Oz Auto Industry Recoils From Lutz Geneva Remarks

CANBERRA – Shock waves are reverberating across the Australian auto industry as Bob Lutz, General Motors Corp.'s vice chairman -global product development, expresses “grave concerns” for the viability of the Australian auto industry and says the GM Holden Ltd. Commodore could be built in South Korea.

The Sydney Morning Herald reports from the Geneva auto show press preview being held this week that Lutz, who oversees GM Holden's Australian operations from GM headquarters in Detroit, is concerned about the country's car manufacturing if import tariffs remain low and the Australian dollar stays strong.

The newspaper says while Lutz stresses GM Holden has no plans to close its vehicle-assembly plant in Adelaide, he says the Australian industry is "at risk" of being uncompetitive with its nearby Asian neighbors and their lower labor costs.

"The Australian manufacturing industry is in a difficult situation right now," he is quoted as saying. "If the government doesn't do something about it, or the Australian dollar doesn't weaken, then I'm not sure what's going to happen. The Australian market really is at risk." (See related story: Oz to Help Fund Auto Exports After GM, Ford Pledge Support)

Lutz says there are no plans at this stage to build the Holden Commodore in South Korea, where GM Daewoo Auto & Technology Co. is based, but notes, "it is possible and it is feasible" to do so.

He says it is more likely that production of the Commodore, Australia's best-selling large car for the last 12 years, will remain in Australia for now.

However, he says other Australian-made Holdens that sell in relatively small numbers domestically but are strong sellers in other countries could be assembled by GM Daewoo.

Lutz suggests Holden Statesman could be built in Korea.

"The new Statesman is going to be exported from Australia to China, South Korea and the Middle East (badged as a Buick)," he says. "If the export volume is strong, and it makes sense to build the Statesman at (GM Daewoo), then why not do it?"

GM Holden is the biggest stakeholder in GM Daewoo, with a 42% share.

While GM has seen profits plummet in North America, its sales are soaring in the Asia/Pacific region, selling more than 1 million units for the first time in 2005, grabbing top market share in China.

With this in mind, the auto maker recently said it was assigning more responsibility to both GM Holden and GM Daewoo for design and engineering, noting the Australian subsidiary has been one of the most important contributors to the region's growth.

“Holden continues to play a critical role, both as a key local player and as a source of engineering and design expertise, with specific focus on its large, rear-drive-car capabilities,” GM Chairman and CEO Rick Wagoner said in 2004.

However, the global market has taken a rapid turn, with increasing oil prices pushing sales of small cars. The trend has hurt the sale of Holden large cars, with sales sliding 14% in January to 11,503 units. (See related story: Australian Auto Makers Insist Large Cars Still Relevant)

Additionally, GM Holden, which according to GM's Pontiac division will deliver 10,000 to 12,000 GTOs to the U.S. this year, will halt production of the car by midyear. GM says the GTO has fallen far short of its U.S. annual sales target. (See related story: GTO Demise to Curb GM Holden Exports)

Meanwhile, GM Daewoo, which was formed in 2002 and until recently largely has languished as an unprofitable provider of entry-level cars for emerging markets, has been tapped by GM to play a key manufacturing and export role.

The auto maker's products now are being shipped to major markets, such as the U.S., China and Europe, badged as Chevrolets. (See related story: Chevy Epica, Captiva Making Geneva Debuts)

GM Daewoo reportedly expects its sales, including exports, to rise more than 30% in 2006. “We expect the volume to be between 1.45 million and 1.5 million,” GM Daewoo Vice President Rick Labelle reportedly said in Seoul last month.