Ford to cease manufacturing operations in Australia during October 2016

Ford Australia, the third largest carmaker in Australia, has announced its decision to shut down its operations in the country in October 2016, in a company press release. Ford Australia chief executive Bob Graziano stated, "Our costs are double that of Europe and nearly four times Ford in Asia. The business case simply did not stack up. Manufacturing is not viable for Ford in Australia." Graziano stated that Ford has lost 600 million Australian dollars (USD585 million) at its Australian manufacturing operations in the last five years and AUD141 million in the last fiscal year. As a result, Ford Australia will close its engine plant in Geelong and its vehicle assembly plant in Broadmeadows, both in Victoria State, with the loss of 1,200 jobs. All manufacturing employees' benefits will be provided in line with current agreements. During the next three years, Ford will work with affected employees and their representatives on support arrangements.

Nevertheless, Ford will continue to maintain a significant presence in the country as an importer and dealer, employing about 1,500 people along with 200 dealers in the country. Graziano stated, "Ford will remain a significant employer in Australia, with more than 1500 team members, as will our network of more than 200 dealers around the country. The Australian team's role as a global centre of excellence for vehicle development also will continue to be an important focus for us." Currently, Australia is one of four product development hubs for Ford globally, with more than 1,000 people employed in product development. The automaker will also introduce more products for Australian customers as part of its restructuring and transformation plan – including a 30% increase in the number of new vehicles offered to Australian customers by 2016. This is in addition to its already announced plans of launching updated versions of the Falcon, Falcon pick-up, and Territory sport utility vehicle (SUV) in 2014, as well as the new Ford Kuga, Ranger, and Focus vehicles.

Ford's decision has again provoked debate on the efficacy of government subsidies for the automotive industry and has put Prime Minister Julia Gillard's Labour government in a difficult position right before the September election. Gillard stated that the government would offer "intensive" assistance to Ford workers whose jobs were affected. About AUD40 million has been earmarked to support the economic development and diversification of the Geelong and northern Melbourne regions, of which the federal government will contribute AUD30 million and the Victorian government AUD9 million. The government will support businesses and workers in the automotive supply chain by providing an additional AUD10 million to the Automotive New Markets Program. Additionally, the Victorian government will also make an AUD2-million contribution to support Victorian component suppliers. In January 2012, the government had provided AUD34 million to keep Falcon production going at Ford's Broadmeadows plant until at least the end of 2016 (see Australia: 10 January 2012: Ford Announces AUD103 Mil. for Upgrades in Australian Operations, to Continue with Falcon Until 2016). Gillard defended the government subsidies, stating that she believed car-making was a viable industry for Australia. However, the strong Australian dollar is taking its toll on the manufacturing industry.

Outlook and implications

Ford's announcement that it is shutting down its Australian operations in 2016 follows comments from former global president of Ford, Jac Nasser, last month that the demise of Australian car manufacturing appeared inevitable (see Australia: 12 April 2013: Former Ford chief says demise of Australian car manufacturing appears inevitable). Nasser's glum outlook for local car manufacturing was based on the rise of the Australian dollar in recent years, coupled with the high cost of living in the country, leading to increased manufacturing costs. Additionally, recent developments such as the weakening Japanese yen (which has given an edge to Japanese rivals), the weak global economic environment, excess capacity in the global automotive industry, and the increasing preference among Australians for imported vehicles, have resulted in declining sales of locally made cars. These are the reasons cited by Ford for its decision to fold its operations after 90 years of operations in the country since 1925.

A look at the trends of the last five years points to the fact that the situation for Ford was fast becoming unsustainable. As per IHS Automotive data, sales of Ford's flagship car in Australia, the Falcon, dwindled from 31,632 units in 2008 to 14,345 units in 2012. As sales of large cars fell and those of smaller cars rose, Ford conceived plans to build its strong-selling Focus small car alongside the Falcon and Territory SUV at its Broadmeadows plant by 2010. However, it dropped these plans, saying that the prevailing economic conditions did not make for a good business case and it instead switched Focus production to its Thai factory. After that, not even the introduction of cheap LPG-only Falcons or the decision to equip the Falcon with the EcoBoost 4-cylinder engine could resurrect the model's sliding sales. Compounding its problems has been the rising strength of the Australian dollar, which makes the increasing number of imported cars in the small Australian market more appealing. In addition, Ford's inability to exploit exports like its rivals GM Holden and Toyota effectively sealed its fate. Last year, its manufacturing operations were further burdened by the introduction of the carbon tax, a burden that Ford, like its rivals, chose not to pass on to end consumers. Due to the combination of these factors, Ford suffered and had to slash production, enforce job cuts, and resort to frequent shutdowns to deal with falling sales and rising inventory (see Australia: 17 July 2012: Ford Australia to Cut 440 Jobs, Slash Production by 29%).

Ford's decision has once again made the current government's subsidy plan a target of criticism. The government has stuck to its plan to provide AUD5.4 billion of support by 2020 to the ailing automotive sector, on account of the sector's critical importance to the wider manufacturing sector and in maintaining employment. The Australian automotive industry employs about 55,000 people and supports 200,000 related manufacturing jobs. Although the government has been helping automakers by providing financial incentives to keep vehicle production in the country, it has failed to stem the tide of production cuts, job losses, and failing businesses in the supplier segment. Last month, GM Holden decided to eliminate 500 jobs in Australia, on top of the 170 job cuts it made last year. Holden has also cut production, idling plants and introducing lower production days or "market response days" (see Australia: 8 April 2013: GM Holden to slash 500 jobs in Australia). All of this has come despite the AUD275 million of funding it received from the government last year to continue manufacturing operations in the country until 2022.

In the wake of Ford's announcement, the question of the future viability of the Australian automotive industry is now thrown into stark relief. Despite the government's best intentions, the rising local currency, coupled with changing consumer preferences, is making local production of traditional large sedan models unviable. Escalating production, energy, and labour costs have left Australia uncompetitive compared with low-cost production bases such as China and Thailand. Add to this the fact that Australia is a small and highly challenging market with an enormous range of choice, and the future of not just Ford but the entire sector is somewhat bleak. The effects are bound to reverberate in the industry, with more job losses set to follow. Jac Nasser had gloomily suggested that withdrawal by any one of the three major car producers in Australia – Toyota, Ford, and GM Holden – could trigger a domino effect and force the exit of the other two, leading to the collapse of the entire automotive industry and affiliated supplier sector. Although the current government is committed to sustaining the car manufacturing industry in Australia using all means necessary, the political opposition has clearly voiced its resistance to paying out more taxpayer money to save the ailing industry. If the opposition succeeds in assuming power at the September election, the prospects of aid for the industry dim further. Indeed, even if the incumbent government were to secure re-election, something that is looking more remote by the day, and press ahead with its agenda, it would still face an uphill task to rescue the Australian automotive industry.