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The dream is over

Detroit power: GM boss Rick Wagoner told GoAuto in Frankfurt last week that Holden would need to "get a little bit more edge" in its cost competitiveness to continue car assembly.

GM boss sees a tough road ahead for Aussie auto sector

General Motors logo21 Sep 2005

AUSTRALIA’S automotive industry faces a tough future as global competitive pressures impact on car and components manufacturers, according to General Motors chairman and chief executive officer, Rick Wagoner.

Speaking to GoAuto in Frankfurt last week, the boss of the world’s largest auto-maker hit out at the Australian government’s policy of reducing trade barriers, which he said was "putting domestic manufacturing under a lot of pressure".

However, Mr Wagoner ruled out a further review of Holden’s operations in the face of declining market share and increasing competition from imports.

Last month, Holden announced it would axe 1400 jobs at its Elizabeth plant in Adelaide. It also revised downwards its production forecasts.

"We’ve announced that we’re going to move on the third shift – I think that’s all we’re talking about right now," Mr Wagoner told GoAuto.

"I wouldn’t say anything any more significant than that. We’ve looked at the issue of the competitiveness of the Australian supply base." Holden has already dumped some Australian suppliers for next year’s VE Commodore, moving component sourcing offshore to countries including Thailand and China.

Industry estimates suggest the VE Commodore will have the lowest percentage of Australian-sourced components of any of the four Australian-built vehicles.

Mr Wagoner said the supply base traditionally came under pressure first "because it’s easier to ship in supplies than whole vehicles".

"Right now we think that with the product configuration we have and the ideas we have about using more global platforms ... that’s going to help the manufacturing base stay more competitive," he said.

"But over time the economic realities are going to play out and I have some concerns that a policy which will over time reduce to a miniscule level or eliminate barriers to trade or duties are going to put domestic manufacturing under a lot of pressure." Mr Wagoner conceded that Holden had suffered setbacks after "four or five years of prosperity" and that he was concerned about its future. He said it needed to stay ahead of the cost issue.

"I think it’s an issue that we confront in all the developed markets," he said. "There has been a policy, which is understandable from the government’s perspective, to continue to reduce duties.

"But let’s face it. While there has been unbelievably dynamic growth in the Australian market, it’s still, on a global scale, relatively small.

"So without duty protection and a very strong Australian dollar, which is likely to continue, it makes domestic manufacturing there under greater and greater competitive pressure." Once heralded as a saviour, globalisation was singled out as one of the reasons for the added pressure on each car-maker’s capacity in individual markets.

"On the other hand, cars are big and bulky things and to the extent that you can assemble them near the markets they are sold you don’t always have to have the lowest per-hour labour costs," Mr Wagoner said.

 center imagePulling strings: Rick Wagoner unveils Holden’s global V6 engine in 2003 with former Holden chief Peter Hanenberger (centre) and Industry Minister Ian Macfarlane (right).

If manufacturers like GM can continue to drive efficiencies, he believes car assembly in developed countries like Australia could continue.

To do so, Holden would need to "get a little bit more edge" in its cost competitiveness because its exports markets "while they like the product" had price points that were too high, Mr Wagoner said.

Holden was at the forefront of trying to become more efficient and improve its competitiveness "to make sure we’ve got the right sourcing footprint, but over time we’re going to have to watch that", he said.

"We had a lot of success and we have a commitment to the country (Australia) and a great brand and good product-development capabilities, so we need to use them in a smart way." Mr Wagoner said the high Australian dollar was also harming exports.

"It’s not just the States. The exports to the Middle East, which is a great business for us, has come under quite a bit of profitability pressure," he said. "So we’ve seen it fairly generalised. That’s the challenge we have to deal with. Right now, we don’t have any plans to move away from the export programs to the Middle East.

"The US, frankly we can be more flexible on those depending on how things play out. It’s not a high volume for Holden but very helpful for the US. But over time there could be different models that make more sense there." Both Mr Wagoner and GM product czar Bob Lutz confirmed to GoAuto last week that the Holden-developed Zeta program, which was meant to underpin future rear-drive passenger cars in the United States and other markets but was put on hold earlier this year, was still alive and kicking.

"I guess what we can say is that in the first place, Zeta is not dead or cancelled," Mr Lutz told GoAuto.

He said GM had to cancel the original program because it had done "a variety of not-very-smart things and wound up with a US portion of the program that did not make any business sense".

"We’ve gone back and redone that and accepted some delay." GoAuto understands the Zeta architecture was too expensive to be built in some low-cost markets and needed to be more cost-competitive.

Mr Wagoner said GM’s global operation still needed a low-cost, medium-large car rear-wheel drive platform.

"We think there is a business opportunity, we think that’s a global opportunity," he said.

By virtue of the revised strategy’s global application, Mr Wagoner said there were no plans to export Chinese-built vehicles off the Zeta platform to Australia.

But he did suggest that if the Zeta architecture was used as a base for other products around the world "then we’ll build it elsewhere".

"As far as the Holden specific-product (goes), we haven’t had any discussions about building it elsewhere in that category," he said.

"Obviously, for some of the smaller products we’re going to do that or are doing that." Both Mr Wagoner and Mr Lutz were bullish about Holden’s continuing engineering role within GM amid concerns that it was being squeezed by Detroit.

"There is no question that Holden will have the role within GM of being the centre of excellence and the architectural home room for mid-market and premium rear-wheel drive architectures," Mr Lutz said.

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