It is most peculiar (even with its poor record of understanding economics) that the Rudd Labor Government is committed to tariff reduction to encourage the Australian car industry to become more competitive, but then rewards it for being uncompetitive with billions of tax payers’ dollars.

No sympathy should be wasted on our car industry. For a very long time now, car makers in Australia have ignored the fact that their prospective customers wanted smaller more fuel efficient cars. Surely, the basic idea of any business is to please customers by providing what they want?

Holden now says it will build a small 4 cylinder car, but it could be too late. People who want small cars have got used to the idea that if they are to get what they want, they have to buy imports. It also seems that the Australian industry is kidding itself to think that it can maintain operations when countries like America are in trouble, and Britain no longer manufactures any cars. All their brands are built in low-wage countries. Places like Sweden seem to manage with small local markets, but we don’t hear much about their current position.

The much touted protection of jobs is a furphy. This government and the previous kidded some of us that bringing in skilled migrants was a good idea. At least 40% of these migrants don’t understand or speak enough English to perform their skilled occupations in Australia. Most of them are driving taxis, and even there, their lack of English and knowledge of Australia is the cause of non-stop complaints.

Let the car industry go, and re-train the workers in it.

Overpopulating the country and still having to buy jobs for workers in failing industries is bizarre.

Here is an economist talking sense. The Rudd Government should be listening to him, instead of whoever are they are listening to now

i understand that a two billion car seller fund is now created[where does this free lunch end?]when is govt going to subsidise the buyer [not the seller]

,if cars arnt selling give intrest free loans to those needing work vehicles [or vehicles to live in when their homes get reposessed.

govt is good at giving huge sums of subsidy to big buisness ,it is their generosity that has set this trouble in train

[why hasnt the industry diversified ,it could easilly produce mobile bed size ,vehicles that meet human needs ,yet insists on producing the rebadged clones it wants to build[or gets ordered to build] by special intrests.

our whole lifetimes we have paid more for these items than we needed to ,where basiclly war machines get a makeover to keep the war industry ticking over till the next war[where is the inovation?]

why cant industry find a way to service us instead of us servicing their vehicles[and their industry]

the subsidy to the auto[read petro owned auto industry is frozen in time past[ before govt largess deflated the value of our money] ,by gifting it to support a dying transport sector[dont forget to calculate in the costs we bear building roads for these monsters]

its not as if the industry NEEDs to run cars on petrol, but hey the oil industry owns the auto accesory industry [and they all love the govt freelunch]

govt has commited to the industry all the money it should be allowed to recieve for free[this should be clearly stated [get viable or get out]the bucks dont come from govt anymore ,[yeah right]they will just take over the 2 party system and line up for their next freelunch, via their latest guy in govt

First apology to Jedimaster for my lose writing. My comment about "green cars" was aimed at the sycophantic car makers who particularly in the US are making promises of going green in return for a bailout. Even we are going to get an assembly operation (with notional r&d no doubt) in return for Rudd's $32m gift.

Our car industry should have been allowed to rationalise years ago to at best just one manufacturer. Democracy as practised in Australia with its over-governance means governments actually worked against efficiency gains by propping up the Elizabeth plant. The patient died anyway, one down, two or three to go.

By any measure, Australia has been abysmally managed with 13 layers of government more about preserving than working to an efficient industry. If it wasnt for our removalist industry (ie. resource rippers), we'd be in a parlous state. Perhaps in that parlous state, we might have gone like our cousin across the Tasman who under Lange and Douglas closed down their car plants (and got fundamentally a much healthier economy - at least healthier than ours without the resources).

We have governments where the Howard government gave GMH $50m to produce a V8 engine. Expedient governance the price of our federalism.

The car industry is brain dead.

Good article but some pertinent points about retaining skills by Billie. I have a major problem with the car plan in that it will probably have a net negative effect on start up Australian R & D firms who will not be able to meet the funding requirements of the mooted Green Car Plan aspect of the package. It will throw money at the multinational car companies and encourage them to spend it on their own R & D in-house putting smaller, local firms at an added disadvantage.

The fact that the main body of the plan is one huge employment program for Labor voters is stating the bleeding obvious. If, as Billie states, we want to put money into employment and skill retention may I suggest that we start with existing efficient and smaller companies that are producing things that people actually want to buy. If GM and Ford hav'nt been able to efficiently manufacture petrol cars at a reasonable cost, why should we expect them to do so with Green / Electric cars. It was just a few years ago that GM went out of it's way to "kill the electric car" (see movie). With such brilliant forsight then why trust them now ?

The headlines that wont appear.......

$2 BILLION FOR BITUMEN AREAS USED TO TRANSFER OWNERSHIP OF CARS.

I voted for Rudd and the last time I voted Labor before that was "It is Time" for Whitlam. It will be a very very long time before I vote Labor again.

That is now $8 billion on life support on a brain dead industry. A US$0.48 cent dollar on the way under Rudd's economic mismanagement. (Nice guy though).

"Indeed, this is becoming the government’s modus operandi: set up massive slush funds that can be used to strengthen existing constituencies, or even create new constituencies, whose fortunes hinge on its remaining in office." I.e., Rudd and Swan from Queensland and Carr from Victoria are embracing the politically successful but economically damaging policies of their state mentors such as Peter Beattie.

10-12 years ago then Reserve Bank Governor Ian MacFarlane abused me for contesting his statement that protectionism was dead. How now, Mr Mac?

Jedimaster, the evidence for spillovers is contentious, many case studies have found that when one looks at the producer-client group that gains are contained by them; cf the work of Paul Geroski. Additionally, in his final work, the prioneer of statistical analysis of R&D and innovation, Zvi Griliches, concluded that after more than 40 years it was still almost impossible to find usable data rather than highly-imperfect proxies ("R&D and Productivity: the econometric evidence," 1998).

DISCLOSURE: Henry Ergas is my favourite economist.