Ford will stop making cars in Australia, nine decades after founder Henry Ford first began building Model Ts in the country, after a surge in the currency destroyed the local industry's ability to compete with imports.
Ford Australia faces costs double those in Europe and four times those of its Asian divisions, its local president Bob Graziano said yesterday as he announced the loss of 1,200 jobs from October 2016 at two plants in Melbourne and Geelong.
Australia's three carmakers have struggled as a 29 per cent rise in the local dollar versus the yen over the past year stoked sales of cheaper imported vehicles and cut exports. The closure of one threatens the viability of the whole industry and is a blow to Prime Minister Julia Gillard whose Labor party is trailing in the polls before a September 14 election.
"Australian manufacturing can't keep its head above water," said Katrina Ell, an economist at Moody's Analytics in Sydney. "High labour costs mean we can't compete long-term against lower cost countries, especially in Asia. The strong exchange rate is exacerbating Australia's lack of competitiveness."
Ford is the smallest of the nation's three manufacturers after units of Toyota Motor and General Motors. The removal of one could mean the industry as a whole becomes too small to support its own supply chain, Jac Nasser, chairman of the world's largest miner BHP Billiton and former chief executive of Ford globally, told an event in Melbourne last month.
"Let's assume one of the three decide to exit Australia in terms of manufacturing, then you end up potentially with a sub-scale supplier infrastructure," he said. "And once that happens, I think it's a domino effect."
The car industry directly employs more than 45,000 people across the country, according to Australian industry group the Federation of Automotive Products Manufacturers. A further 250,000 jobs are derived from related activities.
"There will certainly be very large implications for businesses on the supply chain" if the closures are confirmed, Richard Reilly, chief executive of the Federation, said yesterday before Ford's announcement.
Ford's closure is a additional sign of Australia's weakening labour market amid sustained strength in the currency that renders industries exposed to international competition uncompetitive.
The Treasury, in its budget released last week, projected unemployment would rise to 5.75 per cent next fiscal year, the highest since 2009.