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I used to work at Toyota in Australia, which also shut down recently. A lot of people here are saying this is about quality, but it's really about profitability

I used to work at Toyota in Australia, which also shut down recently. A lot of people here are saying this is about quality, but it's really about profitability. Australia's economy is heavily dependent on mining, and China's economic growth created a local mining boom. This resulted in heavy demand for Australian dollars, and at its peak in 2013 1 AUD was worth about 1.05 USD. It was at this time that Ford (the weakest of the three Australian manufacturers) made the decision to close its Australian manufacturing operations. The high value of the local currency meant the factory was unprofitable and uncompetitive with other factories around the world. The conservative government at the time, led by Tony Abbott, refused to provide subsidies to help close the gap (even temporarily). Toyota and GM Holden had similar problems, and all knew that the local automotive parts suppliers needed at least three companies to sell to. So once Ford was out, the supply chain for parts became unsustainable, and the others quickly announced that they would pull out too. It takes time to close an entire industry, which is why all three companies closed their factories in 2017. Around 2015 the slowdown in China's growth led to a slowdown in Australia's mining industry, and a drop in the AUD. It dropped to around 0.80 USD, and interestingly, Australia's car manufacturers became quite profitable again. But the wheels were already in motion and the decisions couldn't be reversed. Australia's mining industry has bought in a lot of money, but its impact on the dollar has done a lot of damage to the country's export economy. There's a term that economists use to describe this: Dutch disease. Australia has a bad case of it. Edit: s/80 USD/0.80 USD/

emmelaich 9y ago
> The conservative government at the time, led by Tony Abbott, refused to provide subsidies to help close the gap (even temporarily). It's not as if we didn't try to transition the industry to success. This Button plan was by a Labor government. https://en.wikipedia.org/wiki/Button_car_plan https://en.wikipedia.org/wiki/Button_car_plan
nl 9y ago
I'm glad someone wrote this. The posts about low quality are just continuing stereotypes, and the data shows the opposite. Look at the ratings for any Australian built cars that were exported or sold in Australia, and they do really well. The thing about long supply routes is wrong too. Mass freight is just so cheap that location doesn't matter. The exchange rate killed the industry. $A1 bought $US0.5 in 2000, and $1.05 in 2013. Hard to export competitively when that happens. OTOH we did avoid mass unemployment during the financial crisis, and the economy even kept growing so I guess that is the upside.
- Reason077 9y ago
  "Mass freight is just so cheap that location doesn't matter." It's not so much the cost, but the time. Distance from your suppliers and customers can matter a great deal. If you have to keep higher inventory because of longer lead times, or have to suspend the line (or store unfinished cars) while you wait for a part revision from a supplier, it puts you at a big disadvantage when you're waiting weeks for shipping rather than days. Economies of scale is also an issue. In the absence of significant tariffs, it's hard to sustain an automotive industry that's only supplying a domestic market of ~24 million people. Countries like Canada and Sweden do sustain significant domestic automotive manufacturing, but they export a large portion of the cars to bigger markets. But you're correct, of course, about the exchange rate being the primary cause. The resources boom drove the AUD higher, and also increased the cost of labour.
  - nl 9y ago
    but they export a large portion of the cars to bigger markets Which at $AUD1 = $US0.5 was happening pretty successfully, and even at 0.75 (or 0.8 like now) was possible. In the absence of significant tariffs Tariffs aren't the only form of government support, and are far from the best. In Australia we had significant tariffs on cars until the Button plan reduced them over a long period of time. It lead to low quality cars being produced in Australia, which were uncompetitive internationally and couldn't be exported. There are other forms of government support which are more effective, and could have been used in this case to keep the car industry going. Notably the car companies didn't ask for tariffs when campaigning for support. increased the cost of labour Not really, in South Australia.
jussij 9y ago
> This resulted in heavy demand for Australian dollars, and at its peak in 2013 1 AUD was worth about 1.05 USD. One of the main reasons the AUD remained at such high levels was because of the carry trade. http://www.abc.net.au/news/2011-05-09/carrying-the-australian-dollar-higher/2705140 http://www.abc.net.au/news/2011-05-09/carrying-the-australia... From the link below you can see the Reserve Bank of Australia kept interest rates very high during that period: http://www.rba.gov.au/statistics/cash-rate/ http://www.rba.gov.au/statistics/cash-rate/ That allowed big multinational banks to borrow massive amounts of money in one country at a near zero interest rate and park that cash in Australia to get a guaranteed 4% return on those billions. That create the high demand for the AUD which drove up it's price. The RBA was asleep at the wheel as it should have driven down that cash rate much faster and far sooner than it did. Only after they finally moved and started cutting the interest rate did the dollar fall to the levels we see today. Unfortunately, they now find themselves in a bit of a mess, since the economy really needs another rate cut to help repair the damage caused by that high dollar. However they can't do that because it would add fuel to an already over heated property market, which is starting to look a lot like a bubble. If they had moved earlier, the local manufacturing/export/tourist industries would be much stronger today and the RBA would in fact now be in a position to raise rates, something that is desperately need to take heat out of the property bubble.
- chris_wot 9y ago
  They are between a rock and a hard place. If the housing bubble burst, it would be far worse than a high Australian dollar. Unfortunately, we needed our bubble burst nearly a decade ago. When it bursts now, the pain is going to be incalculable.
  - dis-sys 9y ago
    this is how a stone age economy works - you sell your rocks (mining) and bricks (real estate) to sustain your way of life.
- dageshi 9y ago
  Wouldn't driving down interest rates at that point have pumped up the housing bubble even more back then? Ultimately there's only so much you can do with interest rates.
obtino 9y ago
The fact that Australia is doing free trade agreements left right and center with Asia doesn't help either. The Thai trade agreement really worked well for Toyota. Most of the Toyota imports are from Thailand nowadays. Not many of them are imported from Japan.

emmelaich 9y ago

> The conservative government at the time, led by Tony Abbott, refused to provide subsidies to help close the gap (even temporarily). It's not as if we didn't try to transition the industry to success. This Button plan was by a Labor government. https://en.wikipedia.org/wiki/Button_car_plan https://en.wikipedia.org/wiki/Button_car_plan

nl 9y ago

I'm glad someone wrote this. The posts about low quality are just continuing stereotypes, and the data shows the opposite. Look at the ratings for any Australian built cars that were exported or sold in Australia, and they do really well. The thing about long supply routes is wrong too. Mass freight is just so cheap that location doesn't matter. The exchange rate killed the industry. $A1 bought $US0.5 in 2000, and $1.05 in 2013. Hard to export competitively when that happens. OTOH we did avoid mass unemployment during the financial crisis, and the economy even kept growing so I guess that is the upside.

Reason077 9y ago
"Mass freight is just so cheap that location doesn't matter." It's not so much the cost, but the time. Distance from your suppliers and customers can matter a great deal. If you have to keep higher inventory because of longer lead times, or have to suspend the line (or store unfinished cars) while you wait for a part revision from a supplier, it puts you at a big disadvantage when you're waiting weeks for shipping rather than days. Economies of scale is also an issue. In the absence of significant tariffs, it's hard to sustain an automotive industry that's only supplying a domestic market of ~24 million people. Countries like Canada and Sweden do sustain significant domestic automotive manufacturing, but they export a large portion of the cars to bigger markets. But you're correct, of course, about the exchange rate being the primary cause. The resources boom drove the AUD higher, and also increased the cost of labour.
- nl 9y ago
  but they export a large portion of the cars to bigger markets Which at $AUD1 = $US0.5 was happening pretty successfully, and even at 0.75 (or 0.8 like now) was possible. In the absence of significant tariffs Tariffs aren't the only form of government support, and are far from the best. In Australia we had significant tariffs on cars until the Button plan reduced them over a long period of time. It lead to low quality cars being produced in Australia, which were uncompetitive internationally and couldn't be exported. There are other forms of government support which are more effective, and could have been used in this case to keep the car industry going. Notably the car companies didn't ask for tariffs when campaigning for support. increased the cost of labour Not really, in South Australia.

jussij 9y ago

> This resulted in heavy demand for Australian dollars, and at its peak in 2013 1 AUD was worth about 1.05 USD. One of the main reasons the AUD remained at such high levels was because of the carry trade. http://www.abc.net.au/news/2011-05-09/carrying-the-australian-dollar-higher/2705140 http://www.abc.net.au/news/2011-05-09/carrying-the-australia... From the link below you can see the Reserve Bank of Australia kept interest rates very high during that period: http://www.rba.gov.au/statistics/cash-rate/ http://www.rba.gov.au/statistics/cash-rate/ That allowed big multinational banks to borrow massive amounts of money in one country at a near zero interest rate and park that cash in Australia to get a guaranteed 4% return on those billions. That create the high demand for the AUD which drove up it's price. The RBA was asleep at the wheel as it should have driven down that cash rate much faster and far sooner than it did. Only after they finally moved and started cutting the interest rate did the dollar fall to the levels we see today. Unfortunately, they now find themselves in a bit of a mess, since the economy really needs another rate cut to help repair the damage caused by that high dollar. However they can't do that because it would add fuel to an already over heated property market, which is starting to look a lot like a bubble. If they had moved earlier, the local manufacturing/export/tourist industries would be much stronger today and the RBA would in fact now be in a position to raise rates, something that is desperately need to take heat out of the property bubble.

chris_wot 9y ago
They are between a rock and a hard place. If the housing bubble burst, it would be far worse than a high Australian dollar. Unfortunately, we needed our bubble burst nearly a decade ago. When it bursts now, the pain is going to be incalculable.
- dis-sys 9y ago
  this is how a stone age economy works - you sell your rocks (mining) and bricks (real estate) to sustain your way of life.
dageshi 9y ago
Wouldn't driving down interest rates at that point have pumped up the housing bubble even more back then? Ultimately there's only so much you can do with interest rates.

obtino 9y ago

The fact that Australia is doing free trade agreements left right and center with Asia doesn't help either. The Thai trade agreement really worked well for Toyota. Most of the Toyota imports are from Thailand nowadays. Not many of them are imported from Japan.