Ford Plans to Shut Its 2 Plants in Australia

The U.S. automaker’s Australian unit will close its engine plant in Geelong and its vehicle assembly plant in Broadmeadows, both in the state of Victoria, with the loss of 1,200 jobs, Bob Graziano, chief executive of Ford Australia, said Thursday.

Ford, which built 37,000 vehicles in Australia last year, has been in the country since 1925 and employs more than 3,000 people. But it has been battling sliding sales, high costs and an Australian dollar trading above the U.S. currency.

“Our costs are double that of Europe and nearly four times Ford in Asia,” Mr. Graziano said. “The business case simply did not stack up. Manufacturing is not viable for Ford in Australia.”

Ford’s decision to end its local production highlights the challenges the country faces as a near decade-long mining boom begins to fade. Policy makers hope other sectors of the economy like manufacturing, construction and retail will start to pick up the slack, but evidence has been scant so far.

The Australian dollar has traded above parity with the U.S. dollar for most of the past two years — it fell to about 97 cents only this week — making it more difficult for local manufacturers to compete globally.

Mr. Graziano said Ford had lost 600 million Australian dollars, or $581 million, in the past five years in Australia, and 141 million dollars in the last financial year, as customers turned to smaller imported vehicles built by Mazda of Japan and Hyundai of South Korea.

The country’s performance of manufacturing index fell to a four-year low in April, indicating continuing contraction in the sector despite record low interest rates of 2.75 percent.

“Australia’s manufacturing sector continues to underperform other parts of the globe,” Savanth Sebastian, a CommSec economist, said in a research note this month.

“The main difference is the strength of the Aussie dollar, which clearly is causing businesses to markedly reassess the viability of ongoing operations as well as strategic direction,” Mr. Sebastian said.

General Motors Holden, the local unit of G.M., said last month that it was cutting 500 jobs, or 18 percent of its work force. It also cited the damage to its competitiveness from the strength of the Australian dollar.

Ford’s decision is likely to lead to a dispute over state assistance to the auto industry ahead of elections in September.

Opinion polls suggest that the minority Labor government is heading for a bruising defeat, largely because of its perceived mismanagement of the economy.

Labor has earmarked about 5.4 billion dollars for car industry assistance until 2020, pointing to the sector’s importance in maintaining heavy-industry skills and employment.

The Australian automotive industry employs about 55,000 people and supports 200,000 other manufacturing jobs. Ford’s closure is likely to affect the economies of scale at other local builders, G.M. and Toyota Motor.

Prime Minister Julia Gillard said the government’s immediate priority would be to support workers affected by the closures, who are likely to include employees of parts makers already hurt by Mitsubishi Motors’ closure of its Australian plants in 2008.

“The economy that we have today has many sources of strength, but the high Australian dollar is putting a lot of pressure on some industries, particularly manufacturing,” Ms. Gillard said.

Australia’s Reserve Bank expects the 1.5 trillion dollar economy to grow slightly below trend at 2.5 percent this year, returning to average or trend rates in 2014. Unemployment is expected to rise slightly to 5.75 percent.

Australia has annual sales of approximately 1.1 million new vehicles, and deliveries were up 7.6 percent, to 85,117, in April. But annual sales of locally manufactured vehicles have fallen to about 221,000 in recent years, from almost 389,000 in 2005.

At home in North America, Ford is faring better and announced Wednesday that it was adding a week of production at most of its factories to build an extra 40,000 vehicles.