Toyota Oz Manufacturing Future Under A Cloud... But Too Costly To Close? Photo:
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Tim O'Brien | Jan, 07 2014 | 6 Comments

Speaking to the media this week, Toyota Australia Director of Marketing and Sales Tony Cramb had mixed news to report.

The good news, from a Toyota Australia perspective, was the announcement that the Corolla had topped Australian sales for 2013. The first time ever, incidentally, that a Toyota product has topped annual sales here.

But there was other news from Mr Cramb that leaves a cloud over the future of Toyota’s manufacturing operations here.

Of the 106,000 Camrys and Aurions produced at Toyota’s Altona plant, nearly 70,000 are exported and sold in overseas markets - the Middle East in the main.

The issue however - one made more difficult with the impending closure of both Ford and Holden manufacturing - is whether Toyota Australia can remain competitive enough to hang onto its Altona manufacturing and Camry and Aurion export operations.

Or whether it will lose the next model Camry to a competing Toyota plant offshore; one able to produce the same cars for the same export markets more inexpensively.

In October last year, when announcing 100 voluntary redundancies at the Altona plant, CEO Max Yasuda said, "In the lead up to 2018 we need to reduce the cost of each of our locally built vehicles by $3800.”

However, Mr Cramb said, “We are not looking to reduce wages. There are myriad different ways to reduce cost per unit.”

“We need to earn the (production of the) next generation of Camry with export. We still need to compete with other plants around the globe.

“The decision about the next-gen Camry will more than likely be made in the middle of the year (2014).

“We haven’t (yet) earned the rights to produce it.

“It’s a topic of great study within Toyota. That study is deep underway,” he said.

Most certainly, that study will also be looking at the cost of closure for Toyota of its Altona plant, its liabilities in leave and redundancy entitlements plus other significant costs including plant decommissioning and, likely, site decontamination.

Equally certainly, Toyota will be considering the future impact of a softening AU dollar and whether there will be enough downward movement to return some competitive advantage to Australian manufactured goods in export markets.

It will also be looking at the likely impact of the recently announced Free Trade Agreement (FTA) with South Korea and the ongoing impact of the FTA with Thailand - a country which also produces Toyota cars and light commercials, including the Camry, for the South East Asian region.

That latter FTA with Thailand removed any concerns Toyota may have had with continuing to fully service the Australian market with Toyota products, without tariff imposts or non-tariff barriers.

(Incidentally, while a number of non-tariff barriers remain in many of the countries with whom Australia has an FTA - Thailand included - we continue to play with a straight bat thanks to vested concerns of protecting Australian mining and agricultural exports to these markets.)

Prior to Holden’s announcement, GM Holden MD Mike Devereux conceded in negotiation with government that the cost of closing its manufacturing plants was to the order of $600million.

Toyota, like Holden, will be weighing the cost of continued production here, and the savings that might be wrought elsewhere in its global manufacturing operations, against the certain cost imposts of closure.

And those costs will be significant. Toyota has committed to two payrises this year of slightly more than five percent - this will add further to its legacy liabilities should it decide to close.

For Mitsubishi, its liabilities when it shut down manufacturing in South Australia was in excess of $300million.

Toyota’s liabilities will be vastly more than both Mitsubishi and Holden. With a workforce of around 4200, more than double Holden’s 1750 production employees, Toyota’s liabilities may exceed AU$1billion.

If looked at purely from a loss minimisation strategy, it may simply not add up for Toyota to exit this market in the short to medium term - especially if its Australian operations can find the savings it is looking for.

And there is a further sting in this discussion that has a potential impact for taxpayers.

For parts and components producers forced into insolvency should Toyota follow Holden and Ford out the door, taxpayers may be left to pick up the tab for payouts to these component industry workers under the taxpayer-funded federal entitlements guarantee.

For this sector alone, a satellite of the vehicle manufacturing industry but employing more than 15,000 Australians, these liabilities may also be in excess of AU$1billion.

And there’s another cause for joy.

- Tim O'Brien
TMR Managing Editor

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