For General Motors, the car industry here is beyond the fringe

The story of Holden and its demise needs to be viewed through a global lens if it's to be fully understood, writes Mark Hawthorne.
By · 14 Dec 2013
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14 Dec 2013
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The story of Holden and its demise needs to be viewed through a global lens if it's to be fully understood, writes Mark Hawthorne.

Debate over the sad demise of Holden this week has been dogged by equal parts myth, spin and subterfuge. Pity, because it was always the numbers that would tell this story in the end.

The big fact of Australia's car industry is this: the International Organisation of Motor Vehicle Manufacturers records that the world made 84 million passenger cars last year.

Australia's share was 209,730 - less than a quarter of 1 per cent.

As Gideon Haigh describes it in his book End Of The Road, "In a global sense, car production in Australia is of a magnitude smaller than a rounding error".

After a fortnight of background briefing and rumour mongering by a federal cabinet determined to flush out a decision by General Motors before Christmas, it was those numbers, and a $3750 shortfall on every car the company made here, that played a part in determining the day.

Even more important, however, GM needed to get its house in order on a global scale. That meant fringe outposts of its "manufacturing ecosystem", as the company's Harvard Business School educated executives like to call it, needed to give way.

For General Motors, Australia is one of those fringe outposts.

In a simplistic sense, the great myths of the history of Australian car manufacturing are that the industry is Australian, and it manufactures.

All three of the country's remaining car makers are entirely foreign owned, and to an increasing extent assemble global platforms from mainly imported parts.

The current Falcon may be an exception, but when Ford started assembling that car in Australia in 1960, the local company was owned by Ford of Canada, and the car was a rebadged North American model.

Toyota makes almost half the cars in Australia each year, but its Altona plant in Melbourne is one of nine where the Camry is made.

The Altona-made Camry is about 70 per cent local content, but almost identical cars are pumped out of factories across the world cheaper than the Australian version.

At Holden, the "all Aussie" Commodore contains roughly 50 per cent local content. The Cruze fares even worse, at 25 per cent, and is bolted together in Adelaide from mainly imported parts.

Even that jingoistic advertising jingle, "Football, meat pies, kangaroos and Holden cars", was rebadged from America. The original version, penned by Madison Avenue ad agency Campbell Ewaldand released in 1974, went 'Baseball, hot dogs, apple pie and Chevrolet".

It demonstrates how the story of Holden, and its demise as a local car maker, needs to viewed through a global lens if it is to be understood.

The signposts on the road to Holden's departure have been evident for all to see.

In August, at the direction of Detroit, Holden general manager Mike Devereux pulled the pin on the Opel brand in Australia, just a year after it was launched in this country.

It was a small but significant decision for the company, and the first domino to fall in a chain of events that would lead to GM's decision to close Holden's factories.

Behind the scenes, GM in Detroit was working on a complete reorganisation of the company's troubled global operations - a restructure that has been unveiled in a flurry of announcements over the past week.

At the same time, Devereux was working on a deal with the government, and on October 2, he met with federal Industry Minister Ian Macfarlane, South Australian Premier Jay Weatherill and his Manufacturing Minister, Tom Kenyon.

In order to keep making cars at Elizabeth in Adelaide until 2022, GM wanted $80 million a year in addition to $275 million already pledged for seven years by the federal and state governments, and $40 million it was set to receive from the Automotive Transformation Fund. All-up, it would have given Holden $1.1 billion over seven years, or an average of $160 million a year, to remain.

GM agreed that if it shut Holden before 2023, it would have had to repay the money.

For a new government that had won a federal election on a platform of fiscal prudency just 25 days previously, it was big ask.

By the end of the month, it seemed GM's mind was made up. In late October, General Motors made a brief announcement.

"Effective November 1, Mike Devereux, Director of GMH, will be taking on the roll of GM CIO Vice President - sales, marketing and aftersales," it read. "Devereux will retain his responsibilities of managing Holden until the end of the year, as a replacement for his position is found."

Many regarded the transfer of the local boss to Asia as the final straw for Holden in Australia, but not cabinet. Treasurer Joe Hockey was briefing that there was no rush for Holden to make a decision. He was telling stakeholders to wait for the results of the Productivity Commission's interim report on the industry.

As Devereux evaluated GM's options in Australia, bigger moves were taking place on a global scale.

On Monday, the US government's bailout of General Motors finally ended, with the Treasury Department's announcement that it had sold its final GM shares.

For GM, gone at last was the stigma of being known as "Government Motors", but it still rankles management that cross-town rival Ford didn't need the same bail-out to get through the financial crisis.

In North America, Ford has picked up market share and now has double the profit margin of GM.

With the bail-out behind it, on Tuesday chief executive Dan Akerson announced he will depart on January 15, and hand over the reins to Mary Barra, the first woman to lead a major global car company.

Of even more importance to Australia, however, was the announcement of a restructure of GM's operations in Europe and Korea.

In Europe, GM's Opel and Vauxhall brands, despite having 6.8 per cent market share, lost the company $US1.8 billion in 2012.

GM's venture into the EU with its Korean-built Chevrolet cars - to take on Hyundai and Kia - has also been a disaster. Chevrolet might be as American as baseball, hot dogs, apple pie, but in Europe it picked up just over 1 per cent market share and was losing money.

"Chevy was likely cannibalising Opel's sales and also possibly damaging Opel's brand and pricing," said International Strategy and Investment analyst Arndt Ellinghorst. "Model by model, we found Chevy was effectively selling the same product at a 10-15 per cent discount to Opel."

The game plan from GM was simple. It would shut down Chevrolet in Europe, and hope to pick up that market share with Opel and Vauxhall.

To put the size and scale of that write-off in perspective, GM has signed a $US559 million, seven-year deal to put the Chevrolet name on Manchester United's shirt. The first year of that deal - the biggest endorsement in European football - is next season, by which time GM won't actually be selling Chevrolet cars in Europe.

Manchester United announced the deal on a Friday, and GM announced the resignation of chief marketing officer Joel Ewanick the following Sunday night. "Mr Ewanick failed to meet the expectations the company set for its employees," was GM's statement.

Aside from one of biggest marketing white elephants in corporate history, GM has been stuck with another issue arising from Chevy's departure from Europe - the latent capacity at the old Daewoo plant in Korea.

Korea built 90 per cent of all the Chevy's sold in Europe, which accounted for one-fifth of GM's production from that country.

It didn't take long for the motor industry's best analysts to see the answer. "The next logical thing for GM would be to transfer the Chevys produced in South Korea to other markets like Australia if it decides to shut its Holden unit down," said Shin Chung-kwan, of KB Investment & Securities in Seoul.

While all this was going on in Detroit, Devereux had his own battles to attend to. The first was a public Productivity Commission hearing in Melbourne, at 8.30am on Tuesday.

The second was a federal government that had decided there was no chance of Holden remaining, and was desperate to get the bad news out.

Tuesday turned out to be the day when GM's worlds in Korea, Europe and Australia would collide.

Devereux could not escape it. He was greeted that morning by a front-page headline in Melbourne's Age declaring "D-Day for Holden", and a story that stated a decision to close down manufacturing in Australia would be made that day.

In the lift up to the Productivity Commission offices, a news screen headline declared: "Holden wants $150 million to stay".

The opening two questions from the commission's deputy chairman, Mike Woods, are the only ones that will ever matter.

"I would wish to ask at the outset for the record, has General Motors made a decision regarding the future of its Holden operations in Australia?"

"No decision has been made," replied Devereux.

"Thank you. Do you know a time frame for such a decision?" replied Woods.

"I wouldn't speculate on it in this forum," replied Devereux.

For an hour the Holden boss eloquently put forward the same case that he had made to Ian Macfarlane on October 2, and the commissioners made notes. After an hour, Devereux had had enough.

"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 to build where we sell," Devereux said.

"Now, unless you guys have more questions, I need to move."

The desire to "move" was driven by the time in Detroit, where it was by now approaching 6pm. Devereux had an important call to make.

It's now a matter of record that, while acting prime minister Warren Truss and Treasurer Joe Hockey were ripping the car maker to shreds to "come clean" and be "fair dinkum" with the Australian people in Parliament, GM's decision was being finalised.

"Either you're here or you're not," Hockey bellowed at GM in Parliament. Truss chimed in by saying "they owe it to the workers of General Motors not to go into the Christmas period without making a clear commitment to manufacturing in this country".

It was a remarkable outburst.

Inside the Holden camp, an insider sent a text message that sounded a death knell for Holden. "Are you seeing this question time attack on Holden?" it read. "Taunting [Holden] to leave. It's extraordinary."

Opposition Leader Bill Shorten would later ask if the government had "bullied, hectored and backgrounded Holden out of this country".

But it was more myth, spin and subterfuge.

Shin Chung-kwan can't see what all the fuss is about. "GM's decision is to raise the utilisation of large plants - in this case in the EU - to maximise its profitability, and close the smaller ones," he said. "Australia is among the smaller ones."

Australia no longer fits into GM's "manufacturing ecosystem".
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