GM Holden Ltd. says the domestic auto industry may need emergency funding from the Australian government to get through a credit crunch as banks tighten lending and vehicle sales plummet.
The industry is facing the same liquidity problems as overseas auto makers and could approach the Australian government for funding similar to the A$2 billion ($1.4 billion) Special Purpose Vehicle program established last year to help dealers obtain credit for wholesale vehicle purchases, GM Holden Chairman and Managing Director Mark Reuss says.
“When we can't get access to funds in a commercial bank, we have a really big problem just like the dealers do,” Reuss tells The Weekend Australian newspaper in an extensive interview. “All it takes is a little bit of build (up) of plant stock to have liquidity issues instantly.”
Reuss says the withdrawal of GMAC Financial Services LLC and GE Capital Finance Australasia Pty. Ltd. (GE Money) from Australia brought the issue of car industry liquidity to the attention of the government.
GM Holden has not yet approached the government for funding, but Reuss says it remains an option. “Every one of the makers in Australia has that possibility,” he says. “It's a function of how conservative banks get with loaning money to the auto industry.”
To free up cash, GM Holden has halted work at its Adelaide plant for extended periods and through the end of March the facility has been closed as often as it has been open this year, 26 production days and 26 down days.
Reuss says A$149 million ($101.3 million) promised to GM Holden by the Australian government under its “green car” scheme has been crucial to the auto maker’s plans to build a 4-cyl. car beginning next year.
The yet-to-be-named small car will be localized by Australian designers and engineers to make it a unique product, Reuss says, noting it could be sold in other right-hand-drive markets, such as the U.K.
GM Holden could continue to operate even if parent auto makerCorp. seeks Chapter 11 protection in the U.S., Reuss says. “We have contingency plans around lots of different scenarios. That’s one of them.”
While the 20% contraction in Australian vehicle sales is manageable, domestic auto makers are exporting into a global market that's collapsing, he says. “It's a double whammy. We want to have some of our business as export, but in some cases there's an 80% reduction in (those) markets.”
In an editorial comment, The Australian says the picture looks bleak for GM Holden.
“(GM) Holden's role as GM's center of engineering expertise for rear-wheel drive has been left without a stage to strut its stuff, after the cancellation of large models to focus on smaller, more fuel-efficient designs,” it says.
The newspaper says GM Holden’s sales have been in decline for five years and its market share has shrunk to historic lows.
The auto maker sold 178,000 vehicles in Australia in 2004, but this slipped to 130,000 in 2008, while its market share fell to below 13%.