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GM to Keep Australian Presence for 10 Years, Wins Subsidy

GM to Keep Australian Presence for 10 Years, Wins Subsidy
The Holden logo is displayed at a car dealership in Sydney. Photographer: Ian Waldie/Getty Images

General Motors Co., the largest U.S. automaker, will continue making cars at its Holden unit in Australia for at least 10 years in return for a A$275 million ($288 million) government assistance package.

“We were at real risk there would be no more Holden in Australia,” Prime Minister Julia Gillard told reporters in Canberra today. “It would have been a knockout blow for manufacturing, given the importance of the auto industry.” Holden will invest more than A$1 billion in production to make two new models, in return for the investment, she said.

The value of Australia’s automobile exports plunged to the lowest level since 1998 last year as a local currency that’s strengthened 14 percent against the U.S. dollar in the past two years reduced overseas demand. GM’s Holden division said last month it will reduce the number of contractors and casual workers at its assembly plant in the South Australia city of Adelaide, while the local unit of Toyota Motor Corp. has also announced job cuts this year.

“The investment by the government will help Holden withstand the huge pressures the local car industry has faced, especially the soaring Aussie dollar,” said Ian Chalmers, chief executive officer of the Federal Chamber of Automotive Industries, a car industry lobbying group. “It will trickle down to the component-makers and re-invigorate export sales.”

Driven by rising mining exports and demand for the country’s high-yielding, high-rated sovereign debt, the Australian dollar has been the third best-performing major currency against its U.S. counterpart in the past two years, according to data compiled by Bloomberg.

Cheaper Imports

While the local currency’s strength helps contain inflation by making imports cheaper, it hurts exporters by making their products more expensive relative to overseas competitors.

The federal government will contribute A$215 million to Holden, with state governments funding the balance, Gillard said today. The deal with Holden will boost the economy by about A$4 billion, she said.

Holden, the largest producer of Australian-made cars for the domestic market, blamed the strength of the so-called Aussie for last month’s announcement it would cut jobs at its assembly plant in Adelaide.

Toyota’s Australian division, the country’s largest car exporter, cited the strong currency in its announcement Jan. 23 that it would cut more than one in 10 jobs from its main plant in Altona, a suburb of the country’s second-largest city Melbourne.

Falling Production

The division’s production has fallen 36 percent since 2007, it said in an e-mailed statement in January. The unit shipped 83,000 cars worth A$1.5 billion in 2010, the majority to the Middle East, the largest importer of Australian-made cars, according to Toyota’s website.

The Liberal-National coalition opposition has previously said it wants to cut A$500 million from a A$1.5 billion assistance program for the auto industry currently due to run until 2015. Government assistance to the industry was valued at A$1.13 billion, or A$23,500 per worker, in 2006-07, according to a report by the government’s Productivity Commission.

“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,” Holden Chairman Mike Devereux said in an e-mailed statement today.

U.S. Bailout

GM, which emerged from bankruptcy in 2009, received a $50 billion bailout from Barack Obama’s administration in the U.S. The government still holds 32 percent of the Detroit-based automaker’s shares, according to data compiled by Bloomberg.

Holden, which started as a business making saddles in 1856 according to its website, has been manufacturing cars in Australia since 1948, establishing its high-selling Commodore brand in 1978.

Passenger vehicle shipments fell 26 percent from a year earlier to A$1.35 billion in the December quarter, the Australian Bureau of Statistics said Feb. 2 in its trade report. Car exports have slumped 63.7 percent since their peak of A$3.6 billion in 2008, when they were the largest export by the country’s manufacturing industry.

Australian manufacturing, accounting for about 10 percent of gross domestic product, has contracted even as booming demand for the nation’s commodities helped the economy avoid a recession after the 2008-09 global financial crisis. BlueScope Steel Ltd., the country’s largest steel producer, in August shuttered its export division, and Australian wine exports fell to a 10-year low in 2011.

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