President and CEO of Ford Australia Bob Graziano announces Ford will stop local manufacturing in October 2016, in Melbourne on May 23, 2013. - AFP Photo

MELBOURNE: Ford announced Thursday it would stop making vehicles at its unprofitable Australian plants in 2016 and axe 1,200 jobs, ending an era that began in 1925 with the legendary Model T.

Ford Australia chief executive Bob Graziano made the announcement as he revealed losses of Aus$141 million (US$136 million) after tax in the last financial year and Aus$600 million over the last five years.

Graziano said the decision was the result of local manufacturing being “driven by increasingly challenging market conditions – including market fragmentation and the high cost of manufacturing”.

Australia has annual sales of about 1.1 million new vehicles, and customers have access to some 65 brands and 365 models, with Holden, a General Motors subsidiary, and Toyota the other key manufacturers.

Graziano said this made Australia one of the most competitive and crowded automotive markets in the world, and a strong currency was making it harder for domestic carmakers to compete with cheap imports.

“Given the fragmented marketplace and the low model volumes that result, we decided that manufacturing locally is no longer viable,” he said, adding that all alternatives had been considered.

“Our costs are double that of Europe and nearly four times Ford in Asia,” he said.

“The business case simply did not stack up, leading us to the conclusion (that) manufacturing is not viable for Ford in Australia in the long-term.”

The jobs will go at Ford's Broadmeadows and Geelong factories in Victoria state, which will close. While manufacturing will stop, Ford will remain in Australia as an importer and dealer, employing some 1,500 people.

The government said it had spoken with the chief executives of Holden and Toyota and been assured that both were committed to manufacturing in Australia, but concerns remain.

Last month Ford's former global president Jac Nasser, now chairman at BHP Billiton, said the demise of Australian car manufacturing was inevitable if one or more producers closed down.

“Let's assume one of the three decide to exit Australia in terms of manufacturing, then you end up potentially with a sub-scale supplier infrastructure and, once that happens, I think it's a domino effect,” he said.

“It would be a very sad day for Australia, but unfortunately it looks like it could be inevitable.”

The automobile manufacturing sector employs more than 50,000 people in Australia with another 250,000 jobs in associated industries.

Australian Manufacturing Workers Union national president Paul Bastian said the Ford news was a “disaster” and voiced concern at the effect in the wider auto parts industry.

“We want to take the positives out of this. We want bipartisan support to see what we can do to ensure that we have an auto industry, that we have an industry that is sustainable,” he said.

Prime Minister Julia Gillard pledged Aus$39 million to help the Geelong and Broadmeadows communities deal with the job losses, and demanded Ford make its own contribution.

“For those working people as they absorb this news I want to say to them we will make sure you are not left behind,” she said.

Australia's auto industry is struggling with the effects of the high local dollar, which has traded near or above parity with the greenback for almost two years, squeezing exports and compounding rising production costs.

Canberra extended an Aus$3.2 billion bailout to the ailing sector at the height of the global downturn and provided additional lifelines to Ford and Holden last year.

Updated May 23, 2013 12:38pm

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