Focus on Australia

Autodom collapse almost wrecked Australian car industry

THE company that makes a $6 bonnet hinge nearly brought the Australian car industry to a halt last week.

Herald Sun,

10 November, 2012

The collapse of parts maker Autodom, which from its facilities in Adelaide and Melbourne supplies more than 1000 metal parts, panels and underbody components to all three local car makers, Toyota, Holden and Ford, could have had catastrophic results.

It has been revealed this week that Holden and Ford may have been forced to shut down for up to 18 months if it were not for their swift response.

Last weekend, executives from both companies put aside their historic rivalry (and their kids' sporting games) to mount a $6.5 million rescue package and appoint receivers to oversee the Autodom business.

Industry insiders report that 18 months is the time it would have taken for the car makers move their tooling equipment out of the old factories and refit them into new ones and then undergo the battery of engineering tests required to ensure the equipment meets their standards.

The industry that takes years to bring about change dodged a rather large bullet in a weekend.

In the end, the production schedules of Holden and Ford barely skipped a beat this week, in part because of rostered "down" days which happened to be in place months ago because of slowing demand.

Toyota was less exposed because Autodom only supplied two parts to its production line, but one of those two parts happened to be the aforementioned bonnet hinge. The other 260 parts are for Toyota's spare parts catalogue.

But the 800 unique parts supplied to Holden and Ford (about 400 each) were critical.

Autodom's collapse was a stark warning to the industry, which has seen supplier shutdowns increase as demand for Australian-made cars drops in the wake of cheap imported vehicles driven by a sustained strong Australian dollar.

More shutdowns are inevitable in the coming years. Indeed, the purchasing departments at Toyota, Holden and Ford now have strategy rooms dedicated to monitoring the health of all suppliers daily.

As sales of locally made cars declines, so too does the ability for parts suppliers to remain viable.

Last year, Australian car production fell to its lowest level since 1957, three years before local production of Ford Falcon began. And so far this year it is down a further 3 per cent.

Even the government is staying away from locally-made cars (down 19 per cent year-to-date in what is going to be an all-time record market) even though it has pledged $5.4 billion to support the industry through to 2020.

Contrary to popular belief, fuel economy is not the issue. Australian-made cars are the most efficient they've ever been. It's their big, box-like sedan shape that buyers are fleeing, instead favouring hatchbacks and SUVs that fit better into smaller parking spaces and our busier lives.

Want further proof? Ford fitted a four-cylinder engine to its Falcon earlier this year and despite delivering identical performance to the six-cylinder version (without using as much fuel) sales are still in freefall.

Which is why the car industry is abuzz about the imminent demise of Ford Australia's manufacturing operations.

Ford is on track to build just 33,000 cars this year, by far the weakest of the three car manufacturers and the lowest ever to roll off the Broadmeadows production line.

That's less than one-third its capacity but still three times more than the annual output of Mitsubishi before its factory shutdown in 2008.

However, with the benefit of hindsight, the then boss of Mitsubishi Australia, Robert McEniry said at the time the factory probably should have shut down 10 years earlier.

This year, Stephen Longley, a partner with PPB Advisory and a prominent industry receiver, broke the silence on the Ford issue, telling the financial press: "It's the elephant in the room, it's just not talked about openly. The components industry is saying (Ford's factory closure) is a foregone conclusion".

Enthusiast blog sites have angrily accused the current boss of Ford Australia, Bob Graziano, a Detroiter, of being sent here to "shut it down" even though he has not shut down a factory in his career.

Tellingly, though, Toyota and Holden have done secret assessments about what would happen to their own operations and suppliers if Ford were to close its factory doors.

The consensus: Two manufacturers the size of Toyota and Holden could survive. But if one of these two were to go, so would the other, because the supplier base wouldn't be strong enough to support just one local car maker.

The speculation about Ford continues because the company is tight-lipped about its future as is it's right, and as is common in most businesses.

Ford has to date only committed to making the Falcon sedan and Territory SUV at Broadmeadows until "at least the end of 2016", with updates to both models due late in 2014.

Holden has announced it will keep building cars at Elizabeth until "at least 2022", but so far hasn't revealed what second model it will build alongside the Cruze small car.

The reality, however, is that Holden's workforce may continue to downsize gradually in the coming years until it meets vehicle output with (weakening) buyer demand.

There is little to no speculation about Toyota's manufacturing future at Altona because, as Australia's largest producer of cars (it exports more than two-thirds of its Camry production) it has better economies of scale.

So, back to Ford.

Faced with widespread media commentary about the future of its manufacturing operations, the company has become a little more emphatic in its typically conservative corporate speak.

"I can absolutely guarantee no decision has been made (to cease production in Australia)," public affairs director at Ford Australia, Sinead Phipps, told News Limited this week.

As Ford tells it, such a significant decision to shut down its car making facility in Broadmeadows and engine-making facility in Geelong would first be made in Australia, then be put to Ford's Asia-Pacific hierarchy before going to Detroit and then before Ford's board of directors.

The same board that elected last month to shut three factories in the UK and Europe at the stroke a pen. Factories that produced many more vehicles than does Broadmeadows.

When asked if the fate of Ford's Australian manufacturing operations had changed internally over the past five years after plans to build the Focus small car locally were announced and then later withdrawn Phipps said: "It's never been no (not build cars here)."

"The business after 2016 is under review, but that is not unusual. All businesses review their long term future plans," she said.

Even receiver Longley, who has an intimate insight into the Australian car manufacturing industry and its suppliers, concedes Ford would be doing its best to keep its factory running.

He told News Limited this week: "I genuinely believe Ford Australia would be trying hard to maintain its manufacturing operations. But in the absence of any forward contracts, suppliers will be planning their contingency as to what happens if they don't."

Unfortunately, there are few pointers towards a turnaround for Ford and each of those possibilities is marginal.

The first pointer is that it would be unusual for a car maker to do a makeover of a vehicle just two years before the end of a model run. But the Falcon is an aging car, and Ford has done updates this late in a lifecycle before.

The more significant pointer is that, according to well-placed sources, Ford is yet to apply for government funding for a major project beyond 2016.

Car companies work at least five years in advance the time it takes to get a car from a designer's sketch pad (or computer screen) to a showroom. If Ford did plan on building something else locally after Falcon and Territory, it would be underway now.

The parts supply industry is among the first to be informed so they can quote and tool up for the new job. These phone calls reportedly are not happening.

There aren't many types of cars left for Ford to make in Australia that would give it enough volume to be viable.

It has already knocked back the opportunity to build a small car, the single biggest category. The Focus now comes to us from Thailand instead of Broadmeadows, as was once planned.

Utes and SUVs are the next biggest segments, but for Ford those vehicles also come to us from low-cost Thailand (which has a Free Trade Agreement with Australia, so there is no import tariff on them) or Europe.

There are other worrying signs. Ford Australia posted its biggest recorded financial loss last year, $290 million, after modest profits of $13 million in 2009 and $26 million in 2010.

This would make it hard to fund - let alone justify - the $500 million to $1 billion investment of a new model.

Ford, GM agree on $6.5 million rescue deal for Australian supplier

(Reuters) - Top Australian auto parts supplier Autodom Ltd (AIE.AX) was thrown a lifeline on Tuesday when local units of Ford Motor Co (F.N) and General Motors Co (GM.N) agreed to underwrite the company's $6.5 million debt to avoid a crippling vehicle production shutdown.

http://www.reuters.com/article/2012/11/06/us-australia-carparts-closure-idUSBRE8A504920121106

Is one in eight Australians really poor?

BBC,

11 November, 2012

A recent study says that one in eight Australians are living in poverty. This seems quite high for a developed country, so what's behind it?

"In this study we used a relative poverty definition," says report author Bruce Bradbury from the University of New South Wales.

"The basic idea of a relative poverty line is that you set a poverty line at some fraction of the middle living standard or the median income in that community. We have chosen 50% so people whose income, after adjusting for their family's size, is below half the middle income of the country in the same year are defined as being poor."

So in this case, poverty is measured by looking at incomes relative to the rest of Australian society as a whole. It's a country-specific measure. This is not unusual. In developed industrial countries it is very common to measure poverty relatively.

See Poverty in Australia report

"Rich countries can afford to have higher standards," says Bruce Bradbury. "It is entirely appropriate that people thinking about policies in those rich countries think about the standards that those rich countries can afford."

But some argue that this is not actually a measure of poverty but more an indication of inequality.

Because this measure relates to how the average person in a country is doing, it shifts. For example, after the financial crash in Ireland in 2008, the number of people in poverty fell because the median - or middle - income of the whole society had decreased.

Bradbury says that the relative poverty measure is closely related to inequality, but it's not quite the same.

"You can think of it as being quite close to a measure of inequality which only looked at the bottom half of the distribution," he says. "The level of incomes that people in the top of the distribution have has no influence… But it is a measure of how far away the bottom is from the middle."

Australia is indeed a rich country but the people living in poverty there are by no means as poor as many people living a much less wealthy country - Ethiopia, for example.

"If one is seeking to compare living standards of people in [developing] countries with those in the richer nations, one would not use the relative poverty line," says Bradbury.

But how would you do it?

The World Bank economists are not talking about what you could buy if you took an American dollar to a bank and converted it into Indian rupees or Nigeria naira. A US dollar does go quite a long way in some developing countries.

They looked at the price of hundreds of goods in developing countries. And then with reference to national accounts, household surveys and census data, they calculated how much money you would need in each country to buy a comparable basket of goods that would cost you $1 in the United States.

Over the years, the $1 a day poverty line has been recalibrated. The World Bank's global poverty line measure is now not $1, but $1.25 a day.

The rise of the $1-a-day statistic

"There is no single way to look at poverty either nationally or globally," says Bill Orme, from the UN Human Development Programme. "The consensus of the experts is that it is most useful to look at different range of assessments and a combination of factors."

In order to make international comparisons, you need to measure poverty in absolute terms - and the most common measure of absolute poverty is living on, or on less than, $1.25 a day.

Orme says this absolute poverty measure is the best for international comparisons, "because it's a constant across countries, it's useful because you can look at that measurement regardless of what country you're in".

By this standard, according to the UN, there are 1.3 billion people worldwide living in poverty.

"We can say with confidence that, whereas as recently as 1980 more than half of the world fell into that category, today it is less than 25%. And it's probably getting closer to 20% which is a huge amount of progress across countries," says Orme.

But what if you're living on twice that amount, are you doing OK? Well, maybe not.

And is it right to measure money rather than focus on how poor people live their lives? Some critics have suggested the way the World Bank calculates its figures obscures many of the issues that impact on the global poor, such as asset prices and land.

In Britain, Ireland and EU, the poverty line is 60% of median income

The report authors describe this as a "less austere but still low poverty line"

All these measures rely on people's income, but in large parts of the world, people are outside of the traditional cash economy. Therefore, since 2010, the UN Human Development Report has used what it calls a multi-dimensional poverty measure.

This looks at poverty not simply in terms of income but using other indicators such as:

• nutrition
• child mortality
• education
• access to drinking water
• and sanitation
  
  

"There are a number of places in the world where people are above that $1.25 minimum," says Orme. "But still by these other measurements are objectively poor. For example in South Asia there are many more people who are in the multi-dimensional poor category than are in the income poor category."