Ford and the Australian dollar might just do the trick

In the cold analytical light of the Toyota result, it is just possible that we can have a viable - or, at least, survivable, if cut-down and very focused - car industry after all.

An industry that is based not on massive taxpayer support. Although some continuing support would be entirely appropriate and economically rational.

Only absolute - and actually fundamentally economically irrational - free-market zealots would demand the industry should swim or (certainly) sink without any support at all.

But the internal corporate and operational efforts of Holden and Toyota can be combined with two external developments that have significantly altered (for the better) the environment in which they operate.

These are, simply, that the fall in the Aussie dollar might have come just in time; while Ford might have gone - more precisely, is definitely going - just in time, also.



Toyota disclosed that not only did it make more cars in Australia last year, but it actually made a reasonably healthy profit while doing so.

Its vehicle production was up from 92,880 to 99,441.

Its profit leapt to $221 million, from the previous year's Japan tsunami-caused loss, on a 23 per cent surge in sales to $8.9 billion.

Those figures need to be treated with some caution. They do not, of themselves, show that you can make cars profitably in Australia. Even with taxpayer support.

Most of the cars Toyota sells into the Australian market are imported.

Most of the cars it makes here, it sells overseas - to the Middle East, New Zealand and the South Pacific.

A little under 30,000 of the cars it made in Australia stayed in Australia. And Toyota's total domestic sales were 225,599. So imports out-sold the local product by more than six-to-one.

Bottom line was that Toyota made a profit of less than $1000 a vehicle across all the cars it sold - below the $3000-$4000 figure that would be regarded as evidence of a healthy producer.

And one would have to assume the profit per car of local production was less than on the imports. And, excluding government support, it could well have been a loss.

Enter the Aussie and - actually, exit - Ford.

These numbers were all based on a trading environment - through to the end of March - when the Aussie dollar was at parity or higher against the US dollar. While that would have helped the sales - and profitability - of the imports, it would obviously have been negative for the local production, and sales, numbers.

If the dollar, however, now falls further, and more importantly, stays down, that does two critical things, specifically in relation to Toyota.

A lower dollar not only improves the metrics of making cars in Australia; it alters the relative operational - and profit - metrics between the local production and the imports inside Toyota.

Crucially, Toyota - along with the other two, going on one, local producers - has the unique ability to adjust its supply response by ramping up local production.

When you combine this with the benefit of a lower dollar Toyota would get on its exports, the boost to both local volumes and core profit of that production could be huge.

Ford might have done everyone, but especially the remaining two producers, Toyota and Holden, a big favour.

First by its long slide in the past few years. The other two, and especially Holden, got to sell more cars that they would otherwise.

AND now by exiting and leaving what there is of the market for local cars to them, just as the Aussie drops.

These two things - the fall in the Aussie and Ford's departure - have happened just in time.

If the dollar had stayed above parity, or indeed gone higher, for much longer, it could have been the last straw. Especially for Toyota, which has so many alternative options for producing somewhere else that relatively tiny number of Australian exports. And it has such a strong market share in Australia from imports.

On one level it has been ever thus as each departure left little extra pieces of the shrinking pie for those remaining. Volkswagen, Leyland, Nissan, all in turn, and then Mitsubishi's departure, leaving the present three.

The great risk was - and remains - that if the last two went because of a too-high dollar; when inevitably the dollar came back to earth, they would not have been coming back.

Once gone, they are gone for good.

There's no way that even if the dollar were to drop to US60c, Ford would change its mind.

But at US60c - perhaps even at US80c - it is now just possible to see a survivable future for two producers; and very particularly these two producers.

Three final points. As I've argued before, it would be far more survivable if they would combine all their production in one plant of global scale.

Second, as Toyota, especially, has argued, industrial relations reform which would give it greater flexibility, not necessarily cheaper workers, is vital.

And third, some continuing taxpayer support is justified by the global car industry reality. Preferably combined with the first two.

http://www.heraldsun.com.au/business...-1226662772618



Terry McCrann •
Herald Sun •
June 12, 2013 10:00PM


I wondered if the three of them couldn't combine to make a super plant but dismissed it as stupid thought. Interesting to see Terry thinking it here.

Not to blow my own horn but there is that word flexibility again. You have to manage your business. No one will do it for you.