Ford Calls It Quits in Australia

Ford's made-in-Australia Falcon sedan. Photo credit: Ford Motor Co

Ford (NYSE: F  ) said this week that it will cease making vehicles in Australia.

Ford has been making cars and trucks Down Under since 1925, but fading demand for its locally produced products – and competition from cheaper imports – has made local manufacturing untenable, executives say.

Ford's two Australian factories will close in 2016, leaving about 1,200 workers unemployed. It's a tough pill to swallow for Australia, but it's a necessary move for the increasingly globalized Blue Oval.

Almost 90 years Down Under, but not for much longer
Ford sells a full line of vehicles in Australia, but nowadays most of them are imported from places like Thailand. That won't change. But Ford has lost about 600 million Australian dollars (about $580 million) in the country over the last five years, and major changes are needed. Those changes include an end to Ford's commitment to the vehicles it makes in and specifically for Australia.

One of those is the handsome sedan pictured above, the Ford Falcon. The Australian Falcon started life as right-hand-drive sibling of the compact U.S.-market Ford of the same name over 50 years ago, but has evolved into something much different over time.

Today's Falcon is a big rear-wheel-drive sedan, a family car comparable in size to Ford's U.S.-market Taurus. At times over the years, Ford has offered powerful high-performance variants of the Falcon that have had a major presence in Australia's car culture, not unlike the Mustang's presence here.

The current Falcon is a unique-to-Australia product that shares its underpinnings with no other Ford anywhere, aside from the other Australia-only vehicles: a car-pickup hybrid called the Falcon Ute and an SUV called the Territory. That's a no-no under CEO Alan Mulally's One Ford approach, which allows for regional product variations – but only if they're based on one of Ford's global "platforms", or vehicle architectures.

Ford had recently hinted that the Falcon could have a future under One Ford, raising the possibility of a new-generation model that might share a platform with the upcoming new Mustang. But declining sales, rising gas prices, and unfavorable exchange-rate conditions have apparently added up to make that an unworkable option.

Australia's domestic car industry is now at risk
Most of the global automakers sell in Australia, but Ford is just one of three companies that actually manufactures locally. The others are Toyota (NYSE: TM  ) and local brand Holden, which is owned by General Motors (NYSE: GM  ) .

Both GM and Toyota have recently said that they will keep their Australian factories open, at least for the time being, despite the fact that both are facing the same pressures as Ford. Simply put, the increase in value of the Australian dollar has made imported vehicles much more competitive – just as rising gas prices have diminished demand for the big rear-wheel-drive cars that were Ford's (and Holden's) local bread and butter.

Holden chief Mike Deveraux has committed to domestic production through 2022, but has lately been hinting that some sort of government assistance would be necessary to "help keep us competitive". The subject of government aid for automakers is being hotly debated in Australia, all the more so with Ford's announcement – even as Toyota says that it will stay with no government aid necessary.

But Ford's departure could end up having a larger impact if local Australian suppliers are unable to keep their doors open without Ford's business. Leaders of the Australian Manufacturing Workers' Union, which represents auto workers, said this week that Ford's decision could end up costing 6,000 jobs. Supplier failures could make it harder for Holden and Toyota to keep their local factories viable.

The upshot: Change was inevitable for Ford
It was inevitable that Ford's Australian operation would have to be brought fully into the company's globalized plan. But it wasn't inevitable that Ford would stop making cars in Australia altogether.

Ford might have found ways to make it work, just as GM has: Holden's rear-wheel-drive sedans are based on GM's global Zeta platform, which underpins the Chevy Camaro and the big Buick Park Avenue that GM sells in China, among other vehicles.

But unless the Australian government is somehow able to change Ford's mind, apparently the Blue Oval's long run of building cars Down Under is coming to a close.

Ford's global streamlining is just one of several good reasons to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place – click here to get started now.


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