Ford job cuts show why more government handouts won’t save the car industry

Today’s announcement that Ford Australia will slash 350 jobs from its Victorian plants and slash production by 20% to 25% might have former Victorian premier Steve Bracks thinking very carefully about his recommendation to the Rudd Government that the car

Today’s announcement that Ford Australia will slash 350 jobs from its Victorian plants and slash production by 20% to 25% might have former Victorian premier Steve Bracks thinking very carefully about his recommendation to the Rudd Government that the car industry should get $2.5 billion worth of government assistance.

As Ford’s decision shows, Australia’s car makers are not struggling because of a lack of government assistance. They are struggling because they make cars that fewer and fewer people actually want to drive.

Ford’s brand new G-Series Falcon is by all reports a very good car. It has received almost universally positive reviews and is the only Australian-built car to get a five-star safety rating.

Traditionally, the release of a new Falcon or Commodore results in a big sales spike as a result of pent-up demand from buyers who have waited for the new model.

But in June and July, Ford sold just 3400 FG Falcons. That’s only 200 a month more than the old BF Falcon model sold at the same time last year, and 2300 a month less than a decade ago. The buyers just aren’t flocking like they used to.

This is not the result Ford was hoping for; as today’s production and job cuts prove, the company is betting things are only going to get worse.

Ford president Bill Osborne has talked about a “perfect storm” of rising fuel prices, higher exchange rates, competition from cheap imports and sagging consumer confidence.

That’s all true, but Australian car makers also have to take some of the blame for failing to respond to the changing tastes of the Australian consumer. People just don’t want large, fuel-thirsty family cars anymore; they want smaller, fuel-efficient vehicles more suited to city living.

Unfortunately for the domestic car industry, they have little ability to respond quickly to meet the new needs of consumers.

Yes, Ford has a plan to assemble the small Focus model in Australia from imported parts, but that production won’t start until 2011 and is more about utilising Ford Australia’s increasingly under-used plant than making hundreds of millions of dollars.

To build small or light cars profitability, you need to sell hundreds of thousands of vehicles – an impossibility in a market the size of Australia. Besides, the struggling parent companies of Australia’s car companies would never approve the mutli-billion investments needed to re-tool local factories to build small cars.

Putting more efficient engines in models such as the Falcon and Commodore might also boost sales, and certainly the Rudd Government’s $1 billion green car fund offers a big carrot for the car companies to consider hybrid engines or something even more efficient.

But the large-scale use of hybrid engines – that is, far more than the 10,000 hybrid Camrys Toyota will produce each year from 2010 – is at least five years away and probably more like 10.

What will Falcon or Commodore sales look like by then?

The Bracks review and Federal Industry Minister Kim Carr have also put a lot of stock in the ability of Australian car makers to tap into export markets to help offset sagging domestic sales.

Indeed, the Bracks review recommended the establishment of the “global automotive transition fund”, which would pump more than $500 million a year into Australia’s car industry for the next seven years.

It sounds like a great idea, but rising fuel prices around the world are forcing a global shift towards smaller vehicles. It’s difficult to see exactly where Australian car markers will be able to find profitable niches outside the Middle East, where Toyota Australia and GM Holden already have big export operations.

The Australian car industry’s problem isn’t a lack of innovation or a lack of government assistance or a lack of skilled workers.

The problem is that we are making cars that fewer and fewer people want to buy. Until that central issue is fixed, it’s hard to see where the job cuts are going to end.

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