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Holden on until small car arrives

Cruze and collect: Holden expects the Cruze small car to return the company to profitability.

Fifth consecutive year of losses looms as Holden looks ahead to profitable small-car

Holden logo30 Jun 2009

GM HOLDEN is battling to avoid posting a fifth consecutive year of losses in the face of dramatically-reduced revenue from sliding domestic sales and an 85 per cent drop in exports.

The company also faces substantial on-going engineering and development costs for its forthcoming Delta-based small car, which won’t begin to pay dividends until it goes on sale in the third quarter of next year.

GM Holden chairman and managing director Mark Reuss put these research and development costs at $30 million when he announced the second model line last December, but it is likely that figure will increase significantly when production-line investments are factored in.

Last week, Holden announced a $70.2 million loss for the 2008 financial year, but Holden insiders have confirmed to GoAuto it would have recorded a small profit except for costs related to shutting down the Family II engine plant this year.

Holden’s result included $76.8 million in special costs, almost all of which were related to closing the Melbourne engine operation, which is due to close at the end of July.

The 2008 result follows losses of $6 million in 2007, $146 million in 2006 and $144 million in 2005. The lean run comes after Holden made a massive $842.9 million profit in the three years from 2002 to 2004.

Holden’s 2008 loss came despite record exports of 56,235 vehicles, which earned the company $1.9 billion in revenue and included a full year of Pontiac G8 exports to the US.

 center imageGeneral Motors axed Pontiac in April and said no more G8s would be shipped, while weaker sales in the Middle East are also hurting Commodore exports.

The closure of the Family II engine plant, which supplied overseas partners, will also mean less export revenue.

VFACTS figures show that Holden sold 67,997 locally-produced vehicles in Australia last year – 8.6 per cent down on 2007. It also sold 62,341 imported vehicles, which was 13.8 per cent less than the previous year.

So far this year, Holden’s sales of Australian-made cars are down 18 per cent and sales of imported cars are down 22 per cent.

The Holden 2008 financial result was also affected by a $50.3 million contribution to its employees’ Defined Benefits Scheme to top up superannuation funds as the global financial market collapsed.

Holden’s loss announcement came after Toyota declared a $123.4 million profit for its 2008/09 financial year ending March 31 and Ford Australia posted a record $274.4 million loss for the 2008 calendar year.

The Ford Australia figure included a $151 million contribution to its Defined Benefits Scheme and special costs of $110 million related to restructuring, including a large amount for voluntary redundancy payments.

Holden avoided a redundancy cost blowout in its 2009 financial result when it moved from two shifts to one at its Elizabeth plant in May, by deciding to keep all of its shift workers on a half-time basis instead of letting half of them go.

In a move that was applauded by unions but privately questioned by officials at rival manufacturers, the employees receive 50 per cent of their wages for the week or fortnight they are not at work.

Holden denied the decision not to slash its workforce was made to avoid a large bubble of redundancy payments, insisting it was designed to eliminate the need to retrain new staff when the market recovered and when it begins production of the new small-car line in the third quarter of 2010.

Set-up costs at the Elizabeth production facility in preparation for the locally produced small-car, including substantial investment in tooling and product development, could have a significant impact if they are included in Holden’s 2009 financial result.

Mr Reuss was not available for comment this week, but did go on record earlier this month saying Holden expected to move back into profit in the first half on 2010. He didn’t discuss the latest result.

Holden’s 2008 result included sales revenue of $5.4 billion compared to the $5.7 billion it brought in during 2007, which the company puts down to reduced volumes. The company continued to invest in 2008, spending $360 million on research and development.

In a letter to Holden employees on Friday, Mr Reuss said this spending demonstrated the company was “committed to heavily investing in our longer term future”.

He went on to write: “The Holden senior leadership team is doing everything possible to return to a profitable position as quickly as possible. This includes attacking the revenue and cost sides of the business with equal enthusiasm.”

Ford Australia’s last profit result was in 2005, when it made $148 million, after posting profits of $192 million in 2004 and $154 million in 2003. It posted a loss of $40.3 million in 2006 and $87.1 million in 2007.

Toyota Australia has consistently made a profit throughout the same period, including $67 million in 2003-04, $70.8 million in 2004-05 and $54.9 million in 2005-06, before posting much larger profits of $184.4 million in 2006-07 and a record $242.2 million in 2007-08.

Read more:

Holden loses $70m in 2008

Toyota lodges $123m profit

Ford Oz posts record $274m loss for 2008

Holden ‘safe’ – and nearly back in the black


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