Automotive welfare

Just what is it about governments and cars?

The political fallout from the OzCar affair continues unabated.  The opposition has raised questions about the treatment given to Ipswich-based car dealer John Grant by fellow Queenslander and Treasurer Wayne Swan.

Nobody has seemed to escape what has turned out to be the political equivalent of a custard cream pie throwing contest.

Key questions remain to be answered by the Treasurer about the extent of special treatment to Grant, and whether he misled the Parliament on the matter.

The opposition has not escaped the fall-out from this affair either.  It accused Rudd of misleading Parliament on the basis of an email that the AFP confirms to be a fake.

The spotlight has also been trained upon the public service, with a growing debate about how far officials should go to implement government policies.

Was it reasonable for public servants to refer Grant's situation to Ford Credit, which was at the time seeking a $500 million government guarantee?

On what basis did the Treasury nominate the Australian National University -- with the chair of its finance committee also happening to be executive director of the Motor Trades Association and former Hawke government staffer -- as the nominated beneficiary of profits from the OzCar financing trust?

While some may dismiss the affair as part of the momentary cut and thrust of politics, there is something deeper to the whole story that has been given insufficient attention.

The reality is that the OzCar scheme, designed to fill the wholesale floorplan financing gap for car dealers affected by the withdrawal of GE Money and GMAC from the market, is a continuation of the love affair between governments and the car industry.

It arguably all started with former Prime Minister Ben Chifley, who launched Australia's first Holden model in 1948 with the cry of "she's a beauty!"

During the 1950s and 1960s, a hand-in-glove relationship emerged between governments and car manufacturers.  Governments erected tariff barriers to shield domestic manufacturers against cheaper imports, which built up a heavily unionised workforce.

In return, political parties would receive donations, and, in the case of the Labor Party, a ready source of parliamentarians drawn from car-making union representatives.

This cosy arrangement started to change in 1973 when Gough Whitlam made the surprise move to cut tariffs across the board by 25 per cent.  To ease concerns about structural adjustment in the car industry, governments substituted more explicit handouts for tariffs thus keeping the government-car bond alive.

The Button car plan of the mid-1980s, for example, gave subsidies to car makers to make them do what an efficient, market-oriented industry would undertake as a matter of course -- export more of their wares overseas.  The Howard government also doled out taxpayer funds to the industry, often in response to threats of manufacturer closure.

Since 2007, the level of assistance has been ramped up yet again with interventionist industry minister Kim Carr presiding over a $1.3 billion "green car" fund, an Automotive Competitiveness and Investment Scheme, an Automotive Industry Structural Adjustment Program, as well as tariffs still in place.

The OzCar scheme simply extends the branch of corporate welfare out to car dealers.

The big question that has not been asked to date is whether this massive $550 million credit facility, that has already caused so much political trouble by exposing its own susceptibility to shady political deals, is really necessary in the first place?

The first thing that should be said is that if a finance company exits the market then there is likely to be competitor financiers willing to step into the breach, if the line of business is inherently profitable.

The Rudd government has effectively co-opted the major banks in providing liquidity to eligible car dealerships, but affected dealers could have turned to the same banks or other lenders for credit anyway if the OzCar scheme was not in place.  Either that, or they would have reduced the vehicles in their showrooms, an outcome neither disastrous for them nor the manufacturers.

When governments decide to play banker once again, deciding who and who shouldn't get a loan, at best we diverge from commercial decision-making and at worst we open up the prospect for shady deals and outright corruption.  The certain loser from this process remains the taxpayer.

The government has run up budget deficits and debt as it succumbs to demands from rent-seekers for a feed from the corporate welfare trough.  Of no comfort to taxpayers is that there is some semblance of a queue to the trough, with car makers joined by dealers near the front of the line.  This much is clear when government ministers present speeches to the car industry with title sub-headings such as "Labor Party connection".

As has been shown this past week, corporate welfare is about as helpful as an old rusted jalopy with no suspension.  Until the government is prepared to roll back its heavy-handed intervention in markets, there will be more bumpy rides like OzCar in future.

ADVERTISEMENT