A staggering $2 billion -- double the $1 billion in taxpayer assistance received over the past 10 years -- would not have been enough to make Ford’s manufacturing operations viable in Australia.
The revelation comes after the announcement on Thursday that Ford would shutter its factories in Geelong and Broadmeadows in October 2016, with it axing 1200 jobs and the iconic Falcon badge, the longest-running automotive nameplate in Australia.
The $2 billion survival plan -- to come from government funds in return for three times that amount in Ford investment -- was just one of many options Ford considered in the years leading up to its decision to end manufacturing in Australia after opening its first factory in 1925. Ford also considered -- and ruled out -- building a small car, a compact SUV and a heavy-duty pick-up (the three biggest vehicle categories in Australia).
Australia’s record high currency -- with no significant decline on the horizon -- ruled out exports as a viable option especially given that, in the Ford world, Australia is twice as dear as Europe and almost four times as dear as Thailand to manufacture cars. Last year, Thailand became the second biggest source of new cars for Australia behind Japan and ahead of South Korea.
The next emerging power in automotive production is our nearest car-making neighbour. Indonesia, which is closer to mainland Australia than Sydney is to Perth, has the fourth biggest population in the world behind China, India and North America.
Indonesia eclipsed 1.1 million new-car sales last year, just as we did. But its potential for growth is much greater, and its manufacturing wages much lower. Hourly wages for automotive factory workers in Indonesia are $7.50 compared to $50 per hour in Australia (compared to an average Australian manufacturing hourly wage of $32 across all sectors).
General Motors has just restarted a factory in Indonesia and Ford is considering joining them because the import tariffs there are 40 per cent, with a further 10 to 75 per cent tax on imported cars depending engine size. By way of comparison, Australia's import tariff dropped to 5 per cent in 2010, just as our dollar started its record climb.
All this left the Australian consumption of cars as the only alternative for Ford’s local factories. Except that it wasn’t a viable option. Given that one model no longer dominates the Australian car market, the economies of scale for local sales alone do not add up. Last year’s top-selling car, the Mazda3, topped the charts with just 44,000 sales -- half the tally of our No.1 car a decade ago. Most car factories need throughput of 250,000 vehicles a year.
Rather than ask the government -- and Australian taxpayers -- for a bailout that would have amounted to more than what the two largest manufacturers Toyota and Holden receive combined, Ford had already calculated it would not be enough. So rather than put the government in a position where it would have to say ‘no’, Ford decided to make the tough call on their behalf.
Contrary to the doom and gloom coverage over Ford’s job cuts and nine years of Falcon sales in freefall, and Ford's constant efforts to find a solution, insiders say the final decision to close Ford’s Australian manufacturing operations was made only in the past few weeks.
A timeline shows the stroke of the pen occurred sometime Tuesday Australian time, at a board meeting in Detroit. Among those in the boardroom on the other side of the world were the global president and CEO, Alan Mulally, and the executive chairman William Clay Ford Jr, and Edsel Ford, both great-grandsons of Henry Ford. Edsel Ford ran Ford Australia between 1978 and 1980.
The board’s decision occurred after months of deliberations and more than five years of confidential studies. To ensure the word never got out, Ford was careful to label the secret documents as “drafts” or “studies”.
Ford reportedly never sent anything to government that indicated Broadmeadows was in jeopardy, or that layed out a possible plan -- or a veiled threat -- to shut its factories.
But Ford didn’t need to. The silence was enough. The very fact that Ford had not applied for government funding for local production beyond 2016 was a clear enough indication of what lay ahead. Car makers need five or more years to design and engineer cars and ready the tools for a new model.
The phones at suppliers were silent. Any announcements that were made only confirmed plans to 2016.
Ford Australia boss Bob Graziano said that, contrary to industry scuttlebutt, he was not sent here to close the factories. In fact, Graziano had never closed a factory in his automotive career. Until Wednesday, when he had the unenviable job of shutting two: the Geelong engine and casting plant (510 workers) and the Broadmeadows vehicle assembly line (650 workers).
“My goal on taking up the role in Australia was for Ford to continue being successful here,” he told News Limited. “I definitely did not come here with the intent of doing this but, after investigating numerous options, it became clear that the only way for us to be successful here longer term was to take this difficult decision. We left no stone unturned.”
Graziano’s three-year assignment in Australia is due to expire in November, but he has asked to extend his tenure for another three years. “I am committed to staying here to help see the Ford team through this transition,” he said.
Graziano was evidently moved by the reaction of factory staff who he addressed in the canteen inside the Broadmeadows vehicle assembly line at 9am Thursday morning. After all, he got to know them well over the past two and a half years.
As part of his job he visited the darkest corners of the business -- literally and metaphorically -- for a fortnight two or three times a year, including the grim, grey and dusty casting plant at Geelong at 3am.
It was during these spot checks workers began telling Graziano that not knowing their future was worse than knowing the truth, as grim as the news may be. More than once, he promised workers he would tell them as soon as he knew.
Last Thursday at 9am in the Broadmeadows canteen, Graziano kept his word, even if it ends up being to the detriment of sales for the next three years. (Mitsubishi shuts its Adelaide factory in 2008 with just seven weeks notice, to avoid a buyer backlash).
After his address to the morning shift (about 550 and the 650 workers at Broadmeadows) Ford workers clapped Graziano as he left. During his speech they had asked insightful questions, including what they could do to help, and if the announcement three years ahead of the shutdown would hurt sales.
Ford won’t admit it, but such a long warning will indeed hurt the company’s bottom line. It may even risk accelerating the shutdown if the updated Falcon sedan and Territory SUV continue to slide.
But Ford kept its word, and the band-aid has finally been ripped off. Hopefully this uncharacteristic corporate courage will allow time for most wounds to heal.
This reporter is on Twitter: @JoshuaDowling
FORD TIMELINE
1995: The last time Ford led the Australian new car market and the Falcon was the nation’s top-selling car. The following year the Holden Commodore started its 15-year domination.
1998: Holden posts highest Commodore sales of all time as Ford releases the awkwardly-styled AU Falcon. In the following years sales of the Falcon dive to below 54,000, but worse was to come.
2003: The last time the Ford Falcon posted an increase year-on-year (to 73,000 sales), thanks to the arrival of a facelifted model that addressed styling concerns. But it was a brief victory. In 2004, Falcon sales began their 10-year freefall due to strong competition from imports and changes to government and fleet purchasing policies.
2007: Ford announces it will build the Focus small car locally from 2011 alongside the Falcon and Territory to give Broadmeadows improved throughput.
2009: Ford reverses its decision to build the Focus in Australia, and instead makes plans build it in Thailand ready for a 2011 rollout.
2011: The year the Ford Focus small car was supposed to built in Australia at Broadmeadows. The same year, the Mazda3 small car (which shares some its underpinnings with the Ford Focus thanks to an earlier joint venture) topples the Holden Commodore as the nation’s top-seller. The Japanese-made Mazda3 is the first import to become the top-selling car in Australia since World War I, say motoring historians.
2012: Sales of the Ford Falcon hit record lows, with 14,000 deliveries, less than half the number of Falcon sedans built in 1961, the first full year of production at Broadmeadows. The four-cylinder Falcon that went on sale in March sadly does little to reverse the sales slide.
January 2013: Having explored all available options over the previous five years -- including local assembly of a small car, SUV and heavy-duty pick-up -- Ford’s Detroit head puts its Australian manufacturing operations under the microscope.
February 2013: Ford Australia rechecks all previous internal studies. Regional bosses dial-in every few days for the next four months to assess any changes in the outlook.
April 2013: Ford Australia informs the board of its 2012 financial results, a loss of $141 million -- its second biggest on record -- that adds up to $600 million in the red over the past five years alone. Dialogue continues.
Saturday 18, May 2013: Shanghai-based Ford Asia-Pacific boss, Dave Schoch, arrives in Australia.
Sunday 19 May, 2013: Schoch and Ford Australia chief Bob Graziano meet with the federal minister for industry, Greg Combet, at an undisclosed location in Melbourne’s CBD. They give the Federal Government a heads-up that an announcement about Ford’s local manufacturing operations was imminent but not confirmed.
Monday 20 May, 2013: About a dozen senior Ford Australia executives are told that a decision about Broadmeadows may be imminent. All are sworn to secrecy until the decision is confirmed in Detroit and the announcement is made to factory workers.
Tuesday 21 May, 2013: Ford holds a board meeting in Detroit in which a decision is made about the fate of Broadmeadows and Geelong production facilities. Among those in the board meeting on the other side of the world were the global president and CEO, Alan Mulally, and the executive chairman William Clay Ford Jr, and Edsel Ford, both great-grandsons of Henry Ford. Edsel Ford ran Ford Australia between 1978 and 1980.
Wednesday evening 22 May, 2013: Schoch, at Melbourne’s Tullamarine Airport, relays the official notification of the board decision while he is waiting for a flight back to his regional base. Graziano receives an email from Schoch with the formal decision in writing.
Thursday 9am 23 May, 2013: Graziano addresses Ford workers in the canteen at Broadmeadows about 9am, honouring an earlier commitment to inform them as soon as he knew.
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