GENERAL MOTORS-HOLDENS LIMITED, MELBOURNE.
5th January, 1945.
The Chairman, Secondary Industries Commission, Ministry of Post-war Reconstruction, Degreaves-street. Melbourne, Vic.
The Comptroller-General, Department of Trade and Customs, in his letter of 5th October, 1944, invited the company to submit a proposal for the manufacture in Australia of motor vehicles, including chassis and engines, which was followed by his letter of 28th October advising that all proposals were to be submitted to you. On 1st December, we sent you a brief communication advising of our interest in the matters dealt with in these letters. We should like now to lay before you an outline of our proposed plan, together with a summary of the conditions which we regard as necessary to its successful accomplishment.
It is our interpretation of the situation, drawn from public statements by the Prime Minister and Government officials, that it is the intention and desire of the Government to encourage the establishment and development of the motor car manufacturing industry in Australia on the broad basis of free enterprise and private initiative, and that it is not the intention of the Government itself to engage in this industry.
It is our understanding from the letter of 5th October that existing discriminatory legislation, particularly the Motor Vehicle Agreement Act and the Motor Engine Bounty Act will be repealed. We understand further from a recent statement by the Minister of the Treasury that the origin of capital and the nationality of ownership of enterprises engaging in such manufacturing activity are not regarded as a basis for discrimination in any form.
The proposal contained herein is based on the foregoing broad promises.
We now have pleasure in submitting our proposal whereby General Motors-Holden's is prepared to proceed immediately to undertake the manufacture of motor vehicles in Australia, including chassis and engines, subject to certain provisions and conditions contained in this letter.
1. Type of Vehicle to be Manufactured.- We would undertake to manufacture in Australia a five-seater sedan car and related utility which would be specially designed for the economic and operating conditions of Australia.
Such design is predicated on any type previously in production in any country, but will be a specification to expressly cater for the Australian requirements.
Whereas there have been available to Australian buyers in the past only chassis designed to meet the economic and operating conditions applying to such countries as Canada, England and the United States, by specially designing a car for Australia as we propose to do, the product will better fill the needs of the country.
2. Price Objective.- General Motors-Holden's Limited recognizes the importance to the Australian economy of dependable transportation and that the wider use of automotive units will depend not only on quality and low operating cost but likewise on low initial purchase price. In fact, the achievement of the volume required for the development of a successful manufacturing undertaking by General Motors-Holden's Limited will depend on these same factors.
The objective of General Motors-Holden's Limited is to manufacture Australian motor vehicles in the low-price group to sell competitively with imported vehicles without subsidy and without increase in the customs tariff rate prevailing in 1939.
3. Manufacturing Rights, Licences, Services, &c. from General Motors Corporation.- Arrangements have been made which will enable General Motors-Holden's to procure from General Motors Corporation manufacturing rights, including processes, drawings, specifications and other technical data. The services of General Motors Corporation engineers in specialized branches will be made available to General Motors-Holden's and General Motors-Holden's Limited engineers will have access to General Motors Corporation factories in the United States, Canada and England to observe and familiarize themselves first-hand with manufacturing methods and processes. Such assistance and advice from General Motors Corporation will be continued to assure General Motors-Holden's of a constant flow of technical information on the latest developments of automotive design, manufacture and research.
4. Utilisation of Australian Industrial Facilities.- The production of low-cost automotive units is dependent not only on the efficiency of the automobile manufacturer but also on the availability of dependable low-cost sources of supply for raw materials, and finished components. General Motors-Holden's will make all possible utilization of existing production facilities in Australia for the purchase of its requirements, not only as regards raw materials provided by basic industry, but also accessories, finished components and sub-assemblies from secondary industry.
General Motors-Holden's does not propose to duplicate existing Australian manufacturing facilities which can provide such needed items in satisfactory volume, of suitable quality, land at a cost sufficiently low to assure that low cost for the complete vehicle will be attained.
5. Timing of the Undertaking.- Under favorable conditions, it will require approximately two years from the decision and agreement to proceed, until Australian-made motor cars are in production. In thus indicating a two-year development span it is assumed that the Government will give the undertaking the fullest possible support at all stages.
It will take considerable time to design and prove experimental models, complete the production engineering and planning design and make tools and dies, procure and install machinery and equipment. During this period a large investment will be accumulating, which cannot be operated on an earning basis until the start of production.
6. Decentralization.- General Motors-Holden's will ha faced with an important consideration pertaining to its extensive body and sheet-metal fabricating plant located at Woodville, South Australia. It is believed, however, that this location meets the Government's objective of decentralization of industry. General Motors-Holden's favours the continuation of this phase of manufacture in South Australia since it provides added efficiency by concentrating similar operations at one location with experienced skilled labour available. The same advantage of concentrated operation and the resultant efficiencies of mass production are planned by manufacturing and assembly operations on the engine, transmission and other mechanical parts at the Melbourne plant.
By initially dividing the manufacturing as between South Australia and Victoria, a fair division of activity will be achieved, slightly favouring South Australia. It is worthy of mention that, with sheet-metal work for a complete car being carried out the the Woodville factory, a considerable amount of new industry will be introduced into that factory since a large proportion of the chassis is sheet-metal work.
Many items of supply and manufacture will be procured at various locations within the Commonwealth and since these items, representing a considerable proportion of the car, will be purchased from such manufacturers, this will aid considerably in distributing the work and bring about decentralization.
7 Investment.- Additional to the already large investment, it is estimated that the undertaking will require an additional investment by General Motors Holden's of approximately £A.2,500,000.
Since the proposal is submitted in response to the Government's request to undertake complete motor vehicle manufacture and because of the dimensions of the undertaking, assurance from the Government is required on the following points:-
(a) This proposal by General Motors-Holden's shall be accepted by the Government as fully qualifying under its programme for Australian motor car manufacture, and it is not the intention of the Government itself to engage in this industry.
(b) General Motors-Holden's does not request that any special advantages be extended to them. On the other hand, they do request that any or all advantages extended to others shall be equally applicable to them.
(c) It is believed by General Motors-Holden's that an efficient automotive industry, providing low-cost satisfactory quality transportation to the Australian public, can best be established under free competitive conditions.
Accordingly, General Motors-Holden's will not be restricted from the manufacture of any type of passenger car, truck, bus or any other type of automotive unit, as General Motors-Holden's may desire to undertake from time to time, and under the same conditions as may be accorded to other manufacturers.
This recognizes that any other concern will be equally free to enter into manufacture of any type under the same conditions as are accorded by the Government to General Motors-Holden's
(d) Our calculations supporting our entering this field of manufacture are predicated on the pre-war rates of duties, primage and tariff applicable to the importation of motor vehicles without any additional tariff protection, without increase in customs tariff rates and without subsidy. It is therefore asked that the Government will give fair notice and warning of any changes contemplated under any heading of the tariff as applicable to the automotive industry and wherever practicable will give General Motors-Holden's an opportunity of conferring with the Tariff Board and government officers reviewing such matters.
(e) Certain accessories and components will not be available from Australian industry at satisfactory low cost, quality or in adequate volume to complete the Australian manufactured vehicle. Preliminary estimates indicate that such items will not exceed 5 per cent. by weight of the complete vehicle and that the landed cost of such items will not exceed 10 per cent. in value of the list price of the complete vehicle. For such items the Government will give favorable consideration to the importation free of duty and primage and make available the necessary exchange.
Likewise, a condition way arise where volume and quality of certain components and accessories from Australian sources do not meet production requirements. In such cases, in the interest of the advancement of the programme, the Government will give favorable consideration to temporary importation on a favorable basis.
Legislation already exists, and is frequently employed to accommodate this request within the tariff sub-section 404A.
(f) General Motors-Holden's proposes to obtain, as far as practicable, its requirements by purchase or lease of government-owned equipment which may be made available Accordingly, it is requested that the Government will -
(1) Extend to General Motors-Holden's first refusal to purchase and lease all items of government-owned equipment at present in use or installed in any of the General Motors-Holden's plant.
(2) Offer for sale or lease all government-owned applicable material and equipment, machine tools and production supplies declared by the Government as available for disposal, to General Motors-Holden's on as favorable a basis of prices, terms and conditions as to any other interested purchaser; and that advice of availability for disposal will be given to General Motors-Holden's concurrently with advice to any ethers.
Where suitable machinery, equipment, tools, &c., cannot be obtained locally either from the Government or local manufacturers that the Government will give favorable consideration to importation of such items free of duty, primage and sales tax, and make the necessary exchange available.
(g) The freight and charges in moving Australian raw materials, assemblies and sub-assemblies purchased from outside suppliers and similar charges on outbound finished and semi-finished product to the points of consumption, place the Australian manufactured product at a disadvantage as compared with the imported product which may be landed at any of the principle ports of Australia at the same ocean freight rate.
It is requested that the Government will make available promptly, its policies and plans relating to freight equalization in view of the important effect of these policies and plans upon the General Motors-Holden's undertaking.
(h) General Motors-Holden's will continue its pre-war type of business of importing chassis on the same relative basis as any other importers. General Motors-Holden's by reason of undertaking the manufacture of an Australian motor vehicle will not be restricted in participating in the market for imported units under free competitive conditions.
(i) The planning and engineering of this undertaking will require -
(1 ) Travel of Australian personnel to the United States, Canada and England and the travel of American, Canadian and English personnel to Australia.
(2) Transport for experimental stud developmental material, sample components and the like between the United States, Canada, England and Australia.
(3) Man-power for allocation to General Motors-Holden's and to their suppliers.
It is expected that the approval of this proposal will carry with it suitable government priorities, allocations and foreign exchange necessary for these purposes.
(j) General Motors-Holden's Limited plan to finance part of the cost of the proposed manufacturing undertaking by reinvestment of profits.
Under present tax laws, profits remaining undistributed to shareholders, after payment of income tax, tax and war-time company tax, are subject to an undistributed profits tax of 10 per cent.
General Motors-Holden's Limited submits that the operation of this tax is an unwarranted penalty where the reason behind such non-distribution is the furthering of an industrial project which has been initiated by the Government and requests that the Government give favorable consideration to its repeal, where such funds are reinvested and employed in the business.
We are appreciative of and honoured by expressions received from government authorities commending General Motors-Holden's for the contribution made to the Australian war effort. Believing in the industrial future of Australia, we desire to continue will expand our participation in Australia's industrial development. We hope that our proposal presented herewith will receive the Government's favorable consideration. We shall be happy to furnish any further information which may be required.
Yours very truly,
L. J. HARTNETT, Managing Director.
3rd February, 1945.
Your letter of 5th January, 1945, relative to the establishment and development of the motor car manufacturing industry in Australia, addressed to the Chairman of the Secondary Industries Commission, has been placed before the Minister for Post-war Reconstruction. It is a communication of very great importance in the development of secondary industry in Australia, and it is with due appreciation of that I have read it. It is to be regarded too as a valuable contribution to the future defence of Australia. Likewise, it is a practical token, after no doubt an exhaustive survey by disinterested authorities, of confidence in the future and stability of Australia.
In your letter you outline certain broad premises and you indicate certain conditions and provisions upon which your proposals are founded. As many of the questions raised have already received the consideration of the Government I am able at once in respect of many of them to give the desired advice and assurances. In several cases further consideration will be necessary and I will comment only upon these at this time.
As a preliminary I can say authoritatively that it is the intention of the Government to ask Parliament to repeal the Motor Vehicle Agreement Act and the Motor Engine Bounty Act. With reference to the question of the ownership and origin of capital, I should be interested to have details of what your firm proposes. You may be assured, however, that the Government would not discriminate in any way against General Motors-Holden's in the enterprise under discussion because of the origin of capital and the nationality of ownership.
The following comments are made upon details of your proposals:-
1. Type of Vehicle to be Manufactured.- It is felt that the industry itself is best qualified to decide as to type. Your proposal would conform to the intentions of the Government.
2. Price Objective.- Without attempting to determine an appropriate purchase price, it is felt that your conclusions are sound according to Australian conditions.
It is noted that your proposals do not contemplate any subsidy, and that they are based upon the Customs Tariff rate prevailing in 1939; but see my reply under 7 (d) below.
3. Manufacturing Rights, Licences, Services. &c. from General Motors Corporation.- Noted. The practical evidence of the interest and support of General Motors Corporation in the proposals of General Motors-Holden's Limited is appreciated. It is an assurance of confidence in the country and success in the venture.
4. Utilization of Australian Industrial Resources.- It is noted that General Motors-Holden's will make full use of existing production facilities in Australia and does not propose to duplicate such facilities which can economically provide needed items.
5. Timing of the Undertaking.- Noted. You can be assured that the Government will support the undertaking so far as is practicable.
6. Decentralization.- As you are aware, decentralization of secondary industry is foremost in the Government's policy because it is believed to be necessary for defence, and should promote an expansion of home consumer markets for the products of secondary industry. The Government is aware also that your company has taken a lead in decentralization, and will not willingly surrender that lead. Your proposals as to the means best designed to attain the objective appear reasonable
7. Investment.- The amount of additional investment involved in the proposal is noted. You have requested specific assurances upon certain points, and my observations upon them, follow -
(a) This proposal by General Motors-Holden's Limited provides an acceptable basis for a plan under the Government's programme for manufacture of motor cars in Australia. If the proposals outlined in your communication are effectively implemented and within a reasonable period result in the production of a complete car, the Government will not itself engage in motor car manufacture. The Government offers its manufacturing resources however, for employment according to the conditions outlined in your communication under reply, and it reserves the right similarly to offer its manufacturing resources to other motor car manufacturers upon equivalent conditions.
(b) It is the Government's intention to treat uniformly all firms submitting plans for the manufacture of motor cars in Australia; this is, of course, subject to existing obligations of the Government e.g., in respect of Imperial preference on imported constituents.
(c) General Motors-Holden's Limited will be free to enter into the production of any kind of automotive unit.
(d) It is impossible for the Government to undertake to give notice or warning of changes in the tariff. Such changes are necessarily secret until they are presented to the Parliament. It is generally the practice of the Government, however, where changes are concerned, in a protective duty, to have the matter fully investigated by the Tariff Board before changes are made. General Motors-Holden's would have full opportunity, as would all interests affected in presenting their views to the Board. Circumstances may conceivably arise which would make it impossible for the Government to adhere to this practice in all cases. The Government would, of course, always take into account the possible effect on employment and production in Australian industry of any tariff change contemplated.
(e) The Government will give earnest consideration to any specific request for temporary import of special components under tariff sub-section 404A. In its considerations it will be influenced by the circumstances of the individual case and by its opinion of the progress being made by General Motors-Holden's towards complete manufacture in Australia.
(f) (i) The desired first refusal will be given.
(ii) Subject to the disposals policy which may be formulated, General Motors-Holden's Limited will have a full parity with all other purchasers of government-owned property. It is explained that the disposals policy may provide that the manufacturers or accredited importers of proprietary machines and equipment should have a prior right of purchase and it concessional price where they prove that it is their ordinary business to deal with such property. This, however, will not provide any advantage or disadvantage as between one manufacturer and another engaged in the same production.
(iii) Upon the submission of specific cases, the Government will give earnest consideration to the terms upon which it can facilitate the importation of plant and equipment for the purposes of your proposals. In the approved cases it will facilitate the provision of exchange.
(g) The Government is prepared to give full and sympathetic consideration in all cases where inequalities arising from freight charges are placing the Australian manufacturer at a disadvantage or may do so. It will do everything possible to obviate such disadvantages, but it is evident that it is a matter of prolonged investigation.
(h) General Motor-Holden's Limited will be free to participate in the market for imported units the same conditions as will apply to other importers of motor vehicles its the same classes and from the same countries of origin.
(i) The facilities required for travel and transport and for allocation of man-power, together with foreign exchange, will be granted priority, to the fullest extent practicable commensurate with the necessities of the war effort.
(j) The Government will give earnest consideration to the incidence of the undistributed profits tax in relation to the proposals of your communication. As a general survey of Commonwealth finance will be involved, the time to be occupied in investigation may preclude an early decision.
It would prove of value both to yourself and to the Government if you could discuss issues raised in your letter and this reply with the Chairman of the Secondary Industries Commission, Mr. H. F. Morris, and the Controller-General of Customs. I have asked Mr. Jensen to arrange such a discussion. Following this you may wish to discuss the matter with the Minister for Post-war Reconstruction. Meanwhile, I thank you for tits promptness with which you have taken up the invitation of the Government and prepared a plan. I would like to make a public statement about your proposal at an early date. I shall be glad to be advised whether you would concur in such action.
JOHN CURTIN, Prime Minister.