MELBOURNE, VICTORIA — Plastics industry bodies say the planned closure of Ford Motor Co. of Australia Ltd.'s Melbourne manufacturing operations in 2016 will result in job losses and potential closures for plastics manufacturers.
Ford Australia, a subsidiary of Ford Motor Co. of Canada Ltd., last month blamed "increasingly challenging market conditions," including market fragmentation and high manufacturing costs, for its decision to close its two Australian manufacturing sites in October 2016.
The company estimates about 1,200 jobs will be redundant after its two Melbourne plants, in Broadmeadows and Geelong, close.
The announcement comes as Ford Australia reported a A$141 million after-tax operating loss for the year to Dec. 31, following an A$290 million loss in 2011. Ford's losses over the past five years in Australia are about A$600 million.
Ford Australia President and CEO Bob Graziano said the fragmented marketplace and low model volumes mean manufacturing in Australia is "no longer viable." Australia sells about 1.1 million new vehicles annually and customers have access to more than 65 brands and 365 models.
"This makes Australia one of the most competitive and crowded automotive markets in the world," he said.
Melbourne-based Federation of Automotive Products Manufacturers (FAPM) CEO Richard Reilly said although there is a direct correlation between car production and employment in the automotive supply chain, he is uncertain of the ramifications of Ford's announcement.
"There are about 150 members in Australia's automotive supply chain. We estimate between 50 and 70 suppliers will be affected by Ford's decision," he said.
Reilly said a large number of FAPM members will be affected, but fewer than 10 percent of the 105 members manufacture plastic parts.
Reilly expects suppliers to close over the next three years. "There is demand to support the industry but, being a volume business, we need more cars being made to supply and support component manufacture in [Australia]. We believe the industry is too important, too strategic and too vital to cease existing in this country."
FAPM is helping members diversify through targeted trade missions to other vehicle-producing nations, like the United States, China, Indonesia, Malaysia, and Thailand.
"We [are] encouraging members to diversify into new products, and new markets, both domestically and internationally."
Robert Wilson, FAPM board member and managing director of Melbourne-based Palm Plastics Pty. Ltd., said his company indirectly supplies glass-filled nylon to Ford Australia, which is used in engine pulleys. He estimates about 20 percent of the company's products go to Ford.
Wilson said Palm Plastics implemented a diversification strategy because he had suspected "for some time" Ford might stop manufacturing in Australia. Palm Plastics has particularly focused its research and development on manufacturing polycarbonate drinkware.
He said Ford, unlike other Australian auto manufacturers, has high local content. So although other manufacturers, like Holden and Toyota, might do well in Australia once Ford is gone, demand for Australian-made plastic automotive parts will decrease.
"Manufacturers need to make plans now and hope volume from Ford will hold up and help with cash flow, while they develop other products," Wilson said.
Peter Bury, strategy and innovation director for the Melbourne-based Plastics and Chemicals Industries Association, is concerned about the ripple effect of Ford Australia's closure.
"While Ford [has] indicated the number of direct jobs to be effected … the total number impacted is likely to be higher than this. This would include the chemicals and plastics industry."
Australia converts about 1.4 million tons of polymers annually into various products, of which the automotive/marine sector accounts for about 5 percent.
"The closure of a significant manufacturer that uses a large number of diverse and purpose-designed plastic components is a concern to the plastics and chemicals sector. The focus needs to be on a plan to make best use of the resources and talent available before the closure occurs," Bury said.
He said plastics businesses should always explore opportunities to diversify into new markets, but this is now more compelling for auto parts manufacturers. "The question will be how companies are able to adapt and the time frames involved."
Australian Prime Minister Julia Gillard told a press conference Ford's announcement creates "anxiety and sadness" for suppliers. The Australian and Victorian governments have set aside A$12 million to help those in the auto supply chain.
Australian trade minister Craig Emerson said Ford Australia is producing fewer than 40,000 vehicles a year, and the number is approaching 30,000. "Ford has established a factory in China that is producing 250,000 vehicles [annually], so the economies of scale were not there for Ford's operations in Australia."
He said Holden and Toyota each produce about 90,000 vehicles annually in Australia.
Gillard said the Federal Government will honor a commitment to give Ford an A$34 million subsidy to "support the cars that will be rolling off the production line, employing people in Geelong and Broadmeadows, until October 2016."
Gillard said the federal and Victorian governments are also contributing A$39 million to a fund to help the Broadmeadows and Geelong communities to recover.