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GM’s financial results show Holden is paying the price of shut-down decision

7 Feb 2014

HOLDEN’S decision to quit manufacturing in Australia has reduced the value of the 70-year-old car-maker to just $US71 million, financial documents from its parent company show.

General Motors overnight released the full-year result for its global operations, announcing a $US3.8 billion ($A4.2 billion) pre-tax profit, well down on the $US4.9 billion result the car-maker pegged in 2012.

According to GM’s financial statements filed with the US Securities and Exchange Commission, Holden’s value in the eyes of its owner has plummeted from more than $US500 million ($A557 million) to just $US71 million since December’s announcement of its upcoming closure.

It also shows the restructure of GM’s international operations, including the end of car-making in Australia, will cost the company more than $US1.1 billion by the end of 2017.

The documents also spell out the steps the global car-making giant is taking to close down its Australian operations by 2017, including taking a big tax hit that would have helped Holden write off its $152 million loss pegged last year as it struggled with a high Australian dollar.

The car-maker is not expected to report a profit for 2013 when it reports its full-year result in the next few months.

The financial statements reveal that GM’s division that includes Holden was a big financial drain on the company.

GM’s Consolidated International Operations, the car-maker’s division that oversees Holden’s car-making business, reported about a $US200 million loss for the quarter once its booming Chinese division was factored out of the balance sheet – a big turnaround from the $US300 million profit it pegged the previous year.

The full-year result for GM CIO fell from a profit of $US500 million before interest and tax in 2012 to $US300 million last year.

GM executive vice-president and chief financial officer Chuck Stevens acknowledged there would be more financial pain ahead for the car-maker as parts of the business, including Holden, wound down.

“In 2013, we strengthened our fortress balance sheet and delivered consistent earnings, providing the foundation for a quarterly dividend for our shareholders this year,” he said.

“This year we’ll leverage our strength in the US and China to execute important restructuring activities in other key global operations.” The statements also hint that a deal between the car-maker and its workers over severance payments is yet to be thrashed out.

“In December 2013 we announced plans to cease vehicle and engine manufacturing and significantly reduce engineering operations at Holden by the end of 2017,” the car-maker’s SEC filing says.

“Holden will continue to sell imported vehicles through its Holden dealer network and maintain its global design studio.

“Our Australian operations have been subject to unfavorable market conditions including the sustained strength of the Australian dollar, high cost of production and a small but highly competitive and fragmented domestic automotive market.

“In the three months ended December 31, 2013 we recorded pre-tax charges of $0.5 billion consisting of asset impairment charges including property, plant and equipment and exit-related costs including certain employee severance related costs.

“We expect to incur additional charges through 2017 for incremental future cash payments of employee severance once negotiations of the amount are completed.” Planned factory closures in Europe and Australia and the withdrawal of the Chevrolet brand from Europe cost GM $US420 million last financial year. According to the financial statements, completing the restructure by the end of 2017 will add another $640 million in red ink.

According to GM, Holden’s announcement in December alone that it will no longer make cars in Australia beyond 2017 cost the company $US477 million.

As well, the financial balance sheets show GM’s Australian division is shaping up for a big tax hit as it fails to write off any losses generated by Holden against future income.

“At December 31, 2011 as a result of sustained profitability in Australia, we released the valuation allowance against deferred tax assets,” the report says.

“The reduction in the valuation allowance resulted in a non-cash income tax benefit of $502 million.

“In Australia we have net operating loss carry forwards which are subject to meeting a ‘Same Business Test’ requirement that we assess on a quarterly basis.

“At December 31, 2013 as a result of our plans to cease vehicle and engine manufacturing at Holden, we determined that it was more likely than not Holden would not realise a portion of the deferred tax assets and recorded a valuation allowance in the amount of $133 million.” The statement also shows US factory workers will each get a $US7500 productivity bonus for helping the company do well in the booming North American market.

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