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Currency cripples US Ute

Global utility: A strong Aussie dollar has hurt the VE Ute's US export propects.

Exchange rates slow plan for Ute to follow VE-based Pontiac sedan as second US export

16 Oct 2007

THE soaring Australian dollar could cripple Holden’s plans to export the VE Ute to the United States. It has been widely anticipated that the new Ute would be sold in the US as Pontiac or GMC, but GM product chief Bob Lutz has told GoAuto the strength of the Australian dollar could see that plan shelved.

When Mr Lutz visited Holden in Melbourne last week, the Australian dollar had pushed past the US90-cent mark. GoAuto asked Mr Lutz if that would be an issue when it came to deciding whether the VE Ute would be sold in the US.

“That is why we are not announcing any plans for the Ute at this point because we have to wait and see how the Australian dollar develops against the US dollar, because at some point it stops making sense,” he said.

“We would either lose money on the importation or sale, which we are clearly not going to do, or we would have to raise the price to the point where it no longer represents solid value.” GM Holden managing director Chris Gubbey said the value of the dollar would be part of decision-making process regarding whether the Ute goes to the US, but remained hopeful. “We have got Utes over there under evaluation so we still have hopes that that is something we could look forward to,” he said.

13 center imageLeft: Pontiac G8 and Cadilac CTS.

Mr Lutz said if Holden imported more vehicles from the US, the currency issue would not be as pressing. “The problem is that we really don’t have enough of a product flow from the US to Australia at this point,” he said.

“If you have a two-way flow you can tell yourself, ‘I don’t care what the exchange rates do, what I lose on one I gain on the other’, but we aren’t at this point yet.” Mr Lutz did not mention Cadillac cars being launched in Australia, but it clear any such move would help the Australia-US balance of trade. Mr Gubbey told GoAuto that Cadillac was still under “serious review,” but would not confirm the American brand would come here or when it might do so.

As GoAuto reported last week, Mr Lutz also confirmed that a Torana-sized compact RWD vehicle based on GM’s new Alpha platform was in development and would be an obvious model for Australia. While the currency concerns could affect the plan to sell the Ute in the US, Mr Lutz said the Commodore sedan-based G8 was still on track to be launched in the US early next year.

He added that GM would not change the prices it had just announced to cover for the rise of the US currency. “We reviewed the situation and at this point, the announced export program, which is the Pontiac G8 saloon is still looking okay, it is not looking as good as it did a few months ago, but it is still well worth doing,” Mr Lutz said.

“What we don’t want to do is make the mistake that we made last time with the GTO, which was also a time in which the Aussie dollar strengthened as opposed to our original estimates. What we did then was keep the margin and passed it on in the price. So we got up into never-never land for a Pontiac and destroyed the momentum of the car,” he said.

According to Mr Lutz, the G8 pricing – which starts from $US27,595 ($A30,450) for the base V6 model – is very competitive. “We are going to sell at a price that the average person interested in the car would perceive as fantastic value,” he said. As for the Ute, Mr Lutz would not say when GM would decide if the Ute would be sold to the US. “(There is) no firm timing on a decision and it is certainly way too early to announce that it is a firm program,” Mr Lutz said.

“We just have to look at all aspects of it. How it would fit into the US model program. It is a great vehicle, I drove it today, it looks sensational, I think Americans would absolutely love it. I personally think it would be a smash hit, but we will see.” Mr Lutz said the rising Australian dollar could certainly prove problematic for local companies who export products. “Listen, any country that has a combination of relatively high wages and benefits, plus a very strong currency is going to find exports very difficult. That is a bad combination to have,” he said.

“Obviously, if I was the government, I would worry about where the Australian dollar was going because a high currency does impact on your exports.” It is not all doom and gloom according to Mr Lutz, who said the exchange rate pain would probably ease.

“These things tend to correct themselves,” he said. “If a country gets itself non-competitive from an exchange rate perspective, it results in a reduction in exports and sales and then imports rise and the currency falls to adjust.” Mr Lutz pointed to the US experience as an example.

“We used to have a very strong dollar, there was zero export potential out of the US, we imported everything, and now we have got a low dollar and we are restructuring all of our industries to a somewhat lower wage and benefits rate and so I think the US is highly competitive,” he said.

“It goes in cycles, you know, nothing is forever, so in the long term I wouldn’t get too depressed about it.” Mr Gubbey said the rising Australian dollar did hurt its export income, but added that Holden was not alone in this regard. “It makes it tough for all manufacturing in Australia, it is not just an automotive issue,” he said. “It makes being lean and efficient much more important, not just for us, but also our supply base.” Mr Gubbey said exports might be more difficult with such a strong dollar, but the company was not about to walk away from them.” “You can’t produce a world-class car and put that amount of money in it and just build it for the Australian market. You need to get that balance of being global,” he said.

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