Ford Australia has confirmed earlier local media speculation that it would stop making engines at the 82-year-old Geelong plant, southwest of Melbourne, in Victoria state, from 2010.

The automaker will replace locally made in-line six-cylinder engines, which are fitted to its Australian-designed Falcon and Territory ranges, with an imported V6 engine and sack about 600 workers, Dow Jones reported, citing a statement from the automaker.

Ford has been hit by a slump in large-car sales as high fuel prices force Australian buyers into smaller models and it is also thought that the automaker would have found the cost of upgrading its current I6 motors to meet new Euro IV emissions laws starting in 2010 too expensive. A redesigned 2008 Falcon is due out in the next few months.

"The decision to introduce the new engine and discontinue engine operations at Geelong follows industry-wide changes in consumer behaviour, including lower demand for large cars and the corresponding increase in popularity of smaller, imported vehicles," Ford said, according to the news agency.

"These changes have seen sales of locally produced vehicles as a percentage of the total industry in Australia fall from 36.1% in 1998 to 19.4% year-to-date in 2007."

Dow Jones noted that the Falcon recorded its lowest annual sales in 40 years in 2006, dropping to third in the list of Australia's most popular cars, behind General Motors' Australian unit Holden's Commodore and the Toyota Corolla.

The Australian dollar has been boosted by the China-driven mining boom so manufacturers have been hit by higher raw-materials costs and increased competition from less-expensive imports, the report added.

The new engine will be imported from Ford's US engine plants that are anticipated to produce about 1m engines a year by 2011, Ford told the news agency. The Australian engine operation currently produces 70,000 engines each year.

Mitsubishi Australia closed a South Australia engine plant in 2004 after export sales dwindled following a major model changeover and a change of heart at headquarters in Japan. Rival GM's Holden and Toyota both gain economies of scale from exports. Holden sends the Commodore, particularly left-hand drive Chevrolet-branded units to the Middle East, and has recently secured a second deal to make Pontiac versions for the US, while Toyota ships LHD Camry models to the Middle East.

In contrast, Ford builds only right-hand drive cars and its major overseas market is neighbouring New Zealand, a small market dominated by used car imports. A local report said Ford exported only about 7,000 cars a year currently.

Ford Australia said recently it was considering a number of restructure plans to improve economies of scale and ensure its long-term viability and told Dow Jones it would also consider how to improve capacity utilisation at its Broadmeadows car assembly plant.

Local media have speculated the company may introduce a small car line such as the European Focus - currently imported from South Africa - to Australian assembly. It last built such a model - Mazda's 323 restyled and rebranded as the Ford Focus - in the 1980s.

"The improved economies of scale resulting from the globally-sourced engine will offer increased flexibility to potentially incorporate future alternative fuel strategies, particularly diesel technology," Ford said.

The company has been criticised for not offering a diesel engine in its Territory, an SUV spin-off of the Falcon, even though most Asian rivals offer the more fuel-efficient alternative at a time of high petrol prices.

Dow Jones noted that Ford had previously slashed its Australian workforce by 10%, or 600 jobs, last year, after previously announcing it was reducing production at its two plants in Victoria state by 20% because of slowing sales and said the latest announcement would be an embarrassment for the federal government, which had offered $A7.3bn in subsidies over 15 years for Australian automakers to continue manufacturing.

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