It would be wise for Australia to allow the inevitable to happen and give up its aspiration as one of the world's leading car making nation, a former state premier said.

As hard as it may be, former Victorian Premier Jeff Kennett suggested this week that Australia is not cut out to compete with the United States, Japan, South Korea and lately, China.

According to businessman Trevor Rowe, Australia's yearly car output was so inferior, last accounted at 250,000 units produced per year, that for the federal government to continue its subsidy to the industry amounted to gross impracticality.

While the country's rivals produce and sell millions of cars around the world, Australian cars assembled locally hardly made a dent, Rowe said.

"We just don't produce enough units to get enough scale to get a comparable advantage in an export market or even domestically," Rowe told BusinessDay.

He suggested that the millions that the government spends on car industry subsidies should be rechanneled on education programs and retraining of workers for industries that Australia has a clear advantage.

On his part, Kennett said that the country's local car industry could diminish further that over the next two years, only one player will remain standing.

"I can see another two car companies going in the next year to two years," Kennett told The Age.

He blamed the usual suspects: the country's low production capability and the rising value of the Australian dollar, which many said was consistently pushed up by the country's ongoing mining boom.

Furthermore, Kennett declared: "We don't have a right as a nation to be a car builder."

And in the event that the car industry's present size is further reduced, it is not the end of the world, Kennett said.

Australia may one day give up on its car industry but it doesn't mean that the country also needs to relinquish its current economic position, the former Premier stressed.

He recalled that Chrysler, Mitsubishi and Nissan were once produced in Australia but these companies eventually opted out and the Australian economy was not affected in a big way during and after the firms' withdrawal.

"The world didn't come to an end," Kennett told The Age.

Part of Kennett's view, according to Federal Treasurer Wayne, backed what the government has been harping all along, the local car industry, and for that matter many in the manufacturing sector, were battered by the negative impacts of the high Australian dollar.

"It is unfair to discount the effect of the high Australian dollar. The truth is that no one 12 months ago anticipated the Australian dollar would be as high as it has been for the past six months or so," Swan told the Australian Financial Review.

He defended too government's decision of offering subsidies to car, which he asserted not only created and protected jobs but also improved long-term competitiveness and productivity.

"Productivity is something we do talk to the companies about and all of our assistance is highly transparent and it is all about making sure we are competitive in the sort of niche markets that we need to survive," the AFR quoted Swan as saying.