South Korea free trade deal may kill Australian motor industry

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THE new Free Trade Agreement with South Korea will lead to cheaper cars, but experts warn it will almost certainly crush what's left of the Australian auto manufacturing industry.

Both Holden and Toyota are at critical stages of negotiations with their parent companies to secure investment in future locally-manufactured models.

It is widely feared that news of this deal will dampen their chances of saving their car factories, if not completely extinguish them.

However, a deal to remove the five per cent import tariff on South Korean vehicles would actually help Holden if it shuts its Adelaide factory because the cars that would replace the locally made Cruze and Commodore would be imported from there.

Holden already imports more than one-third of its range from South Korea and the country is the third-biggest source of all new cars sold in Australia behind Japan and Thailand.

Sales of Thai-made vehicles have risen by almost 50 per cent since the Free Trade Agreement with Thailand came into effect in three years ago.

More than 170,000 Thailand-made vehicles were imported into Australia last year. However, unfavourable exchange rates and non-tariff barriers, saw Ford ship just 100 Territory SUVs in return.

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While the Federal Government says an FTA with South Korea would be a boon to technology and agriculture industries, it could be the death of the Australian car manufacturing industry.

"Anything that potentially sees more imported cars sold here is absolutely not good for local manufacturers," said Richard Reilly, the head of the Federation of Automotive Parts Manufacturers, whose members supply components to Toyota, Holden and Ford.

"The government needs to be extremely careful if this deal goes ahead," said Mr Reilly.

Mr Reilly also said there would be limited potential for local car parts suppliers to export to South Korea because of the "structural hurdles" of Australia's high labour costs, low production volumes and unfavourable exchange rates.

The South Korean car industry produced 4.5 million vehicles last year; Australia built 220,000 vehicles, so it doesn't have the same economies of scale to drive down prices.

The chief executive of the Federal Chamber of Automotive Industries, Tony Weber, said: "The proposed (Free Trade Agreement with South Korea) will obviously enhance competition because it makes prices of cars imported from those countries cheaper, but that makes it a more difficult environment for domestic producers. Every time you sign a free-trade agreement it makes it tougher."

Both organisations said they hoped the South Korean deal would eliminate "non-tariff" barriers to provide a chance for the automotive industry to export.

"It's needs to be a fair trade agreement as well," said Mr Reilly.

But unfavourable exchange rates and higher costs will likely make Australian cars and parts too expensive for Korean companies.

As Holden confirmed today its boss Mike Devereux will stay on until February while a replacement is found, a statement from the company regarding the proposed FTA with South Korea said: "We will assess the effects of this announcement across our operations".

Prime Minister Tony Abbott announced on Thursday negotiations with South Korea have concluded and the agreement will now go to Cabinet for final approval.

The agriculture industry expects exports will increase by more than per cent over the next 10 years if the FTA goes ahead. But the move will only add pressure on Australia's struggling car-manufacturing industry.

Production of vehicles in Australia is at its lowest level since 1958.

Toyota and Holden are both negotiating with their parent companies to be allocated investment in the models they will build beyond 2018.

Source:  http://www.news.com.au

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