SYDNEY (Bloomberg) -- General Motors Co.’s Holden unit has made the case for continued government assistance in Australia as it considers whether to keep making cars in the nation.
Annual subsidies of about A$150 million ($136 million) a year result in A$33 billion of economic activity, Managing Director Mike Devereux told the government’s Productivity Commission in Melbourne today. GM hasn’t made a decision on its future in Australia beyond 2016, he said.
“That is a very good return for the economy of this country,” Devereux said. “There is a level of assistance that needs to be there for GM to make a business case viable to be able to make cars here.”
The local car-making operations of GM, Ford Motor Co. and Toyota Motor Corp. have been hit by an Australian dollar that surged almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports. Facing a deteriorating budget position, Prime Minister Tony Abbott’s coalition government plans to cut A$500 million from subsidies to the car industry by 2015.
Australia’s Acting Prime Minister Warren Truss has written to GM asking for an “immediate statement clarifying their intentions,” he told parliament in Canberra today.
Holden continues to make the case to GM that it wants to make two types of vehicles in Australia, Devereux said, amid reports by the Australian Broadcasting Corp. and The Wall Street Journal that the unit will cease production in the country as soon as 2016. It costs the company A$3,750 more to produce a car in Australia than at other plants in Asia, Devereux said.
U.S. bailout
GM is free from U.S. taxpayer ownership after the Treasury Department on Monday sold off its remaining stake in the nation’s largest automaker, almost five years after first receiving government aid. Bailouts from the George W. Bush and Barack Obama administrations helped GM avoid liquidation and reorganize in a 2009 bankruptcy that has given new life to the company.
“That was a good thing to happen because you now have a resurgent auto industry in the U.S.,” Devereux said today. “It was a difficult time for the company, but now we are hiring people again and we are increasing sales. So by any measure, that was an intelligent decision.”
GM’s Holden unit received an average of A$153 million a year in Australian federal government assistance from 2001 to 2012, according to a Nov. 27 submission to the Productivity Commission. That dropped to A$96 million in 2012, it said.
The value of government assistance has outstripped Holden’s own capital investment every year since 2007, according to the report. Since 2004, the GM unit only posted a profit in two years, 2010 and 2011.
Government subsidies
The previous Labor government had set aside A$5.4 billion for the domestic car industry until 2020 and pledged another
A$700 million during the five-week election campaign. Abbott, who won the Sept. 7 election, said Aug. 21 his government wouldn’t “run down the road after Holden waving a blank check at them.”
GM said in March 2012 that its Holden unit will continue making cars in Australia until at least 2022, after the former government announced a A$275 million assistance package. Costs at Holden were up about 60 percent from 10 years ago, making it one of GM’s most expensive operations, Devereux said in April.
Cars made in Australia slumped to 13 percent of domestic sales in 2012 from 80 percent in 1984, according to data from Ford and the Federal Chamber of Automotive Industries.
Ford said in May it will close its Australian car lines in 2016 after nine decades.
