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The Federation of Automotive Products Manufacturers and Ford Australia have warned the inquiry that governments must not desert component and carmaking.

An FAPM submission to the Victorian Competition and Efficiency Commission inquiry into manufacturing warns that the component industry, which directly employs more than 40,000 people, is facing unprecedented threats.

The FAPM warns that local vehicle sales could plummet from 336,000 in 2008 to as low as 200,000, posing obvious risks for the industry and associated businesses.

"Clearly, reductions in domestic vehicle production of this magnitude create enormous financial pressure on component companies," it warns in its submission to the VCEC inquiry"Many companies within the supply chain are struggling to remain in the industry."

The FAPM warns that the $8.5 billion industry is highly exposed to the carbon tax, global sourcing policies of manufacturers, the rising dollar and skill shortages.

It says governments and industry need to develop a culture of internationalisation, with small to medium enterprises aided to build these new relationships.

Governments also need to encourage investment and training and internal restructuring and diversification, it says.

"None of these investment plans are supported directly by government programs," the FAPM warns.

Ford Australia, meanwhile, has warned against moving away from direct government assistance grants to the car industry.

"Ford Australia believes this approach is potentially flawed and could cost Victoria important new investment opportunities," it says in its submission.

The VCEC is due to report by the end of the month as the manufacturing states face economic upheaval, as evidenced by the loss of 1400 BlueScope Steel jobs in the Illawarra in NSW and Victoria's Western Port.

The VCEC's draft report found that the Victorian government's contribution to regulating and improving manufacturing needed to be overhauled.

Despite the gloom, there are pockets of optimism in the car industry, with Toyota to today launch a locally built Camry model, which the company says will support thousands of jobs.

The so-called "'New Camry" will be built at the carmaker's Altona operation in Victoria, where the company has

invested $300 million in a new engine plant.

Victorian Manufacturing Minister Richard Dalla-Riva has already backed an overhaul of the Department of Business and Innovation as part of moves to aid manufacturing.

Mr Dalla-Riva also has backed SMEs (small and medium enterprises) having fairer access to government procurement and is concerned about the carbon tax.

"The carbon tax is threatening to punish Victoria's most successful industries at the very moment they can least afford it," he said.

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