May 232013

Today Ford announced the pending closure of its Australian manufacturing operations, bringing to an end ninety years of the company building automobiles down under.

Ford’s announcement is small on a global scale – the Broadmeadows factory built 40,000 cars out of a worldwide supply of sixty-three million – it does illustrate some major structural issues facing both the global automobile industry and the Australian economy.

An Automotive Depression

Over capacity has been the curse of the automobile industry for decades as governments have propped out producers around the world.

KPMG’s 2012 Global Automotive Survey forecast the global industry would be 20 to 30 percent over capacity in 2016.

This doesn’t seem to worry industry executives or their government supporters, as KPMG reported;

Alarmingly, most auto executives still seem to regard the risk of overcapacity and excess production as a necessary evil to remain competitive. As the rapid growth of recent years eventually slows down, manufacturers that fail to address overcapacity could face some tough decisions.

Ford’s Australian executives could at least be credited with facing some of those tough decisions.

Many governments though are still in denial as they continue to subsidise motor manufacturers in an effort to copy the industry model that worked for the US Midwest during the 1950s.

Indeed, the Australian government in 2008 committed 5.2 billion dollars to support their domestic industry through to the end of this decade. Ford’s announcement today coupled with General Motor’s cutbacks last year show that policy is in ruins.

At the Ford and government press conferences, journalists pressed the Prime Minister and the Ford Australia’s CEO about repaying some of the millions of corporate welfare doled out to the multinational over the last decade. Naturally little was to be said about that.

In a stark comparison to Ford Australia’s announcement, US electric car manufacturer Tesla Motors repaid a $465 million US government loan.

While no-one can say Tesla’s future is certain, at least US investors are putting their money on 21st Century technologies instead of propping up declining industries of the last century.

Australia’s predicament

The car industry is just one sector that faces global overcapacity – ship building, real estate and mining are just three with similar excess production.

For Australia, the mining industry is winding down investment as worldwide production capacity expands. At the same time, the blue sky projections of China’s resources demand are being challenged.

While the mining boom comes to an end, Australia now has to face the consequences of the nation’s economic decision to focus on resources and property speculation in the 1990s and early 2000s.

As the Thais and Indonesians found in 1997, and the Irish and Icelanders a decade later, economies based on unsustainable foundations seem to work fine until suddenly they don’t.

It may well be that Australia is about find out what happens when the economic tide suddenly changes.

One bright side is that the government has the best part of five billion dollars to invest in new industry – assuming Australia’s politicians can wean themselves off their 1950s view of the world economy.

Image of Ford Australia celebrating 50 years of Falcon Production courtesy of Ogilvy Communications.

Leave a Reply

%d bloggers like this: