ACL Bearings (a division of Automotive Components Ltd., Australia) is on its way toward receiving as much as AU $7 million in phased aid from the Tasmanian Industry Support Scheme (
TISS), a dramatic change in fortune after months of obscure bureaucratic delays and a hoped-for $4 million package.
Suddenly, the government minister is describing the aid to ACL as, "not only warranted but essential," waking up to the possibility that, without engine bearings, Ford, Toyota and Holden car plants would shut down within days, eventually idling as many as 5,000 people across Australia's auto manufacturing industry.
Founded in 1949, ACL is Australia's only thinwall engine bearing manufacturer, and also produces some other powder metal components. ACL is the sole engine bearing supplier to Ford, Holden, and Toyota in Australia, and holds a major portion of the aftermarket. But it is not completely dependent upon the Australian market; over half the company's engine bearings are exported.
ACL does all this from a single facility, located in Launceston, Tasmania and employing close to 300 workers. The Launceston bearing factory is actually four separate facilities, vertically integrated, from strip to finished bearings.
The government's sudden change of heart has been criticized by some as political maneuvering: helping a troubled company simply because it is fortuitously located in a tightly-contested political arena.
But there are strings attached to the $7 million, three-year package, which will be released in stages as ACL makes strategic capital investments and achieves specific performance milestones in a 14-stage restructuring plan. In addition, none of the company's 280 jobs are to be cut.
Due for review and approval in September, no details have been made public other than general information about making engine bearing production more efficient through investments in robotics and automation, adding capacity for powder metal components, and improving tooling costs and turnaround.
As much as $7 million more will come from ACL itself in terms of cost savings. In addition, ACL's key customers Ford and Toyota have agreed to step in and offer their own unspecified support packages.
ACL's most recent offer had been just $4 million, and even then only if directors agreed to sign personal guarantees for the loan. ACL understandably rejected the arrangement.
ACL's problems began with the declining Australian and world automotive industry -- the company lost $11.5 million in 2007 and $8.7 million in 2008 -- but were exacerbated when its lender, GE Capital, decided to pull out of the Australian market. In the current environment, ACL found it was unable to find any lenders willing to step in and replace GE's financing. GE did agree to extend the loan term in order to give ACL additional time to find replacement sources of funding.
ACL had initially asked for $10 million as part of Australia's Automotive Industry Structural Adjustment Program, an auto industry bailout, but was rejected in late 2008.
Since early 2008, ACL has cut the workforce by 25%, and overall employment is down almost 50% from its peak. Beginning in early 2009, workers have been on four-day workweeks, and salaried management has taken a 16% cut in pay.
Asked to justify why ACL should now be getting aid when other auto industry suppliers have been allowed to founder, the government's response has become clearer.
Industry Minister Kim Carr acknowledged that a number of other auto industry suppliers are also in trouble, and some have shut down. But ACL is a special case where, the government argues, any disruption in the supply of such a fundamental component as bearings will have a domino effect disrupting the entire Australian auto manufacturing industry. Carr said: "I'm not able to give undertakings in regard to all other companies, I'm only able to give undertakings in regard to this company and these circumstances, which are exceptional, and under these terms and conditions."
Allowing ACL to go through bankruptcy (receivership/administration) would have disrupted the company's operations and the auto industry as a whole, indicated Carr. "This is a decision in the national interest. If ACL had collapsed, Ford and Toyota would have been in very difficult circumstances. Thousands of workers would have been stood down and production lines would have halted. I take the view that placing a company of this importance under administration left the industry as a whole very vulnerable."
ACL Chairman, Ivan James, said: "There's no certainty in this industry of ours. We've got global competitors. We're competing with China, we're competing with India, with the USA, with Europe." He went on to say: "This is a once in a lifetime chance for many of our people to reinvent the company and prepare it for its future."
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