RIP Ford, the first domino to fall

Ford's decision to quit manufacturing in Australia in October 2016 at a cost of 1200 jobs is a blow for Australia, and Victoria in particular.

Ford's decision to quit manufacturing in Australia in October 2016 at a cost of 1200 jobs is a blow for Australia, and Victoria in particular.

It's also a possible harbinger for GM Holden's manufacturing operations in Victoria and South Australia and Toyota's Victorian operation, and for 180 or so component companies, two-thirds of them in Victoria.

But while Jac Nasser's prediction last month that a single closure would see the other dominoes fall was resonating on Thursday, Ford was on a well-worn path.

Nissan stopped manufacturing in Australia in 1992, and moved to an import-only model. Chrysler sold its remaining Australian manufacturing operation to Mitsubishi in 1981, and Mitsubishi moved to the import model in 2008. Groups including Mazda and Honda have always imported, and in 2016 Ford will join them.

Its prediction that it will be employing 1500 people after the change in areas including R&D and design, where Australia is one of Ford's four global centres, is probably over the top, but the automotive industry will be a big employer in this country even if car manufacturing ends.

Motor vehicle and parts manufacturing employs about 50,000 people, 80 per cent of them in components manufacturing. Add in repair shops, dealerships and parts wholesalers and retailers, and the total is about 313,000.

It is the 50,000 jobs that depend on local manufacturing that are at risk, and while that is a big number, it and Ford's planned cut of 1200 jobs can be compared with the 531,700 jobs the economy has created in the past three years.

Employment has risen by 3.8 million in Australia since 1993, and in that year manufacturing accounted for 15.3 per cent of the economy, down from 26 per cent in 1961. Its share of GDP is now about 7 per cent.

It is still a big part of the economy, but it is outweighed for the time being by the mining sector (10.1 per cent compared with 4.2 per cent 20 years ago) and the construction industry (7.5 per cent), and it has been passed permanently by the financial and insurance sector (9.6 per cent compared with 4.3 per cent in 1993). The professions and the healthcare sector both account for more than 6 per cent of the nation's economic output, and will soon also overtake manufacturing.

These numbers suggest the initial employment shock from Ford's retreat from manufacturing can be handled, and that a continued retreat can be, too. The longer term impact on research, development and innovation if a manufacturing process that is becoming increasingly high-tech disappears, is harder to judge, as is Nasser's theory that a single closure will rob the industry of the critical mass it needs to survive, and attempts to slow the tide are failing as scrutiny of subsidies for the industry intensifies.

In January last year Ford committed to manufacture Falcons and Territory SUVs in Australia until 2016 after the-Gillard government tipped $34 million into a $103 million vehicle upgrade project.

The deal was negotiated by former industry minister Kim Carr who saw it as a payment that created a second negotiating window. He intended to use the time to persuade Ford that the government could underpin more ambitious investment that tied the Australian manufacturing operation into Ford's global car production network, but lost the industry portfolio just before the deal with Ford was announced.

It's not clear what progress was made after he departed, but the political climate is tougher now as government receipts are pressured and car maker subsidies are questioned, and Ford is a lost cause.

The group's Australian boss, Bob Graziano, said on Thursday that Ford's manufacturing costs here were twice as high as they were in Europe and almost four times as high as they were in Asia. Ford had modelled subsidies at levels it did not believe it would get, and could still not see local manufacturing making money, he said.

The strong Australian dollar and low sales volumes in this market have weakened the economics of local car manufacturing generally, but Ford also made mistakes of its own.

Unlike GM and Toyota, it locked itself out of the world's biggest markets by configuring itself for right hand-drive vehicle production only, and in 2009 locked itself into a declining large car market that did not generate enough economies of scale by dumping a plan to emulate GM and expand into small car manufacturing in Australia. It lost $141 million last year, after losing $290 million in 2011.

Holden is also under pressure, and said in April it was cutting 500 jobs. After losing $500 million in six years, it bounced back into the black in 2010 and is probably still there operationally: last year's $153 million loss came after a once-off $226 million restructuring charge.

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