Holden gears up for rocky road ahead

The Holden has become almost as much a part of life in New Zealand as in Australia. Photo / Getty Images

Just over 60 years ago Australian Labor Prime Minister Ben Chifley grinned as the first gleaming Holden rolled off the production line and declared: "She's a beauty."

Within five years the first export FJ models arrived in New Zealand, launching both Holden's international sales drive and a marque that has become almost as much a part of life here as in Australia.

Now, as political and economic thunderheads exploding above parent General Motors in the United States add to a long list of deeper woes, speculation has grown that Holden and the remaining survivors of Australia's car industry may be sliding towards extinction.

This week Holden joined the Federal Chamber of Automotive Industries in snappily rejecting predictions by Clive Matthew-Wilson, editor of the Dog & Lemon Guide, that the fate of Holden, Ford and Toyota has been sealed.

Matthew-Wilson said that despite substantial government intervention, Australia's automobile production lines were "losing money faster than a drunk at a casino" and would not survive the global recession.

In the US, GM has until the end of May to satisfy the Government that it can produce a sound restructuring plan, or file for bankruptcy.

But as in Germany, where European subsidiary Opel is confident of surviving its parent's crisis, Australia is not ready yet to roll Holden into its grave.

"We are obviously watching events in the US extremely closely and making contingency plans for a whole range of possible outcomes," GM Australia spokesman Scott Whiffin said.

"But we don't want to get into speculating about how the cards might fall, so until we know more we are focusing on what we can control."

Whiffin said this included plans to manufacture from next year a new fuel-efficient, four-cylinder small car in South Australia, an energy diversity strategy to develop a suite of alternative fuel and fuel-saving technologies, and continued development of the next-generation Commodore.

"We're not kidding ourselves," he said.

"The market is exceptionally tough, but we've got plenty of momentum and plenty of initiatives on the table. Like lots of others we're riding out the storm in the short term, but there is a lot of thinking and planning and innovating and investing going into making sure Holden is a viable, sustainable operation in the long term."

The company's problems run deeper than the fallout from the global crisis. While the Commodore remains - by a shrinking margin - Australia's most popular car, it is being seriously challenged by smaller imports, changes in fleet-buying patterns, and rising sales of SUVs.

In January GM dumped plans to export the Holden ute to the US as the Pontiac G8 sports truck, following its decision last year to end production at its Family II engine plant at Fisherman's Bend, Port Melbourne.

This month, with March sales of Commodores down 18 per cent on last year, Holden announced that it would halve working hours at its Elizabeth, South Australia, plant by scrapping the evening shift. In a bid to avoid retrenchments, more than 3000 workers will work fewer hours and take home less pay.

Holden has also spread the pain by pruning about 10 per cent off the pay of its top 100 executives.

Holden managing director Mark Reuss told ABC radio that with exports cut by 80 per cent by the global crisis, the company had no option but to slash production from 620 to 310 cars a day.

"Twenty per cent you can operate around, but when it gets to 80 per cent on a global basis in your export markets coming off, that's a pretty dramatic impact," he said.

"If we're able to keep our jobs and level our production schedule, and maintain the supply base and people's quality of life, that's really a pretty good solution we feel." Federal Industry Minister Kim Carr agreed: "The decision is essential if Holden is to ride out the economic storm and be ready for the upturn when it inevitably comes."

But Holden's future is also mired in a much broader malaise afflicting the entire Australian automotive industry, despite restructuring since 1985 that has peeled away most of the protection of previous tariffs of 57.5 per cent, and increased efficiency and competitiveness.

By 2007, global sales of automotive products worth A$4.7 billion ($5.9 billion) had outstripped wheat and wool in the list of the nation's top 10 export earners, and vehicle sales topped one million - a rise of 45 per cent in a decade.

These figures disguised disturbing trends.

Traditional Australian preference for big cars such as the Commodore and the Ford Falcon is being eclipsed by an emerging swing to smaller vehicles such as Toyota's Yaris and Corolla, and - where the big-car bias remains - by SUVs.

A federal inquiry into the industry last year also found that while Australian-made vehicles continued to dominate sales of large and medium-sized cars, the local manufacturers' share of the market shrank from 95 per cent to 88 per cent between 2002 and 2007.

The trend is beginning to show in the crucial private and government fleet market that dominate sales of large and medium-sized cars - less than 25 per cent of Australian-made sales in 2007 were to private buyers - and through corporate cost-cutting measures such as longer leases.

Profits have also collapsed. A decade ago Australian carmakers recorded net trading profits of A$518 million, including A$344 million for vehicle manufacturing. In 2007, the federal inquiry reported, trading losses in vehicle manufacturing totalled A$722 million - an 8.6 per cent loss on sales.

Costs have soared - operating in Australia is about 48 per cent more expensive than in Thailand - competition from imports is growing, and export markets are getting tougher. But there is a flip side.

Australian manufacturers have strengths that have enabled them to compete with other formidable rivals, including the ability to use smaller production lines with greater flexibility and to target niche markets.

Holden, for example, runs a complete operation from design to export, and was named by GM in hearings in the US as one of its continuing viable foreign operations.

The Government is keeping faith with the industry. Last November Prime Minister Kevin Rudd announced a A$6.2 billion package for it, embracing a range of measures but focusing heavily on a A$1.3 billion plan to design and produce "green" cars.

Holden is the first off the mark, planning the production from next year of a front-wheel-drive, four cylinder car in petrol and diesel variants that promises to be about 20 per cent more fuel-efficient and produce 20 per cent less carbon emissions than larger vehicles.

The Government sees the plan as a means of "redefining" Holden, and of preparing the groundwork for new Australian-developed hybrid engines and alternative fuel systems.

But a long, hard road lies ahead.