Unions and car manufacturers have slammed a review of Australia's car industry for risking the nation's ability to compete with global imports.
The automotive review recommended a reduction in car tariffs from 10 per cent to five per cent by 2010, in defiance of widespread opposition from the industry and state governments.
The report, by former Victorian premier Steve Bracks, also recommends the production of more environmentally-friendly vehicles, calling for the federal government's $500 million green car innovation fund to be brought forward to 2009.
If successful, the scheme should be doubled to $1 billion and extended beyond its initial five years, the report suggests.
A Global Automotive Transition Scheme, funded by $2.5 billion from 2010 to 2020, would support research, development and design.
The scheme should include a $60 million to $80 million industry restructure fund to improve supply chain economies of scale, the report recommended.
Prime Minister Kevin Rudd said the review would be examined in detail before the government made any decisions.
"We take the future of our automobile industry seriously, we take the future of manufacturing industry seriously," he said.
Federal Opposition Leader Brendan Nelson said he hoped the government accepted the recommendation to cut car tariffs from 10 to five per cent.
"We strongly support that recommendation," Dr Nelson told Sky News.
"As difficult as it can be in certain sectors of the economy including the automotive sector, reducing tariffs actually makes Australia more competitive."
The Australian Manufacturing Workers' Union said tariff reduction made no sense and that no other vehicle-building country was considering lowering tariffs.
"The lack of tariff protection is a blow to the industry, as it puts Australia out on a limb ahead of the rest of the world," AMWU national secretary Dave Oliver said.
He said lowering tariffs would have "serious trade implications".
Ford Australia president Bill Osborne said a reduction to five per cent was a concern for the industry's ability to compete globally.
Holden managing director Mark Reuss said the cut would put more pressure on local manufacturers, who employ 66,000 people and pump $4 billion into the national economy.
He said the industry was already competing with manufacturers from Brazil and China, whose tariffs were as high as 35 per cent.
"Australia at 10 per cent makes it tougher for local manufacturers in competing and drawing innovation and new technology to Australia," Mr Reuss said.
But Mr Bracks defended the proposal, saying a key submission to the review had put a robust case for reducing tariffs.
He said modelling by the Productivity Commission showed "there was a less distorting impact on the Australian economy of transitional grants, than there was in fact in maintaining a high tariff level".
Industry Minister Kim Carr also defended the stance, saying tariffs were an "old-fashioned idea".
"This review was never just a tariff review," he told reporters in Melbourne.
"In some people's minds, industry policy is only about tariffs.
"They are wrong. It's an incredibly old-fashioned idea."
The federal opposition says the Bracks review points to substantial job losses.
"Let's make no mistake, restructure is a euphemism for buying out jobs so there will be substantial job losses," opposition industry spokesman Eric Abetz says.
"Kim Carr and Kevin Rudd have squibbed us in relation to the automotive sector because they were full of promises over the last two years ... and now have basically come into lockstep with us.
"One thing I was pleased about, and that's the green car fund ... the Bracks review has in fact adopted the coalition policy which is to bring that money forward ... to 2009."
Senator Abetz also agrees with the recommendation that money made available under the fund should be done on a competitive tender basis.
"That was my criticism and the criticism of many others in relation to the $35 million gift that was given to Toyota out of the green car fund," he said.
"There was no competitive process, no analysis of it, it was simply a photo opportunity in Tokyo."
The Greens said more needed to be done to encourage Australians into smaller more fuel efficient cars.
The Federal Chamber of Automotive Industries said the federal government needed to seriously consider the review's recommendations before deciding whether to lower tariffs.
The Federation of Automotive Products Manufacturers said the report came at an urgent time for the Australian industry, and called for a policy to produce one million cars in Australia by 2020, mainly for export.
The report also recommends that road transport be included in an emissions trading scheme.
Subsidies for fitting LPG tanks at the manufacturing stage should be raised from $1000 to $2000, the report says.
The report comes amid a turbulent time for Australia's automotive industry, with more than 1100 jobs axed by Holden in Melbourne and Adelaide, 600 by Ford in Geelong and another 100 cut at Mitsubishi in Adelaide.