Ford's closure puts pressure on GMH in Adelaide

Ford Australia's closure of its Broadmeadows and Geelong production facilities from October 2016 may be the death knell for GM Holden in Adelaide.

About 1200 jobs will go in Victoria but the company will remain an engineering outpost for its global products. Ford says it will continue to employ more than 1,500 people in Australia in research and development and dealerships after 2016.

Ford has lost $141 million over the last financial year and more than $600 million over the past five years. The locally produced Ford Falcon has been in sales free fall for the last decade. In 2002, the Falcon sedan and wagon accounted for 54,629 sales locally, while last year that number had dropped to just 14,026.

Ford Australia also produces the Falcon Ute, which has also seen a drop in sales over the past 10 years. In 2012 just 5733 units were sold, compared to 17,883 in 2002.

Boosted by a stronger dollar helping drive down import costs, Australian buyers have shifted increasingly to carmakers like Mazda Motor Corp and Hyundai Motor Company which have seen market share grow on sales of fuel-efficient small cars and the popular SUVs.

In January 2012, the Gillard government announced a $34 million grant to Ford. In return Ford publicly indicated that it would continue making cars in Australia on the Falcon platform, at least until late 2016.

Australian-made car sales have recently hit record lows, including the Holden Commodore, which held the top spot on the sales charts for 15 years straight.

The Ford announcement comes at the same time as Holden is launching its new-generation VF Commodore.

Holden was $152.8 million in the red in the 2012 calendar year despite $73.5 million in government funding. Its biggest result in the red was $210.6 million in 2009.

"We are losing [money] on our locally produced cars and that's obviously a position we need to reverse," said Holden chief financial officer George Kapitelli told News Ltd. "What the headline numbers today (Feb) don't show is the difference between General Motors profitability versus Holden profitability. Holden's imported portfolio is profitable. The losses we have talked about today are a direct result of Holden building cars in Australia."

The 2012 figure means Holden has lost $730 million over six of the past eight years, and a $202 million profit over the same period.

With the dismantling of local tariffs and import quotas from the 1970s onwards, Australian manufacturing shrank sharply from 27 per cent to about 13 per cent of GDP in 2001-02, to 10.5 per cent by 2005-06. It is now less than 9 per cent of GDP. Manufacturing investment in 1980 was almost 3 per cent of GDP. By 2003 it was 1.3 per cent, and now that's almost halved again to 0.75 per cent.

The closure of Ford in Victoria is expected to force GM Holden in Adelaide to consider how long it will continue to operate in South Australia. Adelaide is part of an integrated web that in large part, supplies component parts for GMH at Elizabeth, agricultural farm parts and components for the Australian Submarine Corporation. South Australia is also home to many car component makers, which are based in Adelaide to be near Holden but they also supply Ford and Toyota.

The closure of GMH at Elizabeth would have an enormous 'knock on' effect, the likes of which South Australia and Adelaide especially, have not witnessed in its 177-year history.It would include the collapse of the allied parts manufacturers, a reduction of road, rail and ship freight and the collapse of large sectors of Elizabeth's retail market, which is already struggling. Liquidity would crumble and credit would stop.

The effects of GMH closing would be felt immediately as the salaries of the 2000 employees supports approximately four family members or 8,000 people. The fall of the parts suppliers and local services would hit another 8000 people with a 'knock on' effect of a factor of four. This means about 32,000 people would be hit either directly or indirectly along the supply chain. Half of these, I suggest, would lose their jobs as trades fell below profitability.

There's not much change out of 40,000 people, young and old, being directly or indirectly effected, such is the reach of GMH in the north of Adelaide.

Teenage unemployment in Adelaide's north has surged to more than 43 per cent -- among the highest in the country -- with unskilled workers unable to get jobs as manufacturing continues its decline. Many older GMH workers (50+) would not find full time work again in South Australia.

The $275 million Holden bailout included $50 million from the SA Government, which sought assurances that the company would hold on to its workers and update its Elizabeth plant to make high-tech parts, which could be sold globally. Holden has done neither.

Keep in mind that Holden's parent company, General Motors (GM), got a total of $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments as it went through bankruptcy protection in 2009. In exchange, the US Federal Government now owns about 26 per cent of the company. The US Government is still owed about $27 billion but keep in mind in the States, GM has to pay the money back.

In the 1960s, GM averaged a 48.3 per cent share of the U.S. car and truck market. For the first 7 months of 2012, its market share was 18.0 per cent, down from 20.0 per cent for the same period in 2011.

In South Australia the writing is on the wall for Holden's. Penrice Soda Holdings closed recently, Hills Holdings has sacked 300s of staff. Simpson Pope, Westinghouse, Chrysler Australia, Electrolux, Mitsubishi, the Port Stanvac oil refinery, ROH, New Castalloy, Sanitarium, Trident Tooling, Autodom, RPG Group, Bridgestone, Clyde-Apac, Priority Engineering Services, the Port Lincoln Tuna Cannery, Angas Park, Kitchen Connection, Clipsal at Strathalbyn and Darrell Lea have all closed down. Visocorp, (a car component maker has lost 185 jobs), and I'm not confident that car parts supplier Tenneco will trade on in South Australia much longer.