Ford announced this morning it will cease all manufacturing in Australia by 2016 and cut 1200 jobs in the process in one of the largest shake-ups to the local automotive sector in several years.
The decision comes amid the fierce debate over the future of automotive manufacturing in Australia, with the Coalition already having threatened to erase government subsidies – a critical source of funding for the industry.
But the decision is also set to ripple through smaller component manufacturers, whose fates are closely tied to the viability of the local operations of major brands. Several have collapsed already.
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“We have a significant percentage of our vehicle that is local production or locally sourced,” Ford Australia president and chief executive Bob Graziano said at a press conference this morning.
“Our intent over the next three years is to continue to work with them as we transition through this phase.”
The company has lost $141 million during the past financial year, he said.
The 1200 jobs will be scrapped from the Broadmeadows and Geelong plants. The blow to Geelong will be severe – the region largely depends on automotive manufacturing.
The Australian Manufacutrers’ Workers’ Union has already released a statement saying it fears the job losses could flow on to other industries.
The federal government has said it will provide $39 million to help the Geelong and Broadmeadows workers, with $12 million also contributed towards supply chain workers as well.
IBISWorld senior analyst Naren Sivasailam told SmartCompany this morning the decision will have a major impact on the local, smaller manufacturers.
These manufacturers have also been hurting due to downsizing among the two major manufacturers, Ford and Holden, along with general pressures on the manufacturing industry. Several component manufacturers have collapsed as a result.
Graziano fronted a press conference in Broadmeadows this morning to conduct the announcement. The Broadmeadows and Geelong manufacturing sites will close by 2016, he said.
“We will look to maximise redeployment wherever we can, but realistically, we believe those opportunities will be limited,” he said.
The company will still manufacture the Falcon and Territory models for which it has already received government funding until 2016. But during the next three years the manufacturing facilities will be wound down – post 2016 the Falcon name will retire, he said.
“We will continue as a centre of excellence for product development and that will be part of the 1500 team members that we will have here longer term,” Graziano said.
Graziano blamed a number of factors for the decision, including labour costs. Local manufacturing is simply unprofitable, he said.
“Our costs are double that of Europe and nearly four times that of Ford in Asia,” he said.
The decision, as Sivasailam tells SmartCompany, is “not a surprise”. The approach of the local industry has been criticised by industry analysts. While the rest of the market is moving to more fuel-efficient and smaller vehicles, Australian plants are still producing larger, more powerful vehicles.
But the decision is a major blow to the manufacturing industry, which has already suffered over the last few years.
And such a decision will impact on smaller manufactures. While Graziano says the company will be working with these suppliers over the next three years, there will still need to be “diversification or consolidation”.
“The supply chain goes all the way down to the people who make the parts and service the cars,” says Sivasailam. “It’s sad, but I don’t think it’s terribly surprising.”
The Australian Federation of Automotive Products Manufacturers was contacted this morning, but SmartCompany was told its chief executive, Richard Reilly was currently in Detroit – the global headquarters for the automotive industry. He was unable to be contacted.
Naren Sivasailam says the difficulty for smaller manufacturers will be consolidating once the 2016 deadline is met.
“These guys are entrenched in their industries and in some cases they’ve been working in those industries for 30 to 40 years. It’s going to be very difficult for them to reskill now.
“This is just one of those things that’s sad, but inevitable.”
The automotive manufacturing sector has been undergoing massive change over the last few years, as consumers have largely switched their focus to smaller, more fuel-efficient vehicles.
As a result, local car makers have been forced to downsize. All three local manufacturers have cut jobs, and smaller component manufacturers such as Autodom and APV Automotive have collapsed.