.com/emcgi/data.exe/var/west-texas-crude-long (2011)
Chart 14: Australian consumer confidence
(standard deviation from long term average)
3
2
1
0
-1
-2
-3
01
02
03
04
05
06
07
08
09
10
11
Source: Westpac – Melbourne Institute (2011),
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December 2011
Government support
“Governments are increasingly
trying to influence conditions in the
job-intensive automotive industry,
using mechanisms such as loans,
incentives and premiums. At the same
time, protectionism is growing.
Seventeen of the G20 countries have
introduced protectionist measures
since the financial crisis 2008/2009,
distorting global trade in goods by an
estimated USD 50 billion per year.”
Roland Berger (2011)
Around the world, Governments have responded to decreasing access to finance and
deteriorating market conditions by focusing on investment attraction, or co-investment.
Co-investment can take the form of funding, grants, partnership arrangements or
incentives designed to attract the investment required for the design and production of the
next generation of vehicles and strengthen the ability of the local industry to compete both
domestically and globally. Competition between countries to attract this investment is
significant.
These policies can be viewed as a response by governments to (re)diversify and strengthen
their manufacturing base in the face of weakening high value add services industries such
as finance and insurance.
Concurrent to co-investment policies are tariff barriers and free trade agreements (FTAs)
which shape the international trade environment. Within Australia, the retail market for
cars is one of the most open and competitive in the world.
This has been driven by the Australian Government’s unilateral reduction applied to
general automotive tariff from 10% to 5% in 2010. Yet other major automotive
manufacturing nations have responded to the economic down-turn by increasing protective
barriers. Moreover, Australia’s free trade agreements do not appear to be providing
reciprocal market access for Australian vehicle manufacturers.
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December 2011
Government support
Tariff barriers
Foreign access to the Australian automotive market has increased
significantly in recent years through the successive reductions in
tariff barriers and the formalising of FTAs.
Chart 15: Global automotive headline tariffs
120%
Tariff
100%
As can be seen in Chart 15, a number of key Australian export markets (which
also house companies that compete in Australia's domestic market) operate
behind high tariff barriers. Australia currently imposes one of the lowest
import tariffs of 5%, however this level is not directly reciprocated by our
trading partners.
100%
80%
60%
40%
35%
25%
25%
10%
20%
8%
5%
This theme of tariff level reciprocity is mirrored in current FTAs. Two key
agreements, both of which came into force on 1 Jan 2005, are the Thailand
and US FTAs. The implications of these agreements on import and export
tariffs are discussed below:
0%
•
Thailand – The import tariff on Thai manufactured vehicles was reduced
to zero on 1 January 2005. For the export of Australian manufactured
large and commercial vehicles, tariff barriers were eliminated. For other
vehicles, tariff barriers were dropped from 80% to 30% on 1 January
2005, before being phased down to 6% in 2010. Tariffs on exported
engines remain at 15%. However, a range of non-tariff barriers such as
excise taxes remain in place. The excise tax structure is complex and is
charged based on the engine capacity of a vehicle. Which works against
Australian manufactured vehicles and favours domestic manufacturers.
These non-tariff barriers add to the Thai retail cost of imported vehicles.
•
US – Import of US manufactured vehicles and parts was reduced to 3% in
2008 and zero in 2010. Exports of Australian manufactured vehicles and
parts have zero tariff applied.
Source: DFAT (2011)US Department of Commerce (2008)
Chart 16: Market share of domestic manufacturing
companies vs. Foreign manufacturing companies
General automotive
tariff cut from 15%
to 10%
80
70
% of Market Share
60
50
40
30
20
10
US and Thailand
FTA entered into
force 1 Jan 2005
General automotive
import tariff cut from
10% to 5%
This increasing access given to foreign competitors to the Australian market
has coincided with the emergence of the resource boom discussed previously.
These two forces have had a marked impact upon the relative performance of
domestic manufacturers. Chart 16 shows the declining market share of
domestic manufacturing brands from holding 55% of market share in 2005 to
less than 40% market share in 2010. This represents a phenomenal pace of
change in the competitive landscape facilitated by increased market access,
and magnified by the additional domestic pressures local manufacturers
started to feel as the result of the mining boom.
0
Local
Imported
Source: DIISR, Key Automotive Statistics (2010), DFAT (2011)
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December 2011
Government support
Government investment attraction policies
The focus of overseas Governments on co-investment policies
has resulted in intense competition, from both countries and
smaller jurisdictions within these countries, to attract and
retain investment in automotive design and manufacturing.
Case study – Incentive Package to draw
investment into the state of Tennessee*
Following the GFC, intervention in the market by overseas governments
has increasingly taken the form of investment attraction (or co-investment)
policies.
In 2008, the US federal, state and municipal governments jointly
offered an incentive package to Volkswagen to build an assembly plant
at Chattanooga in the state of Tennessee. Volkswagen invested
approximately $US 1 billion to construct the facility with the
governments combined offering an estimated $US 577 million.
Description
This can be viewed as a response by governments to (re)diversify and
strengthen their manufacturing base in the face of weakening high value
added services industries such as finance and insurance. The protection or
attraction of automotive vehicle design and manufacturing has been seen
by governments to not only secure or directly stimulate employment
growth, but also secure the employment and value added associated with
the supply chain that accompanies these industries.
The following case studies highlight:
•
the varied nature of investment attraction policies adopted by
governments around the world and the benefits these provide to
automotive manufacturers
The breakdown of support was $US 22 million from the federal
government, $US 336 million from the state government and $US 219
million from the municipal government.
Value: $US 577 million
•
the outcomes of these policies to governments in terms of retaining and
attracting both foreign and domestic investment
•
the often opaque nature of the policies.
The implication of these policies is intense competition, from both
countries and smaller jurisdictions within these countries, to attract and
retain investment in automotive design and manufacturing. These
government policies recognise the value, in terms of jobs and economic
output, to the local economy. They also provide a competitive advantage to
companies based in overseas markets: companies against which local
manufacturers not only compete against in export markets, but also
increasingly compete against in the domestic market.
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Incentives included job tax credits, industrial machinery credits,
infrastructure investments and workforce investments including
recruitment, screening and training support.
17
Outcome: The US$1.5 billion automobile assembly plant was built in
Tennessee . It began production in April 2011. In July 2011 the plant
reported that it had hired its 2000th employee and in September 2011 it
had assembled its 10,000th automobile. It has a projected annual
production of 150,000 cars.
* Full case study sources provided on pages 26-27
December 2011
Government support
Case Studies – Government investment attraction policies
Case study – Incentives to shift the production
of automobile lithium-ion batteries to
Michigan*
Case study –UK and European
Investment Bank (EIB) support
for Nissan electric cars*
Description
The Grant for Business Investment Scheme encourages firms to set up
new greenfield plants in disadvantaged areas of the UK. It is a grant
targeted at sustainable business investment and job creation projects in
disadvantaged areas in England.
The US Federal Government Department of Energy offered a financial
grant to LG Chem / Compact Power to shift the production of
automobile lithium-ion batteries to the US. The $US 151 million was
used by LG Chem and Compact Energy to build a battery cell plant in
Michigan.
The European Investment Bank (EIB) targets advancements in vehicle
and battery technology that can contribute to improved air quality and
help address climate change.
LG Chem, Ltd. is South Korea’s largest chemical and rechargeable
battery maker in terms of both size and performance. The company will
manufacture lithium-ion polymer battery cells for the General Motors’
Chevrolet Volt at the plant in Holland, Michigan.
The UK Government and the EIB have joined forces to offer a large
financial incentive to Nissan Motors to locate plants dedicated to
producing electric car batteries and their Nissan Leaf model (both
focussed on the development of electric cars) in Sunderland in the UK.
The Department of Energy is also funding other similar battery plants,
including those owned by Johnson Controls Inc., A123 Systems Inc.,
EnerDel Inc. and General Motors.
The Nissan Leaf is billed as the first mass-market electric car, and is
currently being produced in Oppama, Japan. It has a 100 mile range on
one charge and a top speed of 90mph.
Value: $US 151 million to date
Value: EUR 220 million from EIB and GBP 20.7 million from the UK
Government
Outcome: The $US 303 million Michigan cell plant is scheduled for
completion in late 2011.It is expected to employ 300-400 people by
2013. At full production, it is planned to have enough capacity to
produce cells for 50,000 to 200,000 battery packs. Six battery cell
manufacturing plants have since decided to locate in Michigan, more
than in any other US state.
Outcome: Nissan Motors has invested GBP 420 million (EUR468.2
million) in the battery and Leaf projects and is expected to maintain
about 2,250 jobs in Sunderland and across the UK supply chain. Nissan
Leaf production in Sunderland will begin in 2013. Initial annual
production capacity is expected to be approximately 50,000 units. The
Nissan battery facility will have a production capacity of 60,000 units a
year and is expected to start manufacturing batteries in 2012 for both
Nissan and its Alliance partner Renault.
* Full case study sources provided on pages 26-27
* Full case study sources provided on pages 26-27
PwC
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December 2011
Government support
Case Studies – Government investment attraction policies
Case study – Polish Government
Support for Pilkington automotive
parts supplier*
Case study – European
Investment Bank (EIB) green
technology grant to Ford*
Description
Description
Pilkington Automotive , supplying automotive parts to General
Motors, Mercedes-Benz, Fiat, Volkswagen, Ford and the PSA
Peugeot Citroen is building a second manufacturing plant in Poland
valued at EUR 104 million with financial support from the Polish
government.
The European Investment Bank (EIB) provided GBP 450 million to
Ford for R&D of a new generation of environmentally friendly lowcarbon engines and vehicle technologies at Ford manufacturing
plants across the United Kingdom. The funding is to support a new
generation of fuel efficient and low-emission diesel and petrol
engines under the European Clean Transport Facility. R&D of petrol
engines will include additional investment in Ford’s Bridgend plant,
located in a European Convergence Region.
Pilkinton is investing EUR 81 million with Panattoni (a local
property developer) providing funding of EUR 23.1 million.
The Polish government will provide EUR 21.5 million to the project.
The package, backed by an 80% loan guarantee from the UK
government, formed part of Ford’s five year GBP 1.5 billion engine
and vehicle development programme.
The plant will produce a range of laminated car windows for
passenger vehicles and trucks.
Value: EUR 21.5 million
The investment partly funded by the European Investment Bank is
expected to safeguard around 2,800 skilled jobs.
Outcome: The Chmielow plant will produce nearly 2 million
windscreens and approximately 5 million side and rear windows a
year, doubling Pilkington’s current capacity in Poland. The facility is
expected to employ 400-500 people, and a further 150 jobs will be
created downstream. The first assembly lines at the new factory
were installed in mid-2011, while the main production lines will be
set up from mid-2012 through the. end of 2013.
Value: GBP 450 million.
Outcome: A commitment by Ford to GBP 1.5 billion over 5 years to
pursue an environmentally friendly engine, while protecting 2800
skilled jobs in the UK and enhancing the skills and capabilities of
Ford’s UK workforce.
* Full case study sources provided on pages 26-27
* Full case study sources provided on pages 26-27
PwC
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December 2011
Government support
Case Studies – Government investment attraction policies
Caste study – Ontario Government
Investment into Magna International’s R&D
for electric vehicles*
Case Study – Thai Government tax incentives
for Eco-Car manufacturers*
Description
Description
Magna International Inc. and the Ontario government will invest more
than CDN $400 million into R&D for electric vehicles (EVs), with CDN
$48 million coming from the Ontario government. Magna is currently
the largest automotive supplier in North America, and will use the
funding to further develop its electric car systems and continue
exploration of next generation clean vehicle technology. The funding has
been allocated to 19 different projects over the next 6 years including
concept electric cars, parts for hybrid vehicles, metallic components,
alternative energy and ways to improve fuel efficiency.
The Thailand government is offering aggressive tax incentives for
Eco-Car manufacturers. Specifically, they are offering an 8-year
corporate income tax holiday and duty-free importation of machinery to
eco-car part projects that have a minimum investment value of 10
million baht.
The investment is expected to create more than 700 jobs and maintain
about 1,300 jobs at Magna facilities in Brampton, Aurora, Concord, and
St. Thomas, Ontario.
The Thai Finance Ministry also allows car makers to pay a reduced
excise tax of 17% on cars with petrol-powered engines smaller than
1,300cc ,and diesel-powered engines below 1,400cc. As the excise tax
levied on standard passenger cars is currently 30 to 40%, the tax
reductions for eco-cars amount to a US $2,000 drop in the sticker price
per vehicle.
Value: Substantial
Value: CDN $48 million
Outcome: Six global auto assemblers proposed investments in 2009,
totalling an annual production capacity of 675,000 eco-cars and the first
Thai eco-cars began production in early 2010. One example of
investment under the scheme is Mitsubishi’s newly built plant (its
third) in Thailand, with an annual production capacity of 150,000
vehicles.
Outcome: CDN $400 million invested into environmental friendly
R&D, maintaining and creating skilled jobs. Fostering investment into
battery-powered vehicles, plug-in hybrids, and hybrid vehicles powered
by electric motors and gasoline, within the province of Ontario.
Growth in the eco-car sector is also providing benefits to parts and
component manufacturers.
* Full case study sources provided on pages 26-27
* Full case study sources provided on pages 26-27
PwC
20
December 2011
Government support
The longevity of co-investment policies
Chart 19: Government borrowing and net debt, 2011
15
The longer term capacity of many developed countries to
support wide scale co-investment policies should be
questioned.
% of GDP
It is expected that while economic uncertainty and market volatility
continue in the short to medium term, governments will continue
to promote co-investment policies as a way to secure jobs, diversify
their economic base and attract investment.
'General government' net borrowing
Norway
10
5
China*
Russia*
Korea
Sweden
Switzerland
0
Finland
Germany
Belgium
Iceland
Italy
Spain
Portugal
France
Australia
Brazil
Denmark
-5
NZ
Netherlands
Greece
UK
Japan
-10
-15
-175
However, many developed countries potentially lack the long-term
fiscal capacity to continue support of co-investment policies. Chart
19 indicates countries’ net borrowings (ie. current budget position)
on the vertical axis, and general government (ie. public sector) debt
as a percentage of annual GDP on the horizontal axis. There are
two important points to note about his chart:
Canada
India*
US
Ireland
50
75
100
% of GDP
-150
-125
-100
-75
-50
-25
0
25
125
150
'General government' net debt
Source: IMF World Economic Outlook April 2011 database. * Public debt figures for China, India and
Russia are gross, not net debt
175
1.
A debt to GDP ratio greater than 90% is generally considered
unsustainable.* At this level the increased burden of servicing
the debt hampers economic growth, leading to a spiralling
deterioration in economic performance.
A number of major EU countries have already surpassed this
level, with others such as Spain, France, the UK and US
expected to move closer, or surpass this threshold in the
coming years. Countries in this position will find it increasingly
difficult to support co-investment schemes as austerity
measures will be required (or as currently seen in the EU
forcefully imposed) to bring public sector debt back to
manageable levels.
2. Compared to other developed nations, Australia does not have
either a budget deficit or public debt issue. Furthermore,
Australia’s ability to leverage the benefits of the resource boom
implies this position is likely to strengthen rather than
deteriorate relative to other developed countries.
* Reinhart, Rogoff, Growth in a Time of Debt, 2010
PwC
21
December 2011
Industry outlook
Drawing together the macroeconomic, trade policy and government support forces which shape
the competitive environment in which the Australian automotive manufacturing industry
operates the following observations can be drawn:
• The industry will feel pressure during an
extended resource boom through increased
competition for capital and labour, although the
effects of this are expected to be secondary to the
impact of the stronger local currency.
• During the course of a prolonged resource boom,
the industry will continue to have international
and domestic competitiveness eroded by higher
export prices and cheaper import prices.
• There appears to be a reversal in the trend
towards trade liberalisation and increased
market access pursued through the WTO and
FTAs, with a wave of government intervention,
that can be viewed as protectionist, increasing in
the wake of the global economic downturn.
PwC
• The trend of increasing protection can be expected
to continue in the short to medium term while there
is lingering global economic uncertainty and
volatility. From a domestic perspective, these coinvestment policies pursued by overseas
governments are creating a highly competitive
environment in which Australian manufactures need
to attract investment to underpin the research,
development and production of the next generation
of low emission technology vehicles.
• In the longer term, many of the overseas
governments that have re-established co-investment
programs will not necessarily have the fiscal capacity
to sustain this level of assistance. This contrasts to
Australia which has a relatively sound fiscal
position.
22
December 2011
Sources
Case Study 1 – Incentive Package to draw investment into the
state of Tennessee
Case study 3 – UK and European Investment Bank (EIB) support
for Nissan electric cars
Al.com (2011), Volkswagen’s new $1 billion plant up and running in Chattanooga,
accessed 30th November 2011 at:
http://blog.al.com/breaking/2011/05/volkswagens_new_1_billion_plan.html
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30th November 2011 at: http://www.automotive-business-review.com/news/nissanto-build-leaf-in-uk-from-2013-101111
Examiner.com (2011), Volkswagen receives $570 million in tax incentives for new
plant in Tennessee, accessed 30th November 2011 at:
http://www.examiner.com/finance-examiner-in-national/volkswagon-receives570-million-tax-incentives-for-new-plant-tennessee
Nebusiness.co.uk (2011), £188m deal to support Nissan Leaf production, accessed
30th November 2011 at: http://www.nebusiness.co.uk/business-news/latestbusiness-news/2011/11/10/188m-deal-to-support-nissan-leaf-production-5114029750770/
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http://www.knoxnews.com/news/2011/may/25/volkswagen-up-and-running/
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30th November 2011 at:
http://www.theengineer.co.uk/sectors/automotive/news/european-fund-supportsproduction-of-nissan-leaf/1010852.article
Case Study 2 – Incentives to shift the production of automobile
lithium-ion batteries to Michigan.
Case study 4 – European Investment Bank (EIB) green technology grant
to Ford
Argonne (2011), LG Chem, Argonne sign licensing deal to make, commercialize
advanced battery material, accessed 30th November 2011 at:
http://www.anl.gov/Media_Center/News/2011/news110106a.html
Financial Times (2010), UK pledges £381m support package for Ford and Nissan
projects, accessed 30th November 2011 at: http://www.ft.com/cms/s/0/c14677da32f6-11df-bf5f-00144feabdc0.html#axzz1fGer011V
Green Car Congress (2011), GM, LG Chem licensing Argonne Lab’s layered-layered
composite cathode material for Li-ion batteries; substantial increase in energy
capacity and safety, accessed 30th November 2011 at:
http://www.greencarcongress.com/2011/01/anlgm-20110106.html
Nine News (2010), UK backs Ford on green technologies, accessed 30th November
2011 at: http://202.58.48.79/article.aspx?id=1029231
Mlive.com (2011), Construction complete at LG Chem battery plant, 300 employees
expected in 2012, accessed 30th November 2011 at:
http://www.mlive.com/business/westmichigan/index.ssf/2011/09/construction_complete_at_lg_ch.html
PwC
23
December 2011
Sources
Case study 5 – Polish Government Support for Pilkington
automotive parts supplier
Case Study 7 – Thai Government tax incentives for Eco-Car
manufacturers
Adamowski, J (2011), Poland: Pilkington to invest 350m zloty in new plant,
accessed 24th November 2011 at:
http://www.automotiveworld.com/news/suppliers/86419-poland-pilkington-toinvest-z-350m-in-new-plant
Bangkok Post Auto (2011), Nissan launches second eco-car, wants higher tax
rebate, accessed 30th November 2011 at:
http://www.bangkokpost.com/auto/autoscoop/260304/nissan-launches-secondeco-car-wants-higher-tax-rebate
Ceramic Industry (2011), NSG Group Announces Automotive Glazing Expansion,
accessed 30th November 2011 at:
http://www.ceramicindustry.com/Articles/Todays_Headlines/BNP_GUID_9-52006_A_10000000000001016601
Business in Asia (2009), Thailand’s automotive industry to see growth accelerate,
accessed 30th November 2011 at: http://www.business-inasia.com/automotive/thailand_automotive.html
NSG Group (2011), NSG Group Announces Major Expansion of Automotive Glazing
Capacity and Capability in Poland, accessed 30th November 2011 at
http://www.pilkington.com/websitev2/both/subsites/nsgcom/iframes/media-pr2011-10032011.htm
Go Auto.com.au (2009), Suzuki commits $251 million to building eco compact car
in Thailand from 2012, accessed 30th November 2011 at:
http://www.goauto.com.au/mellor/mellor.nsf/story2/FB061B9E87C26D63CA2576
7E001070C2
Case study 6 – Ontario Government Investment into Magna
International’s R&D for electric vehicles
Canadian Manufacturing (2011), Magna makes $400 million investment in EVs,
accessed 24th November 2011 at: http://www.canadianmanufacturing.com/designengineering/news/magna-makes-400-million-investment-in-evs-40656
CTV News (2011), Magna, Ontario to invest in electric vehicle research, accessed
30th November 2011 at: http://www.ctv.ca/CTVNews/Canada/20110829/ontariomagna-announcing-e-vehicle-research-funding-110829/
Electric Vehicle Update (2011), Canada: Ontario government emerging as EV hub,
accessed 30th November 2011 at: http://analysis.evupdate.com/industryinsight/canada-ontario-government-emerging-ev-hub
PwC
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December 2011
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