GM Holden says it will invest A$1 billion ($1.04 billion) in a next-generation vehicle program in Australia that includes the local production of two all-new models.

The General Motors’ subsidiary announces the move after negotiating a A$275 million ($285.3 million) co-investment package with the Australian and South Australian governments that will see the auto maker producing cars in Australia until at least 2022.

Prime Minister Julia Gillard says that in return for the government funding GM Holden will build two new vehicles that will be less costly to run and better for the environment.

“The high Australian dollar and strong competition from other countries in our region are putting strain on our automotive industry, and GM Holden had considered closing its entire design and manufacturing operations in Australia,” Gillard says in a statement.

“Through hard work and extensive negotiations, we have struck an agreement that will see the company maintain a strong manufacturing presence in Australia for at least 10 more years.”

The federal government’s contribution will be A$215 million ($223 million) from its A$5.4 billion ($5.6 billion) New Car Plan for a Greener Future fund.

“This funding is not a handout – it is a strategic investment that will boost our economy, foster innovation, build new business opportunities and promote adoption of new fuel-saving and safety technologies,” Gillard says.

GM Holden Chairman and Managing Director Mike Devereux says the government funding will drive investment of more than A$1 billion from GM Holden and help secure the future of the local car industry.

“Co-investment of this kind is critical for our industry and helps Australia compete against other car-making countries that protect their industries through tariffs and/or financial support,” he says in a statement.

The funding will cover a 10-year vehicle-development and manufacturing program.

“The investment will help Australia retain its capability to design, engineer and build cars with two all-new vehicles going into production at Elizabeth, South Australia, in the second half of this decade,” Devereux says.

“The two new Australian-made cars will be world-class. They will be underpinned by global architectures from within General Motors and bring new fuel-saving, connectivity and safety technologies to Holden’s portfolio.”

Devereux says the program also delivers a significant return on investment.

“We estimate Holden will inject around A$4 billion ($4.14 billion) into the Australian economy over the life of the program,” he says.

GM Holden is among the most-flexible automotive manufacturers in the world, producing 45 vehicle variants in the one plant, including small and large cars from Cruze to Caprice, for Australian and international markets.

Devereux says the local market is one the most fragmented and competitive in the world, with 230 models on sale in Australia compared with 144 in 1998 when domestic large cars enjoyed their strongest sales.

“Holden’s business model has been a great success in this competitive and challenging environment,” he says. “Last year, we sold more locally made cars in Australia than any other manufacturer, and nearly 60% of all Holdens sold in this country were built in Elizabeth.”

Devereux insists GM Holden is making the cars Australians want.

“Commodore and Cruze are (among the) top-five selling cars in Australia – so it’s clear we’re making small and large cars that meet the needs of both ends of the market,” he says.

Government investment has been instrumental in reshaping GM Holden’s manufacturing operations and allowed the auto maker to build the Cruze small car in Australia, rather than import it.

“We are acutely aware that with government investment comes great responsibility,” Devereux says. “We are focused on continuously improving our efficiency and quality to help us be amongst the best in the GM world.”

He says it is important that people understand the economic benefits that flow from the public investment.

“Holden is delivering a very attractive return on investment,” he says. “We estimate the current locally built Cruze will generate more than A$1 billion of economic activity from Holden in Australia over the life of the program.”

Devereux says GM Holden is part of a sophisticated, highly innovative and fast-paced industry that supports a complex network of jobs in and outside of the industry, and that government aid highlights the importance of maintaining manufacturing in Australia.

Gillard says with the shift to global-car platforms there will be increased pressure on Australian component makers, but there also will be opportunities for these firms to win new business in global supply chains if they are competitive.

As part of the agreement, GM Holden will create a new Suppliers’ Working Group to help Australian companies sell into its worldwide supply chains.

The federal and Victoria governments also will provide A$35 million ($36.3 million) for the Automotive New Markets Initiative, a new program to help firms in the automotive supply chain move into export markets and supply their products to other industries.

The federal government will provide an additional A$15.6 million ($16.2 million) to extend the labor market element of the Automotive Industry Structural Adjustment Program to provide training and employment services for workers leaving the auto sector.

Victoria Premier Ted Baillieu says the state government funds will support GM Holden’s design and engineering plant in Port Melbourne.

“This investment will enable research and development capacity to remain in Victoria and additional contract work to be undertaken in Victoria for the GM Holden global supply chain,” Baillieu says in a statement.

“This is an important outcome that will ensure Holden's world-class automotive engineering expertise remains in Victoria.”

But not everybody is enthusiastic about the government’s new package. The Business Spectator website says the massive Australian support for a failed auto industry shows politicians are mired in an era somewhere near Henry and Edsel Ford.

“Government media units will be spinning faster than a HSV's (Holden Special Vehicles) back wheels in a parking lot – at stake is the notion among voters that this is less a public investment and more extortion money demanded by an unsustainable industry.”

The GM Holden deal follows Ford Australia’s signing of a A$103 million ($106.8 million) pact with the federal government to bolster its manufacturing operation.