May 24, 2013

Horse 1490 - Ford Finally Flees

The decision by Ford to pull the plug on its Australian manufacturing operations in October 2016 is disappointing but entirely expected. Although Ford like everyone else blames the high value of the dollar, suggesting currency "uncompetitiveness" as the reason; the real reason is to do with high wages and land costs. Basically workers in Australia need to be able to pay for things like rent and their mortgages, gas, electric and other costs, which in turn drives prices higher.
Ford builds the Ka in Tychy in Poland, where the average wage is 42,120 Zloty/year or A$13,365. The Focuses (Focii?) that we get in Australia come from Rayong in Thailand where the average wage is 288,000 Baht/year or A$9,990. None of these would even hope to cover rent in any capital city in Australia; without even bothering about the utilities or putting food in the fridge.

There is also one rather obvious reason why Ford chose to close the operation in Australia - Detroit.

As a multi-national corporation, Ford can shift production lines to pretty well anywhere it chooses to. In Australia's case, it deliberately chose not to produce cars like the Fiesta or Focus here, because it couldn't do so for wide enough a margin.
It's strangely ironic that for quite a number of months during 2012 and 2013, the top selling car in Australia was the Mazda 3. Never mind the fact that the 3 sits on the same platform as Ford's Focus; apart from the front and rear light treatment and the glasshouse behind the C-pillar, the passenger shell is identical. Ford no doubt was looking at official VFACTS stats for new cars sold, so it's not like they misread the market because they already sell their Focus in Australia.
Ford chose to build the Falcon only, as some sort of "legacy" product. It can be argued that keeping the old dinosaur around as long as they did was an act of charity, when they could have just as easily started importing the Taurus at least five years ago.

I note that although the Labor Party made some mileage out of "protecting workers" (cue Ms Gillard trying to look caring and sad), Mr Abbott's speech within the hour of the announcement, rang with all the smugness of someone who's just stuck his foot in your cheesecake.
Although he tried to pin Ford's decision on the Carbon Tax and the lack of direction of the government, the truth is that it was the decision of a multi national headquartered ten thousand miles away and made with a very long lead time indeed - three years is an exceptionally large amount of warning (in some respects, fair play to Ford). I'm personally surprised that Ford Australia lasted this long, having written about this previously.
(I've seen this a long time coming Horse 1175 in Apr '11Horse 1447 in Mar '13 etc.)
It might very well be true as Mr Abbott suggested, that Australia doesn't "need" three car manufacturers but it might also ring true that we don't "need" three telcos either, yet he was part of the government that sold Telstra. We don't really "need" four major banks, two airlines, or multiple mining companies either.
The truth is though that people do "need" to work somewhere to be able to put food on the table, and when you have someone who hopes to be the future Prime Minister of the nation actually smiling because 3500 people have effectively been told when they shall be fired, it yells volumes about who this man cares for.

The Falcon was the right car to be producing for Australia in 1963 but 50 years later, the platform has outlived its usefulness. The big problem is that Detroit must've chosen to give up on Australia a long time ago, or else it would have started producing cars that people actually want to buy here; the fact that it didn't says that they'd rather make cars in places where people are paid far less and where governments are prepared to throw even vaster sums of cash at them -  countries which once sat on the dismal side of the Iron Curtain like Poland, or behind the Concrete Curtain like Mexico. The Ford Ka that I had was built in Belgium, the Focus that we currently get might have parts sourced from as many as 20 countries. The Fiesta for instance, could easily be built in India.

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