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Australian Car Manufacturing Faces Extinction With Toyota Exit

Automakers have been making cars in Australia since Ford Motor Co. (F) began assembling Model Ts in a converted wool store near Melbourne. That’s poised to end in three years, when Toyota Motor Corp. (7203) shuts its production lines in Altona about 60 kilometers (37 miles) away.

About 50,000 jobs in the country’s auto and parts industry are in jeopardy after Toyota yesterday followed Ford and General Motors Co. in announcing plans to quit manufacturing in the country.

That poses a challenge for prime minister Tony Abbott, who won an election last September pledging to restore confidence in the economy. Australia’s unemployment rate is at its highest level in a decade amid a waning of the mining boom that helped the country skirt recession after the 2008 financial crisis. The country’s main car plants are in districts where the jobless rate is already on par with the euro zone’s.

“You’re going to have suburbs that are going to lose tens of thousands of jobs within their locales,” said Jim Griffin, national president of the Federation of Automotive Products Manufacturers. “It’s a dark day. It effectively sets an end date for the Australian automotive manufacturing industry,”

Unemployment in Melbourne’s Brimbank-Sunshine region adjacent to Toyota’s Altona plant and in the city’s Broadmeadows district that houses Ford’s main production lines was about 12 percent in September, according to government data. In the Adelaide suburb of Elizabeth where GM (GM)’s Holden has its main plant, it was 22 percent.

Photographer: Carla Gottgens/Bloomberg

Toyota Motor Corp. signage stands outside the company's Australian headquarters in Port Melbourne. Close

Toyota Motor Corp. signage stands outside the company's Australian headquarters in Port Melbourne.

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Photographer: Carla Gottgens/Bloomberg

Toyota Motor Corp. signage stands outside the company's Australian headquarters in Port Melbourne.

Car Ownership

“We understand just how difficult the period ahead is going to be,” industry minister Ian Macfarlane told reporters in Canberra yesterday. “Australian industry will never be the same. With this closure, it will change the face of industry.”

With the third-highest rate of car ownership among countries with more than a million inhabitants, according to World Bank data, Australia has been making cars almost since it became a nation. Land surveyor Harley Tarrant built an early gasoline-powered car with an imported Benz engine in 1901, the same year the country became independent from the British empire.

Ford started production in the city of Geelong west of Melbourne in 1925, and the country’s then-Prime Minister Ben Chifley welcomed Holden’s first car off a Melbourne production line in 1948.

Toyota started production in 1963. The foundation stone at its Altona plant was laid by Eiji Toyoda, the industrialist who oversaw the automaker’s global expansion, the company’s President Akio Toyoda said yesterday at a media event at the site.

Photographer: Carla Gottgens/Bloomberg

A Toyota Motor Corp. badge is displayed on the front grill of a new vehicle for sale outside a dealership in South Melbourne, Australia. Close

A Toyota Motor Corp. badge is displayed on the front grill of a new vehicle for sale... Read More

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Photographer: Carla Gottgens/Bloomberg

A Toyota Motor Corp. badge is displayed on the front grill of a new vehicle for sale outside a dealership in South Melbourne, Australia.

Painful Decision

“Despite numerous headwinds we believed that we should keep producing cars here,” he said. “We gave everything to that effort. Unfortunately, however, we have had to make the painful decision, the end of production of cars by the end of 2017.”

Protected by tariff barriers and a weaker currency, locally-produced cars such as the Ford Falcon driven by Mel Gibson in the film “Mad Max” dominated the local market until Mazda Motor Corp. (7261)’s 3 became the bestseller in 2011.

The Falcon and Holden’s Commodore accounted for 18 percent of the local market in 2003, before dropping to 3.3 percent last year, according to data from the Federal Chamber of Automotive Industries.

As recently as 2007, the three carmakers and Mitsubishi Motors Corp. (7211) sold 200,485 locally-produced cars. That dropped 41 percent to 118,510 cars last year, the Chamber’s data show.

Higher Costs

Local production has been threatened as a commodities boom helped drive the value of the local currency to $1.11 in July 2011, the highest level in the 30 years since exchange controls were dropped.

While the Australian currency has since depreciated to about 0.89 to the U.S. dollar, it’s still higher than at any point in the 18 years running up to 2007.

That’s left Toyota’s local car lines, which produced 101,424 vehicles during 2012, struggling to hold their own in a global company that turns out 10 million cars a year. The company had been struggling to cut A$3,800 from the cost of building a car in Australia to make it competitive with plants in Kentucky and Tsutsumi, Japan.

“It is not viable to continue manufacturing in Australia,” Max Yasuda, Toyota Australia’s president, told the media event yesterday, citing the strength of the dollar, high manufacturing costs, low economies of scale, and free trade agreements that had opened the Australian market to cheaper imported models.

GM estimates it costs about A$3,750 more to produce a car in Australia than elsewhere. Ford said last May that its costs in the country were double those in Europe and four times those of its Asian divisions. The two carmakers will close their local plants in 2017 and 2016 respectively.

‘Hammer Blow’

The flood of imports, mainly from Asia, has resulted in locally made vehicles accounting for only 10 percent of auto sales in the country this year, versus 80 percent three decades ago, according to data from Ford and the industry association.

“This is a hammer blow for manufacturing in Australia,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “It will weigh on consumer sentiment and is a setback. Despite a fall in the Australian dollar, it appears some industries are just not going to get their mojo back.”

Automotive vehicles and parts were the third-biggest export earner in Australia’s manufacturing sector in 2012, trailing medicine and refined aluminum, according to government data quoted in Toyota’s submission to an inquiry into the industry’s future in November.

The manufacturing halts by the major carmakers removes the parts manufacturers’ customer base, said Richard Johns, principal of consultancy Australian Automotive Intelligence.

“It’ll be only a handful that adapt,” he said by phone from Melbourne. “It’s very hard to compete from this distance.”

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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