Ford Australia forced to stand down Victorian workforce

by Mark Benson on April 27, 2012

in Jobs in Australia

Ford Australia forced to stand down Victorian workforce

In a worrying development it has been revealed that Ford Australia has this week been forced to stand down its entire Victorian workforce due to a dispute between one of the company’s suppliers and its landlord. It is believed that in excess of AU$100,000 was due in lieu of rent which resulted in CMI Industrial effectively being locked out of its own factory and unable to supply suspension and other parts to Ford Australia.

The brittle supply chain

The owner of CMI Industrial, Max Hofmeister, was allegedly handed a bill for AU$116,000 by his landlord. It is also believed that the supplier also owed Ford Australia money which was the final straw for the car giant and this effectively pushed CMI Industrial into receivership. This in turn has forced Ford Australia to close the doors of its Victorian state production line until next Wednesday in the hope that a new CMI Industrial will be able to emerge from the ashes of the failed company.

This perfectly illustrates the ongoing problems in Australia with regards to larger companies depending upon small operations which are struggling in the current economic environment. We have covered on numerous occasions the fact that the Australian car manufacturing industry has been in demise many years and indeed despite significant investment from some of the major players in the world, the industry is not pushing ahead. Indeed there have been concerns that a number of the larger manufacturers may well withdraw from Australia in the medium to longer term unless conditions improve.

Loss of income is minimised

While there are no silver linings to this particular saga it was fortunate that Ford Australia was able to bring forward “down days” which were planned for June to cover the ongoing closure of CMI Industrial. This means that employees will have a minimum loss of earnings and indeed some 1800 workers were still have jobs when the factory reopens next week.

The unions have obviously been involved with regards to both CMI Industrial and Ford Australia and while the situation is dire at the moment for those working at CMI Industrial there are hopes that at least some jobs can be saved. It is not exactly clear how and why the company fell into such a difficult financial situation which was so bad that it effectively forced the closure of Ford’s Victorian State manufacturing plants. It is well-known that Ford is involved in the discussions to structure a new CMI Industrial from the ashes of the old company but what kind of structure this will take remains to be seen.

Government assistance required

Despite the fact that the Australian government has poured hundreds of millions of dollars of taxpayer funded assistance into the automobile industry over the last few years there are calls for more help today. While much will depend upon whether a new CMI Industrial emerges from the ashes, at least in the short term, there are longer term issues to take into account. Can the government afford to inject more public money into an ailing industry? Can the government afford not to support thousands of jobs in the run-up to next year’s election?

The government has played a major role in supporting the Australian car manufacturing industry over the last few years at a time when the relatively high dollar has caused major problems. There have been moans and groans from within the industry that some car plants around Australia are now uneconomic although whether this is sabre rattling or a way of getting the best deal from the government is debatable. Whatever happens in the short to medium term there are literally thousands of jobs at risk at Ford not to mention thousands more down the supply chain and with local businesses.

Is the supply chain really that brittle?

The fact is that as companies such as Ford Australia struggle they will place pressure on their suppliers who will then be forced to reduce their margins and reduce their overheads. This then becomes something of a self-fulfilling prophecy with suppliers downsizing, profits down and financial woes just around the corner. There is no suggestion that Ford Australia has played any part in the demise of CMI Industrial but the truth is that if the major car manufacturers are struggling then their suppliers will also feel the squeeze.

We can also assume that other areas of the economy are struggling to survive with the current Australian dollar rate counter-productive for those looking to export goods. We can also assume that many of the supply chains in many other areas of the Australian economy are also feeling the pinch. There is a need to introduce policies which will reduce the power of the Australian dollar as this is literally holding back an array of businesses. However, as we move towards the next Reserve Bank of Australia interest rate meeting and the government’s next budget many people are getting nervous and concerned about the future.

Can the government really help?

The truth is that we have a fundamental problem with regards to the Australian automobile industry which is now unable to export goods at a price which is acceptable. Companies such as Ford will continue to trade in the short to medium term but if the situation does not change in the longer term then at some point they may need to repatriate some of their funds or look towards “lower cost base” outlets. The government can throw as much public money at the industry as it feels necessary in the short term but in the longer term there needs to be some form of structural change.

Conclusion

While the demise of CMI Industrial could bizarrely improve the prospects for a new CMI Industrial to emerge from the ashes it does perfectly illustrate the very difficult situation for many large corporations in the Australian economy. Ford Australia is dependent upon its supply chain and if one or more of these links is broken then the potential repercussions do not bear thinking about. This also comes at a time when the industry itself is under major pressure and despite significant government assistance there are growing demands for a reduction in base rates which would then lead to a reduction in the strength of the Australian dollar.

Export industries are being crucified at this moment in time and the government is under enormous pressure to react.

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