Ford's Winning Way Forwards

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Would you be prepared in 2010 to pay an extra $2000 for a Falcon because its engine is made in Geelong? No? Ford didn't think you would either which is why it was forced to tell everyone this week that it won't be wasting grants from Aussie taxpayer funds trying to build one. 

If Holden is a precedent, displaced Ford workers will soon face new opportunities that must come out of this latest move. Because the end for the current engine is still three years away, it is way too early for substitute activities to be announced.

Let's look at the facts -- some of which have been a casualty over the last week.

Holden built its last inline six in 1985. Holden was so broke it didn't even have the resources to convert its own engine to unleaded petrol. The company was forced to purchase an imported engine from Nissan for the 1986 Commodore. The local Commodore has not featured a 100 per cent local engine since.

Look what has happened as a result of this shift, exactly the scenario now facing Ford.

After Holden closed its factories all around Australia, stopped building its own six-cylinder engines then consolidated all vehicle manufacturing in a single South Australian plant, it was split into two companies. One was established to make Holden cars and the other to make engines, any kind of engine that the world wanted to buy.

Ironically, the one engine that Holden's engine company has never manufactured totally in Australia is the Commodore V6 engine. Since 1988, the Commodore has always featured GM's latest V6 engine from the US assembled locally from a mixture of local and imported parts, a process that continues to this day.

Since 1999, Holden's V8 engines have been imported fully built-up in a crate, a process shared with Toyota and Mitsubishi for their locally-built V6 models.

By 1995, the Holden car company was already exporting variations of the Commodore, a process that exploded in 1999 after LHD versions of the VT Commodore/WH Statesman appeared. There were key reasons why this happened, not the least of which was the Commodore's ability to accept any number of overseas powertrains.

The Commodore's V6 and V8 engines have also been regularly updated by the Americans at virtually no cost compared to what Ford has been forced to spend on its Australian-designed and built engine. When most Commodore panels were also shared with an overseas model, its cost base was a fraction of Ford's.

This low cost base generated such huge export earnings that Holden was able to launch in 2006 its first all new Holden not based on an overseas model since 1978! Because the latest Commodore/Statesman is such a good car, it is winning more than record export sales. The Americans have commissioned Holden to develop a number of new models for the US and other global markets, a process that has made Holden and Australia a world centre of rear drive technology.

Meanwhile in Geelong and Broadmeadows, Ford has struggled to fund panel changes for a unique Australian Falcon that sells only in Australia and related markets. It has been forced to go it alone on redeveloping an inline engine that won't fit in any of Ford's global front-drive models.

Even if Ford was able to win exports with the current Falcon, it would be forced to fund and equip its export markets with parts and service back-up specific to the Geelong engine that has no relevance to any other Ford model. Ford Australia would then be forced to carry the full costs of ongoing performance and economy improvements or emissions changes as demanded by each export market.

All this while Holden simply piggybacks on any number of GM models that share its powertrains, anywhere in the world...

Add in today's strong Aussie dollar and free trade agreement with the US, this has allowed Holden in 2006 to deliver a further 10 per cent saving in extra equipment and price cuts for every local model including HSV.

At the top end, this has delivered at least an extra $7000 in a buyer's pocket that Ford can't match. The Fairlane was the first casualty. If the rest of Ford's local models are not to follow, the Geelong engine has to go -- even if it is better than its rivals or its replacement.

If Ford Australia was lucky enough to win exports right now, it can't even compete against its local Holden rival let alone cars from countries like Korea and Japan.

The costs of compliancing an engine for the next round of local emissions requirements will cost millions even without the major hardware changes or finding extra economy demanded by higher petrol prices. Until Ford switches to an imported engine, it will be the only company on the Australian market with an engine that doesn't have a global market to amortise these costs.

Indeed, if Ford's local engine sales drop to 50,000 by 2010 as current trends would indicate, the extra cost per engine could potentially knock Ford's local range clean out of the game. These costs are now too high to be concealed by tax-payer funded grants.

No wonder industry experts have been waiting for this week's Ford announcement for a decade or more.

Ford now has its first real chance since 1985 of achieving a cost base enjoyed by its local Holden, Toyota and Mitsubishi rivals which have all used global engines since the 1986 switch to unleaded petrol.

If this brings Ford one big step closer to winning vital export orders and securing the future of a local Falcon and Territory, as Ford Australia President Tom Gorman claims, then Australians should be cheering, not jeering.

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