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GM’s billion-dollar exit

Underutilisation of Thai Colorado ute plant integral to GM decision to close Holden

18 Feb 2020

GENERAL Motors (GM) has this week delivered a crushing blow with its decision to kill off Holden, cutting around 560 company jobs by the end of June and sending thousands more out of work as 220 franchised dealerships across Australia and New Zealand are closed by the end of this year.


The dismantling of Holden, which can trace its history back to the gold rush in the early 1850s, coincides with the US auto giant’s exit from Thailand, where GM also announced this week that it will cease Chevrolet sales and close its production plant in Rayong, which builds the Colorado ute primarily for the Australian and New Zealand markets.


GM International Operations senior vice-president Julian Blissett admitted the double whammy – pulling out of Australia/New Zealand and Thailand – is costing General Motors more than $US1 billion ($A1.5b) combined.


He said continuing to invest in these two markets would not enable the company “to get a decent return”.


Holden’s interim chairman and managing director Kristian Aquilina also claimed that the decision was “not necessarily about our performance from a sales perspective, it was really around investment priorities for General Motors”.


The Australian job cuts represent 70 per cent of Holden’s 800-strong national workforce and the vast majority impact staff in Victoria, where the company has its headquarters and global engineering and design operations which are now winding down as well.


A small number of skilled employees will, as many have done before them, be offered the chance to relocate to Detroit or remaining subsidiaries.


But other than parts and other aftermarket support services which authorised service outlets – that is, the remnants of the dealer network (185 in Australia, 35 in New Zealand) – will require over the next 10 years, the company that built the first all-Australian car in 1948 and arguably signed its own death warrant when it built its last Australian car in 2017 will now close its doors.


Moves are underway to pull out of motor racing at the end of the 2020 season, while all other sponsorships, from the NRL to grassroots footy and everything in between, are likewise set to be disbanded by the end of the year.


If there is any consolation for those still loyal to the brand, it is that GM plans to maintain a small presence with niche vehicles such as the Chevrolet Corvette, which Mr Blissett said would continue to be developed for right-hand drive.


But Mr Aquilina was quick to emphasise that specialty vehicles will be only a “very minimal” business that is expected to be placed in the hands of Walkinshaw Automotive Group/Holden Special Vehicles (see separate story).


The decision to disband Holden came after a variety of survival plans were presented to GM top brass.


Neither Mr Blissett nor Mr Aquilina would discuss the options that were on the table, or the money needed to keep the company afloat, but clearly there was no way found for production of the one remaining Holden model that has a relatively strong following in Australia – Colorado – to remain viable in Thailand as the ute nears the end of its current lifecycle and will not share a platform in the next generation with an OEM partner such as Isuzu.


Indeed, the costs of tooling up for right-hand drive for any Holden products, anywhere, looks to have been prohibitive after buyers abandoned the lion brand in droves when it pulled out of local manufacturing.


“We looked at a whole raft of strategic ideas and we were desperately trying to make this business work,” Mr Blissett said.


“We looked at a variety of options – obviously market exit was one, but there were many other options – but we came back to (the fact) that the investment that was required to turn the brand around, and invest in the next generation of product, would not deliver the returns that were needed.


“Obviously, GM as a family has only so much capital, and we have got competing priorities for that capital – like every OEM – and we are basically focused on our investment in the future of mobility and electric vehicles and autonomous (vehicles) etc.


“The returns obviously to invest here and in Thailand were not meeting the criteria and were not at the threshold to get a decent return, and that’s the reason why we have made the decision.


“We can’t confirm obviously what the best strategic options we looked at, but we did look at a whole variety and I can tell you I was personally involved in all of them, they were extensive in nature and breadth, but I don’t want to comment on what those specific options were.”


Mr Blissett said the sheer expense of pulling out of Australasia and Thailand made it “an agonising decision for us and not something we’d take easily”.


“The decision here is also affected by what we’re doing elsewhere in the world, what we’re doing in Thailand, and the total bill for both of those market exits will be north of $US1 billion,” he said.


“So this is not a cheap undertaking.”


GM financial statements show the company expects to incur net cash charges of about $US300 million ($A446m) and combined cash and non-cash charges of $US1.1 billion ($A1.6b).


Asked about the viability of the Thai Colorado business, Mr Blissett said: “Holden represented the vast majority of the production in that manufacturing facility, it’s been severely underutilised the past few years and so General Motors have decided to sell that facility.”


GM has sold the Rayong factory and associated businesses to Chinese brand Great Wall Motors, which now looks set to build the Steed one-tonne ute and derivatives from Thailand and could in turn provide its Australian subsidiary with a significant boost.


“We have signed, in the last few days, a legally binding terms sheet and we will work together with Great Wall to close the deal out by the end of this year,” Mr Blissett said.


Mr Aquilina cited the ultra-competitiveness of the Australian marketplace as a reason behind the decision to exit the market, but insisted it basically boiled down to return on investment.


“In the end, participating in a market that is as competitive and as active as the Australian market, that takes a fair bit of investment – not just for product, but bespoke investment by General Motors in right-hand drive and so forth,” he said.


“It also takes a massive investment in the customer experience, and supporting a brand that is unique … And there’s investment in the retail network as well.


“Those are big, big numbers that need to deliver a fair return for the investors putting in that dollar.”


Mr Blissett said GM had briefed the Holden dealer council and that further discussions would be held this week to ensure “appropriate transition arrangements” – whether to continue as a service outlet or close the franchise altogether.


“Our very clear intent at General Motors is to treat our customers right, treat our employees right, treat our dealer partners right,” he said.


“We will be talking to the dealers about their transition plans and the help we’ll give them, obviously, the compensation to them.


“We’ve made it clear to both the dealer council and to the dealers that we will treat them fairly … and we made it very clear that we will treat (Holden employees) fairly as well.”


GM’s Maven car-sharing business and Holden Financial Services operations will also wind down in Australia and New Zealand.


Warranty and service agreements will be honoured, and customers can contact Holden directly to answer any queries – 1800 46 465 336 (Australia) and 0800 465 336 (New Zealand).


“Every commitment that we have made to you, we will honour,” Mr Aquilina said.

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