Behind the Huon cry

Ford and Holden are facing component supply shortages which have already forced Ford to close its Broadmeadows operations at the end of last Thursday's afternoon shift, affecting 2000 workers.

The components are manufactured by the Huon Corporation and include critical door and window sealing assemblies. Staff at three Huon Corporation sites walked out in protection of redundancy entitlements after the company was placed in voluntary receivership last month.

Ford has committed to paying its line workers 60 per cent of their normal pay during Friday and Monday (July 21-24) shutdowns but after that the pay stops.

Over 500 workers at three Huon Corporation factories walked off the job a week ago including employees at Huon's Empire Rubber plant in Bendigo. CarPoint has confirmed that Huon also manufactures parts for a third party that supplies sub-assemblies to Holden for the VE Commodore and others believed to find their way into local Toyotas, also critical for vital export contracts.

Huon Corporation was placed into voluntary receivership last month. The company acquired two similar suppliers of automotive polymer and rubber products late last year in an effort to create a more efficient components operation.

The administrator initially sought to shed over 100 staff but couldn't pay out entitlements. The three Huon Corporation sites' 570 workers are seeking to protect redundancy entitlements, which some sources have placed at $30 million.

Industry insiders say the issue is complex with allegations related to the disposal of Huon Corporation assets already the subject of Supreme Court action. That said two ‘big picture' issues appear to be at the core of this latest round of automotive supplier woes.

As the Australian large car market shrinks, even combined volumes from local manufacturers may not be enough to keep some Australian parts suppliers viable. Not only faced with declining volumes that hinder any economies of scale, these parts suppliers must compete with aggressive newcomers.

There is every chance that the slower than expected take-up of the new Mitsubishi 380 has placed unsustainable loss of volume and pricing pressures on areas of the Australian component industry -- an issue that has been of equal concern to the other local carmakers.

Thailand, Malaysia, India and China all have component supplier bases desperate to increase volumes. As senior Ford sources have noted, most of these emerging nations have a cost base that has a 15 year lag before it will be as high as Australia's. In other words, when an Australian supplier goes up against an Asian supplier, it will be another 15 years before they are competing on a comparable cost base.

Australian suppliers and workers are being told to work smarter to cover the premium in wages and conditions.

With existing and expanded export aspirations Holden's position is arguably more critical – part of the reason why the company has hedged its bets with overseas suppliers. In the absence of a national government-backed strategy, Holden has moved to protect its interests to maintain operations and manage any restructure.

Logically Australia (and most other industrialised nations) will likely need to surrender some small-scale manufacturing when there are cheaper sources. Opportunities remain in design, development and tooling operations, where jobs are highly paid, not easily shifted and have a huge flow-on effect in local economies compared to manufacturing facilities with their decreasing dependence on manpower.

Ford Australia must currently recruit 150 engineers a year for the next 10 years to meet its global product development commitments. Both Holden and Toyota are undergoing a similar expansion process.