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Ford casts doubts over Australian operations

Ford’s Asia-pacific president Dave Schoch says the company has made commitments to the Australian-made Falcon and Territory until 2016, but beyond that they have nothing to announce and are still evaluating.

Ford’s Broadmeadows plant currently produces both cars, but is due to end in three years, suggesting the company could exit manufacturing in Australia after 2016. With high labour costs and the strong Australian dollar, moving manufacturing to cheaper countries like China probably makes more commercial sense to Ford.

Ford also has a 1,100 design and development team in Melbourne, which has claimed the design of the new Ford Escort as its own. However, senior Ford executives have downplayed the role of the Australian design operation, saying the new four-door sedan, which revives the famous Escort badge, was a global car.

Australia’s car manufacturing industry is under a cloud, with General Motors Holden recently laying off 400 workers at its Elizabeth plant in South Australia, and there are growing fears about the plant’s long-term future.

Union and industry leaders have called for urgent and fundamental changes to manufacturing in Australia. BHP Billiton (ASX: BHP) chairman and former Ford boss Jacques Nasser says Australia has done little to keep its car manufacturing industry competitive.

Instead, both state and federal governments continue to handout subsidies to Australian car manufacturers, which appear to be funding cars that Australians no longer want. Sales of large sedans such as the Ford Falcon and Holden Commodore have slid as consumers favour SUVs and smaller sedans and hatchbacks. That’s good news for companies like ARB Corporation (ASX: ARP) and CMI Limited (ASX: CMI) who supply accessories for 4WDs, but not good news for our local manufacturers.

Australia also has one of the most competitive automotive markets in the world with a reported 64 different brands competing for consumers wallets. According to VFACTS, the US has just 51, while the UK has 54 brands.

Foolish takeaway

Despite the billions in taxpayer funding given to the car makers, the local vehicle manufacturing industry looks like it’s already on its knees. Governments have the difficult task of biting the bullet and taking the pain now, or continued the funding to delay what appears to be inevitable.

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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). Motley Fool writer/analyst Mike King owns shares in BHP.

 

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