A Cruze hatchback on the line at Holdens Elizabeth plant

A Cruze hatchback on the line at Holden's Elizabeth plant

GM Holden has been given A$275m (US$354m) in taxpayer assistance to build two completely new cars in Australia in the second half of this decade.

The car maker has committed A$1bn of its own cash under the co-investment deal which company chairman Mike Devereux said would secure the next generation of Holden cars.

He added: “Co-investment of this kind is critical for our industry and helps Australia compete against other car-making countries that protect their industries through tariffs and/or financial support.''

The federal government has contributed A$215m and the balance is coming from the state governments of South Australia and Victoria. Prime minister Julia Gillard said the deal would put about $4bn into the Australian economy and support thousands of jobs and insisted: “This is a strategic co-investment, this is not a handout.”

The federal and Victorian state governments will also give an extra A$35m to help components firms move into export markets. Gillard said the co-investment addressed a risk that Holden faced closing its operations in what would be a “knock-out” blow for Australian manufacturing.

GM had warned that without the investment, it would leave Australia by 2016.

Under the deal, Holden will continue making cars in Australia until at least 2022, retaining domestic manufacturing, design and engineering operations. The company said the two new models would be produced at the current plant at Elizabeth, near Adelaide in South Australia.

Holden is one of Australia's oldest companies having begun as a horse-drawn wagon and coach builder. Pre world war two, it assembled locally made car bodies on to imported chassis and drivetrains. Having won a government 'contest' to become the country's first indigenous car maker, it set up for full manufacturing and built the first Holden-brand cars in 1948. Heavily protected from imports by tariffs and other measures, Holden was for years afterwards the top-selling brand and, at one time, had assembly plants in New South Wales and Queensland and Victoria.

Industry Minister Greg Combet said that without the co-investment Holden would have likely closed operations in Australia which would have had a big impact in Adelaide's northern suburbs, where the Elizabeth plant is based.

Holden said it was conscious of the need to deliver a return on investment for Australian taxpayers over the 10-year life of the programme. Devereux said the industry needed such investment to retain its ability to design and build cars.

He added: “Australia does not compete on a level playing field and without co-investment this country would struggle to attract new capital investment.”

Ford struck a co-investment deal with the federal and Victorian governments in January worth around A$103m to keep the company's Melbourne plant open until at least 2016.

Additional reporting by Graeme Roberts