Production is the key for the Australian automotive industry to improve its current situation, according to former Reserve Bank of Australia (RBA) Bernie Fraser.

Fraser was reacting to the federal government's assertions that the car industry has been facing challenges mostly due to rising value of the Australian dollar, the same reason blamed by a number of manufacturers on the sector's recent job losses.

The latest incident was Toyota Australia's decision to let go hundreds of its workers, citing the same excuse and explaining that weak demands further compounded the company's financial woes.

Prime Minister Julia Gillard has earlier acknowledged that the auto industry has been facing challenges that were mostly caused by the decreasing sales of manufacturers and the consistent high value of the local currency.

Her government has been providing millions of dollars in assistance to the industry in order to keep the sector afloat and to prevent job losses.

But if Fraser is to be asked, the car industry and government officials seemed to have completely missed the meat of the problem.

In an interview with the Australian Financial Review, Fraser assailed those who perennially blamed the Australian dollar for the problems faced by the local auto industry, and for that matter by the general manufacturing sector.

The good standing of the Australian dollar is being used as a convenient scapegoat, the former RBA chief told the AFR.

The real issue is the car industry's low production levels, Fraser said, adding that even if ore subsidies will be released by federal authorities, the sector will still have problems.

In fact, "if the currency was weaker, Australian manufacturing would still struggle to compete because of its low productivity," Fraser asserted.

Notwithstanding the case being pushed by Fraser, Ms Gillard mulls the release of more bailouts for the car industry, which according to Business Spectator will be discussed by her cabinet this week.

The government is hopeful that more assistance would eventually re-invigorate the car industry and prevent further job losses in the immediate years ahead.