There has been a whirlwind of announcements recently from GM as the U.S. government sold all its stock, Mary Barra appointed the next CEO, GM dumped its PSA Group stock, and numerous actions announced to clean up its balance sheet and improve its ability to produce vehicles with the economies of scale that GM lost during the past couple of decades.
As part of its ongoing actions to improve the performance of its global operations, General Motors will transition to a national sales company in Australia and New Zealand. The company also said it would discontinue vehicle and engine manufacturing and significantly reduce its engineering operations in Australia by the end of 2017.
“The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world,” said GM Chairman and CEO Dan Akerson.
About 2,900 positions will be lost during the next four years. This will comprise 1,600 from the Elizabeth vehicle manufacturing plant and approximately 1,300 from Holden’s Victorian workforce.
Holden will continue to have a presence in Australia beyond 2017, comprising a national sales company, a national parts distribution center and a global design studio. The sale and service of Holden vehicles will be unaffected by this announcement and will continue through the extensive network of Holden dealers across Australia and New Zealand. Warranty terms and spare parts availability will remain unchanged.
Since 2001, the Australian dollar has risen from US$0.50 to as high as US$1.10 and from as low as 47 to as high as 79 on the Trade Weighted Index. The Australian automotive industry is heavily trade exposed. The appreciation of the currency alone means that at the Australian dollar’s peak, making things in Australia was 65% more expensive compared to just a decade earlier.
With the decision to discontinue vehicle and engine manufacturing in Australia by the end of 2017, GM expects to record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013. The charges would consist of approximately $300 million to $500 million for non-cash asset impairment charges including property, plant and equipment and approximately $100 million for cash payment of exit-related costs including certain employee severance related costs. Additional charges are expected to be incurred through 2017 for incremental future cash payments of employee severance once negotiations of the amount are completed with the employees’ union. The asset impairment charges will be considered special for EBIT-adjusted reporting purposes.
