Holden’s future hangs in the balance

Are we looking at a future without Holden? asks Paul Murrell.

Holden’s future hangs in the balance. According to some pundits, the recent job and production cuts mark the beginning of the end for the iconic Australian manufacturer. On the other hand, it isn’t the first time forecasters have predicted oblivion for the company. But with Ford’s announcement that local production will end in October 2016, those predictions for Holden have become more insistent.

Only the most optimistic would think that General Motors in Detroit isn’t looking to the much cheaper manufacturing resources of China, Thailand or India, and that bodes ill for GM’s Australian operations. With our relatively high labour costs and stubbornly high dollar, it must be hard to make a business case for car production in the wide brown land.

Two men who can be said to have been through it all before are unequivocal in their opinions. Ex-Ford boss Jac Nasser thinks the demise of Holden is “inevitable”. Ex-Mitsubishi head Graham Spurling has compared the continuing government assistance as like “life support for a dying patient”. Holden’s announcement of a net loss of $152.8 million in 2012 suggests he may be right (although to be fair, the result included $226 million of special one-off charges associated with a restructure of the business).

If GMH does curl up its toes, it will have a devastating effect on South Australia specifically, and Australia generally. When Mitsubishi finally announced the end of local production of the ill-fated 380 in 2008, the Tonsley Park factory employed around 1000 people. It caused a mini-depression in the Adelaide southern suburbs that is still felt today. South Australia’s economy is even less healthy now than it was then, so the 500-odd Holden employees who have lost their jobs over the past year will find it very difficult to get new jobs. Around Australia, Holden currently directly employs 4190, 2200 of them in Elizabeth; dealers and service centres employ a further 12,000.  Local suppliers (predominantly in and around Elizabeth) provide employment for another 5160 people.

Ford’s decision to shut down local production will mean the loss of 1200 jobs with potentially catastrophic effects on Geelong and Broadmeadows. Should Holden follow suit and end local production, the consequences will almost certainly be worse.

Professor Barry Burgan of the Adelaide Business School estimates job losses as high as 16,000, due to the knock-on effect on retail, transport, construction and other manufacturing.

Holden repeatedly declares its “long-term commitment” to a future in Australia, but Mitsubishi made similar declarations before 2008.

Holden head honcho Mike Devereux has been firmly on-brief during his tenure in Australia: no car manufacturing company in any country in the world operates without government assistance. For good measure he adds, Australia’s contribution of $9 per head of population is one of the lowest in the developed world (in the UK it is $US27.99, in Germany $US90.37, and in the US $US264.82 – 2010 figures). Of the 20 largest economies in the world, 19 manufacture cars and receive direct assistance from their governments to do so. In the US, for example, BMW was given a 50 per cent deduction on import tax to encourage them to build a factory in South Carolina.

Devereux makes the point that Holden has created $32 billion worth of economic activity over the past 12 years, as against government assistance of $1.8 billion. For good measure, he adds that of the average $150 million annual assistance Holden has received, $120 million is directly returned to the government in the form of employee income tax.

For politicians, the decision to continue assistance is a simple matter of whether the benefits outweigh the costs. There is understandable cynicism about industry assistance and whether it does, in fact, result in higher employment. Devereux points out that other countries provide direct and indirect assistance to their manufacturing industries such as tax holidays and other incentives. China has imposed a tariff on some imported large cars and Brazil has introduced a 30% tariff across the board; the US has a 25% protective tariff barrier for its trucks and utilities.

Mike Devereux points out, “we have restructured our manufacturing operations to improve productivity, reduce structural costs and match production to demand. The updated Cruze has been critically acclaimed for its local engineering and drive performance, and we are confident VF Commodore will win hearts and minds – it’s the most technologically advanced car ever created in Australia. In addition to our new product investments Holden dealers have invested more than $100 million in new and substantially upgraded facilities, vehicle service equipment and customer management systems.”

Running a car company is never going to be easy. Planning must be done years in advance and predictions made about trends, exchange rates, consumer preferences, and a multitude of other factors. It is easy to say Holden’s problems would never have come about if only they had produced cars people want to buy at the prices they are willing to pay, but that is a huge over-simplification.

The new Cruze is a very good car indeed and deserves to succeed, but it is fighting a real battle against imports enjoying the advantage of our dollar’s strong buying power. It remains to be seen if the new VF Commodore can halt the decline in big car sales; the sharp new prices will certainly help (the Commodore VF starts at $34,990, the first time a Commodore has been less than $35,000 since 1999) but big cars are under threat for more reasons than initial purchase price.

With annual Australian sales of motor vehicles now apparently permanently above one million, the future should be bright for the motor industry. But 90% of those new vehicles are imports. Quite simply, for our local manufacturers there are no simple answers…

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Isaac Bober

Isaac Bober