GM Holden to Restructure Australian Manufacturing Operations

General Motors announces a major restructuring of its GM Holden Australian operation, cutting production 16% and slashing jobs at its manufacturing operations by about a quarter.

Output will be reduced from 400 cars a day to 335 at its South Australian plant by Aug. 1, with the loss of about 400 jobs from its 2,200-strong workforce. Another 100 jobs will be lost at its product development operation in Melbourne, Victoria.

GM Holden Chairman and Managing Director Mike Devereux says the cuts primarily are due to a sales slump for its locally made Cruze small car, hurt by a high Australian dollar in one of the most open and competitive car markets in the world.

The job losses come five months after the auto maker laid off 170 workers due to falling production and two months before the launch of the all-new VF Commodore, to be exported to the U.S. as a Chevrolet.

Cruze deliveries tumbled 14% last year and another 30% so far this year. Commodore sales were down almost 25% last year to some 30,000 units and this year sales have plummeted another 40%.

Devereux says the restructuring will better align GM Holden with projected future volume and workload.

“A workforce reduction is always the last resort and Holden has taken every possible step to address our challenges over the past 12 months, including market response days, aggressive marketing campaigns with significantly upgraded products and reduced pricing,” he says in a statement.

“But to protect the long-term future of Holden, we have been forced to take these actions, and this restructure will better align Holden with projected future volume and workload.”

Devereux says the Australian automotive industry is exposed to heavy import trade and the appreciation of the currency is at its highest level in more than 30 years, making it 60% more expensive to operate that it was 10 years ago.

“We have made significant productivity gains but are witnessing a structural shift in the Australian market, which favors importers due to a sustained high Australian dollar and extremely low tariffs.”

This has put intense pressure on the local industry. For example, since GM Holden launched the Cruze in 2009, pricing has been reduced by up to A$2,500 ($2,599) in some instances for exactly the same vehicle in order to compete with imported brands, Devereux says.

Meanwhile, the cost of doing business and building cars in Australia has continued to rise.

“Competition in the Australian market is brutal, he says. “Just between June and July of 2012, our Cruze volume decreased by 38% and it hasn’t come back. That is not a natural decline in a normal, stable market. There are huge external forces at play here.”

Devereux says the Cruze and Commodore continue to be successful despite the challenging market – they both are still among the top 10 selling cars – but GM Holden is not competing on a level playing field.

“Not only are we challenged to compete locally, but high-volume export opportunities are not possible due to the strength of the Aussie dollar and the measures other countries take to fiercely protect their own local automotive industry,” he says

GM Holden’s product development operations are facing similar pressures and challenges. Not only are they working on domestic programs but they also are competing globally.

“This means we are now one of the most expensive engineering centers for GM in the world,” Devereux says. “We simply can’t secure the necessary workload to maintain our current hourly product-development workforce.”

The restructure, therefore, will better align GM Holden with projected future volume and workload.

“The steps we’ve announced today are critical to ensuring the competitiveness of two of our most important products ever – the new VF Commodore and significantly updated Cruze,” Devereux says.

The GM decision comes at a bad time for the Australian Labor government, which already is facing an uphill climb to stay in office in a September general election.

The federal and South Australian governments have promised about A$275 million ($286.3 million) to GM Holden to guarantee its local manufacturing until 2022.

The auto maker earlier this month released figures showing it has received A$1.8 billion ($1.9 billion) in state and federal assistance in the plast 12 years.

Federal Chamber of Automotive Industries data shows Australian vehicle production fell 33.9% since 2007, from 334,772 units to 221,224 in 2012. This year’s first quarter saw combined local output by GM Holden, Ford and Toyota tumbled 17.8% to 46,597 units from 56,690 year-ago.

Last month, Hyundai outsold both GM Holden and Ford Australia on record deliveries up 7.6% from prior-year to 8,402 units.

Australian Manufacturing Workers Union spokesman John Camillo tells Melbourne’s The Age newspaper GM Holden’s he job cuts come as a total shock, and he is doubtful the company will get enough workers volunteering to leave.

Devereux tells the newspaper that Australia’s manufacturing sector is dealing with major changes to the country’s economy. “We are witnessing a structural shift in the market, not just for cars but for anyone who makes things in this country.”