Ford's not the end for Australian cars

The developed-world revitalisation of some of Ford’s peers shows its decision doesn't have to be the beginning of the end for Australian auto manufacturers.

The feeling around Australia's manufacturing sector is that its automakers are on a slow, irreversible march out of the country.

Ford Australia's move to close its two Australian plants from 2016 and transition to import-only brands only reinforces the sense of a looming death knell.

But that isn't the case with every developed-world auto sector struggling to compete with high domestic production costs and cheaper, mostly-Asian-built imports.

Canada's auto sector has also struggled with factors that would sound familiar to an Australian onlooker, such as its own high dollar, volatile domestic demand, offshore competition and wavering government subsidies.

But as much as those conditions in Canada instigated uncertainty, cuts and job losses, that struggle, which gained pace as the global financial crisis took hold, has also produced a level of productivity-focused innovation worth noting for any manufacturer or policymaker wondering if Australia's auto sector has crossed its rubicon.

One such example is a division of multi-billion dollar global auto part giant Magna International Inc, Dortec Industries.

Dortec has a plant about an hour northeast of Toronto that may at first glance seem like small potatoes. Its 350 or so workers build door latches for cars, trucks and minivans for automakers all over the world.

But that plant's turnaround is being spotlighted as a model Magna is working to introduce at its worldwide operations across more than two dozen countries.

The plant was first opened in 1985, but by 2001 rising production costs, soaring commodity prices and increasingly cheap offshore competition forced Magna to give in to pressure from customers to open a Dortec plant in China to rein in costs and be closer to Asian buyers. By 2006 the Canadian plant appeared doomed.

But in a last-ditch effort to rescue the plant, Magna brought in a retired Toyota Motor Corp vice-president to see if they could adopt a more efficient, competitive manufacturing system.

That desperate move not only saved the plant, but has it today winning business back from China using some lessons that Australia's auto sector could learn from as it seeks to answer existential questions about its future.

“Ten years ago we actually questioned whether we'd still be in business now,” Magna International Inc chief executive Don Walker told the Globe and Mail newspaper.

Magna's Dortec is not only still in business, but has increased productivity by 25 per cent since 2006 and remained profitable through the global financial crisis that saw North American vehicle production plunge from its 2000 peak.

Its door latches are shipped to auto makers in China, Thailand and other low-cost regions that choose Dortec's Canadian plant over Dortec's Asian rivals (including Dortec's own China plant).

Dortec modelled its operations after Toyota's production system, emphasising quality, lean manufacturing and elimination of waste, because in a component as small as a door latch, reducing costs by one cent or cutting production time by even one second can dictate success or failure.

The plant manager of Dortec's China plant visited Dortec's Canadian facility late last year and was shocked by the efficiency he witnessed.

“He came over to here to benchmark and he saw a latch going together every 3.2 seconds and he says 'I'm in trouble,'” Magna Closure's vice-president of North American operations John O'Hara told the Globe and Mail.

“He left here thinking: 'I've got some work to do.'”

Their secret to success may seem unglamorous, but it reflects a step away from the big-picture sense of crisis engulfing so many higher-cost, developed-world manufacturers to allow individual firms to scrutinise every layer of their operations to identify ways to become more competitive.

With the guidance of the retired Toyota executive, Dortec took steps such as shortening and consolidating assembly lines and eliminated motorised forklift trucks to allow for narrowed aisles, which reduced wasted floor space and opened room for new machinery.

All employees were given the power to stop assembly lines if quality problems were spotted and equipment procurement was focused on flexibility so that production could be quickly ramped-up or down if a major customer cut or boosted orders.

Employees were also empowered to suggest ways to streamline production processes, which is one of Toyota's strategies. Employee suggestions jumped from 27 in 2009 to 473 in 2012, with more than 98 per cent of workers on the factory floor contributing, according to the Globe and Mail.

“We're actually seeing opportunities now to bring work back to plants like Nortec, even on small, easy-to-ship parts,” Magna's Walker concluded.

The steps taken may seem dull. But the results are anything but and are indicative of signs that Canada's broader auto parts sector is gaining ground rather than retreating. A Scotiabank report earlier this month found that Canada's auto parts industry is performing well in key markets such as the United States and Mexico, but also in emerging markets such as India and South Korea.

It's perhaps a narrow glimmer of hope on an otherwise doom-and-gloom day for Australia's auto manufacturers.

Australia's waning auto sector is fast running out of time – many argue it already has – to show that it can follow Canada's lead in joining the ranks of higher-cost countries where manufacturers like Dortec can compete domestically and abroad.

Related Articles