Ford lay-offs a sign of commitment

COMMENT

A company that markets an iconic performance family sedan and a strong-selling SUV – built in the tens of thousands each year – would be loathe to drop the two models from its local product range.

One of those models is badged ‘Falcon’, one of the most recognised and respected model names in Australia. The SUV is the Territory, only outsold for the year to date in its VFACTS class by the Toyota Prado and the Nissan X-TRAIL.

Yet the manufacturer of both vehicles, Ford Australia, finds itself once again in the position of defending against speculation it will close down its Geelong engine plant and the vehicle assembly facility in Broadmeadows.

Remarks made by Ford Australia president Bob Graziano yesterday have been interpreted in a media report published today as a sign that Ford already has plans in place to cease local manufacture. But that conclusion looks shaky, based on what the future is known to hold for the manufacturer.

There’ll be no immediate change to the status quo. Ford is committed to an updated Falcon in 2014 and given the need to amortise the cost of that development – plus the introduction of Euro 5 emissions legislation two years later – the Falcon will remain in production for at least another four years, short of some unforeseeable catastrophe.

The wider community is watching for Ford to follow the path taken by Mitsubishi as the Adelaide-based company wound down its manufacturing operations in Australia. Ford’s recent announcement it would be shedding staff between now and November adds to the public perception the same pattern is emerging, but another way of looking at that is as an indicator of Ford’s determination to keep the plant open, building cars into the future.

“We look at each individual operation and that’s why we try and maximise the efficiency of every operation that we have here, but it’s all an aggregate at the end of the day,” Bob Graziano told motoring.com.au yesterday, when asked whether Ford Australia’s manufacturing facilities had to pay their own way and be self-sustaining for revenue. The Ford president would not be drawn on the possibility of expanding into export markets beyond the introduction of Euro 5 emissions in 2016, but implied that reducing staff levels would future-proof the company against a tougher marketing environment.

“Some of the things that we’ve done – and I had to make the announcement in July with respect to changing the production capacity in the plant – that’s all intended to drive efficiencies in the plant, based on the volumes that we’re currently experiencing. We think we’re at the right level and we’ll be at the right level when we get to November – and we’re going to continue to operate with that, based on where we think the market is going to go.”

That reads like Ford Australia is hoping for the best, but planning for the worst. If the company were so very uncertain about the immediate future for Aussie manufacturing, it would be closing down now or in the near future – and even handing back the $103 million grant offered by the federal government back in January. Ford had previously returned government funding for a stillborn project to develop left-hand drive Falcons for export, so the precedent exists.

Much of the recent media speculation is predicated on Falcon selling in rapidly declining numbers. Neither the introduction of a MkII facelift nor fuel-frugal or cost-saving alternatives (EcoLPI and EcoBoost) has reversed that trend, but Mr Graziano is not by any means certain that Falcon’s retail slump can’t be stabilised at the very least.

“I think what we’ll see is a moderation at the levels that we’re at right now, moving forward. I’m hopeful that they’ll stabilise...” he said. The EcoBoost variants, already Euro 5-ready, might be the key to the Falcon’s survival into the future, but the turbocharged four-cylinder engine in the large car has not met with immediate market acceptance. It will initially deliver “slow-burn” sales growth, to quote Ford’s Public Affairs Director, Sinead Phipps. For his part, Bob Graziano acknowledges the buyer resistance to the Falcon EcoBoost is an issue Ford needs to overcome.

“There is an apparent perception in the market here that a four-cylinder won’t work with a large car, so it’s literally a matter of getting people to sit in the vehicle and experience it – and that’s what we’re doing...” he said. “I think that we’re [in] early days...”

Mr Graziano says that EcoBoost has taken some time to establish itself in other markets and he sees no reason why the local market would be any different. But anecdotal evidence suggests the Falcon’s greatest problem in the market is a combination of packaging and style. Presumably the 2014 update will result in a substantial change to the look of the current car, to distance it from its predecessors. Sources inside Ford have reported the 2014 Falcon design is shaping up very well on that score. Hopefully that also means Ford’s designers are working on the car’s doors and roofline for easier access and improved headroom.

The cloud over Falcon’s future – and more importantly, the future of manufacturing at Broadmeadows – darkened following the announcement earlier this year that Ford Australia had posted a massive loss, after two years in profit. But $282 million of the $290 million loss last year was money earmarked for R&D – as opposed to the cost of manufacturing local product. An unquantified part of that R&D investment was allocated to the T6 Ranger project, and Ford Australia is understood to be working on an SUV based on the Ranger platform as well as  the 2014 Falcon. It’s believed that Ford Australia earns revenue from its development work for international design projects, but since Ford Australia shouldered the $282 million on its lonesome it’s likely the majority of the R&D spend went to the Falcon update. Mr Graziano would not reveal any further information concerning the income earned by Ford Australia’s R&D team.

“We don’t break out individual departments in terms of monetary contributions...” he said.

With Ford promoting the refurbished design centre, which was the reason for the motoring press attending yesterday, it was logical to query whether the design facility could continue to operate without a nearby production facility.

“I think there’s mixed views on that,” Mr Graziano responded. “There are some people that think you’ve gotta have manufacturing capability with R&D capability. We believe that you can have research and development without manufacturing; [but] it clearly helps to have manufacturing. And we’re very fortunate that we have both manufacturing, the research and development, and a stunning test facility as well. So we’ve got the whole package here, and that’s what we’re leveraging for the program.”

With Ford Australia well placed to ship cars to emerging markets in China and India, perhaps the real debate between the local arm and its parent is not about whether Falcon will continue to be an indigenous design after the current model’s lifecycle has ended – that argument has already been ‘lost’ by Broadmeadows. Perhaps, Ford Australia is mounting a strong case for building the next-generation of (global) large car here, to export ‘there’.

There are so many ‘known unknowns’ in Ford’s future – both here and abroad – that speculation is bordering on irresponsible. Will the next generation Taurus be rear-wheel drive, for example? If Ford wants a large luxury car for the emerging markets (and Benz, BMW, Jaguar, Lexus and Infiniti all subscribe to the rear-drive large sedan paradigm), it’s an idea not without merit.

What about Mustang? There are those who believe Mustang and Falcon can still sit on a shared platform. And now that production of the Crown Victoria has ended, is there any rational argument against the Falcon or a Falcon replacement being exported from Broadmeadows to the Middle East?

All questions unanswered by Ford, which is why media speculation persists – and will continue until such matters are unequivocally resolved.

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