Here’s Why Ford Is Saying Cheerio to Australia
Ford Motor Co. (NYSE:F) prepares to say “Cheerio” to Australia. Bob Graziano, Ford Australia Chief Executive, announced Thursday the automaker’s decision to shut its two Australian auto plants in October 2016, more than nine decades after Henry Ford first began making his Model Ts there. Australia’s strong currency and rising costs were among the factors cited for the decision.
Though Ford has been in Australia since 1925, the recent rise in its currency has led the automaker to struggle against sliding sales, high costs, and a high Australian dollar. Its strong currency has crippled the local industry’s ability to compete with imports, leading Ford to announce the closing of its engine plant in Geelong and its vehicle assembly plant in Broadmeadows, resulting in the loss of 1,200 jobs, said Graziano, regrettably.
He explained, “Our costs are double that of Europe and nearly four times Ford in Asia … The business case simply did not stack up. Manufacturing is not viable for Ford in Australia.”
Ford, which employs more than 3,000 people in the country, is not the only automaker struggling. The nation’s two other larger manufacturers, Toyoto Motor Corp (NYSE:TM) and General Motors Co. (NYSE:GM), are hurting too, as the rise in the local dollar against the yen has increased sales of cheaper imported vehicles and cut exports. There is significant concern that the removal of one car maker could threaten the entire automaker industry.
This potential “domino effect” would not only be bad news for the auto industry, but also for Prime Minister Julia Gillard, whose Labor party is preparing for elections in September but currently trailing in polls with charges of mismanagement of the economy. Paul Bastian, national secretary of the Australian Manufacturing Workers Union, said Thursday, “It’s time the politicians in this country had a reality check about the factors that are impacting our industry,” as reported by Bloomberg.
Ford’s decision to close illuminates the challenges Australia faces in the wake of its decade-long mining boom. There is hope that the other sectors of its economy can help compensate for the auto industry’s struggle, but evidence shows there is reason to worry. The high Australian dollar is making it difficult for local manufacturers to compete globally, and as Bloomberg’s report explains, “Ford’s closure is a further sign of Australia’s weakening labor market amid sustained strength in the currency that renders trade-exposed industries uncompetitive.”
So far, GM and Toyota maintain they will continue manufacturing cars in Australia. However, GM announced last month that it would cut about 500 jobs from its local Holden division, blaming currency devaluations and rising costs.