Ford threatens early exit as jobs shock looms

By Leith van Onselen

The Australian is reporting today that Ford Australia is threatening to close its assembly operations early amid collapsing sales of its flagship Falcon model:

Sales of the Ford Falcon slumped to 381 units in January, one of the poorest results in the carmaker’s rich history, with the former top-selling vehicle now below October’s then record low of 396 deliveries…

With Ford due to end local production in October next year, there is deep concern the company will use poor sales figures to justify an early closure of its plants, placing even more pressure on the component sector to find alternative, viable markets…

Concerns are so strong at Ford that the union responsible for most workers — the Australian Manufacturing Workers Union – is refusing to comment on the plight of its members, referring questions to the company.

It’s worth reminding readers that the shuttering of the local automotive assembly industry will be one of two employment shocks to hit the Australian economy over the next three years (the other being the unwinding of the mining investment boom).

Modelling by the Productivity Commission (PC) estimated that the closure of Australia’s car industry would cost up to 40,000 jobs, mostly in Victoria and South Australia. The PC’s findings were broadly similar to modelling undertaken late last year by the Allen Consulting Group, using economic analysis from Monash University, which estimated that the closure of the local car industry would cost around 33,000 jobs in Melbourne and around 6,600 jobs in Adelaide by 2018.

Both studies appear optimistic, however, given they assume that a high proportion of component manufacturers will move into exports and/or the after-sales parts market, which are already crowded and highly competitive. The PC also assumed that two thirds of the expected 40,000 retrenched auto workers will find another job – an assumption that seems heroic given the lack of other manufacturing industries in Australia, the sheer size of the employment shock (alongside the sharp decline of mining investment), and the overall weak labour market.

The great irony, of course, is that the Australian dollar is likely to head even lower as commodity prices falls, which could mean that the cost of importing Holdens from South Korea could end up being higher than if the cars were built locally.

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Comments

  1. Manufacturing is so old hat. Services are where it’s at.

    Two thirds of the 40,000 sacked will easily find work as mortgage brokers and baristas. It’s the future.

    • Indeed, big Australia policy will save us all! Just bring more people in and the rest of us including the car/mining industry people who lost their jobs will build houses for them and feed them!

      • Maybe Ford has seen Abbott at risk and is making the most of it by creating fear with workers, the last thing Abbott needs, and then hope for or basically black mail abbott for more bail out money.

    • 🙂

      It’s the future and has been the future, according to all leading economists, since, at least, 1969.

    • Yes, just substitute the Ford Escort with Escort Agency, and there we are, the Australian economy in summary.

    • The final package of federal assistance for the car industry was – from memory – $19 billion over five years ($3.8 billion per year).

      Fees paid on compulsory superannuation total about $20 billion each year . . . for doing very little of value.

      Rent-seeking has simply moved from Melbourne to Sydney.

      And got much worse!

  2. GunnamattaMEMBER

    From memory the closure of the Geelong Ford plant takes place in about 10 weeks, and my understanding is that Broadmeadows has started letting people head out the door earlier/faster than was envisaged less than a year ago (when they were strenuously telling people they would want them on deck until stumps).

    Also in other automotive news there has been no official announcement but I have been reliably informed that Hella employees – the plant in Mentone [Melbourne] employs circa 300 – have been told that it will be heading out the door (to China) with the carmakers.

    • You mentioned that before Gunna,
      should be interesting to keep an eye on RE .com sites to see how house prices fare in the Geelong area!

    • Mining BoganMEMBER

      Was talking to one employer down there with about 50 staff who wanted to re-tool but to what they didn’t know.
      So they’re going to have to walk. They’re retiring.

      One choses to give up work, 50 are forced to. A crying shame.

      • It’s a crying shame that a high wage country sought to build an everyman’s car in a global market.

      • It is a crying shame that we adopted policies that bloated our exchange rate with sales of public and private IOUs off shore to feed an addiction to low interest rates and household debt.

        When that process ceases will have neither the lifestyle we are accustomed to nor the means to restore it.

      • ‘Pfh007
        February 11, 2015 at 8:16 am

        It is a crying shame that we adopted policies that bloated our exchange rate with sales of public and private IOUs off shore to feed an addiction to low interest rates and household debt.

        When that process ceases will have neither the lifestyle we are accustomed to nor the means to restore it.’

        Frame that!!!!!!!!

      • Dennis, Fitzroy

        I don’t know. But here’s a quote from forbes.

        “In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour.”

        From the Australian.
        “For General Motors in Australia, wages for trades employees have increased by about 76 per cent since 2000, and 21 per cent since 2008, jumping from $679.20 a week in 2000 to $1194.50 a week this year. This equates to $62,114 a year for a 38-hour week. Workers are paid shift penalties and overtime rates, with Sunday shifts paid at 2 1/2 times the normal weekday rate.

        A skilled tradesperson with at least three months’ experience is on an annual base salary of $80,444 while a group leader is paid about $102,000 a year.”

        My original comment / point was that if you want to pay high wages, you need to build great cars that people want (around the world). Just like the Germans.

        Or you can have low wages and build everyman cars….

        Or of course you can artificially have high wages in the car industry (with government (people of Australia) support) and hurt everyone else with higher taxes and a lower dollar. …smart

      • Thanks Escobar.

        You are absolutely right in your observations. Even the German industry has government support. They are German companies (not foreign) that are, in the main, supported.

        They are also supported by imaginative management, and a workforce without a unionised death wish.

        They are also subsidised by the Australian Government who allow tax deductibility for the depreciation and leasing of these German cars. An industry built from scratch. Australians are expert at destroying their industry spontaneously.

      • Thank you Fitzroy

        So everything depends on relative comparisons?

        Fair enough. If the Germans spend 3x more per capita (in support) we should do the same and expect the same result?

        We should also then pay as much in taxes as the Germans?

        Maybe then we can sell 5.5m home grown units.

        Actually I think you nailed it with the imaginative bit. … We imagined big featureless cars that no one wanted.

      • Re Escobar
        ”“In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour.”

        From the Australian.
        “For General Motors in Australia, wages for trades employees have increased by about 76 per cent since 2000, and 21 per cent since 2008, jumping from $679.20 a week in 2000 to $1194.50 a week this year. This equates to $62,114 a year for a 38-hour week. Workers are paid shift penalties and overtime rates, with Sunday shifts paid at 2 1/2 times the normal weekday rate.

        A skilled tradesperson with at least three months’ experience is on an annual base salary of $80,444 while a group leader is paid about $102,000 a year.”

        But what is the average overall wage in a car factory? and how many of them do work weekends etc? need to compare in parallel

        Also Aus$$ thingy has bolstered the wage in foreign money

        And even more so, what is the cost of living in Germany, the USA?
        much lower than Aus right now. And housing? maybe 1/3 – 1/2 of Aus prices I would estimate.

      • Is a skilled tradesperson a sparkie btw? So they’re taking an effective pay cut if they work in the factory compared to working in construction or for themselves?

    • Having spent quite a bit of time at Ford plants in Victoria over the last few months, I can report that there are a substantial number of people remaining after the operations shut down (due Oct 2016) – the proving ground is remaining open, along with product development and a fair bit of head office.

      Obviously operations (read:plant) is closing – although a substantial number (basically the young ones) have VSP’d out already leaving the golden handcuffed remainder waiting for their impressive defined benefit superannuation to kick in along with a tattslotto-esque redundancy (mainly due to the incredibly long tenures – 30-45 years not uncommon). Not a bad way to enter retirement!

      It will be sad to see Ford go – particularly in Geelong however the scrawl has been on the wall for a while now and most that can go have gone from my impressions.

  3. Whatever was paid to those two groups for their report should be demanded back!!! What a monumental level of incompetence and ignorance! I guess it is the sort of rubbish you get when you are removed from reality and live in the fairyland that Australians generally live in.

  4. use poor sales to justify
    What a weird thing to say. With sales that low what else can they do? Should they stay to make 100 cars a month? One?

    • Except they have known know for years falcon model is heading down the drain. A bit of forward planning could’ve gone a long way.

      • Ford’s sales in the US have also been very bad, at least until recently. With or without forward planning, maybe what they have to sell just isn’t what people want anymore.

      • They tried with the Territory, but really didn’t think it all the way through. If it had been a turbo-diesel from the get-go their fortunes might have been very different.

        I bought one of the very first ones off the line, it was nice enough but the fuel economy was so appalling it made little sense. I think they eventually made the petrol version a little better but the price difference to other manufacturers turbo-diesel vehicles compared to the running costs made it a bit of a dud. Out of the two manufacturers, it’s sadder to see Ford go because they genuinely had a crack at something different (c.f. the awful Holden Adventra for comparison).

      • Fair enough.
        You made it sound like they had not performed the activity of making a customer want prediction. I suggest they did make a prediction but either it was way off the mark or they were unable to figure out how to respond.

        Not a sllght deficit of effort, as implied by your comment, but some other more major deficit.

      • @StatS “maybe what they have to sell just isn’t what people want anymore”
        Interesting that a lot of people want smaller cars but larger houses. Not that long ago it was the other way round.

      • It’s the realisation that you’re selling coffee to property speculators. Just more misallocation of the nations’ resources.

      • I suspect that as is today, $4 of that $7 will be rent, $1 will be wages, $1 will be coffee and electricity etc and the last $1 will be the owners profit

        The answer of course in order to make it sustainable is much lower wages for the barista (coffee boy) which will bring the price of coffee back to a more civilised $6.50

        (Taken from the Joe Hockey book of small business economics, ‘ignore the insane rent Elephant shitting in the café, blame the worker ‘leaner’)

    • Does anyone know the metrics on a coffee shop?

      Is it true to say you spend $250k to fit one out only to make minimum wage?

      That the romance of making and enjoying coffee gives way to the reality of mopping floors and cleaning dishes.

      • Had a colleague who was an ex-owner/barista. Didn’t tell me the numbers but certainly gave me to understand that anyone who chooses that life wants their head read.

      • If you think about it, 6 hours at 1 coffee a minute is 360 coffee. Not as many sales in the afternoon, so hence the 6 hours not say 10 hours you actually work with cleaning and mopping. Profit margin better be good given that you probably have two staff.

      • Its all real estate and shop fit-out. Retrofit a van or have a cart than can be secured somewhere. Last time I was in Adelaide there was an enterprising chap sitting out front of Uni of Adelaide in the mornings that had a small coffee cart powered by a portable generator humming away in the the bushes.

        Reckon he probably finishes up by 11 am.

      • Interesting stat. I have a friend who is involved in one of the major coffee chains (not Coffee house”) He reckons they are very profitable indeed.
        Just information not an argument!

      • And there are few barriers to entry, so if you buy a profitable one someone opens up down the road and takes 20% of your sales and you are back to working for the minimum wage and half your capital is lost. If it’s you and your wife working it and the other shop, being initially smaller, has the benefit of other income from partner or spouse they might outlast you as they take lower profits now to get to “fair market share” based on floor space/chairs.

      • @flawse

        As I understood it, my ex-colleague was a single operator in Melb CBD (‘Ex’ means I can’t confirm facts). He said rent and sheer density of competition killed him.

        Could be very different dynamic vs chain? (not arguing, just establishing whether we both have apples or oranges)

        NOTE: He left coffee making to work alongside me in manufacturing!! Factory closed at end of last year, so that may not have worked out well…

  5. It was a sad day when Ford announced they would be shutting down operations. My Dad was always a ford man, until he purchased a Toyota. I drove a few fords over the years XC, EB & EL & G6 and was rarely disappointed.

    But at the end of the day, the ford falcon was too expensive compared to the competition, namely the Toyota Camry which is several thousand cheaper, with better options.

    A lot of the Taxis and Police cars are now Camry.

    • I’ve spoken to taxi drivers over the years. They would tell me that the Ford was always cheaper than the Holden (even in the 80’s) because it was always subject to breakdowns especially due to its transmission.

  6. They should just go now. It’s like someone resigning from a job. Once they say they’re outta here, there’s no point them hanging around.

  7. real trouble is this closure doesn’t touch enough people, sure it’ll have some follow on effects but I’m convinced that these will be soon forgotten as the “wealth effect” of our housing boom doubles the demand for premium quality espresos and lattes, not to forget the re-training boom!

    In Australia nothing will change until change is forced upon us but dont ask me when that’ll happen because according to my primitive models Australia should already be in the middle of a liquidity crises…and that’s clearly not happening.

    • The closure will be felt by plenty in Melbourne and Geelong, where house prices seem to be flatlining, so not much compensatory wealth effect.

      People in Sydney or certain leafy eastern suburbs of Melbourne, of course, may be able to continue as though nothing happened.

      • Those closest to the real centres of the modern economy – Selling off assets and public and private IOUs off shore – will be the last to feel the pain.

        Unfortunately all the major parties are run from those centres and represent those interests.

      • last I checked greater Melbourne had a population of about 6 million so that’s about 2.5M households with 70% home ownership. So the wealth effect is enjoyed by about 2M families while the pain of unemployment is contained to about 40k worker involved in the automotive sector. 10% increase in house prices represents over 60K “income” for 2M people vs say $60k*40k….sorry but that’s no competition wealth effect wins…course people have to spend their wealth effect before its worth anything, which is where the RBA. steps in with ZIRP forever. sad maybe but accurate non the less!

      • ‘People in Sydney or certain leafy eastern suburbs of Melbourne, of course, may be able to continue as though nothing happened.’

        What? Like in 2009?

        http://www.heraldsun.com.au/news/toorak-toffs-do-it-tough-too/story-e6frf7jo-1225692192064

        ‘The huge loans are one reason homes at the top end have suffered the biggest price falls.’

        ‘Buyers’ advocate David Morrell, of Morrell and Koren, said many house prices in top-end suburbs had been hit hard.’

        The aspirational wannabe wankers who borrow to fund their wealth façade get smashed too. Makes a mockery of the theory of buy in blue chip, you can never go wrong.

      • I have it they rose 4.5% – about $30k on the median house – in the year to December ’14. Seems poor compensation when you’ve lost your $55k/ year job.

        Given Melbourne’s house price rises are concentrated in particular areas, with inner and inner-eastern seeing greater than 10% rises, seems like suburbs with auto workers are likely to be seeing a lot less than that 4.5%, so even that $30k is a stretch.

        The major problem is the 40k workers are in a few clusters in the west or north- many people in and around those suburbs will be effected indirectly or via family member/ friend/ know from school/ church the people who lose their jobs.

        People living 5km eastwards will probably remain untouched.

        Melbourne is more like 4mill than 6mill – even Sydney isn’t 6 million or even 5 million.

      • As of June 30 2013 (last ABS Release 3218.0) the populations were Greater Melbourne 4,347,955 and Greater Sydney 4,757,083. The ABS greater regions are quite generous.

        2014 figures will be out in a few weeks.

      • So when you said Melbourne house prices were flatlining, that was “intentional hyperbole” again right? or just plain wrong

      • No, a combination of after years of double digit rises, a single digit annual rise of 4.5% seems like flatlning, and in the suburbs where auto workers live price movements likely are hovering around zero – given that that same single digit rise for Melbourne as a whole included much larger rises in suburbs far away from car factories. Hence people affected by factory closure see no or little wealth effect. As already explained above.

      • Whatever 4M or 6M people its immaterial the ratios of even 1M making 60k vs 40K workers loosing 60k is still a no brainier game set and match to the housing sector….it’s the only real wealth you know.

        What is however surprising to me is that the CBA goes from strength to strength, penning in first half profits of $4.62B the people have therefore voted with their wallets and they’ve voted for that which they understand….banks and houses…holes was always a passing fad.

        What does this mean, nothing at all … in the vast majority of Aussie minds things are humming along very nicely (Mining and this ToT thingy were always a complete mystery) but house prices now that something you can trust and our banks rule (Aussie Aussie Aussie)

        .

      • The 40k workers are likely the breadwinners in 2.5 person households – so 100k lose the wage that supports them. They’re relatively concentrated geographically, so I’m guessing that local businesses will suffer considerably also, so that number could easily be doubled while still being conservative.

        In the city of Hume, where the Broadmeadows plant is located, manufacturing is the biggest employment sector, employing about 1 in 4 workers, despite being one Melbourne’s famous ‘residential growth corridors’ (good luck with that once the factories gone btw). If manufacturing in Hume receives a body blow due to the Ford closure, yes it will mean something.

        I mean it’s not like they’re doing that well now:

        http://thenewdaily.com.au/news/2014/10/29/australias-jobless-hotspots-suburb-rank/

  8. “The great irony, of course, is that the Australian dollar is likely to head even lower as commodity prices falls, which could mean that the cost of importing Holdens from South Korea could end up being higher than if the cars were built locally.”

    LOL

    Holden is a goner, in ten years they will phase the badge out completely and we will get GM cars. The great subsidized failure that was Australian car manufacturing can finally come to an end, and we will all be the richer for it.

    • Mining BoganMEMBER

      Those dicks with the Chev badges on their commodores will finally only look like tossers then.
      Yay!

    • I’ve seen the suggested current model that would replace the commodore….. and so totally agree with you jim

  9. “the cost of importing Holdens from South Korea could end up being higher than if the cars were built locally.”

    Leith, you’ve got to let this shit go. GM has enough spare capacity in Asia alone to produce 10-20x the volume of aus produced cars at a third of the unit cost.

    Its about time we concentrated on supporting and growing locally owned already internationally competitive businesses…not propping up duds.

    • Maybe he’s not seriously suggesting that the manufacturing should continue here, just pointing out the irony of moving production to S. Korea now that the dollar movement has made Australian auto workers cheaper than South Korean auto workers, abetted by South Korea auto workers’ notorious annual strikes.

      • I think Pat is suggesting that we should have moved up the value-added manufacturing chain instead of regressing to a primary industry economy.

      • @Jason, what he’s actually saying is that car manufacturing was never competitive on a global scale, therefore we should have stopped subsidising it a long time ago in favour of supporting locally owned businesses that are already internationally competitive.

        By definition, if they are already internationally competitive, they don’t need support. Government support is used to provide balance in markets where you are not otherwise competitive but “national interest” concerns suggest you should still play – like automotive parts and assembly.

        The challenge is that we have thrown money at the problem, not treated the root causes. In my mind it all stems from excessive trade liberalisation, fat, dumb and lazy management on the part of the the car makers, and the distortion created by the vicious land and wages spiral we’ve been caught in for the past 25 years.

        There will come a time when we will wish we had maintained more diversity in our productive economy, however by that stage it will be too late, and what is left we will have already sold to foreigners who will then use it to extract whatever is left.

      • Aaron,

        It is not the trade liberalisation that is the core of the problem.

        It is allowing hundreds of billions of dollars of unproductive capital inflows to drive up the exchange rate so that it does not reflect our trade performance.

        Certainly, dumping, quarantine etc are important and should be managed but if the exchange rate was not being bloated with asset and IOU sales Australia would have much less difficulty being a location for real economic activity.

        The liberalisation of the capital account is the real source of the problem.

    • I think it is worth keeping in mind that the ongoing but gradually reduced protection of the motor vehicle industry was nothing more than an attempt to ring fence a particular manufacturing industry from the impact of an exchange rate that was bloated by currency warfare and our own dimwitted policies that saw channeling predatory capital inflows into unproductive investment as a magnificent achievement.

      If the exchange rate reflected our trade performance (perhaps including some moderation of the rate of mineral resource extraction) it is quite possible that we would have local car manufacturing that can compete with imports and is profitable without protection.

      In December new car sales totaled 95,000 vehicles. That requires a lot of dirt exported to cover the cost if they are all imported.

      Sure even with a less bloated exchange rate an unprotected industry may not survive but it would have been good to find that out before the currency finally tanks.

      All that rubbish about Australia moving up the value chain is just pie in the sky dreaming.

      None of it will happen while we tie a great big inflated exchange rate (fueled by capital depletion) around the necks of any business located in Australia.

      If you support the existing model of the Australian economy stop worrying about the next generation of industry in Australia and just enjoy the national credit limit until our creditors (read secured creditors) yank it.

      Just don’t expect too much warning – creditors have a habit of extending credit right up to the point that the value of the security equals the debt and than BANG they turn off the tap.

    • Mining BoganMEMBER

      Isn’t that what Clint did in Gran Torino? Except for the Gran Torino bit.

      He got riddled with bullets. That’s the future.