Almost 600 jobs will be lost when a tyre factory in Melbourne’ closes at the end of the year: a decision that will generate some argument because of the problems in the car industry being caused by the rising price of oil and petrol.
The jobs and plant are a small but visible sign of the downside from the resources boom Australia is riding, especially the resources sector and those companies servicing it.
The country as a whole is benefiting: the government’s forecaster, ABARE, said it expected a 40% rise in the value of commodity exports in the 2009 financial year starting next Tuesday, with much of the increase coming from an 81% jump in the value of energy exports to $88 billion.
Mineral exports will be up sharply, especially for coking and thermal coal, and especially iron ore where the increase will be more than 80%.
We are truly riding this enormous boom flowing from the expansion in the Chinese economy, not to mention solid growth from India and a host of other emerging economies.
But like so many booms, there’s a downside where losers are to be found: we are enjoying, if that’s the word, the downside of our boom in the shape of the tight monetary policy from the Reserve Bank, which has already slowed domestic demand in the shape of retail sales and housing and sent consumer confidence to a 17 year low.
The workers at the South Pacific Tyres plant in Melbourne are the unwitting victims of the boom: their plant has been made uneconomic by the surging cost of oil and the rising value of the Australian dollar, which is around 95 USc, and up from around 78 USc in March of last year, thanks to the effects of the resources boom and our high interest rates.
Unlike the US market where sales are plunging and majors like Ford and General Motors are rapidly reshaping their businesses to remain viable, the impact on the Australian motor industry and sales has been muted.
Holden is closing an engine plant in Melbourne at a cost of around 500 jobs: that’s due more to changes within the GM empire (and not linked to the cuts announced in the US in the past three weeks).
But the trade unions are restive and want the Federal Government’s review of car industry protection and support to maintain assistance (what), which will cost us consumers hundreds of thousands of dollar per year for each employee’s jobs protected in the car makers.
The cuts by Southern Pacific Tyres, part of Goodyear, were flagged a while ago by the company, but not broken down. But it is the third major shutdown this year after the GM engine plant and the Mitsubishi closure in Adelaide.
The news that the South Pacific Tyres plant Somerton in Melbourne will close on December 31 under the plan to be confirmed in the US Thursday night by Goodyear. It will also detail other plant closures around the world including one in New Zealand aimed at saving $US150 million a year. Goodyear is looking to cut production by 25 million tyres a year, mostly from high cost countries like Australia, NZ, the US, Canada and Europe. More tyres will be made in Asia and many of these will be more expensive products.
Driving the decision is the rising cost of oil, and easing demand for tyres from developed markets like Australia, Japan, Europe and especially the US.
US based Cooper Tire & Rubber Co., which makes tyres mostly for the replacement market, said this week it had cut output from its North American factories during the second quarter.
The company said this was because the downturn in demand for tyres in the US and expected shortages of raw materials (natural rubber and the chemicals used to make synthetic rubber).
Cooper (which is well known here for tyres for four wheel drive vehicles) did not provide any more information or say whether layoffs would increase or overtime cut. It did say there would be an estimated $US12 million to $US14 million cost.
South Pacific produces Goodyear and Dunlop tyres from Somerton.
The company said in a statement that the closure was "in no way related to any lack of support from federal, state or local governments".
The surge in the cost of oil and the rise in the value of the Australian dollar have made it increasingly tough for local manufacturers. Rising steel prices are also having an impact.
Australian steel prices will be 35% to 50% higher by the end of the year, thanks in part to higher energy costs, but especially because of the big coking coal and iron ore prices won by the likes of BHP Billiton and Rio Tinto. Some foreign steel companies (Posco of South Korea) have boosted steel prices by up to 60% already this year.
Chemical costs are rising around the world and the giant Dow group of the US has provided a stark illustration this month of the pressures it and its peers are under. In late May it lifted all prices 20% to apply from June 1.
This week prices went up 15% from July 1 and the company applies transport surcharges as well where it was delivering the products.
While there are winners in Western Australia in terms of jobs and companies and the nation benefits as a whole from the boom, there will also be losers and the workers at Somerton are unlucky enough to be in that category.
Their pain will be eased by the still strong jobs market. All Mitsubishi workers in Adelaide got jobs within a month or so of the plant’s closure being announced.
Unions made one good point yesterday. They pointed out that South Pacific management closed their local truck tyre manufacturing in 2000 and missed the boom in the market for commercial vehicles servicing the mining industry.
That decision was sold as a necessary cost saving, but in reality it cost the company a lot of lost business.
So many Aus
