High Aussie costs drive Holden out

PHOTO: High Aussie costs drive Holden out

Australia is facing the end of its car industry and the loss of thousands of jobs after the biggest local manufacturer, Holden, confirmed it will leave in 2017.

The departure of Holden, owned by the Detroit-based American car giant General Motors, follows Ford's plans to go by 2016 and leaves only Toyota remaining in Australia. The move is set to cause ripples across the economy and could spell the end of an industry which employs about 46,000 people.

Holden's boss Mike Devereux on Wednesday said the decision to close its plants in the states of Victoria and South Australia was "irreversible" and was made by senior managers in Detroit.

He said Holden would keep a sales team but cut about 2,900 workers, saying the decision was due to the strong Australian dollar, high production costs and the small relative size of the local market. "This is an incredibly difficult day for everybody at Holden, given our long and proud history of building cars in Australia," he added. "Building cars in this country is just not sustainable."

Toyota's future will now be in doubt because small-scale support business such as parts and components makers will no longer be viable. Toyota, which employs 4,200 people in Australia, warned on Wednesday that it will have to consider its position.

"This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia," it said.

Holden, Australia's most iconic car company, has been making vehicles at home for 65 years.

Wednesday's announcement follows weeks of speculation and heated debate over whether Prime Minister Tony Abbott should beef up subsidies for the embattled car industry.

Mr Abbott has faced heavy criticism over his refusal to offer more handouts to Holden. A South Australian MP, Mr Nick Xenophon, said on Wednesday that Holden's departure would cause an "economic tsunami".

Mr Abbott said it was a "bad, sad day" for Australian manufacturing. "This is a dark day but there will be better days ahead," he told Parliament after returning from the memorial service for Mr Nelson Mandela in South Africa.

Australia is just one of 13 countries that produce cars from start to finish. As in most of these nations, the government provides massive subsidies. Holden has received about A$1.8 billion (S$2 billion) over the last decade.

Supporters of the industry say the subsidy amounts to A$18 per Australian each year, which is far less than subsidies in other countries - such as A$90 per person given by Germany and the A$96 per head that helped rescue the United States auto industry.

But production costs in Australia are far higher than in Asia - A$3,750 per car, according to Holden. Mitsubishi left in 2008 and Ford is due to leave in 2016.

While Australia does not have the sentimental attachment to its car industry that the US does, the car makers do play a large role in the economy. Professor Danny Samson of Melbourne University's Department of Management & Marketing said Australia derives huge benefits from the industry aside from those directly employed by the car makers.

He told The Straits Times: "The second-order benefits - especially in technology and management capability - are very hard to put a figure on. There are benefits to completely different industries such as mining and financial services which benefit from applying techniques learnt in the car industry."

However, other analysts welcomed the move, saying the massive government handouts were a "con" and stifling innovation.

"Our future lies in innovation - not propping up an industry that serves no purpose other than as an antiquated sovereign status symbol," said business commentator Elizabeth Knight in Fairfax Media.

The demise of the car industry has prompted fears it could drive Australia into its first recession in two decades.

Prof Samson said a downturn could have some positive effects by forcing down labour and manufacturing costs. "Australia has become an incredibly expensive place to do business. I am not saying I want a recession, but when times are tough, a lot of costs get renegotiated."

jonathanmpearlman@gmail.com


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