Toyota has announced it would terminate automotive manufacturing operations in Australia by the end of 2017. Ford and General Motors (Holden) previously announced they would close their operations in 2016. The strength of the AUD has weighed heavily on an industry already struggling with inefficient scale and competition from low-cost operations elsewhere. The annual production of passenger motor vehicles, related light commercials and sports utility vehicles in Australia has declined from just over 400,000 units in 2004 to just 220,000 in 2012. Domestic sales of these cars more than halved from 286,000 in 2003 to 131,000 in 2012; export volumes have also declined. Over the same period, import volumes have almost doubled. According to the Commonwealth Department of Industry, the Australian vehicle manufacturing industry has not returned a trading profit since 2003 and, between then and 2012, has amassed losses of $4.37 billion.

The capacity of the Australian labour market to absorb a complete shutdown of these manufacturing operations will influence the extent to which the labour market will continue to soften. Media reports indicate that Toyota, Holden and Ford jointly directly employ around 8,000 people in vehicle assembly. Their joint closure, even if it occurred simultaneously, would not constitute the most serious one off retrenchment in Australian history: that distinction belongs to Ansett Airlines, which employed 16,000 people in 2001 and Ansett, unlike the vehicle plant closures, folded without warning.

However, there would be flow-on effects into automotive component manufacturing. Total motor vehicle and parts manufacturing employment in Australia was estimated by the ABS at around 45,000 in early 2013 (implying component part employment of around 37,000) – see table below. The main concerns relate to the risks of localised unemployment and the flexibility of people to obtain alternative employment. As a proportion of state employment, the car industry is biggest in Victoria (0.9%) and SA (0.6%): see table. Given that the closures are occurring over the next two or three years, there would seem to be time for some (but certainly not complete) adjustment in localised labour markets.

For further analysis download the full report.

• Motor vehicle headwinds – February 2014 (PDF, 58KB)