Cheaper to collapse: How high redundancy costs are stopping manufacturers from restructuring

The high cost of redundancy payouts were a key reason for this week’s collapse of Melbourne car parts manufacturer APV Automotive Components and could stymie restructuring attempts by other manufacturers to restructuring, says an industrial relations expert.

APV Automotive called in receivers this week and Harry Hickling, the former managing director of APV Automotive, was reported to have said the unions were to blame for the company’s difficulties and that the company did not have the cash reserves to finance redundancies.

The average negotiated redundancy payout at APV automotive was 45 weeks, however some employees were owed a maximum cap of 100 weeks wages.

Industrial relations lawyer Andrew Douglas told SmartCompany manufacturing generally had a cap of 20 weeks redundancy payments and APV Manufacturing was not alone in being crippled by high redundancy payment requirements.

“These businesses are left in a position just to fold and don’t have the cash reserves to pay out redundancies,” says Douglas.

“The union has to face up to the fact that this is a threatened industry and needs to be realistic about losing jobs, and they have to increase levels of flexibility to meet the demands of the car makers.”

“They have to look at scrapping these redundancy caps and getting back to realistic redundancy payouts.”

“In every way these very clever, hard working businesses are being squeezed and the unions are just being more demanding.”

Douglas says BHP Billiton’s closure of the Norwich Park coal mine in central Queensland also could be partially blamed on union demands. 

“We are seeing an identical thing happen with BHP today, there are other factors but again there are crazy demands for wages and conditions that have caused the crisis.” 

“The unions are just not keeping up with what is happening in Australia.”

Douglas said the car parts manufacturing industry was going through tough times due to global pressures and demands for car manufacturers for “just in time” manufacturing which required short runs from manufacturers. 

“Car componentry business is under a fair amount of stress at the moment basically because there are global platforms for vehicles as the car companies can source components from all over the world,” says Douglas.

“Car components manufacturers in Australia are very squeezed and their viability is very threatened.”

“The reality is no matter what the Government does we are going to see a lot more car companies go to the wall and when they do there will not be money to pay redundancies.”

Stephen Longley of receivers PPB Advisory told SmartCompany “consistently falling demand has put many Australian automotive component manufacturers, and other manufacturers for that matter, under financial stress and quite often they do not have the available cash reserves to fund the restructure of their workforce necessary for the business to remain sustainable. 

“As a result, many continue to operate with more staff than it can afford and this only puts more pressure on business viability,” says Longley.

Paul Deflice, regional secretary of the Australian Manufacturing Workers Union, told SmartCompany the union had been unfairly blamed for the closure of APV Automotive.

“It is really offensive to the workers, because they are not highly paid workers and they are only on average getting $18 an hour and they have been on three or four day weeks for the last few years,” says Deflice.

“When these provisions were being negotiated there was give and take on both sides.”

Deflice says he also does not agree that high redundancy payouts were a key reason for APV Automotive’s failure.

“I don’t accept that reason because we gave [Hickling] a number of options to pursue and see if they were viable for him and one was to put out a voluntary redundancy, you pick the people at the bottom end and the majority of people were there for five to 10 years there were only a handful that qualify for the full 100 weeks redundancy.”

Deflice says Hickling claimed redundancies would cost the company $2 million, however it was unclear how this figure had been reached given there was never any agreement on who would be made redundant.

Deflice said it was unlikely redundancies would have cost anything like that.

“All the options we gave were rejected,” says Deflice.