General Motors’ Australian Holden unit has announced plans to axe another 500 jobs, blaming the strength of the local dollar for falling sales of the Cruze and ‘homegrown’ Commodore.
Holden described Australia as “one of the most open and competitive car markets in the world” and said it was cutting production at its factory in Elizabeth, South Australia, from 400 cars per day now down to 335 by 1 August.
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The plant will lose about 400 workers and, in a move local commentators said was unprecedented, 100 engineering jobs in Victoria will also go. Local sources said this was because engineering work from other GM units worldwide was no longer going to Australia but was being done in China and Thailand.
Another local commentator said the GM Korea-designed Cruze, a smaller front-drive car than the ever more slowly selling large rear-drive Commodore, had been launched with hopes it would save Holden but sales have not met expectations as it competes with about 25 rival models in a segment which Japanese brands have dominated this year – and the Mazda 3 is the top selling car model.
There has also been a notable trend towards SUVs in recent years, hurting sales of the Commodore whose size and V6/V8 power were once Australian motoring staples.
Holden said it would offer “voluntary separation packages” to entice workers to leave as the latest “restructure will better align Holden with projected future volume and workload”.
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By GlobalDataChairman and managing director Mike Devereux said: “A workforce reduction is always the last resort and Holden has taken every possible step to address our challenges over the past 12 months, including market response [non production] days, aggressive marketing campaigns with significantly upgraded products and reduced pricing.
“This is a very difficult decision because people and their families are involved. These are hard-working Australian men and women and we will be doing everything in our power to help them make informed decisions about their future.
“But to protect the long-term future of Holden we have been forced to take these actions and this restructure will better align Holden with projected future volume and workload.
“The Australian automotive industry is heavily trade exposed. The appreciation of the currency means that making things in this country is 60% more expensive than it was 10 years ago. The currency is the strongest it’s been in more than 30 years,” added Devereux.
“We have made significant productivity gains but are witnessing a structural shift in the Australian market which favours importers due to a sustained high Australian dollar and extremely low tariffs. This perfect storm of economic conditions has put intense pressure on the local industry.
“Since we launched the Cruze small car in 2009, our pricing has been reduced by up to $2,500 in some instances for exactly the same vehicle in order to compete with imported brands. Meanwhile the cost of doing business and building cars in Australia has continued to rise.
“Competition in the Australian market is brutal, just between June and July of 2012 our Cruze volume decreased by 38% and it hasn’t come back – that is not a natural decline in a normal, stable market. There are huge external forces at play here.
“The value of the dollar and the currency plays being made by other countries mean we are not competing on a level playing field, even in our own backyard.
“Not only are we challenged to compete locally, but high volume export opportunities are not possible due to the strength of the Aussie dollar and the measures other countries take to fiercely protect their own local automotive industry.”
Australia has a free trade agreement with Thailand and many new ‘Japanese’ cars now come from plants there as companies like Honda and Nissan shift production outside Japan.
In the last 12 years, Holden received twice as much government funding (A$2.17bn) as local rivals Ford ($1.1bn) and Toyota ($1.2bn). Local media claimed Holden was not required to guarantee jobs in return for the taxpayers’ prop-up.
Devereux said Holden’s product development operations were facing similar pressures and challenges due to the unprecedented strength of the Australian dollar.
“Our development teams work on programmes not only for Australia but right around the world. We are competing globally for work with a historically high Australian dollar. This means we are now one of the most expensive engineering centres for GM in the world. We simply can’t secure the necessary workload to maintain our current hourly product development workforce.”
Holden, which employs about 4,000 in Australia, last year slashed its workforce by about 170, again citing a strong Australian dollar and slow car sales.
The government, which gave Holden a A$275m just last year to keep its plants open amid fears it would pull out of Australia, said it was disappointed with the news.
“The Gillard government remains committed to the Australian automotive sector and the manufacturing sector more broadly,” Gary Gray, the acting minister for climate change, industry and innovation, told news agency AFP.
“Car manufacturing is an integral part of the Australian economy, with some 250,000 people employed in the sector and associated industries.”
The Wall Street Journal said the Australian dollar is hovering around US$1.04 after passing parity with the US dollar in late 2010. It has appreciated against the greenback by about 70% in the past decade, partly due to sustained demand for Australia’s vast mineral and energy commodities from rapidly industrialising Asian economies such as China.
The dollar’s ascent has created what’s often referred to as a two-speed economy characterized by strength in the resources sector and opposing weakness among exporters, including manufacturers and tourism operators.
Toyota last year cut 7% of its Australian staff, blaming the dollar and a persistently weak market for vehicle exports, and Ford has also announced hundreds of layoffs in the past year, the WSJ noted.
Australia, once a market heavily protected by tariff barriers and unique safety and emissions regulations, used to be home to a variety of car manufacturers and knocked down kit assemblers but automakers have departed gradually as it was opened up. Volkswagen and Leyland pulled out in the 1970s, Nissan in the 1990s and Mitsubishi – which took over Chrysler in the 1980s – left several years ago.
With both parent companies struggling in Europe, local pundits do not expect the uniqie local rear-drive large cars made by Holden and Ford to be replaced due to the high development cost and low volumes and the general consensus is that Australian car manufacture will eventually end. Ford has not detailed any plans beyond 2016 and GM is seen lasting until 2022.
Toyota, which makes only the Camry in Australia, recently opened a new engine plant which also exports to Asia, suggesting it is taking a longer view.
