Fate of GM, Toyota Factories Hangs on Australian Election
The fate of Australian car plants run by General Motors Co. (GM) and Toyota Motor Corp. (7203) hangs on the Sept. 7 election that pits a government committed to subsidies against an opposition vowing to scale back support.
GM’s manufacturing unit in Australia, Holden, is waiting on the result before deciding on investments in the country beyond 2016, as Prime Minister Kevin Rudd styles the contest as a vote on the industry’s future.
Rudd’s government has set aside A$5.4 billion ($4.8 billion) for the domestic car industry until 2020 and pledged another A$700 million during the campaign. Facing a deteriorating budget position, opposition leader Tony Abbott, the opinion poll favorite, wants to cut A$500 million from the subsidies by 2015.
“What we aren’t going to do is what Mr. Rudd has done over the last few weeks, and basically run down the road after Holden waving a blank check at them,” Abbott said Aug. 21 in Brisbane. “It is possible to do sophisticated motor manufacturing in this country without a government handout.”
The election will be “a referendum on whether or not we will keep making cars in Australia,” Kim Carr, Rudd’s industry minister, said in an e-mailed statement the same day.
Cars made in Australia slumped to 13 percent of domestic sales in 2012 from 80 percent in 1984, according to data from Ford and the Federal Chamber of Automotive Industries. The value of Australia’s car exports in 2012 was 29 percent below the average of the previous 10 years, government data show.
Abbott’s policy isn’t “going to be enough to keep the manufacturers here long-term,” said Tony Lemmo, chief executive officer of Autoteam Australia Consulting in Melbourne. “Our market, quite frankly, is not big enough for a manufacturing facility.”
The local manufacturing operations of GM and Toyota had combined operating earnings of A$492 million over the five years to 2010, according to a 2012 report by researcher Ibisworld Inc.
Ford Motor Co. (F), set to close its Australian car lines in 2016 after nine decades, said in May that the unit’s costs are four times those of its Asia divisions and wouldn’t be sustainable even with a doubling of aid.
“Automotive is a volume business,” Richard Reilly, CEO of the Federation of Automotive Products Manufacturers, said in a telephone interview. “If you don’t have the volume going through, then the economies of scale aren’t there, and that makes it very difficult to continue as a business.”
GM, Ford and Toyota have been hit by a strong Australian dollar that’s made exports uncompetitive and brought in more imports. The Aussie has averaged about 99 U.S. cents this year, about 30 percent more than its average since its 1983 float.
Those problems are compounded by waning demand for the high-powered sedans that local operations are geared toward making, according to Craig Shulman, a senior analyst at Ibisworld in Melbourne. And Australia’s distance from global suppliers means its factories can’t operate effectively without subsidy, he said.
“The automotive industry in Australia hasn’t historically been well-placed to provide a location for cost-effective manufacturing,” Shulman said. “Since its inception the industry has always had some sort of government assistance.”
Costs at Holden are up about 60 percent from 10 years ago, making it one of GM’s most expensive operations, the division’s managing director, Mike Devereux, said in April.
The carmaker “won’t make any decisions about future investment” in the country “until after the federal election and after we have held detailed discussions with the next government,” Holden spokesman Sean Poppitt said by e-mail. The division employs about 4,000 people at two plants, in Melbourne and Adelaide.
Toyota and Ford declined to comment. Australia’s auto industry employs about 45,000 people, according to the Federation of Automotive Products Manufacturers, a supplier group.
Ford’s exit in 2016 has raised doubts about the viability of the industry Down Under. The removal of one of the three carmakers could spark a “domino effect” as the industry becomes too small to support its suppliers, Jac Nasser, chairman of miner BHP Billiton Ltd. (BHP) and former chief executive of Ford globally, said in Melbourne in April.
In Geelong, a coastal city about 75 kilometers (50 miles) southwest of Melbourne where Ford started assembling its Model T in 1925, the company today employs about 1,200 people, making it the city’s second biggest private-sector employer.
“People are worried about what’s being done about new jobs,” said Tode Angelevski, 55, who has spent 10 years assembling engines at the plant.
Strolling through a vast staff car park where a colleague’s vintage Thunderbird sits alongside ranks of modern sedans and SUVs, almost all Fords, he asks, “Where am I going to find a new job at my age?”
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