Autodom a clear sign of manufacturing doom

The story of Autodom is the story of the Australian economy.

In 2007 aiLimited demerged into its two halves: automotive parts maker Autodom, and the mining construction business named Forge Group.

Last Monday trading in Autodom was suspended with the stock at 1.3 cents and yesterday the company went into administration; Forge Group closed on Friday $4.13.

Anyone who spent, say, $100,000 buying 150000 aiLimited shares at the beginning of 2007, and had the fortitude to hang on through the demerger that year and then a wild ride for five years, would now have Forge shares worth $2 million and Autodom shares worth nothing: net return over five years, 100 per cent per annum.

So long time shareholders of Autodom/Forge probably won't be complaining too much, unless they bought both companies early last year, when Forge was $6.50 and Autodom was a heady 6 cents, in which case they are down the drain.

Like Australian manufacturing in general, Autodom's has been a tale of steady, catastrophic decline. When the separate company was created in 2007, it was full of great plans to lead the consolidation of the car parts business into a viable export-oriented industry.

At that point, the Australian dollar was 78 US cents, and it all must have seemed possible. Instead, the dollar kept climbing, and after the short-lived correction of 2008 has now been trading around 104 US cents for 18 months.

As a result, export has been difficult and local manufacturers supply a quarter of the volume into the Australian market that they did in 2007 – their combined share of the market is now 14 per cent.

Forge Group, freed from the shackles of its entanglement with the car industry, had a rocky beginning, falling to as low as 16 cents in early 2009. But then China and the Australian mining boom had its second coming and Forge's share price hit $7 in early 2011.

Autodom, like the rest of the industry in which it operates, effectively became a ward of the state some time ago.

Earlier this year the board and management put together a begging bowl (that is, a Development and Restructuring Plan) that it presented to the six stakeholders apart from the owners, who had been tapped as much as they were going to be. With the shares at 2 cents, there were going to be no more equity raisings.

The six stakeholders are: the three car manufacturers, Toyota, Ford and GM, the Elders subsidiary, Futuris (another customer), the South Australian Government and the landlord (unnamed).

The document asked for $10 million in cash, which the report said would tide the company over. Four of the stakeholders said yes, two said no. I understand the refuseniks were Ford and GM.

Last week's plant closures were an attempt by the Autodom management to force their hand, but it didn't work. Yesterday the directors gave up and put the company into administration.

Perhaps the administrator will have better luck getting Ford and GM to come to the party; after all, they need the car bits that Autodom makes to keep producing the pitiful output of cars that they still produce.

Perhaps the Australian dollar will fall below parity this week and return to 78 cents. Then again, perhaps pigs will fly, or the Holden Commodore will miraculously turn into an SUV that people actually want to buy.

Autodom did actually lead consolidation of the Australian auto components industry and its demise is now a turning point for manufacturing industry more generally.

As Autodom's website states: "The automotive industry is Australia's largest complex goods manufacturing sector generating more than $12 billion of revenue per annum. It is the country's largest manufacturing export earner with sales of vehicles and components valued at more than $6bn.”

But it cannot survive at the present exchange rate unless taxpayers prop it up. The question raised, once again, by Autodom is: for how long, and for how much?

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