Production Slowdown Starts to Take Toll on Australian Auto Industry

Australia’s rapidly shrinking vehicle production pushes the industry back into crisis this week in two separate developments, with a key component manufacturer shutting down and GM Holden announcing layoffs today.

Australia’s three domestic auto makers, GM Holden, Toyota and Ford, are scrambling to find new suppliers after parts maker Autodom closes its doors and lays off 400 workers Thursday at plants in Victoria and South Australia in a high-stakes gambit to force the car companies to pay more for components.

Autodom, which started out as Kostech International in 1985 and bills itself as Australia’s largest press-metal manufacturer in the automotive components industry, blames “a failure, after several months of negotiations, to come to an agreement with key automotive stakeholders that would see the company be sustainable and allow it to diversify into new markets.”

But the Geelong Advertiser newspaper reports Toyota, GM Holden and Ford all claim to have offered financial assistance to Autodom in the form of paying more for parts and/or improving their terms of payment, as well as helping the company reorganize its business.

Autodom products include rear-bumper assemblies, foot brakes, clutch mechanisms, hood hinges, parking brakes and jacks.

A Ford Australia spokeswoman tells reporters the auto maker has enough parts for this week and has two scheduled days off next Monday and Tuesday.

“What happens after Wednesday is yet to be determined,” she says, adding Ford might have to close its plant until it finds a replacement supplier.

GM Holden spokesman Craig Cheetham says the auto maker has enough parts to last until some point next week, and an announcement on a new supplier could come as soon as Monday. “We’re fairly close to finding a solution,” he is quoted as saying.

South Australian Industry Minister Tom Koutsantonis says Autodom is a profitable business and vital to Australia's auto makers. “(Autodom needs) to get up and running very, very quickly, and I think you'll see a solution very, very soon,” he tells reporters.

Autodom CEO Calvin Stead says the closing of the supplier’s plants is indefinite while stakeholders consider their position on a proposed funding agreement.

“Our company is constrained by high fixed costs that cannot easily be aligned to the pace of the current volume reduction in the local car-manufacturing sector,” he says in a statement. “We need time and assistance to reorganize ourselves and structurally change the direction in which we are headed.”

Stead says Australia’s auto industry has more than halved its build rates in less than four years, and Autodom can’t be sustainable without cooperation between the manufacturers and the component sector, with government having an important role to facilitate that cooperation.

“We trust that the car companies and stakeholders will see the benefits of the restructure plan out forward and how their support will allow the company to develop a more robust and sustainable business.”

In his annual report, Stead says Autodom suffered an operating loss of A$2.4 million ($2.49 million) in the recent financial year. “The bulk (of it) can be attributed to loss of gross margin due to the continued volume decline in domestic vehicle production.”

In an unrelated move, GM Holden says it is cutting about 170 jobs because of the reduction in demand for its Australian-built cars led by a sustained high Australian dollar, combined with one of the world’s most open and competitive car markets.

The auto maker employs 2,250 workers to build the Commodore sedan and Cruze small car at its Holden Vehicle Operations plant in Elizabeth, outside Adelaide, South Australia.

The cuts will be made through a voluntary separation program.

“This move will better align production with customer requirements and projected future volume and is a necessary step to ensure that we are able to continue to have a viable manufacturing operation in Australia for the next decade,” GM Holden says in a statement.

“Every effort has been taken to avoid this decision, including the use of market-response days, however current new-car demand necessitates a reduction to permanent employees at HVO.”

The company says the job cuts are needed to continue auto manufacturing in Australia for the long-term, and parent General Motors’ plan to build two new models in Australia through 2022 remains unchanged.

GM Holden received A$275 million ($285.3 million) in government funding earlier this year to secure the 2-car program.

GM Holden spokesman Cheetham tells the Australian Associated Press a slowdown in sales of the Cruze is a result of a growing invasion of imported small cars taking advantage of the strong Australian dollar. He says an oversupply in overseas markets allows foreign auto makers to offer strong discounts and undercut the Cruze.

Cheetham says GM Holden has cut A$3,000 ($3,113) off the price of the Cruze since it went on sale in 2009 with a significant impact on the profitability of each car sold.

“What we’ve seen is a decline at an unnatural rate,” Cheetham tells the news agency. “We’re seeing cars coming from Japan and Europe that are cheaper and cheaper.”