Poor sales of Cruze behind cuts

Last year, Australians bought more new cars than at any time in our history. But while imported brands were making hay, the sun wasn't shining on the local car industry.

In November, Holden announced 170 job cuts, following on from the 440 jobs Ford shed in July and the 350 workers Toyota laid off in January.

And the carnage has continued into 2013, with Holden on Monday announcing 500 job cuts due to flagging demand for its locally built cars.

Over the past couple of years, the story has become familiar ... local manufacturers forced to trim production due to falling demand for big Aussie six-cylinder cars. The industry's detractors have argued it is out of touch; building big sedans at a time when consumers are turning to small cars and sports utility vehicles.

But Monday's announcement had a twist. Holden managing director Mike Devereux made it clear the latest job cuts were more to do with poor sales of the Cruze small car than the flagging fortunes of the big Commodore.

The Cruze was the car that was supposed to turn around Holden's fortunes. At last the company had a small car that could compete with the top-selling Mazda3 and Toyota Corolla in the business end of the market. But Devereux said the strength of the Australian dollar - combined with currency tinkering by our biggest automotive trade partners - had made life tough for the Cruze.

He said the automotive playing field was not level, with big trade imbalances between Australia and our Asian neighbours.

And he has a point. Australia entered into a free-trade agreement with Thailand in 2005. Since then, sales of vehicles imported from Thailand have doubled, from 84,831 to 171,878. In return, about 100 Ford Territories are sold in Thailand each year, with a 50 per cent excise on their heads. Since 2005, sales of locally built cars have dropped from 250,912 to 139,796.

Devereux said that since 2009 Holden has had to cut the price of the Cruze by $2500 to compete with discounted offerings from Asia and Europe.

The Cruze has been crunched from both ends. Rivals from Thailand, Korea and Japan have cut prices, while the dollar's strength against the euro means that vehicles such as the Volkswagen Golf are now tantalisingly within the reach of buyers looking for a posher badge.

The Cruze was widely billed as a potential saviour of the local manufacturing industry. Turns out it could just be another victim.