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Ford’s rocky road ahead

Executives of Ford (NYSE: F) in New York have refused to disclose any signs of hope regarding the future of the company’s Victorian manufacturing plants in Broadmeadows and Geelong.

After reporting what is likely Ford Australia’s largest financial loss in history in its most recent reporting period, it seems that the Australian division is holding the company back.

In 2008, Ford Australia reported a loss of $274 million, whilst more recently in 2011, $290 million was lost. This figure included a $78 million operating loss and a one-off “tax impairment and accounting adjustment” of $212 million.

The poor figures being recognised are not the only sign that the future of the Australian plants are in doubt. The company has not yet applied for government funding for a manufacturing project beyond the Ford sedan and Territory SUV – both of which will be phased out over the next few years due to stricter emissions regulations being introduced in 2016.

Currently, Ford’s primary factory in the Asia-Pacific Region is based in Thailand, where 450,000 vehicles are produced per year, compared to Broadmeadows’ 37,000. Whilst from 2007, it was intended that the Broadmeadows plant would be the primary plant for producing the Ford Focus, executives later decided to switch production to Thailand where labour costs are much lower and a Free Trade Agreement makes the vehicles cheaper to import than to build them locally.

Furthermore, the company is looking likely to open a large operating plant in Indonesia, where rivals Nissan and Toyota (NYSE: TM) are already based. Indonesia would offer even lower production costs than Thailand.

With the Australian dollar sitting at near record highs, Australian car makers are feeling the pressure, however, the closure of Australian car manufacturing plants  would also prove detrimental to our local steel producers, such as Arrium Limited (ASX: ARI), Bluescope Steel Limited (ASX: BSL), and Sims Metal Management Limited (ASX: SGM). Whilst these companies provide steel for car panels and framework, the closure of Australian car plants would merely be a case of salt being rubbed into their wounds.

Foolish takeaway

In July last year, it was announced that 440 workers were to be sacked from the Geelong and Broadmeadows plants, a number which was reduced to 340 November. With declining profits, fantastic growth opportunities overseas and “nothing to announce beyond 2016”, the future of Ford Australia is looking bleak.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

Editor’s note: The original version of this article stated that 440 workers were sacked in July, and more in November. The November announcement was an update, not additional redundancies.

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