Was an Exit Ford’s Only Option?
Last week marked the end of an era for the automotive industry within Australia. After 91 years, the blue oval badge that many Australians came to love called time on the local manufacturing of its vehicles. The day was a bittersweet moment. On the one hand, the brand, the company and its tireless employees were recognised for their invaluable contributions over the years.
Sadly however, an abundance of job losses as well as the demise of a true Australian icon will leave a void within the nation’s proud history and culture. The manufacturer’s peers are in no better position, with Toyota and Holden also approaching the end of local production in 2017. But was this the only option available? Was it possible for Ford’s local manufacturing operations to be spared a lifeline?
Despite its late efforts to adapt to consumer and industry changes (e.g. economical driving), Ford was always going to be facing an uphill battle. As wage growth peaked in the mid-2000’s, labour costs continually drifted further and further away from those of nearby countries. Throughout Asia in particular, labour costs remained arduously low, incentivising numerous manufacturers to set up their regional operations for the Asian market amongst low-cost producers. To say that our nation’s positioning worked against the company would be an understatement.
Also weighing against the company was the particular requirements befitting right-hand drive vehicles. Although in theory this shouldn’t have impeded the prospects of exporting to neighbouring countries in Asia, said nations were instead able to capitalise on their low-cost positioning. These requirements also prevented Ford from exporting to the likes of the US or other parts of the world. When the local arm of the company sought permission to produce the Ford Falcon in left-hand drive (several times in fact), its parent company in the US was having none of it. The economies of scale were never there to provide efficiency gains.
When the company’s changes did come, they were usually slow-moving or reactive in nature. As the Falcon continued to be pushed heavily by the company, the likes of the Ford Territory (and its successors) and Ford Focus hatch were overlooked for too long while competitors made advancements. In the last 20 years, Australian SUV sales have increased over 20 fold. The corresponding market share has increased from around 8% in 1995, to approximately 37% by the end of 2015 – and these numbers continue to rise. Meanwhile, passenger vehicles have gone from approximately 77% to 43% market share in the same period.
Ford was also largely propped up by government intervention and regulation. Not only were taxation benefits and direct financial aid afforded to the company, but the market had to be ‘artificially’ managed by way of taxes and duties after it had been opened up in the 1980’s to allow motorists greater access to imports. The introduction of a luxury car tax and import tariffs sought to all but direct customers towards our local vehicles but consumers followed their needs.
While the effects of a recently overvalued Australian dollar did not impact Ford as it did with Holden and Toyota, government assistance became a necessity to prop the company upright – across the industry, this is believed to be $12bn over the last 20 years. With each year that passed, the prospect that Ford’s production could remain viable within our market became increasingly dim. And ultimately, all the major parties in this story bear some degree of responsibility for Ford’s sad farewell.