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.
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.
Is
one in eight Australians really poor?
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.
"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."
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