The local car-making industry faces shutdown if the recommendations of a new Productivity Commission report are implemented, critics warn.
In a position paper released on Friday, the Productivity Commission recommended that all government assistance to the automotive sector end by 2020.
It specifically opposed any supplementary rescue package for Toyota and component manufacturers.
If the government accepts the commission's recommendation it would mean that Toyota - the only car maker committed to Australia beyond 2017 - would have to operate without assistance.
Victorian Manufacturing Minister David Hodgett said the automotive sector has a future in the state.
"We take issue with a number of proposals in the Productivity Commission report that fail to acknowledge the importance of the automotive sector to the Victorian and national economy," he said in a statement.
Mr Hodgett warned the loss of skills from the automotive sector would have flow-on effects for defence, rail, mining, aerospace, food and heavy vehicles affecting both the Victorian and Australian economy.
The commission says governments could better assist by undertaking broad-based economic and regulatory reforms and removing impediments to greater workplace flexibility.
However, it warned reducing funding that's already been committed in the next few years could risk earlier closures by Ford and Holden.
It might also negatively impact on investment decisions by Toyota and its component suppliers.
The Australian Manufacturing Workers Union warned a likely take-up of the recommendations by the government could force Toyota's hand.
"This government forced Holden out of Australia, now it seems intent on destroying of what's left of the Australian car manufacturing industry," national secretary David Smith said.
It would also lead to a shut down of the industry and 30,000 job losses in Victoria.
"It'll cost this government more in social security to fund these workers out of jobs than what it would be to keep those workers in jobs," Mr Smith said.
Federal Labor said the report advocated an end to the automotive manufacturing in Australia.
"It is a cold, calculated and baseless attack on automotive workers," opposition industry spokesman Kim Carr said in a statement.
Australian Greens deputy leader Adam Bandt called on the Abbott government to reject the recommendations, labelling them "a recipe for carmageddon" of the industry.
The government had asked the commission for the review in October, shortly after the coalition came to power.
The request came at a time when Ford had decided to end car manufacturing in Australia in 2016 and before a decision by GM Holden to cease local manufacturing by 2017.
Toyota is expected to make a decision about its future in Australia within months as it seeks changes to an enterprise bargaining agreement with its workers.
The commission is taking submissions to its interim report by February 13.
Public hearings will be held in late February and a final report submitted to the government by March 31.