GM Holden to Stop Auto Manufacturing in Australia in 2017

General Motors Co.’s Holden unit, Australia’s largest carmaker, said it would shutter production lines in 2017 after 69 years, joining Ford Motor Co. in exiting an economy struggling with high costs and a strong currency.

About 2,900 employees will lose their jobs at the automaker’s plants in South Australia and Victoria, according to a statement released hours after GM said Dan Akerson will step down as chief executive officer.

Local carmakers have been hit by an Australian dollar that surged almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports. Holden’s departure may drive out the last remaining carmaker Toyota Motor Corp. and further damage a manufacturing sector that has shrunk to 7.1 percent of Australia’s economy from 29 percent in 1960.

“If you start putting all of your eggs in fewer baskets, drop one of those baskets and you’re in trouble,” Stephen Clibborn, a lecturer at Sydney University’s business school, said by telephone. “If the resources sector slows then you want to be able to fall back on something.”

Competition from imports, a fragmented domestic car market, high costs and the strength of the dollar had created a “perfect storm of negative influences” for Australia’s car industry, Akerson said in a statement on Holden’s website. It costs an average A$3,750 ($3,423) more to build cars in the country than at GM plants overseas, Holden said in a Nov. 27 submission to a government inquiry into the sector.

Car Industry

Holden’s decision marks the end of Australia’s car industry, Dave Smith, head of the vehicles division at the Australian Manufacturing Workers’ Union, said by phone.

“All of the manufacturing will go,” he said. “Once you lose the volume in the components industry you have no choice.”

The decision will “place unprecedented pressure on the local supplier network and our ability to build cars in Australia” Toyota said in a statement. The company will work “to determine our next steps and whether we can continue operating” in Australia.

The nation’s car industry directly employs more than 45,000 people, about 5 percent of manufacturing jobs, according to the Federation of Automotive Products Manufacturers, an industry group. It was worth about A$5.4 billion to the economy in the year ended June 2012 and contributed A$3.7 billion worth of exports, according to government data.

‘Difficult Day’

“This is a difficult day not just for Holden but for the country,” Mike Devereux, managing director of the unit, told reporters today. “We have been part of the industrialization of this country.”

The decision to pull out was taken during a call with GM leadership yesterday afternoon, Devereux said. Mary Barra was named as successor to Akerson yesterday.

Holden began as a saddler business in South Australia state in 1856, and Prime Minister Ben Chifley in 1948 welcomed its first completed car off the production lines. Its Commodore sedan was the country’s best-selling car for 15 years until it was overtaken by Mazda Motor Corp.’s 3 model in 2011.

GM will still have a presence in Australia, including a national sales company, a parts distribution center and design studio, according to the company’s statement. It expects to record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013 due to the decision, the carmaker said.

Subsidies Trimmed

Australia’s previous Labor government had set aside A$5.4 billion for the domestic car industry until 2020 and pledged another A$700 million ahead of the Sept. 7 election.

Prime Minister Tony Abbott’s coalition government plans to cut A$500 million from subsidies to the car industry by 2015. Abbott said during the election campaign he wouldn’t “run down the road after Holden waving a blank check at them.”

“We regret the fact that GM is to phase down its operations in the country,” Deputy Prime Minister Warren Truss told parliament in Canberra today. “Holden has been an iconic national brand for Australians, a part of our heritage.”

Holden received an average of A$153 million a year in Australian federal government assistance from 2001 to 2012, the unit said in a submission to the government’s Productivity Commission.

The value of government assistance has outstripped Holden’s own capital investment every year since 2007, according to the report. Since 2004, the GM unit only posted a profit in two years, 2010 and 2011.

Cars made in Australia slumped to 13 percent of domestic sales in 2012 from 80 percent in 1984, according to data from Ford and the Federal Chamber of Automotive Industries.

Ford said in May it will close its Australian car lines in 2016 after nine decades.

Unless the government addresses high labor costs other manufacturers will “suffer the same fate,” Aaron Lane, a research fellow at the Institute of Public Affairs in Melbourne, said by telephone. “You feel for the workers’ families, but taxpayers’ money shouldn’t be used to prop up inefficient industries.”

Before it's here, it's on the Bloomberg Terminal.