Car industry to keep $1 billion transformation package

The $900 million will no longer be cut by the Federal Government from the Automotive Transformation Scheme

Almost one billion dollars in car industry support has been spared from the Budget axe as the Federal Government ditches its unpopular cuts to the Automotive Transformation Scheme.

Industry Minister Ian Macfarlane is expected to announce in Adelaide today that the $900 million cuts will no longer go ahead.

The ATS was established in 2011 to support car and component manufacturers. But after Holden announced it was going to stop making cars in Australia, the Government argued the support was no longer needed. It had planned to reduce the level of funding available between 2015 and 2017 by $500 million.

Another $400 million in savings would be achieved by bringing forward the closure of the scheme from 2021 to the beginning of 2018.

A total of $1.9 billion will be available to assist the automotive industry beyond the closure of local manufacturing in 2017

Critics had warned the funding cuts could bring forward the closure of Australian car manufacturing and destroy the ability of components suppliers to move into other high-value, export-oriented work.

It is the latest "barnacle" to be removed as the Federal Government scrapes away unpopular policies in a bid to boost its political fortunes.

Its decision not to reduce funding means a total of $1.9 billion will be available to assist the automotive industry beyond the closure of local manufacturing in 2017.

Reducing the flow of industry support could lead to key components suppliers failing

Industry analysts had warned that reducing the flow of industry support could lead to key components suppliers failing. Manufacturers said an "uncontrolled" early closure could put 48,000 jobs at risk.

The cuts were almost certain to be blocked in the Senate. Labor opposed the proposed cuts and Senate crossbenchers were unlikely to support the necessary amendments to the Automotive Transformation Scheme Act.

South Australian Independent senator Nick Xenophon and his Victorian colleague, John Madigan, were both fierce critics of the early closure of the scheme.

The planned cuts contributed to the voter backlash that led to the Victorian state Liberal government being thrown out of office last year after only one term.

A Senate inquiry into the future of the automotive industry is due to hold hearings in Melbourne today and in Adelaide on Friday.

The Coalition promised to cut $500m from the scheme before 2013 election

The Australian Automotive Aftermarket Association will tell the inquiry the scheme should be extended to cover more component manufacturers. Aftermarket businesses manufacture engines, seats, instrument panels, transmission and accessories.

The group is seeking support for an Australian high-performance technology and motorsport "cluster" to help the industry innovate.

It also argues that Australia needs a specialised automotive product development and testing laboratory.

Currently, products must be sent to the US for testing.