The next big thing in automotive recovery: How the car industry is reacting to the government’s bailout
The federal government has taken steps to boost auto recovery, including extending loan guarantees and extending the car loan lifecycle.
But as governments across the country are facing financial challenges, carmakers are taking a wait-and-see approach to the bailout.
In fact, one of the biggest issues for carmakers is the lack of clarity over when the government will end the $US50 billion bailout.
“The automotive industry is not a monolithic entity, but a complex ecosystem of different businesses that all have different goals,” says Dr Chris Broughton, managing director of car-manufacturing consultancy The Automotive Industry Association (AAIA).
He says many car manufacturers are waiting for a clear answer about when the bailout will end and when they can start rebuilding their businesses.
“There is a lot of confusion around what will happen and where we can start,” Dr Broughson says.
The AIA is calling for a public consultation on the bailout that will include the car sector, the banking sector and other sectors that are vulnerable.
While the government has provided $US2.6 billion to carmakers, the AAIA says the bailout should be extended to all carmakers.
“It’s really important that we have clarity on the terms of the bailout and the funding, as that will be used to help all of the affected businesses,” Dr Chris says.
While there are no specific rules that outline how the government should allocate the bailout funds, Dr Boughton says the government needs to be transparent about how it intends to distribute the funds.
“If the money goes to one business, it’s going to go to that business,” he says.
“You have to understand how the funds are being used.
The best way is to have a clear discussion with each business about what is the best use of the money.”
Auto industry fearsThe AAA says it has been in contact with several car manufacturers, and the industry has expressed concern that the government is using its $US5 billion in bailout funds to provide short-term financial support for companies that have been hit hard by the global financial crisis.
“A number of the big carmakers have expressed concern about the amount of funding available to them, particularly from the Government,” Dr Peter Broughsons said.
“While we’ve always welcomed government funding to assist our businesses, this is particularly concerning given the scale of the industry.”
We are working closely with the Government and its advisors to ensure that the funds have the maximum impact and that it is a long-term solution to the industry’s challenges.
“Dr Broughtons worries that while the government may be providing short- term financial support to car companies, the funds will be spent on buying back existing cars, rather than creating new ones.”
For some companies, buying back an existing vehicle can be cheaper than replacing a new one,” he said.
Auto manufacturers have also raised concerns about the lack to be able to buy back the cars they sell, and what that means for jobs in the automotive industry.
Dr Boughsons worries the government won’t be able keep the bailout for long, because the economy will need to rebound after the bailout ends.”
In the longer term, we’ll need to see whether the market recovers and whether people are able to work again,” he adds.
The government says it will provide $US1 billion in loan guarantees to car manufacturers and financial institutions and will extend the lifecycle loan lifetimes for a period of up to 10 years.
The AAA says the Government should also take steps to ensure companies are not saddled with debt beyond their loan lifecycles.”
Anybody that has a loan is going to be making some decisions that they’re going to have to live with,” Dr Christopher Broughons says.
But the AAI says that’s unlikely to happen, and that if it does it will be to ensure the companies have enough money to cover the costs of a recovery.
The automotive recovery bureau says it is reviewing the government proposal to extend the car lifecycle loans.
Topics:business-economics-and.financial-trends,economy,business-government,government-and/or-politics,federal-government—state-issues,business,business_pricing,finance,cargo,state-parliament,melbourne-3000,australiaFirst posted November 16, 2019 19:59:36Contact the ABC’s John Kelly at [email protected] or on Twitter @johndamode