Ford Motor Company has announced that it will stop making cars in Australia within two years because high costs and low volumes mean it cannot compete with imported vehicles.
Bob Graziano, Ford Australia chief, said on Thursday that closing its plant in Melbourne and the other, 60km further southwest 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."
Australia's car industry is struggling with the effects of the high local dollar, which has traded near or above parity with the US dollar for almost two years, hurting exports and compounding rising production costs.
Though Australia did not go into recession during the global financial crisis, domestic confidence has failed to return to pre-crisis levels, also hitting car sales.
Lifelines to manufacturers
Australia extended an Aus$3.2bn bailout to the ailing sector at the height of the global downturn and stepped in with additional lifelines to Ford and General Motors subsidiary Holden last year.
The country's three remaining major manufacturers - 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 five 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 Aus$12bn ($11.6bn) in the past decade.
Industry analysts say removing subsidies would see General Motors and Toyota pull out as well.
Ford first began making vehicles in Australia in 1925, when Model T cars rolled off the production line in Geelong.
Julia Gillard, prime minister, 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 Aus$40m.
"I call on Ford to make a substantial contribution to this fund as well," she said.
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," David Bradbury, assistant treasurer, 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."
Allen Hicks, Electrical Trades Union leader, 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."