The government’s ‘New Car Plan for a Greener Future,’ launched in November 2008 allocated $6.2 billion to the Australian car industry until 2020. Meant to support a key national industry, help protect the environment, and secure jobs, it fails on all these objectives:

• The car industry is one of the most globalised industries, and the three ‘Australian’ car manufacturers are in fact subsidiaries to foreign companies. Treating car manufacturing as a ‘national’ industry is misguided.
• Two of the three car manufacturers in Australia (GM Holden and Ford Australia) are subsidiaries to troubled American companies. Whether subsidies paid to them actually support jobs in Australia or effectively go to Detroit is a matter for debate.
• A potential collapse of General Motors in the United States would leave Holden in a perilous situation in which it would become dependent on state funding.
• Industrial policy is often accused of ‘picking winners.’ In the Australian case, however, subsidies are paid to winners (Toyota) and losers (GM Holden and Ford Australia) alike.
• On closer inspection, the ‘green’ car plan turns out to be just a piece of old-fashioned industrial policy. The green label serves only as a smokescreen.
• Greater environmental effects could be achieved if transport were not excluded from a future Emissions Trading Scheme.
• Further carbon reductions could result from opening the Australian car market to greater foreign competition. In order to do this, tariffs should be slashed and the Luxury Car Tax abolished.
• Supporting the Australian car industry may keep jobs in this sector. But this only comes at the expense of all other sectors of the economy that are required to pay for this through higher taxes and higher car prices.

A strong car industry would be an asset to the Australian economy only if it stood on its own two feet. Relying on government support is no substitute for building good quality and good value cars for which there is market demand.

Dr Oliver Marc Hartwich is a Research Fellow at The Centre for Independent Studies.