Ford to pull out of car production in Australia: expert reaction

Ford Australia has announced it will pull its car production out of Australia by 2016, with the loss of 1200 manufacturing jobs.

The future of Australia’s auto manufacturing industry is under a heavy cloud after Ford’s announcement that it would cease its manufacturing operations in Australia by 2016.

Ford Australia president Bob Graziano said that the company’s car plants in Victoria’s Broadmeadows and Geelong would be shut down by 2016, resulting in the loss of 1200 jobs.

Ford will retain 1500 employees in Australia, including in its product development area.

Mr Graziano also announced Ford had recorded a $141 million after-tax loss for 2012 and has recorded losses of $600 million over the past five years. Ford is still expected to receive the $34 million it was promised by the federal government last year.

Leading academics spoke to The Conversation about the implications of Ford’s decision, as well as the viability of manufacturing in Australia and the effectiveness of government handouts for the car industry.

Sinclair Davidson, Professor of Institutional Economics at RMIT University

It’s a sad day for people in Geelong and Broadmeadows, who now know their jobs are going to be phased out over next the three years. This is also a very sad day for taxpayers of Australia, who have pumped billions of dollars of subsidies into the car industry over time.

We must actually give some thought that this is a monumental failure of government policy; the idea that you could somehow buy jobs by subsidising firms and imposing tariffs over the years.

The real problem is this creates a huge distortion in the labour markets because people are attracted to jobs in an industry that is going to fail - that are dead end jobs - and they spend a great deal of their time and human capital specialising in skills that are not easily transferable.

So it is a huge failure of public policy and it is the human cost that we are going to be seeing now in terms of people who have got quite large skills in an industry that is basically not going to be there anymore.

Rather than trying to build up industries that are not viable, government should concentrate on creating an environment where businesses in Australia have some sort of comparative advantage and can prosper.

So, sparing a thought for the workers and the taxpayers this probably a good thing to have happened in the long run, because we are now going to be able to buy cars from overseas, where there is lots of excess capacity, and not actually be wasting money in an industry that has no real future here in Australia.

I suspect you will find that General Motors and Toyota probably looking at their operations in Australia already. There has been some debate whether if one goes will they all go, or whether the decline in Australian capacity means they can survive.

It is very hard to say, but I would have thought they will already be looking at their options and weighing up the options of actually closing down.

Paul Gollan, Associate Dean, Research and Professor of Management, Faculty of Business and Economics at Macquarie University

(The announcement) is not a surprise, considering the pressures on the manufacturing industry — especially this type of manufacturing — where it’s highly competitive, especially with foreign imports coming in and being very popular.

There’s two major issues here. One of them is that the high Australian dollar does make us less competitive, given the foreign competition. But there’s more to it: it’s also about how we market our cars.

The sales for domestic-made cars have dropped quite considerably over the past 10 years and we have to ask ourselves why. It’s not just about foreign imports, but also the sorts of cars we’re making.

We haven’t been as agile when it comes to looking at consumer preferences and the different requirements that consumers have. While the high Australian dollar has been blamed for a lot of this, I think the car companies themselves need to take some responsibility here to change according to consumer tastes. It’s quite obvious foreign imports have been able to satisfy those changes in consumer preferences where domestic manufactured cars have not.

The rationale for the government giving so much industry assistance is based on the premise the industry has substantial knock-on effects for research and development and engineering, and so on. I think there’s some credibility to that argument.

But the question really is: is the car industry the best industry to sustain a lot of these smaller manufacturers? Given the environment and the competition, we’re probably better off drawing upon our skills base, which is quite unique. We’re in a highly sophisticated, complex economy; one of the most complex economies in the world. Certainly, one of the most skilled in the world. It’s quite obvious that with global supply chains and design teams, car manufacturing has a lot of competition to it.

Frankly, in the medium to longer term, I don’t think there’s a great future for broad-based car manufacturing. That’s not to say there’s not a future for car manufacturing as such.

As we’ve seen in the UK, there’s been a resurgence in car manufacturing — mainly around prestige or niche markets. That’s probably something we need to think more about. How can we have a car industry — if we are going to have one — how are we going to capitalise on what we have in competitive terms?

It was notable that Ford indicated that they are likely to keep their engineers, designers and product development people in Australia. Even Ford recognises that our expertise and skills within this area are actually quite important.

Danny Samson, Professor of Management (Operations Management) at University of Melbourne

It’s certainly going to put more pressure on the rest of the industry. It will put even more pressure on the other assemblers to be more competitive, through the indirect effect through the first and second-tier suppliers in the industry.

There will be fewer customers — two instead of three — for those who make components, as well as those a few steps back, who make the raw materials that get made into those components for those assemblers. We already have low scale in Australia and sadly, as of 2016, we are going to have even lower scale. This is going to reverberate back through the supply chain.

In terms of local assembly, Ford is already quite a lot smaller compared to Holden and Toyota, but it is going to be significantly felt through the supply chain. It’s also going to affect the scale and the ongoing amount of training, research and development in the diminishing car industry and manufacturing sector.

There’s nothing positive about this announcement; it’s only going to put more pressure on the rest of the industry.

Stephen Taylor, Professor of Accounting, Associate Dean Research at University of Technology, Sydney

To the extent that industry policy has been specifically directed towards maintaining Ford’s manufacturing presence, then you can’t rate it as else anything but a failure, because they’re not going to keep manufacturing.

It reaches the point where there’s really no realistic amount of money the government can throw at this that would compensate for the fact that Ford is selling about only 12,000 Falcons and 12,000 Territories a year. They are not really exporting and they have never had any significant export markets.

To the extent there is some substitution between the vehicles it’s probably good news for Holden.

For a long time, Holden, at least to me, appears to have pursued export markets for the Commodore as well, even though they haven’t been huge export markets, but at different times have had sales in the middle east and the US.