Ford Was Hurt By A High Dollar, Costly Labour... And Making Things People Didn't Want

A range of contributing factors have been pretty well canvassed today about what has led Ford to its decision to stop producing cars in Australia.

There’s the high dollar, high labour costs and the compounding effects of workplace regulation, and lack of the kind of scale needed in the local car market to sustain increasing competition from overseas. The federal opposition has added to this the impact of the carbon tax.

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But also, bluntly, this is what happens when companies make things that nobody wants to buy.

It’s not like the writing hasn’t been on the wall. Sales of locally-made cars have been sliding spectacularly in recent years. BHP Billiton chairman Jac Nasser, who served as Ford chief executive globally, warned last month that Australia’s car industry was on life support, saying the its end was “inevitable”.

Sedans just aren’t what Australians want in their cars any more. While there’s huge sentimental value attached to Ford’s Falcon and the Holden Commodore, in the car yard the imports stand out as the value buy.

Mid-sized, mid-priced cars could eventually come back into fashion but the trends in sales have been persistent for the past decade. They appear to be going the way of household phones, video stores, fax machines, push mowers, sewing machines and travel agents. They’ve been replaced by more technically-advanced products that customers feel give them better value.

In a very weird week for the Australian car industry, Holden unveiled its big bet for the future just yesterday, the next iteration of the Commodore. The Ford collapse is potentially its saviour: in 2017, if you want an Australian-made sedan, the Commodore VF Calais may well be your only choice.

Sure, the strength of the dollar in recent years has contributed. The Prime Minister spoke today about how the dollar’s purchasing power had factored into the car buyer’s choice.

There’s also the high cost of the labour and materials here in Australia. Ford Australia president Bob Graziano, in this morning’s funereal briefing, explained that the cost structure here is twice that of Ford in Europe and four times what they are in Asia.

Price hasn’t been everything, though. Australian cars in their overall value offering have been outperformed on other points. Overwhelmingly the trend has been towards smaller cars, which have the benefits of generally being cheaper, more fuel efficient and – this can’t be underestimated, I think – easier to squeeze into tight parking spots.

For a family solution the SUV has been increasingly the choice. When packing the kids into the car along with their various care bags, strollers, sporting equipment, water bottles and spare clothes, having the extra bit of room in the boot, a hatchback-style door and a floor that’s a bit higher off the ground means you don’t need to stoop over quite as far when clipping in the gurriers’ seatbelts. It all adds up to weekend outings being much easier.

This is a tough day for Ford and there’s a lot of pain ahead for the people affected.

But as the pace of change in industries from car-making to retail to tourism continues to accelerate there’s an important lesson – acting decisively on market signals is not just a clever thing to do. Sometimes it’s a matter survival.

Now read: Ford’s Big Job Cuts Come A Day After Holden Unveiled Its Great Hope

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