What is the future for Holden in Australia and New Zealand?

Holden has received $40 million recently to build more fuel-efficient vehicles. Holden mentioned that its friends in America would most likley move the Australian manufacturing of the next generation Holden Cruze to South Korea, that is unless more cash from taxpayers is made available.

The Holden designed Cruze hatch, debuted in Melbourne, and was seen as an excellent example of Holden’s superb design and engineering skills. But any future manufacturing and job retention appears to be reliant on the Australian taxpayer funding.
Holden Cruze
If the Australian Government chooses not to send taxpayer funds Holden’s way, manufacturing of the next Cruze will probably move its way back to South Korea. This will bring a dark outlook for Holden’s manufacturing facility at Elizabeth in South Australia, which makes the Commodore.

Insiders have pointed out that the decreasing popularity of the Commodore means building it alone at the Holden plant would prove unsustainable. Holden’s CEO Mike Devereux is on record as saying that to deliver acceptable economies of scale, 100,000 units per annum would be the acceptable build goal for Holden. Adding the Cruze to those numbers was a way he could meet that goal. He also said that the future of Holden manufacturing is being squeezed by Detroit over the Australian government’s non-funding coupled with the new impending carbon tax
Holden Commodore Omega
Commodore sales were less than 50,000 last year and the trend ahead looks bleak. The markets are moving away from big engineed cars especially corporate and fleet customers, traditionally Commodore’s main market.

The Australian Government’s Green Car Investment Fund (GCIF) is to be canned and Australian carmakers are without question hacked off. Therefore Holden has called for increased taxpayer funding, as it’s being cornered from two sides, by falling car sales and by diminished export appeal.
Green Car Investment Fund
Holden’s Mike Devereux has lashed out at the new impending carbon tax, claiming it would put Holden further in the red, up to $40-50 million. However, Holden declared a $138 million pre-tax profit last year, which included the government funding it received and a currency windfall flowing from the high Australian dollar. Looking back you can see over the last five years, the company lost well over half a billion dollars which also is inclusive of the Australian government funding.
Carbon Tax
Mike Devereux told the media recently that Australia was higher cost country to manufacture in, and offered almost no import tariff protection. Import tariffs are designed to protect the local manufacturers. Import duty is currently running at 5%, except for cars from countries like Thailand, with which Australia has a free-trade agreement. Thailand is the second-largest source country for imported cars in Australia after Japan.

It comes down to the age-old story that almost all manufacturing industries face today. You can shut the factories in Australia, eliminate the tariffs because there’s no industry to protect, and your new imported car gets cheaper. On the other hand go the other way and shell out taxpayer dollars to prop up the Australian car industry, pay more for imported cars and Australian cars but save Australian jobs.

The proposed carbon tax, if it starts at around $25 a tonne, will add about a $1000 to the price of a Holden Commodore. Mike Devereux has called for some certainty and clarity over the carbon tax issue from the government. He said that he would vigorously defend not just the right to build but also the right to design and engineer in Australia. He is also reported to have said that Holden is reassessing its commitment to manufacturing in Australia, a peculiar statement noting his previous vigorous defence. This whole issue appears to be connected to the level of possible taxpayer funding or what he prefers to call a co-investment.

An Australian Government response to Mike Devereux’s recent comments was, that they were acutely aware of Holden’s position. The Australian Government remains strongly committed to an economically sustainable automotive industry and to the livelihoods of the more than 200,000 workers employed in the manufacture, servicing and repairs of motor vehicles.

This comment is somewhat misleading however; it’s not the livelihoods of more than 200,000 workers in danger at all. Servicing, retailing and repairs of motor vehicles will continue unchanged regardless of whether or not Holden’s manufacturing operation or Ford’s and Toyota’s for that matter continues on. It’s the jobs of the factory workers and the component suppliers that are in danger. Holden employs more than 2,000 workers in its manufacturing operation, over the car plant at Elizabeth in South Australia and its Port Melbourne-based engine manufacturing factory.
The Holden Factory
It could be argued that maybe some 2,500 Holden jobs are on the line. So if you assume there’s a deferred social cost attached to each actual job of around $50,000. That’s equates to around $125 million annually in welfare payments that are currently deferred by those workers being employed at Holden.

Mike Devereux uses the term, co-investment to describe Holden’s receiving of taxpayer funds. This term implies, by way of his own wording, a return on investment for both parties. Holden’s return is keeping the workers employed and the factory running. Maybe the Australian government’s return on its investment is that it does not have to deal with the welfare payout of some 2,500 additional unemployed workers. Therefore you could argue the Australian taxpayer is funding the local car manufacturing in Holden’s case to the tune of around $150 million. You have to ask the question, has the Australian car industry become a means of robing Peter to pay Paul and fudging the unemployment stats? Is working for Holden merely welfare in disguise, or is there truly the prospect of a turnaround to sustainability for the automotive industry that has some legs?

There is a moral angle to this whole issue as well. It’s called the social and individual burden of long-term unemployment. Other employment possibilities around Elizabeth, South Australia is limited. There are ghost towns littered around the world hinting to past boom times but they are never featured in holiday travel brochures.

You could look at it this way; Holden’s workers pay taxes, buy groceries and shop at the local stores. Their children attend schools and play sport. These hard working Australians are contributing both economically and socially in a way that the unemployed can’t. The same is true for other workers at the Ford and Toyota factories in Australia. Therefore, is the benefit to society greater, having these people in jobs, even if the jobs can only exist with this taxpayer funding. Or is Australian manufacturing of cars becoming merely a backhanded way for governments to avoid seeing more hardworking Australians join the social welfare queues? It’s a question we all have to answer in the long run.
Holden Workers
Carmakers and governments are strangely silent on the moral angle to this story. The collective value to society of keeping workers in jobs is the issue here. On the other hand whether new jobs in more viable industries should be developed as a kind of succession plan in the event that the Australian car manufacturing fails. Will there be a return to viability some time in the future for this industry, unlikely? When the value given to jobs does come up it’s usually played out as a bargaining chip, either lobbed by a trade union back to a car company, or by a car company to a government. Such behaviour effectively reduces the workers to some kind of political pawns in a negotiation game. It has the effect of devaluing the workers and their contribution to society as real people. Is the issue of jobs and employment a different issue to people or are they entwined?

Does this current car industry controversy mark a shift in thinking by keeping people in jobs at any cost? Or are the Australian Federal and State Governments and the carmakers merely taking a step towards greater honesty, and admitting what’s really been going on for quite some time now? The thing is only time will tell, we just keep watching the developments as they unfold.

July 2011

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