Toyota to leave Australia?

Local car manufacturing on the precipice

a woman

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Toyota could be the next car manufacturer to cease operations in Australia, according to media reports.

News Limited is reporting that over the past five years, Toyota has been estimating shutdown costs on its local manufacturing operations. The report notes that Toyota is estimated to have lost $400 million on local car making in 2012, only posting a profit because of sales of imported models, parts and accessories.

Toyota has forecast a payout to 2,200 workers at its Altona factory, but the total number of job cuts could be as high as 3,500, with non-manufacturing jobs at risk should the local factories cease making vehicles.

That could see Toyota left with around 1,000 staff to run an import-only car sales division. Estimates suggest the cost to close operations could be as high as $228 million. Last week General Motors Holden boss Mike Deveraux suggested Toyota would likely shut it local factories, if Holden packs up its local car manufacturing. That move would see the end of Australia’s entire local car manufacturing and have dire consequences for automotive parts manufacturers and the local industry.

The steel making industry and companies in that sector including BlueScope Steel (ASX:BSL) and Arrium (ASX:ARI) ex-OneSteel, would likely suffer as well, and  would have to look for new markets to sell their steel into.

Toyota says that contrary to closing down, the company is actually employing more factory staff, in an effort to cope with an increase in export demand for Camrys in the Middle East. The lower Australian dollar could also provide some relief for both Toyota and Holden, making locally produced vehicles cheaper and more attractive to consumers by comparison with imported models.

Foolish takeaway

With Ford already announcing that it will cease manufacturing in Australia in 2016, the pressure is now on Holden and Toyota to reduce their costs and become more competitive. There’s still a huge risk that both could stop making cars locally.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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