Holden will ask employees at its Adelaide plant to accept a pay cut, in a bid to slash its labour costs - or risk the company's manufacturing arm leaving Australia.
"Australia is among the most expensive places to build cars anywhere on the planet," Holden managing director Mike Devereux said on Tuesday in Melbourne, announcing the plan.
"Our geographic isolation, the cost of sourcing local components and our high labour rates mean we pay a significant premium to manufacture cars here compared to importing," he said.
Mr Devereux said it cost $3750 more to build a Holden car in Australia than it did at the company's other plants worldwide - with $2000 of this due to "pure labour costs".
"We are more expensive than Germany, the UK and Spain - let alone Asia," he said.
The union representing workers at the plant signalled it would be willing to work with Holden - but also demanded that the Coalition lay out its plans for the nation's car industry if it wins office in September.
Coalition industry spokeswoman Sophie Mirabella last week repeated the Coalition's pledge to cut funding to auto makers in Australia by $500 million if elected.
Ms Mirabella could not be reached on Tuesday for comment.
Over the past 12 years, Holden has received $1.8 billion in government assistance.
Mr Devereux said any cuts to the wages and conditions of Holden employees would require a vote by the workforce, most likely in August.
He did not say how much employees might lose a week. The average salary for production staff in Adelaide is about $55,000. And a spokesman for the company could not say whether Mr Devereux would also take a pay cut as a result of the negotiations.
Dave Smith, national secretary of the Australian Manufacturing Workers Union's vehicles division, said the announcement "smacks of the Coalition behind the scenes".
Holden was going through "pretty tough times", Mr Smith said, because the high Australian dollar and the devaluation of the yen by the Japanese government, and Australia's very low tariffs on imported vehicles had made locally made cars less competitive.
"We are standing naked in the front of the world, and everyone else has got their clothes on."
The union would meet with the car company to discuss potential savings, Mr Smith said.
Prime Minister Julia Gillard and the Victorian and South Australian governments last March offered a $275 million lifeline to Holden, in return for the company agreeing to stay in the country until 2022.
Mr Smith said this "co-investment" deal had not been given to Holden. "If they can't turn soil on their [proposed] body shop in Adelaide by the end of this year, they are out of the country."
Mr Devereux said the company's current wage levels were not sustainable if the car maker was to continue producing its Commodore and Cruze vehicles until at least 2022.
Mr Devereux also said that, over the 12 years that the company had received $1.8 billion in government assistance, Holden had injected $32.7 billion into the Australian economy. Holden last month posted a $153 million loss.
The pay-cut proposal follows Ford's announcement that it would close its Broadmeadows and Geelong plants in 2016, after 88 years of local vehicle production.
Sales of Australian-built cars have been in free fall for more than a decade.