High Costs Force GM Holden to End Australian Manufacturing

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General Motors Co.’s Holden unit says it will stop making cars in Australia by the end of 2017, becoming the second automaker this year to announce its exit because of high production costs and a strong local currency.

About 2,900 employees will lose their jobs at the automaker’s plants in South Australia and Victoria, according to a statement released in Detroit on the same day GM announced Dan Akerson will step down in January as Chairman and CEO.

“The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, (a) small domestic market, and arguably the most competitive and fragmented auto market in the world,” Akerson said in the statement.

The local operations of GM, Ford Motor Co., and Toyota Motor Corp. have been hit by an Australian dollar that surged almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports. Facing a deteriorating budget position, Prime Minister Tony Abbott’s coalition government plans to cut $457 million from subsidies to the car industry by 2015.

Holden’s decision spells the end of the car industry in Australia and Toyota will be unable to survive, says Dave Smith, head of the Australian Manufacturing Workers’ Union’s vehicles division. “All of the manufacturing will go,” he says.

GM will continue to  have a presence in Australia, including a national sales company, a parts distribution center, and a design studio. It expects to record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013 due to the decision, the automaker said.

Australia’s previous labor government had set aside about $4.9 billion for the domestic car industry until 2020 and pledged another $640 million during the five-week election campaign. In August, Abbott, who won the Sept. 7 election, said his government wouldn’t “run down the road after Holden waving a blank check at them.”

 “We regret the fact that GM is to phase down its operations in the country,” Acting Prime Minister Warren Truss told parliament in Canberra, Australia’s capital city, today. “Holden has been an iconic national brand for Australians, a part of our heritage.”

In March 2012, GM said that Holden would continue making cars in Australia until at least 2022, after the former government announced a $275 million assistance package. Costs at Holden were up about 60 percent from 10 years ago, making it one of GM’s most expensive operations, Mike Devereux, Holden’s managing director, said in April.

GM’s Holden unit received an average of nearly $140 million a year in Australian federal government assistance from 2001 to 2012, according to a Nov. 27 submission to the government’s productivity commission.

The value of government assistance has outstripped Holden’s own capital investment every year since 2007, according to the report. Since 2004, the GM unit only posted a profit in two years, 2010 and 2011.

Cars made in Australia slumped to 13 percent of domestic sales in 2012 from 80 percent in 1984, according to data from Ford and the Federal Chamber of Automotive Industries.

In May, Ford announced plans to close its Australian car lines in 2016.

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