Boston, MA -- (SBWIRE) -- 04/10/2014 -- the past quarter, the last two manufacturers producing cars in Australia - Toyota Australia and General Motors' (GM) Holden subsidiary - both announced that they would be ending car and vehicle engine manufacturing operations in Australia by 2017. As such, BMI has now revised down its vehicle production forecasts. The (previously announced) exit of Ford Motor Company in 2016 will remove about 30,000 units from the market and the exit of GM and Toyota in 2017 will see production eventually falling towards zero by the end of our 2014-2018 forecast period.
When GM announced its 2017 departure in December 2013, we highlighted that Toyota Motor's decision to continue production in Australia was likely to go either way (see 'GM Withdrawal Risks Production Collapse', December 12 2013). In Toyota's favour was the fact that the firm's operations were the most viable among the three automakers, given that it enjoyed a good mix of domestic and export sales, which allowed it to turn a AUD149mn (US$134mn) profit for FY2012/13 (April-March).
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However, the strength of the Australian dollar, high costs of production, and strong competition from imported marques were three factors going against the Japanese carmaker. Furthermore, after GM announced its plan to end local manufacturing in the country by 2017, we suggested that many local component makers, which are current suppliers to GM, would eventually be forced to close down as they would not have sufficient economies of scale to remain viable. This would then have hurt production of some of Toyota's locally manufactured models, which we believe weighed heavily in the carmaker's decision to abandon its domestic production strategy altogether.
Indeed, Toyota will face far fewer challenges in its local operations by focusing solely on vehicle imports to satisfy local demand, which it has already been doing successfully. Ultimately, we also think that Toyota did not feel a need to maintain a production base in Australia, given its subsidiary's small profit contribution to its global operations. The firm's manufacturing bases in Thailand and Indonesia are much more vital to its Asia and Oceania operations, and the scale and profitability of those production bases make it more prudent for the carmaker to focus its investments in those countries.
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