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Toyota quits Australia despite $500 million in grants

Following on from the announcements of Ford Australia and General Motors Holden to shut up shop in 2016 and 2017 respectively, Toyota has confirmed that it will cease making cars in 2017, closing a chapter on five decades of local production. The Japanese car maker began producing cars in Australia in 1963.

As Toyota Australia CEO Max Yasuda noted, “We did everything that we could to transform our business, but the reality is that there are too many factors beyond our control that make it unviable to build cars in Australia.”

A high Australian dollar made exports unviable, while high local costs of manufacturing and low economies of scale were also blamed for the end of local production. Holden and Toyota estimate it costs $3,800 more to build a car in Australia compared to other factories.

Add in the world’s most competitive car market, with more than 60 brands represented locally, including cheap imported cars flooding in from Chinese manufacturers and the writing was on the wall.

That was despite an estimated $492 million in government grants over the past four years, according to Fairfax media reports.

Toyota is reported to have spent $1.5 billion of its money making cars in Australia last year.

With Ford and Holden already announcing they would quit, Toyota’s position was virtually untenable, and it alone could not stay and hope to compete.

Professor Spoehr from the University of Adelaide says “This is the collapse of an entire industry, not just Ford, Toyota and General Motors Holden.”

2,500 employees will directly lose their jobs, but it will be the impact on the support industries that could have a major influence on our economy. As many as 200,000 workers are estimated to be dependent on the automotive industry, while the sector as whole is estimate to be worth $21.5 billion to Australia’s economy.

But don’t expect to suddenly see all those workers hit the unemployment queue. Many will still be employed in sales and distribution, automotive accessories and the like.

Foolish takeaway

The worry for Victoria and South Australia, where the car manufacturing plants are, is that the demise of the three car makers could drive the state economies into recession, while unemployment surges.

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