FORD OPTIMISTIC EVEN AS AUTOMOTIVE SLOWDOWN

C O N F I D E N T I A L SECTION 01 OF 02 MELBOURNE 000150

SIPDIS

E.O. 12958: DECL: 12/17/2018
TAGS: EIND ECON ETRD AS
SUBJECT: FORD OPTIMISTIC EVEN AS AUTOMOTIVE SLOWDOWN
CONTINUES

REF: A. A) CANBERRA 1134

B. B) CANBERRA 1079

C. C) MELBOURNE 137

D. D) MELBOURNE 125

Classified By: Michael Thurston, Consul General, Melbourne. Reasons: 1
.4(d)

Summary
--------------


1. (C) Despite ongoing challenges in the Australian auto
industry, Ford says it is holding its own. Handouts from the
Rudd government have been well received by the industry and
Ford Australia's CEO remains optimistic. However, Ford is
reexamining its position in the highly competitive Australian
market, and may cease manufacturing cars in Australia if
market conditions dictate. End Summary.

Ford "Holding its Own"
--------------


2. (C) Ford, similar to GM/Holden, continues to face
significant obstacles in Australia. During a December 15
meeting, Ford Australia CEO Marin Burela told Consul General
that low consumer confidence, a fractured supply chain, tough
international competition and tight financing remain
challenges for Ford Australia (reftels). Burela is "worried"
about the future of Australia's components manufacturing
sector and has already started to look overseas for parts as
concern mounts over the reliability of smaller Australian
firms. He believes the components industry desperately needs
a well thought out consolidation with support from the
Australian government. In addition, the auto industry has
yet to develop a strategy for dealing with cyclical downturns
despite their regularity in the car business.


3. (SBU) Despite this daunting list of challenges, Burela
said that Ford is "holding its own." According to Burela,
Ford's global board saw a "storm on the horizon" two years
ago and raised a significant amount of capital by divesting
premium brands Aston-Martin, Jaguar and Land Rover as well as
borrowing from commercial lenders. Burela, who was
previously the lead for Ford's Global Small Car project in
Europe, said that Ford would listen to a reasonable offer to
sell Volvo. For this reason, Burela believes that Ford will
have enough cash to carry it well into 2009. He praised the
Rudd government's automotive assistance plan announced on
November 10 (ref. A) as "comprehensive, providing the
appropriate level of assistance to the industry." Burela
stated that the plan includes a "market reality check" that
protects taxpayers by only reimbursing manufacturers for
producing cars that the consumer wants.


4. (SBU) Dealerships are feeling the brunt of the slowdown as
consumer financing remains a challenge (reftels). Burela
noted, however, that the Rudd government's December 5
announcement of a "Special Purpose Vehicle" fund will help to
fill the void left by GE and GMAC's exodus from the auto
financing market. The plan, which is due to commence on
January 1 with support from Australia's four major banks,
will provide liquidity to dealerships for up to one year
until a more permanent solution can be found. He also
described a strong effort on Ford's part to improve the
customer experience when visiting Ford dealerships. Turning
to his competitors, Burela said that he was "worried" about
GM/Holden and warned that the supply base in Australia would
not work well without General Motors.

End of Ford Australia Manufacturing?
--------------


5. (C) Burela has a three pronged strategy for seeing Ford
Australia through the storm. First, he acknowledges that
Australians have shifted their preference from large cars to
small, medium and lifestyle vehicles. Burela is gambling
that the newly designed Ford Fiesta - a small, stylish four
cylinder vehicle that will be marketed globally - will
capture the imagination of a new generation of buyers. The
Fiesta will also be available in a diesel engine and an
after-market liquefied petroleum gas (LPG) conversion model;
both of which are popular in Australia. Once on the showroom
floor, Burela hopes that these new customers will consider
Ford's other models. Second, Ford Australia will work to
target its marketing plan in Australia. Burela said that his
company has struggled to communicate recent accolades such as
the Ford Falcon G6E turbo winning Cars Guide's 2008 Car of
the Year award. Burela wants to give Australian consumers
fewer, high quality choices that are accompanied by

MELBOURNE 00000150 002 OF 002


distinctive "ambiance."


6. (C) Finally, Burela intends to right size Ford Australia.
He said that the "build it and they will come" approach has
not worked. When asked about the future of the 6-cylinder
Ford Falcon, which is manufactured entirely in Australia,
Burela responded that Ford Australia may eventually cease
production of the vehicle. The proliferation of brands into
Australia has squeezed Ford's market share and Burela
believes that the company may not be able to maintain the
volume necessary to sustain production facilities in
Australia. Burela went on to say that global platforms are
becoming more important in the auto industry and the Ford
Falcon, essentially an Australia-only platform, is in danger
of becoming obsolete. Burela described the Falcon as a
"bridge" to hold Ford Australia over until the imported
Fiesta could take hold and begin to rebrand Ford.


7. (SBU) Although Burela touted his company's A$21 million
(US$14 million) investment into its Geelong engine plant, he
admitted that the engines would only meet Euro 4 regulations
rather than the present Euro 5 standard. (Note: In addition
to the Falcon, Ford Australia also manufactures a sports
utility truck, the "Ute." End note.) In addition, Burela
said that Ford is tweaking the existing in-line 6-cylinder
engine rather than developing next generation V-6 technology.
Ford Australia's business model is not heavily export
oriented. In 2007, Ford exported only 7000 vehicles, mostly
to South Africa and New Zealand. Burela stated that Ford
Australia is more focused on exporting intellectual property
and highlighted a A$600 million (US$402 million) pick-up
truck designed in Australia that will be sold overseas.

Comment
--------------


8. (C) Ford Australia's new CEO, who called for 450
additional redundancies after arriving on October 1, is
globally rather than locally oriented. In contrast,
GM/Holden's chief Mark Reuss sees his company as an
independent business unit attached to General Motors. When
asked about Ford's troubles in Australia, Burela's first
impulse was to discuss the relative strength of the global
Ford brand vis-a-vis other U.S. manufacturers. While Ford
Australia is intimately tied to the fate of the U.S. parent,
Burela exuded confidence that the Rudd government's recent
assistance packages will help Ford, GM/Holden and Toyota
survive in Australia. The Australian auto industry is not
yet out of the woods, however, and Burela's comments about
the end of Australian manufactured Ford vehicles would surely
be met with a healthy degree of opposition in many circles.
THURSTON