Building cars in Australia 'impossible'

The General Motors executive who proposed the end of Holden’s manufacturing presence has described Australia as an “impossible” place to build cars profitably.

Speaking at the Detroit auto show overnight, GM chief of consolidated international operations Stefan Jacoby re-emphasised the official company position that business conditions rather than the federal government’s unwillingness to commit to ongoing co-investment prompted the December decision to close the Elizabeth plant and cease manufacture of the Commodore and Cruze by late 2017.

“It is fundamentally impossible to produce (cars in Australia) regardless of what the government is saying and deciding,” Jacoby said.

Holden’s announcement came only months after Ford’s decision to withdraw from manufacturing by October 2016, leaving Toyota as the only car company currently committed to ongoing Australian production. However, its future is in serious doubt and could be decided as soon as mid-2014.

Jacoby, an automotive industry veteran who previously worked at Mitsubishi and Volkswagen and was the managing director of Volvo, joined GM in last August. He revealed that resolving the future of Holden was one of his top priorities from the beginning of his tenure.

“You can say I initiated this decision because I am the leader of the markets and that the decision was driven purely by business rationale and not by any direction this government or any future government would give for their auto industry in Australia,” Jacoby said.

“This was a very difficult decision General Motors made, it was a decision that has an impact on General Motors footprint, on General Motors strategy and on General Motors spendings as well,” Jacoby said.

The decision for Holden to cease manufacturing in Australia was made on the afternoon of December 10 after a telephone hook-up between the Holden board and the global GM management team.

It came only hours after Holden MD Mike Devereux had appeared before a productivity commission hearing into the auto industry initiated by the federal government, at which he said no decision had been made regarding the company’s future.

In a statement, GM said a “perfect storm of negative influences” forced the closure. They included 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”.

The closure came after a week of growing federal government pressure on Holden to make a public statement on its future and before the productivity commission’s preliminary report was handed down.

But Jacoby was careful to stress the federal government’s demands played no role in the decision.

“We are business driven, we have our own agenda and we are not pushed by anyone of the Australian government to make that decision,” Jacoby said.

“Our automotive business is driven by scale of economics; of productivity, of an efficient supply industry, of sufficient, efficient and optimised logistics and that means the auto industry will be focussed only on core markets as it is today.

“In Australia it is just a small speck of these scales.”

Jacoby made it clear the fundamental Australian economic structure of low tariffs and an increasing embrace of free trade agreements were car industry killers.

“If you see the reality, if you see that of the total market in Australia that maybe 10-15 per cent of the vehicles sold are locally produced in market of 1.1 million vehicles, in a country which is clearly declaring free trade as one of their policies, in a country where every month one of the suppliers is quitting the business ... if you see these rationales and Australian manufacturing doesn’t make sense when you put it in a global competition.

“And since the market is so open with a lot of free trade agreements coming up, for instance with the Koreans, it is more or less impossible to truly manufacture vehicles in Australia on a competitive basis.”

However, he pointed out building trade protection barriers provided their own issues.

“Sure but then you would ask ‘where is Australia going?’ If they really would make truly competitive barriers to support their automotive industry it would lead to a non-competitive business,” he said.

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