Ford and Toyota cut production

FORD and Toyota today revealed deep production cuts for their local operations over the coming months, delivering another blow to Australia’s automotive industry.

Ford Australia issued a statement at 2.15pm AEST today saying it would axe about 240 factory workers and reduce production by about 20 per cent from July because of declining Falcon sales.

Less than two hours later, Toyota Australia announced it would cut production at its Altona plant by about 50 per cent from May due to a lack of components after Japan’s devastating quake and subsequent tsunami on March 11.

The cuts leave GM Holden as the only Australian car-maker to be unaffected by either sagging large-car sales or disrupted parts supplies as a result of last month’s Japanese earthquake.

Apart from the earthquake interrupted component supply troubles, export and domestic sales are down at Toyota Australia, which grew its local sales by 6.8 per cent in 2010, when the total market was up by 10.5 per cent, but is down 7.3 per cent year-to-date due in part to 20 per cent-plus declines of its locally produced Camry and Aurion models.

Now, however, Toyota is the first Australian manufacturer to be affected by the global shockwaves of Japan's quake, with the nation's top-selling vehicle brand saying the “short-term adjustment” for its Victorian plant from May had been made “to manage available parts supply following last month's Japan earthquake and tsunami”.

Toyota said the Altona factory would cut its production in half in May and June, with about 9600 Camry and Aurion vehicles produced for both domestic and export consumption in those two months.

That equates to about 250 Camry, Camry Hybrid and Aurion cars a day – half of the 500 or so it would normally have produced each day for local and overseas sale.

Toyota is yet to announce its manufacturing plans for July and said it would re-evaluate the situation in June, but production of the next-generation Camry – and its new 2.5-litre four-cylinder engine – was expected to remain on schedule for the third quarter of this year.

Toyota said it would continue to provide employment for its 3300 Altona workers, who from May 9 – like their Japanese colleagues – will work half-day shifts involving vehicle production and “where possible, training and plant improvement activities”.

Toyota spokesman Mike Breen told GoAuto that Altona staff would be paid 75 per cent of their regular wages during the reduced production period.

Left: Ford Australia's production line in Broadmeadows. Below: A locally-built Toyota Camry.

Said Toyota Australia executive director of manufacturing Chris Harrod: “It is important to note that this is a necessary response to a short-term supply issue and we intend to resume 100 per cent vehicle production as quickly as possible.

“Our focus is on ensuring optimum stock management to reduce the impact on customers of the immediate production shortfalls. It may be difficult to avoid some inconvenience for some customers.”

Toyota Australia’s Glenn Campbell said Toyota was doing everything we can to support its employees, dealers and suppliers.

“We want to be in a position to resume full production as soon as possible. It’s an unprecedented situation.

“Toyota Australia will adjust its vehicle production at its Altona manufacturing plat to match available parts supply and this follows last month’s Japan earthquake.”

The federal industry minister Kim Carr said the government was pleased that Toyota’s Melbourne workers remained in work.

“The company, workers and their unions have worked together to ensure that jobs will be kept and it is my understanding that the jobs of Toyota workers are not at risk,” he said.

“This situation has been brought about by the after-effects of the recent Japanese earthquake and tsunami.

“The problem is not unique to Australia. Globally, integrated supply chains have been a feature of modern manufacturing for some time.

“I look forward to a speedy recovery of the Japanese suppliers and will be encouraging Australian component manufacturers to redouble their efforts to fill the gap.”

Toyota’s local manufacturing action plan follows the company announcement yesterday (April 13) that it would temporarily halt production at five of its European plants for several days in April and May due to quake-related parts shortages.

The move – which involves eight non-production days at Toyota plants in England, Wales, France, Turkey and Poland between April 21 and May 3 – follows the suspension of all output operations at most of its 14 North American factories for four to five weekdays later this month.

While production of three hybrid models, including the Prius, recommenced at two Toyota plants on March 28, all of the company's other Japanese remain closed until April 18, when they will re-open at 50 per cent capacity until at least April 17.

Although Ford will cut by production by just 20 per cent from July – when vehicle output from its Broadmeadows plant will fall from 260 to 209 units a day – it will also shed 10 per cent of its factory workforce, or about 240 jobs, at both of its Melbourne and Geelong facilities.

Ford Australia, which like Holden continued to unaffected by supply shortages, blamed its largest job-cutting measure since 2008, when it axed 800 jobs, squarely on the consumer downsizing that has led to declining Falcon sales.

It would offer voluntary redundancy packages for those who could not be redeployed, with Geelong engine and casting plant staff most likely to be retained.

Ford Australia spokeswoman Sinead McAlary told GoAuto the Geelong site probably has more opportunity for redeployment than Broadmeadows because of its casting plant contracts.

“That’s a part of the business that’s growing so we’ll look at that and work with the employees and the unions over the next few months, but where we can’t redeploy we’ll be offering voluntary redundancies,” she said.

Designed to “more closely align production with current market demand”, Ford’s significant cut-backs from July follow a production slow-down to three days per week during the first three weeks of March.

Ford Australia is now back at full production and will remain so during April as the company prepares to release its upgraded/diesel Territory, but Ms McAlary told GoAuto that production wouldagain reduce to three days a week in May and June.

“We’re back to full production now but we will be undertaking more down-days in May and June, which is also what we communicated to the union today,” she said.

“For May and June – until we can implement the down balance in the middle of July, and it takes a good three months to plan for that properly – we will be implementing more down-days, which will see working an average of three days a week.

“After that time we’ll be working normal production for five days a week, ongoing. Essentially – and this is a highly over-simplified version of the process – we slow the process down across the total manufacturing footprint, so you need less people when they have more time to do what they need to do.”

Ms McAlary said five-day-a-week production with a reduction in plant workers from 1800 to 1560 (which will reduce Ford Australia’s total workforce from 3400 to 3160 staff) was preferable to three-day-a-week production with current staffing levels – for both Ford and Australia’s supplier base, which is said to employ up to seven workers for every car factory worker.

“We’ve been running down-days for the last couple of months, as have our competitors, but it’s a disruptive way to go about business for our employees, for our quality and for our suppliers,” she said.

“So we took a look at the business and made the strategic decision that it was much better to actually align production to where realistic market demand is.

“We’ve done that before and we copped a fair amount of heat for doing it at the end of 2008, but it allowed us to return to profitability in 2009.

“It has been a global policy of Ford’s over the past few years that we do not want to get into heavy discounting of our vehicles, because it just erodes your customer loyalty base and your brand value more than anything else, so for the longer term we think the best thing is to realign production.

“That reduces the need for down-days which is obviously better for us, better for our quality control and far better for our suppliers, because if we’re having a down-day one day and Toyota’s having one another day – Holden’s had down-days too – then they can’t manage their businesses either, so this is better for everybody in the long run.”

As before, Ford workers will be paid either 50 or 60 per cent on the two down-days a week Ford that will average over the next two months, before reduced production commences with the smaller workforce in July.

“Our arrangement for down-days – and it differs for different days – is either 50 or 60 per cent, but our employees have the option to top that up to 100 per cent using sick leave or annual leave entitlements, which is what most of them do,” said Ms McAlary.

Ford is ramping production of the facelifted Territory and hopes its contracted production output from July will increase after the introduction of next-generation LPG and 2.0-litre four-cylinder versions of the Falcon in mid-2011 and early 2012 respectively – and the facelifted Falcon by October.

Ford has invested $232 million, including $42 million from the Australian government’s former green-car fund, to develop the Territory diesel and Falcon EcoLPI and EcoBoost models.

“One of the reasons we’ve announced this three months before we actually do it is because we need to manage the launch process,” said Ms McAlary.

“We obviously also have our new technologies coming in the next 12 month, which will stabilise and potentially grow sales again, but for now we needed to make the right decisions so that we can ensure our viability of the business ongoing.

“We’re currently producing the final sign-off vehicles for Territory – we’ll start shipping them to dealers in the next week or so. We had to go back to full production to do that and we will be trying to manage the launch process as we go through that.

“But from next month we’ll be back to three days and then from July it will return to five days with reduced output.”

Ford’s latest production cut-back is a turn-around from the significant levels of staff overtime it racked up in the first half of 2010, when its dealers were clamouring for cars after they reduced stock levels in the wake of the economic and wholesale financing crisis in 2008 and 2009.

So far this year, overall Ford sales are up 3.4 per cent in a 1.3 per cent smaller total market, after being down 1.3 per cent in 2010, but Falcon sales are down almost 40 per cent – on top of a near-five per cent decline last year.

The large-car segment is down more than 20 per cent in the first quarter of this year, following its substantial slide in the second half of last year. In the past decade, Falcon sales plunged by more than half – from 60,000 in 2000 to 29,516 last year.

Despite that, a leaner business and increased imports saw Ford Australia post its first positive financial result since 2005 in 2009, when it made a net operating profit of $13 million and promised to make further profitability gains in 2010.

Ford Australia president and CEO Bob Graziano said today: “We returned Ford Australia to profitability in 2009, however, to continue strongly into the future we have to make the right business decisions now.

“Understandably, this announcement will be unsettling for staff, and we will work closely with our employees and our unions to ensure they are given all appropriate support and assistance.

“Ford is committed to making the necessary changes to ensure we are producing what Australian drivers want and value, which drives the viability of our business.

“This strategy has been successful for Ford around the globe and has contributed significantly to the company's strong recovery.” Mr Graziano said that while the total number of vehicles the company produces this year will reduce, Ford Australia would continue to make a more profitable mix of vehicles to maximise its returns in the large car and medium SUV segments, while also increasing sales of its imported Fiesta, Focus and Mondeo models.

“In the past two years we have successfully improved our model mix to produce more of our premium models,” he said.

“This has seen our XR6 Falcon take over from the entry-level XT as the highest selling Falcon model and generated significant additional returns for the business.

“We are continuing to invest in the Falcon platform beyond the range of technology innovations and the refresh we are implementing in the next 12 months, demonstrating our on-going support for the large car segment in Australia.

“We are committed to the Ford brand and continuing to produce vehicles in Australia.”

Senator Carr said the federal government was disappointed with Ford’s move but would assist staff directly and by working with car-makers and unions.

“The government is very concerned at any job losses in manufacturing and especially concerned at job losses in Australia’s automotive manufacturing industry,” he said.

“Unfortunately, commercial decisions have meant that Ford needs to re-balance its operations to meet the demands of the market.

“Ford is, in part, doing this through the voluntary redundancies it is currently offering its workers.

“All affected workers will receive their full entitlements. Also, workers will be able to take advantage of the labour adjustment component of the government’s Automotive Industry Structural Adjustment Program, which can help fast-track them back into the workforce and assist with retraining and other support and assistance.

“While the past few months have been very difficult for Ford, there are promising signs for the company over the coming months with some exciting new products coming on stream.

“We will continue to work closely with Ford, its workers and their unions to move quickly through this period of adjustment as we have with other companies in the automotive industry.”

Holden, which two days ago announced a $112 million profit for 2010 after $579 million of accumulated losses over the preceding five years, continues to monitor its supply base in the wake of the quake but production of 430 vehicles per day so far remains unaffected at its Elizabeth plant in Adelaide.

GM’s Australian subsidiary, which underwent significant restructuring following its near-death experience during the GFC and its parent company’s bankruptcy in the US, currently employs about 2500 Holden Vehicle Operations workers but has closed its Family II four-cylinder engine plant in Melbourne and shed about 2100 jobs since 2008.

With production of its first small car – the Cruze, which received a $149 million boost from the federal government’s now-defunct Green Car Innovation Fund – now under way, Holden has returned to a two-shift operation five days a week after last year’s alternating “two-crew” arrangement that followed a slump in local and export Commodore sales.

Now heavily focussed on domestic sales, Holden last year exported 7800 Commodores to the Middle East, New Zealand, Brazil and South Africa – well down on the 52,000 it shipped in 2004, its last profitable year.

Holden’s domestic sales are down 11.8 per cent to March this year – about the same degree by which they increased in 2010, thanks largely to imports.