Hours after naming Mary Barra as CEO, General Motors said it would end vehicle and engine manufacturing and “significantly reduce” engineering operations in Australia by the end of 2017.
It would move to a “national sales company” in Australia and New Zealand, selling imported vehicles.
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Holden started in Melbourne in 1856 as a saddlery manufacturer. In 1908 it moved into the automotive field before becoming a GM subsidiary in 1931 as a local vehicle body builder and assembler of overseas components. It moved into full local manufacture of Holden brand cars in 1948 while continuing CKD assembly of some Vauxhall and Canadian sourced US-designed models until the late 1960s.
CKD kit assembly in New Zealand of models sourced from the UK, Canada and Australia ended after 64 years in 1990 though truck assembly carried on for several more years.
“We are completely dedicated to strengthening our global operations while meeting the needs of our customers,” said outgoing GM chairman and CEO Dan Akerson.
“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, small domestic market and arguably the most competitive and fragmented auto market in the world.”
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By GlobalDataThe move will axe about 2,900 jobs over the next four years – 1,600 at the Elizabeth, South Australia, Commodore and Cruze vehicle manufacturing plant and about 1,300 at engineering and engine operations in Victoria.
Holden insisted it would “continue to have a significant presence in Australia beyond 2017, comprising a national sales company, a national parts distribution centre and a global design studio”.
GM Holden chairman and managing director Mike Devereux said an important priority over the next four years would be to ensure “the best possible transition” for workers in South Australia and Victoria.
“This has been a difficult decision given Holden’s long and proud history of building vehicles in Australia,” said Devereux. “We are dedicated to working with our teams, unions and the local communities, along with the federal and state governments, to support our people.”
Sales and service of Holden vehicles will be unaffected and will continue through dealers across Australia and New Zealand. Warranty terms and spare parts availability will remain unchanged.
“GM remains committed to the automotive industry in Australia and New Zealand. We recognise the need for change and understand the government’s point of view. Moving forward, our business model will change significantly however, GM Holden will remain an integral part of its communities and an important employer both directly and through our dealers,” Devereux said.
Since 2001, the Australian dollar has risen from US$0.50 to as high as US$1.10 and from as low as 47 to as high as 79 on the Trade Weighted Index. The Australian automotive industry is heavily trade exposed. The appreciation of the currency alone means that at the Australian dollar’s peak, making things in Australia was 65% more expensive compared to just a decade earlier.
With the decision to discontinue vehicle and engine manufacturing in Australia by the end of 2017, GM expects to record pre-tax charges of US$400m to US$600m in the fourth quarter of 2013. The charges would consist of approximately US$300m million to US$500m for non-cash asset impairment charges including property, plant and equipment and approximately US$100m for cash payment of exit-related costs including employee severance related costs.
Additional charges are expected to be incurred to the end of 2017 for incremental future cash payments of employee severance once negotiations of the amount are completed with the employees’ union. The asset impairment charges will be considered special for EBIT-adjusted reporting purposes.
Auto manufacturers have been pulling out of Australia for several decades. Since the 1970s, CKD kit assembly operations such as Toyota’s and Nissan’s either turned into full manufacturing operations or ended due to easing restrictions. Leyland Australia pulled the plug on full manufacturing in 1974, Chrysle sold out to Mitsubishi, which ended local manufacturing several years ago, Nissan departed in 1994 and Ford said recently it would be out in 2016.
That led to much speculation about Holden right up to a government hearing on Tuesday and attention will now turn to the sole holdout – Toyota.
The company, which is working on taking about A$3,700 of cost per car out in the hope of winning the contract to build the next generation Camry (also exported to the Middle East) said in a statement: “We are saddened to learn of GM Holden’s decision. This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia.
“We will now work with our suppliers, key stakeholders and the government to determine our next steps and whether we can continue operating as the sole vehicle manufacturer in Australia.
“We will continue with our transformation journey as planned.”
