Australia’s automotive manufacturing industry is growing weaker every day. The Australian government is determined to halt the market’s collapse, and has partnered with the largest automaker in the world to bring back jobs to the the land down under. But will these efforts be enough?
It All Started At the Top
More than 400,000 vehicles were made in Australia in 2004, an all-time high.
Eight years later, that number has nearly been cut in half. The Australian dollar has appreciated significantly since 2004. Tariffs on imported vehicles have fallen by half. Free trade agreements have proliferated, abolishing select tariffs completely. As a result, Australian-made vehicles make up only 12.5% of the overall sales in their own country.
Manufacturing vehicles in Australia has no longer become an option for Ford Motor Company (NYSE:F). On July 18, the company announced that it will end Australian manufacturing by 2016. The company’s two Australian plants, Broadmeadows and Geelong, have lost $583 million over the past five years. Ford Australia has lost $455 million in the past two years alone.
Despite efforts, including ramped-down production, Ford Motor Company (NYSE:F) stated that its costs were “double those in Europe and four times those in Asia,” and that conditions for production in Australia were no longer “viable.”
GM Preaches Caution
Holden, a prominent Australian automaker owned by General Motors Company (NYSE:GM), commented on August 5 that it would wait for the outcome of the upcoming election before making decisions regarding future investments. Holden’s managing director, Mike Devereux, said the company will need further negotiations with whichever party forms the incoming government in order to unlock $1 billion of investment from Holden for two next-generation vehicles.
The Aussie Government & Toyota to the Rescue
On Aug. 5, Toyota Motor Corporation (ADR) (NYSE:TM) announced that it will invest $123 million in its Australian manufacturing operations, with $108 million going to the company’s Altona plant and $15 million going to Toyota Motor Corporation (ADR) (NYSE:TM)’s supplier development program.
In collaboration, the Australian government announced it will contribute $23.6 million to the Altona plant, and a further $5 million towards the supplier program.
This move comes after the Aussie government announced on Aug. 5 that it would commit $200 million to prop up the country’s car industry.
Toyota Motor Corporation (ADR) (NYSE:TM) sees a market where the government is willing to support expansion and major car companies are growing less interested. It also foresees the potential of capturing market share from companies like Ford Motor Company (NYSE:F), and establishing a strong long-term presence in Australia.
Why the Noise Will Soon Fade
Since 2004, the number of vehicles manufactured Down Under has fallen. But the total number sold has increased by nearly 100,000 since 2010, with the metric currently sitting around the 1.11 million mark. While Australian-made cars have crept into the shadows, cars imported from Asia and America have dominated, including those manufactured by Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Toyota Motor Corporation (ADR) (NYSE:TM).
This is why Ford Motor Company (NYSE:F)’s decision to shut down Australian manufacturing operations and General Motors Company (NYSE:GM)’s hesitance to invest further in the country look financially intelligent. Some Aussie consumers may be drawn to Australian-made products, which could result in lost sales for the companies. However, with only over a million cars being sold annually in the country, General Motors Company (NYSE:GM) and Ford should not gamble millions of dollars in potential losses.
In 2012, GM only sold 115,000 cars in Australia, while Ford Motor Company (NYSE:F) only tallied 94,000. Even as the overall market has grown from 2010 to 2012, sales have decreased by 18,000 vehicles for General Motors Company (NYSE:GM) over that time frame, and by 10,000 vehicles for Ford. Both companies are dealing with dwindling market shares in the country, and relying on new product launches to revitalize their Australian operations.
Toyota Motor Corporation (ADR) (NYSE:TM)’s decision to invest in Australia may prove to hurt the company — or boost its sales. Toyota’s launching 2 next-generation models specifically for Australia. However, with such a small overall market, the automaker’s upside is limited.
Looking Towards Tomorrow
The Australian auto industry should continue to grow in overall sales, while manufacturing could continue to dwindle as more companies pull out their operations. While attractive funding by the government may keep companies such as Toyota there, the long term points towards high operating costs driving manufacturers away.
Monitoring these trends will be crucial for investors looking to take advantage of the shifts in the market, which could include possible policy changes by the newly elected Australian government that address manufacturing costs.
Toyota Motor Corporation (ADR) (NYSE:TM) investors should monitor whether the company’s investment pays out in the form of increased market share and sales in the region.
Ford investors should see whether the company successfully shutters its plants by 2016. Expect Ford Motor Company (NYSE:F)’s sales and market share in the region to flatten out, with new product launches stabilizing those numbers.
Investors in General Motors Company (NYSE:GM) should watch for Holden’s decision after the upcoming election regarding investing in manufacturing operations in Australia.
All in all, while the auto manufacturing industry in Australia may be dying, overall sales are strengthening, and Toyota’s investment could position the company to marginally capitalize, while GM and Ford appear to be playing damage control.
The article Automakers’ Bumpy Ride in the Land Down Under originally appeared on Fool.com and is written by Ryan Guenette.
Ryan Guenette has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.