News - Holden
Holden ‘safe’ – and nearly back in the black
GM Holden charts course for profitability as GM dives into Chapter 11 bankruptcy
2 Jun 2009
By IAN PORTER
GM Holden is on the verge of returning to profitability, despite the slump in domestic and export markets, according to managing director and chairman Mark Reuss.
Dismissing concerns that Holden would be adversely affected by parent company General Motors’ decision to enter Chapter 11 bankruptcy in the US, Mr Reuss said Holden would be a vital part of the ‘New GM’ and a vital part of the Asia-Pacific division.
“We are safe. We are part of the New GM, which is terrific,” Mr Reuss told a packed news conference in Melbourne.
“This has no direct impact on our employees, our dealers, our suppliers or, most importantly, our customers.”
Mr Reuss was confident about Holden’s future, declaring:• Holden is not dependent on GM for investment capital and there were no outstanding loans to the US company.
• Holden expects to move back into profit in the first half of 2010.
• New export contracts will lift production back to capacity.
• Development of the Commodore will move from a cyclical basis to continuous improvement.
• A “barrage” of new fuel efficiency and emissions technology would be introduced on Commodore over the next year or so.
Mr Reuss said the thorough reconstruction of Holden in the past year meant the company was in a strong financial position, despite depressed markets at home and abroad.
“We are cash flow positive, we are liquid, we were on the verge of turning a profit in the last month, even in a down business,” he said.
Asked when the ‘New GM’ could expect a return on its investment in Holden, Mr Reuss said: “We are envisaging that in the first half of next year, if not sooner.”
However, he confessed he did not know when the global financial crisis would end, saying: “I’m not that good.”
Left: Production at Holden's Elizabeth plant. Below: Industry minister Kim Carr.
Asked during a press conference in Canberra later in the day if Holden could confirm here would be no job losses in the immediate future, Mr Reuss said: “That’s correct”.
Mr Reuss said GM Holden’s business had been scrutinised by two outside firms in the lead up to the GM June 1 deadline, and had to prove that it could earn sufficient revenue to reinvest in new product and facilities.
“We've done that. And, by the way, we're also liquid and cash-flow positive from the restructuring that we've done as the industry declined,” he said.
Mr Reuss said Holden’s Elizabeth plant in South Australia was making Commodores to order and running at about two thirds of its 100,000-vehicles-a-year capacity.
“We are running at about 66,000 and we are on the verge of bumping that up as we bring the new small car on line,” he said.
“And we have got some export opportunities that I can’t reveal today that will bring that back up pretty quickly.”
He said the Fishermens Bend engine plant had also scored some export success recently, winning a contract against three other GM V6 engine plants to send 2500 engines a month to Mexico for the Cadillac SRX.
In a curious twist, all the aluminium engine blocks used at Fishermens Bend come from Mexico in rough form. Now, some will be going back as part of completed engines.
“That’s a direct result of creating your own luck in engine plant quality. Our plant here has done a remarkable job over the last 18 months in hitting some really high quality benchmarks. The harder you work, the luckier you get.”
Mr Reuss said that the engine export deal was just one example of ways that Holden would create opportunities to make up for the loss of its G8 export program to the US.
“Fifty per cent of our business out of Adelaide was export,” he said. “And one of the big exports was the G8 for Pontiac to the United States.
“And, we do have replacement export business that will come online, that we'll be able to reveal at a later date.
“But I can't expose our future product lines. But yes, we've been aggressively pursuing that.
“An example I can point to in our engine facility in Victoria, is the recent awarding of another 2500 units of that engine to go into a Cadillac that's made in Mexico for the United States and North American markets. We have really created our own luck with that engine.
“We've really gone after some pretty high quality standards, and we have achieved those. And so we're going to make our own luck and get some of that business back.”
Mr Reuss signalled a new approach to the development of the Commodore, the only model it currently designs and makes in Australia.
He there would be a move away from the time-honoured approach of producing an all-new model every six or eight years.
“I think we are changing the way we do cars here, fundamentally. The reason I say that is we have trained the world – in GM, not just Holden – to wait for big sums of money for a whole new model and we say how great it is and it’s going to solve everything,” Mr Reuss said.
“I think Holden in the future is going to operate from a very deep and profound technical basis of what rear-wheel drive means and what it means in Commodore.
“When someone asks ‘when’s the next new Commodore’, well the next new Commodore is next month. And the next new one after that is the month after that.
“We are going to have a very long road of continuous improvement, on technology, on fuel efficiency savings, on mass: all of that is going to roll into this car over a very long period of time.
“We are going to make this the very best car in the world. We are on that track.
I can’t reveal all our technology and secrets, but you will see some pretty neat things happen.
“You are going to see us introduce a barrage of fuel economy and CO2 and alternative fuel saving technologies in the Commodore over the next year or so.”
Mr Reuss said Holden directors had restructured the company over the past 18 months to make the company viable and able to stand independent of GM, helping to steer Holden clear of the parent company’s financial problems.
“We have worked very hard with Australian governments, our employees and the unions to create that. My dad (former GM president Lloyd Reuss) said when I was a little boy, the harder you work, the luckier you get, so we have been creating our own luck here, quite frankly.”
He said financing for capital works now came from other international sources.
It was that work to achieve financial independence that helped Holden avoid the same fate that other subsidiaries – Opel, Hummer and Saab – which are being sold off.
“One of the reasons Holden is such an asset is that pretty much every thing here is paid for,” he said. “And so we have got to use it to make money.”
Mr Reuss said Holden had been audited twice by independent examiners after its parent company fell on hard times, and the company was found to have the potential to be profitable.
“We don’t get into big debt positions with the parent company since the parent company is now in a bridge loan activity with the US treasury,” Mr Reuss said, adding that none of those US loans are allowed to be used offshore.
“That’s when we become fenced off and began making our own luck and operating by ourselves. So we have been pretty much a stand alone self funded unit since that’s been going on, which is very positive.”
Mr Reuss said he was confident the decision to put the parent company in to Chapter 11 bankruptcy was the right thing to do.
“I am very confident, very positive about ‘New GM’. I have been with the company all my life and this is the first time that we have a real shot at shedding some of what’s happened and get on with it.
“We have already taken those steps at Holden, so I feel very good about Holden.”
Mr Reuss said Holden would not close down Hummer or Saab operations in Australia, but would wait to see how the auction processes worked out for those two brands.
“Those two brands are for sale now. After they are sold we will work with whoever the buyer is of those brands about what to do here in Australia.”
Mr Reuss said Holden had worked closely with the federal and state governments in reshaping itself.
He paid tribute to the federal government for its assistance, particularly with the prompt action to fill the gap left when two large US financiers pulled out of the car industry.
He made the point that the 15-year, $6.2 billion car industry plan was in no way like the emergency financial bail-outs other governments have had to make to their car industries in the US, Europe and Japan.
The local plan was not designed to keep the car-makers solvent in the short term, but to help them develop new products for the long term, Mr Reuss said.
“(The Green Car Industry Fund) is a co-investment program on a three-for-one basis, and that has proved to be a very important part of why you don’t see, like in other countries around the world, big government transactions and funds.
“We haven’t had any money from that fund. We will have allocations of that as we bring the new small car on line, but no one gets access until they start producing the technology and the cars that are leaders on fuel economy and greenhouse emissions.
“The confidence that that shows the Australian government has in the automotive industry in Australia is very important. In the end, relationships, trust and co-operation have been a vital part of that.
“Governments have done that, at local and federal level. I feel very fortunate to be part of an automotive company in an industry that has that.
“Look at some of the crises that happened around the world. There are huge transactions in dollars and ownership changes. You don’t see that in Australia. You see Australia reinvesting in product, by the makers that are here in Australia, and that is very important.
“What it does demonstrate is the Australian government’s commitment to the industry here. It is not a hand-out, but rather reinvesting in technology that puts Australia in this market in a leadership position for fuel efficiency and CO2 emissions.
“This is looked at on a world basis in lots of places as a really good model of how to creatively make sure the automotive industry is viable, making the models people want, for a long period of time.”
Federal industry minister Kim Carr said today in Canberra that Holden had emerged from one of the most rigorous audit processes ever likely to occur, but was not given cash handouts.
“We've probably had the toughest audit we're ever likely to face,” he said. “In terms of what's occurred for General Motors Corporation in the United States, every branch, every unit, every facility of the General Motors Corporation is being put under the microscope, and we see around the world, a very different approach is being taken to the facilities of the companies that we see in General Motors Holden by comparison to other companies.
“On the other side of the coin, the government policies, the government policy parameters were also under very, very tough audit internationally, and they've come up trumps as well.
“And what you've got is a recognition internationally that what's occurred at General Motors Holden and the Australian automotive industry is a model – a model for others to follow. And while we have not provided General Motors Holden with cash in regard to any of the particular projects, what we have said is the policy parameters have provided a certainty, a confidence.
“We've provided the scope for improvement in terms of the innovation that's introduced into the company, the new investment decisions. Remember, all our plans are predicated on one basic assumption – that you don't get any assistance from the government unless the company is prepared to put money on the table themselves.
“In the time of the worst economic crisis that we've faced in three generations, we are discussing with General Motors, and actually seeing happen, investments in new product - a new car line, at Elizabeth, to start production in the third quarter of next year.”
Senator Carr said GM’s bankruptcy gave Holden the chance for a new beginning.
“The re-organisation of General Motors represents Australia with an historic opportunity,” he said. “The company has reaffirmed overnight that it aims to increase fuel efficiency and reduce greenhouse gas emissions across its line-up, as well as pushing ahead with advanced propulsion technologies.
“Now, these are the very objectives enshrined in our New Car Plan for a Greener Future, a partnership between the commonwealth and the automotive industry, with the potential to generate more than $22 billion in new investment.
“The environment is changing rapidly. Australia is ahead of the game. That gives us the chance to cement our place in international production system. More than that, it gives us the real chance to influence how the automobile actually evolves in the decades ahead,” said Senator Carr.
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