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No decision on Holden, says Devereux

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Holden boss Mike Devereux says no decision has been made on the future of its Australian operations.

Devereux made the unequivocal statement at today’s hearings of the Productivity Commission inquiry into assistance given to the auto sector.

Holden will review every light globe and every glove it uses to try to keep manufacturing in Australia but it needs long-term government assistance, the company says.

Devereux said on Tuesday the cost of manufacturing in Australia was more expensive than other plants in the region and parent company General Motors needed certainty if it was to continue to invest in local production.

“We need a public/private partnership over the long term to be able to be relatively competitive and to have GM be able to do what it wants to do which is build where we sell,” Mr Devereux told the Commission inquiry.

Holden is considering its future in Australia as it battles the high dollar, cost pressures and tough overseas competition.

Mr Devereux said the company was doing everything it possibly could to use its labour force and productive capital as efficiently as possible.

He said “every single part of our ecosystem” would be scrutinised as the company worked to continue to build where it sells but the business case required a level of government support.

“There isn’t a piece of the ecosystem that is left alone in our ability to try and go after this but at some point you get to a point that you obviously will still have a gap,” Mr Devereux told the inquiry in Melbourne in Tuesday.

In its submission to the inquiry Holden said the cost of building a car in Australia was about $3750 greater than other plants in the region.

Mr Devereux said while this difference in cost had to be reduced, it did not need to be reduced to nothing.

“We do need to close the gap,” he told the hearing.

“I don’t suggest that we are asking to close that gap to zero.”

He said the submission the company had made to the government clearly states General Motors’ threshold for doing business, but the details would remain confidential.

The federal government is considering whether to provide a new line of assistance to Holden or let the market take its course as it did when Mitsubishi stopped Australian production in 2008.

In its written submission Holden said it generated $32.7 billion in economic activity in Australia, including production, wages, tax revenue and money paid to suppliers from 2001 to 2012, having received $1.8 billion from government programs over the same period.

On average Holden received $153 million each year from the federal government over the past decade, while spending $484 million annually itself on capital, engineering and design investment.

A 1:3 ratio of public assistance to investment by the car maker had worked, its submission said.

Mr Devereux said he could not give a timeline for when a decision would be made on whether local manufacturing would continue.

“It is GM’s desire, where feasible, to build where we sell,” he said.

He praised US government assistance for parent company General Motors in the US.

“GM has come roaring back. We are hiring people, we are winning awards, we are increasing profits and we are increasing sales,” Mr Devereux said.

It’s now anyone’s guess as to where that leaves the game of claim and counter claim that Holden has made a decision and is set to close its local operations in 2016.

Reports emerged on Friday via the ABC that a senior (but unnamed) federal minister had said Holden’s Detroit bosses had made their decision to announce the closure of the Australian operation.

That didn’t happen; another report then emerged in The Australian that the Detroit decision had been reversed.

Holden workers and employees at some 150 components suppliers continued today under a cloud of speculation.

Devereux appeared at the hearings today saying he was “here to answer every  question” and when the obvious one was asked, he replied: “No decision has been made.”

The ups and downs of this industry’s future are starting to resemble a TV soap opera.

Three years ago the sector’s future was saved; the Federal and State Governments of SA and Victoria announced the Automotive Transformation Scheme (ATS).

ATS was (and still is) a $3 billion 10-year legislated entitlement scheme to “encourage competitive investment and innovation in the Australian industry to place it on an economically sustainable footing”.

“This will be achieved in a way that improves environmental outcomes and promotes the development of workforce skills,” the Gillard Government claimed in 2011.

The ATS is legislated to run from 1 January 2011 to 31 December 2020 and throws more than $3 billion into the automotive industry.

Eligible participants receive assistance for:
•    production of motor vehicles
•    investment in research and development to a maximum rate of 50 per cent
•    investment in plant and equipment to a maximum rate of 15 per cent.

Then another bundle of cash was found.

In March 2012 the Federal and State Governments of SA and Victoria announced a further contribution of $285 million to keep Holden’s plants running until 2022.

The paperwork for the SA State Government’s payment has never been signed.

Yesterday Premier Jay Weatherill said business case that deal was based on had “deteriorated due to the exchange rate”.

In March 2012 the AUS-US exchange rate was $1.03 – it’s now around 91 cents, a marked improvement for manufacturers.

The Premier’s office said yesterday the rate may be more related to movements between the AUS dollar and the Japanese Yen.

In March 2012 the Australian dollar was worth 75 Yen, today it sits around 94 Yen – the reverse trend of what its doing with the US dollar.

What’s not clear, however, is whether component contracts are in local currencies or in a universal US dollar  currency or whether there are hedges built in to contracts.

While the March 2012 deal sat on the table, gathering dust and waiting on the right currency shift, there was another pot of money to be had.

In July 2012  Federal Industry Minister Greg Combet released guidleines $42 million Automotive New Markets Program (ANMP) to give financial assistance to automotive supply chain companies to diversify their customer base and/or product range.

There were three rounds of funding – the first two have been completed applications for the third round closed on 13 September.

In the first two rounds grants made included;

InDaily asked current Industry minister Ian McFarlane’s office on Monday about progress on third round approvals and a response is yet to come.

Earlier this year there was another bonus for Holden – the car maker asked their workers to take pay reductions in an effort to reduce the cost of manufacturing cars by about $3800 per unit to ensure the Australian operations are commercially competitive with other plants around the world.

The workers agreed, but then refused to run the deal through when Holden was unable to commit to staying beyond 2016.

The guidelines for the ATS and the AMTP schemes are still on the Federal Government web site.

The Productivity Commission reviewing all of the above.

An interim commission report is due to be released on December 20.

The final report is due to be delivered in March.

Regardless of its findings and any subsequent statements by the car makers, why would you believe they are here for the long haul?

If it’s a currency issue, there can never be certainty.

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