Ford to Shutter Australian Manufacturing (revised) - Analyst Blog

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Ford Motor Co. ( F ) has decided to shut down its manufacturing operations in Australia in Oct 2016 due to ebbing sales and continued appreciation of the domestic currency. The automaker will close two plants in Victoria - an engine plant in Geelong and a vehicle assembly plant in Broadmeadows. The closures would terminate 1,200 jobs at the plants.

All other elements of Ford's business in the country will remain, including the retention of one of four global PD hubs for Ford Motor Company and keeping approximately 1500 employees staffed, as well as parts and service operations and accompanying support services.

According to Ford Australia President Bob Graziano, Ford lost A$600 million ($581 million) in the last five years in the country and A$141 million ($136.5 million) in 2012 because customers preferred smaller and cheaper imported vehicles manufactured by Japan's Mazda Motor or South Korea's Hyundai Motor.

Ford is operating in Australia since 1925. It has manufactured 37,000 vehicles in the country in 2012 and employed more than 3,000 people. In contrast, Toyota Motor Corp. ( TM ) and General Motors Company's ( GM ) Holden Ltd. each manufacture more than 90,000 annually.

A strong Australian dollar, which traded above the U.S. dollar most of the time in the last 2 years, made vehicles manufactured by local manufacturers (including Ford) even more expensive than the imported ones. As a result, sales of locally manufactured vehicles dipped to 221,000 units in recent years from roughly 389,000 units in 2005.

Australian government tried to save the industry by promising A$5.4 billion ($5.2 billion) as financial support for the auto industry till 2020. Last year, Australian Prime Minister Julia Gillard announced an A$34 million subsidy for Ford. The government has already subsidized General Motors by pledging about A$275 million in 2012 so that GM continues to produce cars in Australia for another decade through its subsidiary Holden Ltd.

However, nothing helped. Apart from Ford's recent announcement of job cut, GM Holden has also announced to trim 500 jobs or 18% of workforce in the country due to its appreciating currency and weak demand.

Annual sales in Australia stand nearly 1.1 million vehicles. Its automotive industry employs nearly 55,000 people and supports 200,000 other manufacturing jobs. The country's Reserve Bank expects the Australian economy to grow slightly below trend at 2.5% in 2013 while unemployment rate is expected to increase to 5.75%.

Ford, a Zacks Rank #3 (Hold) stock, posted an increase of 4.1% in earnings to $1.6 billion and 5.1% in earnings per share to 41 cents in the first quarter of 2013, beating the Zacks Consensus Estimate by 3 cents. Revenues improved 10.5% to $35.8 billion, exceeding the Zacks Consensus Estimate of $32.8 billion.

The improvement in revenues and earnings was mainly attributable to Ford's strong performance in North America and Asia Pacific Africa. The company's results were disappointing in South America due to unfavorable exchange rate as well as in Europe due to the sluggish economy.

Currently, Federal-Mogul Corp. ( FDML ) with Zacks Rank #1 (Strong Buy) is performing well in the broader industry.

(We are re-posting this article to correct a mistake. The original report, published yesterday, May 29, 2013, should no longer be relied upon.)

FORD MOTOR CO (F): Free Stock Analysis Report

FEDERAL MOGUL-A (FDML): Free Stock Analysis Report

GENERAL MOTORS (GM): Free Stock Analysis Report

TOYOTA MOTOR CP (TM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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