Ford Motor Company announced Thursday that it would stop making cars in Australia within two years because high costs and low volumes mean it cannot compete with imported vehicles.
Ford Australia chief Bob Graziano said that closing its plant in Melbourne and the other 60 kilometres further south-west in Geelong would see 1,200 workers laid off by October 2016.
"Our costs are double that of Europe and nearly four times Ford in Asia," he said. "The business case simply did not stack up."
The three remaining major manufacturers in Australia - Ford, fellow US-based General Motors Company and Japan's Toyota Motor Corporation - produce fewer than half the number of cars they did in 1970, when high import tariffs allowed them to take 70 per cent of the market.
Import tariffs are now between 5 and 10 per cent of the cost of imported vehicles, but subsidies to the local industry are still in place. State subsidies have cost taxpayers 12 billion Australian dollars (11.6 billion US dollars) in the past decade.
Industry analysts say removing subsidies would see General Motors and Toyota pull out as well.
Politicians on both sides of the political divide see local car manufacturing as an emblem of national prestige.
"We believe it's important to support manufacturing in this country," Assistant Treasurer David Bradbury said.
His opposition Liberal Party counterpart, Mathias Cormann, would not rule out continuing subsidies if the conservatives win the September 14 parliamentary election.
Alex Malley, head of finance industry lobby group CPA Australia, described industry policy as "myopic" and argued against financial assistance for car manufacturers.
Subsidies had "propped up an uncompetitive industry that hasn't been able to stand on its own," he said in a statement. "They have given false hope, cruelly raised expectations."
Electrical Trades Union leader Allen Hicks called for continuing protection, saying "we need to manage our economy in a way that protects the future of all Australian industries, rather than becoming completely dependent on mineral wealth."
Prime Minister Julia Gillard said laid-off Ford workers, who on average earn twice as much as their US counterparts, would be able to seek support from a benefit fund worth 40 million Australian dollars.
"I call on Ford to make a substantial contribution to this fund as well," she said.
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