It All Started At the Top
More than 400,000 vehicles were made in Australia in 2004, an all-time high.
Eight years later, that number has nearly been cut in half. The Australian dollar has appreciated significantly since 2004. Tariffs on imported vehicles have fallen by half. Free trade agreements have proliferated, abolishing select tariffs completely. As a result, Australian-made vehicles make up only 12.5% of the overall sales in their own country.
Manufacturing vehicles in Australia has no longer become an option for Ford Motor Company (NYSE:F). On July 18, the company announced that it will end Australian manufacturing by 2016. The company’s two Australian plants, Broadmeadows and Geelong, have lost $583 million over the past five years. Ford Australia has lost $455 million in the past two years alone.
Despite efforts, including ramped-down production, Ford Motor Company (NYSE:F) stated that its costs were “double those in Europe and four times those in Asia,” and that conditions for production in Australia were no longer “viable.”
GM Preaches Caution
Holden, a prominent Australian automaker owned by General Motors Company (NYSE:GM), commented on August 5 that it would wait for the outcome of the upcoming election before making decisions regarding future investments. Holden’s managing director, Mike Devereux, said the company will need further negotiations with whichever party forms the incoming government in order to unlock $1 billion of investment from Holden for two next-generation vehicles.
The Aussie Government & Toyota to the Rescue
On Aug. 5, Toyota Motor Corporation (ADR) (NYSE:TM) announced that it will invest $123 million in its Australian manufacturing operations, with $108 million going to the company’s Altona plant and $15 million going to Toyota Motor Corporation (ADR) (NYSE:TM)’s supplier development program.
In collaboration, the Australian government announced it will contribute $23.6 million to the Altona plant, and a further $5 million towards the supplier program.
This move comes after the Aussie government announced on Aug. 5 that it would commit $200 million to prop up the country’s car industry.
Toyota Motor Corporation (ADR) (NYSE:TM) sees a market where the government is willing to support expansion and major car companies are growing less interested. It also foresees the potential of capturing market share from companies like Ford Motor Company (NYSE:F), and establishing a strong long-term presence in Australia.
Why the Noise Will Soon Fade
Since 2004, the number of vehicles manufactured Down Under has fallen. But the total number sold has increased by nearly 100,000 since 2010, with the metric currently sitting around the 1.11 million mark. While Australian-made cars have crept into the shadows, cars imported from Asia and America have dominated, including those manufactured by Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Toyota Motor Corporation (ADR) (NYSE:TM).
