Why Australia’s car manufacturers — Toyota, Holden and Ford — all conked out

WHY did Australia’s three car-makers — Toyota, Holden and Ford — announce shutdowns within nine months of each other?

End of an era ... Toyota’s on the assembly line at the company’s Altona plant. Picture: Joe Castro

WHY did Australia’s three car-makers — Toyota, Holden and Ford — announce shutdowns within nine months of each other?

Despite the blame games of the past week there is no conspiracy theory. Nor is there one reason. If only it were that simple the industry might have been saved.

The Australian car manufacturing sector had become so small that each company began to rely on the other for survival.

In the automotive eco system most parts suppliers have contracts with all three brands to remain viable.

News_Image_File: Out in the cold ... Workers leave Ford factory's Broadmeadows. They are among thousands affected by previous job cuts and the oncoming closure of the car maker.

Factories need economies of scale at the best of times, let alone in the worst of times when they must compete with cheap imported parts — and cars.

The local content of Australian-made cars was already in decline. Just 30 per cent of the parts to make a Holden Cruze were sourced locally, and the Commodore was only 50 per cent Australian in the end, according to figures supplied by the car maker.

Toyota had a Japanese image but the Camry had up to 70 per cent Australian-made parts, the same as the Ford Falcon.

GALLERY: HOLDEN THROUGH THE AGES

But if the car makers were to survive beyond the current models, they were going to be forced rely on more foreign parts to keep costs down.

It meant that saving the car-makers would not have saved the rest of the parts supply industry, contrary to the ‘if save us, you save them’ message that Holden often used in its argument for continued government support.

Ford, Holden and Toyota were always in the headlines but the hundreds of smaller manufacturers who supply parts for the big brands were feeling as much if not more pain.

Which is why as soon as the first domino fell in May last year — Ford — the collapse of the remaining two manufacturers, Holden and Toyota, and the rest of the industry was inevitable.

News_Image_File: Pulling the pin ... Toyota Motor Corporation President Akio Toyoda announces the company will stop making cars in Australia in less than four years, banging the final nail in the coffin of country's auto industry. Picture: Paul Crock

Best-practice car factories produce a minimum of 250,000 vehicles per year. In the end, Australia’s three car brands combined could barely reach that.

When Mitsubishi shut shop in 2008 the Australian car industry became a wobbly three-legged chair. Once Ford was lost, the tipping point was imminent for Holden and Toyota, despite their public posturing.

The timing of the shutdowns — 2016 for Ford and 2017 for Holden and Toyota — is a genuine but convenient coincidence.

GALLERY: THE EVOLUTION OF THE FORD FALCON

That’s when the Ford Falcon, Toyota Camry and Holden Commodore are due to reach the end of their model cycles before being replaced by all-new cars. (It’s not uncommon for car makers to ‘shadow’ each other’s launches so they can stay competitive with fresh metal).

However, Australia’s three car factories and the hundreds of parts suppliers will likely struggle to go the full distance of their proposed shutdown dates as sales of locally-made vehicles start to tank.

Even though the cars made between now and the end will still be fully backed by warranties for three years and parts and service for up to 10 years, customers mistakenly believe they may be left in the lurch.

That’s why most informed commentary says the industry with be gone “by the end of” 2017. The shutdowns could happen earlier, although all three brands say they are committed to staying their full terms.

News_Image_File: Lifelong fan ... Peter Amey of Elenora, who has owned Holden vehicles since 1950, with his restored 1948 FX (48 215). Picture: Stuart Quinn.

The grim reality is that the sooner all three factories shut down, the sooner Toyota, Holden and Ford end their massive financial losses and start making a decent profit.

Combined, all three brands have lost more than $1.5 billion on their local manufacturing operations over the past decade, despite receiving more than twice that in taxpayer funding over the same period.

So, who’s to blame for this predicament?

Federal Governments who created low import tariffs and signed Free Trade Agreements that gave cheap foreign cars the upper hand?

The unions that demanded better wages and conditions for their workers?

Or the bosses at the international headquarters of the car companies who treated Australian governments like a cash machine?

The truth is all of these factors share at least some responsibility for the industry’s demise, along, sadly, with the buying public and fleet operators who swapped patriotism for a broader choice of more affordable, more desirable, and more suitable imported cars.

Successive governments from both sides of politics created the economic environment that Australia now finds itself in: a nation with high wages, low import tariffs and a strong currency.

These three factors make it impossible to profitably export cars, especially when you’re surrounded by Asia-Pacific countries that don’t need Australian-made vehicles because they’re making their own — for one-quarter of the labour cost.

If Australia could sell cars into the massive markets in Europe or North America we might have a chance — ignoring for a moment the hurdle of unfavourable exchange rates — except they already have massive overcapacity with too many car factories and not enough customers.

News_Image_File: Happier times ... Ford Australia employee Ed Liss, who has served the company for more than 40 years, celebrates the 50th anniversary of the Ford Falcon.

In the end, the Australian car industry was backed into a corner.

The Coalition Government won’t be popular for presiding over the shutdown announcements of two of Australia’s three car-makers (Ford’s announcement came under the former Labor Government’s watch). But someone had to take the tough stance.

If the Coalition had agreed to an increase in funding to the car industry, it would merely have delayed the shutdown announcements, rather than come to their rescue.

Factory worker wages are not suddenly going to get lower, Australia’s import tariffs aren’t about to be increased, and Free Trade Agreements aren’t about to be ripped up.

Such changes are about as likely as Australia being towed closer to Europe.

Propping up the car industry would have cost taxpayers at least another $1 billion in handouts — not including the hidden costs of forcing government departments to buy Australian cars — and we would still have ended up with the same result, just a few years later.

It’s truly sad to see the end of the car manufacturing industry and the jobs of tens of thousands of workers.

But it is better to rip the band-aid off now and start repairing the damage, retraining workers, and find out what it is that Australia does well — apart from just being “a farm, a hotel and a quarry”, as former Holden boss, Mike Devereux, put it.

This reporter is on Twitter: @JoshuaDowling