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Ignore us at your peril, GM tells Oz government

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GM Asia Pacific boss advises Australian government not to neglect the auto industry

Holden logo27 May 2008

GM ASIA Pacific president Nick Reilly has warned the Australian federal government to ignore the local manufacturing industry at its peril.

Mr Reilly, who visited Holden’s headquarters in Melbourne last week to help formulate future model and production plans, said local manufacturing was at risk due to the soaring value of the Australian dollar that has slashed export profits.

He said the resources boom, which was the driving force behind the growth of the economy and the value of the Australian dollar, had also forced up wage costs which was putting more pressure of the local manufacturers.

On the eve of the review into the local automotive industry headed up by former Victorian premier Steve Bracks, Mr Reilly said Australia should not let its manufacturing industry die just because other parts of the economy were booming.

“The economy has done very well because of the boom in commodities and that has led to the strength in the Australian dollar which is fine, but it is going to affect manufacturing generally and Australia has to have an export component to its manufacturing whether it be cars or anything else,” he said.

“Nobody will be pleased in five years' time if commodity prices drop, the Australian dollar drops and we are looking for trade out of Australia and we don’t have a manufacturing industry here any longer.”

Mr Reilly said such a situation had occurred in other countries.

“You need to be very cognisant of that and take steps to make sure that you don’t lose your manufacturing base.”

Mr Reilly said he thought it would be unwise for Australia to rely too heavily on one part of its economy.

 center imageLeft: GM Asia Pacific president Nick Reilly.

“My personal view is that you have to be mixed and if you get over-reliant on one element of it and that element goes negative you can be in a real weakness,” he said.

The commodity boom might be raking in a lot of money, but that in turn has cost other industries, said Mr Reilly.

“I think Australia needs a vibrant manufacturing sector and it is under threat because of very high exchange rates - not only high exchange rates, but also labour rates,” he said.

“For us to hire people, it is costing us a lot of money because people are paying huge amounts of money in the mining industry and taking engineers and taking other people and again it is driving the cost of manufacturing up.

“It is not the easiest thing to solve, but if you are getting rich in one area you have to make sure you don’t ignore another area which you might want to rely on in the future.”

While the soaring Australian dollar was cutting into export profits, Mr Reilly said Holden’s existing export plans were safe.

“It is a good program today, even at today’s exchange rates,” he said.

Asked if they would still be viable if the Australian dollar kept climbing, Mr Reilly replied: “If the dollar goes up another 25 per cent I can’t tell you what we might have to do but we are anticipating that it is going to go up by that much.”

Mr Reilly said current export markets were keen to continue to take cars from Australia rather than move to make them in their own countries.

“If you have got a product that we only make here and it is wanted for other markets around the world, it is very unlikely that those markets are going to invest and make those vehicles themselves,” he said.

Mr Reilly did admit a flow-on effect of the rising dollar value could be a reduction in export volume.

“What is more likely to happen if the Aussie dollar stays strong or gets stronger, they will still want that product but we probably won’t sell as many as we will have to put the price up,” he said.

One export program that appears to be doing very well for Holden is the Commodore-based Pontiac G8, which has just been introduced in the US.

It has been praised by most of the motoring press and there is a reported two to three-month waiting list in some states for the V8-powered model, something that Reilly is pleased to see.

“We are delighted at the reception, not just of the public but of the media,” he said.

Mr Reilly said Holden would respond to the market, but would not make any rash decisions.

“We can increase our production if we need to, a bit, although we are running quite close to capacity, although quite frankly we would usually wait for three to four months before making any permanent adjustments to production rates,” he said. “It is early days.”

Mr Reilly said Holden had been through a tough patch in its domestic market, but said its outlook is brighter than it has been.

“We have had a couple of difficult years due mainly to the very rapid change in the segmentation which didn’t favour Holden’s traditional strengths,” he said.

“That is not something that will change overnight - we don’t have a right to say what the market should look like.”

Mr Reilly even appeared to suggest Holden could be on track to post a profit after posting losses of $145 million for the calendar year of 2005 and $147 million in 2006.

“We have to change. We are changing and we have been restructuring and I am glad to say that while we have lost some market share, at least temporarily, the bottom line is looking much healthier than it has for a couple of years and we are set to progress back again to where we used to be,” he said.

Non-tariff barriers a non-issue:

Ford Australia president Bill Osborne and Federal Chamber of Automotive Industries president John Conomos have both spoken out about non-tariff barriers in the ASEAN region, but GM Asia Pacific president Nick Reilly doesn’t share their concerns.

When asked about whether he was worried about non-tariff barriers in the region, Mr Reilly said: “I think you need to be careful about that.

I think that becomes a bit of an excuse,” he said. “I have lived in many of these countries. Korea was accused of non-tariff barriers because its imports were at 1 per cent.

Frankly, the imported products weren’t right for the market and people didn’t want to buy them and they were too expensive.

Now, without changing anything those are up to six or seven per cent in just a few years and that is because the product that is being offered now is much more appropriate for the consumers.”

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