Australia’s Emerson Sees Currency Drop to Help Carmakers

Australian Trade Minister Craig Emerson said the government will back the nation’s remaining two automakers after Ford Motor Co. announced it would stop car production, adding that a weaker currency would aid the effort.

“We’ll continue to support the automotive industry,” Emerson told Australian Broadcasting Corp. television in an interview yesterday. “At an exchange rate of A$1.03 obviously they’ve been under a lot of pressure, I think the exchange rate now is below 97 U.S. cents, if it goes lower that further boosts the competitiveness of those industries.”

The Australian dollar fell below parity earlier this month after averaging above $1.03 for more than 2 1/2 years. Ford Motor Co. said May 23 it will stop making cars in Australia and cut 1,200 jobs from October 2016 at plants in Melbourne and Geelong.

Australia’s government supports the car industry through a A$5.4 billion ($5.2 billion) fund, including a A$34 million co-investment with Ford Australia announced last year. The Reserve Bank of Australia, while eschewing intervention to weaken the currency, cut its benchmark interest rate to a record low 2.75 percent on May 7, and the Aussie slumped 5.7 percent against the U.S. dollar since the reduction.

“The dollar has been retarding the export strategy of Holden and Toyota,” Emerson said. “If the dollar is lower, that’s a good thing.”

Worst Performer

The Aussie has been the worst performer this quarter among the 16 major currencies tracked by Bloomberg -- slumping 7.4 percent -- as concerns mount that growth in China, Australia’s biggest trading partner, is slowing. China’s outlook is reflected in weakening prices for Australian commodities that have powered a decade-long mining investment boom now approaching its peak.

Emerson’s colleague, Treasurer Wayne Swan, said yesterday that the nation’s construction and services companies will need to pick up the economic slack from mining, while acknowledging the local currency has complicated the task.

“This transition won’t be seamless, and recently the high dollar has been making it harder for firms in many non-mining sectors to pursue new investment opportunities,” Swan said in his weekly economic note released yesterday. “While the dollar still remains at historically high levels, the recent dip in our exchange rate may provide relief for some firms -- although it often takes time for exchange rate movements to have an impact on business decisions.”

Research, Innovation

While the automotive industry employed just 2 percent of Australia’s workforce and 29 percent of manufacturing workers in 2012, it supports research and innovation across the entire economy, according to the Australian Industry Group.

“When you talk to people such as Boeing, which is a very high tech aeronautical engineering firm that provides components for the Dreamliner, talk to the CEO there and he’ll tell you that the majority of their workers were trained in the automotive industry,” Emerson said, referring to Boeing Co., the U.S. aircraft maker. “So it’s a training ground for developing the skills for manufacturing in this country.”

Ford is the smallest of the nation’s three manufacturers after units of Toyota Motor Corp. and General Motors Co.

Australia’s hourly compensation cost in manufacturing was $46.29 in 2011, compared with $47.38 in Germany, $35.71 in Japan, $35.53 in the U.S. and $11.65 in Brazil, according to a survey of 33 countries by the U.S. Department of Labor.

‘Extremely Tough’

Toyota, which said in January 2012 it was laying off as many as 350 workers amid a 36 percent fall in Australian output since 2007, will continue making cars locally even as conditions are “extremely tough,” the company said in a May 23 statement. Holden will invest A$1 billion to ensure production until 2022 and believes the industry “can survive,” Managing Director Mike Devereux said.

“We must recognize the impact people feel from the economic change we’re going through,” Swan said. “So the government is committed to ensuring affected workers and the communities of Geelong and Broadmeadows are assisted and supported through this very tough period.”

Australian consumer confidence slumped by the most in 17 months in May as the government’s announcement this month that the budget would remain in deficit overshadowed record low rates, a private survey showed.

Traders are pricing in about a 25 percent chance the central bank will lower rates to a fresh record of 2.5 percent at the next policy meeting on June 4, according to interest-rate swaps data compiled by Bloomberg.

The government is looking at alternative areas to tap Asia’s growing middle class. On May 25, it released a national food plan that aims to boost the value of agriculture and food-related exports 45 percent by 2025 to meet demand from emerging nations including China. Australia exports A$30.5 billion of food per year and produces enough to feed the nation of 23 million people twice over, according to the plan.

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