GM's Holden to stop making cars in Australia

Holden showroom in Australia Holden said a small domestic market was among the reasons behind its decision

Holden, a subsidiary of General Motors (GM), has said it will stop making cars in Australia by the end of 2017.

The move will result in nearly 2,900 people losing their jobs.

The firm said a strong Australian currency, high manufacturing costs and a small domestic market were among the reasons behind its decision.

Holden, which has made cars in Australia for nearly 65 years, will retain its sales unit and a parts distribution centre in Australia.

"The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country," GM chief executive Dan Akerson said in a statement.

"This includes 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."

Subsidies

Carmakers in Australia have been struggling for some time, despite the government extending support to the industry via subsidies over the past few years.

Analysis

Holden has been an iconic brand in Australia. In fact, it personified the Australian car industry for decades.

Unfortunately, its latest move is also symbolic of the issues faced, not just by it, but the sector overall.

One of the biggest headaches has been the strong Australian currency, which has risen nearly 30% against the US dollar over the past five years.

That has made foreign-made cars cheaper for Australian consumers. According to various estimates, nearly 85% of cars sold in the country are imported.

A relatively small domestic market means that local manufacturers are left competing for an even smaller share, which is proving insufficient to sustain their growth.

The numbers of cars made in Australia has halved over the past 30 years, and with Holden ceasing its production in 2017, some fear the entire sector may crumble.

Holden's exit will leave Toyota as the sole manufacturer in Australia and until things change drastically, the fear is that the Japanese firm may also go looking for greener pastures.

A weak Japanese yen, which makes exports from Japan cheaper, coupled with a strong Australian dollar may just deliver the knock-out punch for the Australian car industry.

However, there has been a debate over whether the government should continue to provide support to the sector.

According to the Australian Broadcasting Corporation (ABC), Prime Minister Tony Abbott declared last week that there would be no more taxpayer assistance.

The government had also increased pressure on Holden in recent days to clarify its future plans for Australia.

Dave Smith, national secretary of the vehicle division at Australian Manufacturing Workers Union, said the government's push had influenced Holden's move.

"I believe the decision's been prompted by the behaviour of the government yesterday," he told the ABC.

"Unfortunately, they've been let down by a government that wouldn't back them in."

Wider implications

In May, US carmaker Ford announced that it would stop production in Australia in 2016.

That means Holden's decision will leave Japanese carmaker Toyota as the only company still making cars in Australia from 2017.

The Australian Manufacturing Workers Union said it was now "highly likely" Toyota could decide to leave Australia as well.

"In fact, it's almost certain and this will spell the end of 50,000 automotive jobs," Mr Smith said. "There's no dispute about that."

The Motor Trade Association of South Australia said the government needed to take steps to ensure a sustainable future for the sector.

"Our attention must now go to those component manufacturers and Toyota, and the federal government must immediately begin working on plans to keep this important manufacturing base in Australia," said John Chapman, chief executive of the association.

Treasurer Joe Hockey said the government would work closely with the state governments and unions to ensure Holden's departure "does not lead to a significant economic downturn in South Australia or Victoria", where the firm's two manufacturing units are based.

"We will do everything to help in this transition," he added.

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