Former Ford chief declares Australian car industry on the skids

Former Ford chief executive Jac Nasser has predicted the end of the Australian car manufacturing industry, saying poor market conditions, including the high Australian dollar, will bring its demise.

Nasser, now the chairman of BHP Billiton, who was well known during his time at Ford for strict cost-cutting measures, said yesterday at a business lunch in Melbourne “the signs aren’t good” for the local car industry.

“You’ve got an exchange rate at a 30-year high, you’ve got higher costs in Australia, you’ve got excess capacity in the motor industry worldwide, you’ve got a very weak currency in Japan and you’ve got a weak euro.

“When you put that mix together, it’s very difficult to expect a relatively small but talented Australian auto industry to work its way,” Nasser said.

Nasser’s comments come as this week General Motors Holden announced it would cut 500 jobs across South Australia and Victoria, striking fear into the local auto parts makers.

The decision angered the South Australian government, which had given the manufacturer an extra $50 million as part of a $275 million state-federal subsidy package to keep car manufacturing in Australia.

South Australian Premier Jay Weatherill admitted on radio earlier this week the only “contract” governing the arrangement between the company and the state was an “exchange of correspondence” with its office in Detroit.

IBISWorld senior analyst Jeremy Edwards told SmartCompany the industry is currently generating $11.1 billion in revenue, but over the past five years the compound growth of the car manufacturing industry has declined by 8.6%.

“Decreasing demand from Australian consumers, especially during the global financial crisis as people spent less money investing in cars, and changes in consumer preferences to fuel efficient cars with rising petrol prices, has influenced this decline.”

“The high Australian dollar against the yen and the euro has exacerbated the effect of imports in the car industry. Consumers have less reason to source cars from within Australia and we’re going to keep seeing an increase in exports,” Edwards says.

Nasser said a reduction in the scale of the car manufacturing industry would cause a “domino effect” which would bring about the fall of the industry.

“Let’s assume one of the three decides to exit Australia in terms of manufacturing – then you end up potentially with sub-scale supplier infrastructure.”

“Once that happens, I think it’s a domino effect. It would be a very sad day for Australia but unfortunately it looks like it could be inevitable.”

Edwards says the industry isn’t going away, but in order to stay competitive, Australian manufacturers will have to start listening to consumers and invest in greener cars.

“The industry isn’t going to disappear in the next 10 years, Holden have agreed to develop at least two cars in Australia until 2022, but in order to compete with imports, manufacturers will have to produce more fuel-efficient cars,” he says.

The government is providing $5.4 billion in subsidy packages to the industry in the next 13 years and the Coalition have pledged $4.9 billion should they come to power in the September election.