Component supply chain to shrink after Ford bails on Australian manufacturing

Ford’s decision to scrap its manufacturing plants over the next three years will have a devastating effect on the automotive supply chain, with component manufacturers being warned they need to diversify and start seeking alternative business models.

With 1200 jobs to be affected directly by the Ford plant closures, analysts suggest there are still tens of thousands of jobs which will be impacted in the wider automotive manufacturing sector – many contained in component manufacturing companies.

Greg Evans, the head of economics for the Australian Chamber of Commerce and Industry, told SmartCompany these businesses will need to start considering alternative business models.

“The challenge will be for them to establish in export markets, but also the extent to which they can diversify and supply in the domestic market,” he says.

“The wider trend is what’s happening here in Australia, where we have less advantage in terms of volume and mass manufacturing.”

“There will be an increasing push to value manufacturing, with research and development and the like – but clearly that doesn’t provide any short-term relief.”

A report from the Reserve Bank of Australia based on Bureau of Statistics data shows 50,000 people are directly employed by manufacturing and the assembly of vehicles, but only 13,000 of those are directly employed by Toyota, Holden or Ford.

This means 37,000 people are employed by ancillary services, including more than 180 component manufacturing businesses.

Accounting body Grant Thornton said suppliers have been aware of declining volumes for some time, and many have already taken steps to diversify into “niche manufacturing areas”.

“This process has also been supported by well-targeted government programs such as the Automotive New Markets Program (ANMP) and the Automotive Transformation Scheme (ATS),” Grant Thornton’s national manufacturing leader Mark Phillips said in a statement.

“Ford Australia has also been a good corporate citizen by introducing Australian component suppliers to global component supply opportunities, particularly in Thailand.  Local suppliers need to grasp these opportunities wherever possible,” he said.

The clarification of the end of Ford’s operations provides these businesses with more certainty regarding timing, he said.

However, Richard Reilly, the chief executive of the Federation of Automotive Products Manufacturers, told the ABC this morning the decision is a “major blow to manufacturing in general”.

FAPM president Jim Griffin, who is also the chief executive of manufacturer Diver Consolidated Industries, told SmartCompany the decision was certainly “bad news”.

“They’re giving us three and a bit years’ notice, which is extremely important, which will hopefully give businesses heavily dependent on Ford the ability to transition into other areas,” he said.

“But not everyone can do that… this will end up with job losses in the supply sector, and there will probably be company failures.”

Component manufacturers such as Autodom and APV have already suffered over the past few years due to the higher dollar, lower demand and the need to continually guarantee entitlements.

With Ford out of the pictures, these analysts say component manufacturers are placed under a much higher amount of pressure.

The Geelong Manufacturing Council was also contacted this morning, but was unable to respond prior to publication.

The federal government has already pledged $40 million, and the Victorian government $11 million, for structural adjustment programs to help workers at both Ford and other manufacturing companies.

But the concern for the supply chain is still being felt across the industry.

The Electrical Trades Union said yesterday the flow-on effects of the decision could “decimate local communities that rely on the car manufacturing industry”. Industry groups such as the AIG have been similarly downbeat, saying the announcement is a “watershed moment” for manufacturing.

Chief executive Innes Willox said on the ABC yesterday that while manufacturing suppliers have continued to diversify, the market will shrink.

“So that’s where those smaller companies will have to look more and more, I think you could expect quite safely to say that there’ll be further consolidation among our auto-component suppliers. “

Greg Evans told SmartCompany the time has come for government policy to do “all it can to make manufacturing possible”.