GM in Red in Australia But Says Committed to Market

GM Holden reports a net loss of A$152.8 million ($155.7 million) for 2012 and, while blaming unprecedented price competition and discounting driven by the high value of the local currency, insists it remains committed to a long-term future in Australia.

The General Motors subsidiary says the result included A$226 million ($230.4 million) in special one-off charges associated with restructuring, mainly due to a revaluation of the company’s manufacturing assets to align with reduced demand.

Consolidated revenue fell to A$4.0 billion ($4.07 billion) from A$4.3 billion ($4.38 billion) in 2011.

GM Holden Chief Financial Officer George Kapitelli says the A$300 million ($305.8 million) revenue drop was driven by declining sales of the locally made Cruze in the ultra-competitive small-car segment, the beginning of the run-out of the Commodore VE and a blackout of sales with the changeover to the all-new Colorado in the booming light-commercial segment.

“But underneath these numbers it’s important to understand that Holden has a strong and healthy balance sheet with zero debt,” he says. “Holden, and Australia, is still an important driver for GM, and our imported portfolio is profitable.”

Export potential is limited due to the unfavorable exchange rate, Kapitelli says, but notes shipments grew 14% last year and the auto maker will launch Chevrolet SS exports to the U.S. this year.

“Despite these challenges, we are committed to manufacturing in Australia and we are investing in the company’s future,” he says.

Kapitelli says GM Holden is gaining traction in the market, where it currently is the No.2 auto maker.

“We know our new marketing and product initiatives are having an impact and we’re confident we can tackle the challenges in the coming year head-on,” he says.

The financial performance was the result of an “extremely challenging and competitive” car market in Australia, with unprecedented price competition and discounting, Kapitelli says.

“With the Australian dollar at levels not seen since the early 1980s, this puts particular pressure on our Australian manufacturing operations.”

He says GM Holden benefits from the strength of the currency with its imported models, but it is the most trade-exposed of the domestic manufacturers, with 60% of its sales from the locally produced Commodore and Cruze.

“When the Aussie dollar goes up, overseas vehicles become cheaper and car importers have more margin to play with; to compete with, to reduce their prices, to add more content, or spend more on advertising,” Kapitelli says.

“When you make cars in Australia you don’t have this luxury. Your manufacturing costs are largely fixed, you have to find ways to be more efficient, to reduce your margin simply to compete with imports.”

GM Holden’s commitment to a long-term future in Australia is signaled, the CFO says, by last year’s increase in capital spending on plant and equipment by A$65 million ($66.3 million) to more than A$100 million ($101.97 million) in preparation for the launch of the new VF Commodore.

It also spent A$197 million ($200.9 million) on research and development, taking its R&D outlay to more than A$1 billion ($1.02 billion) the past five years.

In addition to new product investments, Managing Director Mike Devereux says GM Holden dealers have spent more than A$100 million on new and substantially upgraded facilities, vehicle service equipment and customer management systems in the past few years.

“(It’s) the largest dealer investment in decades,” he says.