The Holden blame game

Opinion

Australia has just witnessed Holden announce the closure of its manufacturing plants here from 2017, leaving just one domino – Toyota – standing upright.

The impact of this announcement should not be underestimated. Holden has been a brand fixture in Australia since 1948 – longer than most Australians have been alive. It is the local automotive equivalent to the Berlin Wall being torn down or man walking on the moon for the first time.

Holden managing director Mike Devereux (pictured) delivered the eulogy for the company's car-building and engineering facilities on Wednesday afternoon. The Holden boss was careful not to point the finger at anyone. And he was particularly solicitous of the workers at the Elizabeth plant.

"This is a very difficult day for a lot of great men and women, who have made personal sacrifices during the GFC for our company – and as a team – who earlier this year voted on a landmark change to their EBA [Enterprise Bargaining Agreement] – to agree to take a three-year wage freeze, to be more productive in the plant. I could not ask for more from the team here at Holden."

He had earlier declared strong empathy for his 'award' workers, and observed that they face a particularly challenging time once the plant closes down, especially since the Elizabeth area is already considered economically deprived.

"As we go through this process here, for the next little while, one of the things that I think everybody in this room and everybody listening should focus on is the fact that there are 2900 people at Holden that three to four years from now will need to find something very productive for themselves to do in this country.

"We will take great pride and attention... to help those employees make that transition."

None of that supports opinions from armchair experts that it was the unionised employees who drove the company into the ground. But the Holden MD also avoided criticising the government, to the disappointment of yet other experts of the armchair variety.

"We understand the point of view of the government of this country... the government of the day. It's a difficult situation," he said.

Even the consumers, who had previously supported Holden on a massive scale, but had now turned to imports, escaped the wrath of Devereux.

"We don't mean to make light of the fact that since 1948 – post-war Australia – Holden, since the very first 48/215 that rolled off the line with then prime minister Ben Chifley, that we have been part of the industrialisation of this country, and have always had a strong relationship with the government of Australia, the people of Australia... and in their hearts."

If Devereux has been magnanimous, others chose not to follow his example. Some discredited the Abbott government – barely three months in power – for respectively goading GM Holden to make an announcement, after making it clear in the lead-up to the last federal election that $500 million of financial assistance promised by the former Labor government would be withdrawn.

But there is a broader view that whatever the machinations of the new government to deflect responsibility for the closure, Holden's fate was effectively sealed once the Hawke/Keating Labor government of the 1980s and early 90s settled on reducing vehicle import tariffs – progressively wiping out the protectionist policy under which the local manufacturing industry had flourished.

Governments of both persuasions have been committed to free trade in the global context – often to the detriment of our own companies and employees when other countries have played hard. So it's both pointless and irrelevant to blame this government for Holden's plant closure, just as it would have been for blaming the Rudd government when Mitsubishi shut up shop.

Certainly that free trade commitment over the past 30 years has brought cheaper goods to consumers around the nation and it has helped workers on lower living standards in other countries, so it's an ill wind... et cetera.

Could government policy have found a way to fix the Aussie dollar at a level – say at 80 cents US – that would have protected local manufacturers exporting around the world? The Japanese government is reducing interest rates to deter currency speculators, but one outcome of the Australian government following suit would be a new housing boom, further increasing the average price of homes across the nation – and it's not like they're cheap with interest rates where they are.

The economy is like a house of cards. If you think that removing one card will lighten the load somewhere else it will inevitably have some unforeseen effect in yet another part of the economy.

What this indicates is that government is riding a bucking bronco. It has little control over the path we've taken, but economists – some even arguing the Australian economy is 'recession-proof' – have said that Treasury and the Reserve Bank are handling things admirably.

As for the frequently scorned Free Trade Agreements ('FTAs'), including the latest FTA with South Korea, it's easy to fault the government for making it ever harder for local products to compete against imports from those other countries. What needs to be remembered, however, is that there is an upside for other parts of the economy – typically from the primary industries sector. That upside is often huge, as opposed to the financial benefit for car-makers in this country.

What about the unions then, and their members? It's been reported that workers in car company paint shops can expect to be paid a 'dirt' allowance, despite the paint shops being very clean environments these days. That's an example of an industry legacy that can be traced back to the earliest days of mass production. Henry Ford was able to select the best and brightest workers – and treat them as customers also – by offering pay and conditions well ahead of what other companies were prepared to provide.

Ford (the man) didn't always hold unions in high respect, but they were a fact of life in times when workers were being paid a pittance and were employed in miserable and dangerous roles. Once Ford raised the bar for entitlements, his competitors followed – and this strategy was adopted by car companies in Australia, since many of them were owned by American parents.

Mike Devereux, arriving in Australia from North America via the Middle East, seems to have seen little that's exceptional in the local plants, as regards industrial relations. While he highlighted the cost of building a car in Australia during the lead-up to Holden's EBA negotiations before the announcement, part of that was due to logistical costs and part was due to the strength of the Australian dollar, which Devereux has frequently mentioned in the past.

As others have said, if you're working on a production line – even a modern one – you probably deserve the pay you're receiving. It's physically demanding work, and this country's employers show a willingness to pay above the odds for people to fill unappealing job roles. Consider all the anecdotes about FIFO drivers and cooks earning big sums during the present mining boom.

It's not socialism gone mad, it's the free market. Employees ask – and get – what the job demands and whatever the employer will pay.

What about Holden itself? When it was necessary, the company did negotiate a new EBA with its workforce, so perhaps the union members weren't quite as recalcitrant as some have suggested. And perhaps Holden was a more or less willing participant in paying what was required to attract workers to fill those roles – while Commodore was the top-selling car in the country.

Speaking of that, it's an oft-stated argument that the company wasn't selling cars people wanted to buy.

Up until 2011 the company was building the most popular car in the country – the Commodore. That car had been the most popular for 15 consecutive years. The car that succeeded it as the most popular was the Mazda3, which retained that mantle for two years, but will lose out this year to the Toyota Corolla and Holden’s own Cruze isn’t that far behind.

Building and marketing a car that was the largest-selling model in its home market for 15 years is not something to be sneered at. So what was that about not building cars Australians want to buy?

Even now, Commodore has sold over 25,000 units for the year so far. Add another 5000 for the Commodore-based Ute and you have over 30,000 units. Know how many cars sell more than 30,000 units in a one-million market? Not many...

The Volkswagen Golf, which everyone assumes is a huge seller in Australia, has been purchased by 15,481 owners this year – barely half of the combined Commodore and Ute sales.

What car could Holden have built that would have been more popular than the Commodore – and therefore capable of sustaining local production?

Another point raised by the armchair experts is that Holden shoulda/coulda dropped production of the Commodore in favour of something that would have sold in the same numbers as the Mazda3.

It takes time to change an entire production line to build a new car – and even more so if the car in question is yet to be developed. And what should Holden have built? Mazda already builds the Mazda3 for Australia, so that option was clearly not going to fly. Elizabeth already builds Cruze – and that car is assembled from a mix of local and imported components, with far less margin than the Commodore.

If Holden had laid on three shifts at Elizabeth and built 200,000 Cruzes a year – assuming there was a global market for that many Australian-built Cruzes – it still would not have earned the same profit as the current level of domestic Commodore sales.

And returning to the question of Holden not building cars that Australians want, consumers haven't entirely forsaken the Commodore, although sales have shrunk over the past couple of years, just as Ford has experienced with the Falcon. It has probably been a result of consumer sentiment and buyer preference shifting into smaller cars or SUVs after the GFC.

Arguments that Holden could have and should have found export markets for the Commodore ignore the fact that markets for such a large car are not common. With the landed cost in America it's even hard to see many sales eventuating from the Chevy SS program. Previous export programs to the USA (GTO and G8) have always faced the same hurdles.

Why didn't Holden downsize rather than build the large VE model? It was the right choice at the time, in the years prior to the GFC – and GM holding out the prospect of large-scale exports from Elizabeth to the USA. But then the corporation closed down Pontiac and ended G8 production.

Holden had tried downsizing in the past – with the VB Commodore. It was a strategy that was ultimately the company's undoing, with GM stepping in to bail it out in the mid-1980s. By that time Ford was romping ahead of Holden with sales of its XF Falcon.

What Holden is currently going through (and Ford too, for that matter) is indicative of a changing economy in Australia. It's a point that Mike Devereux mentioned in closing.

"The country has some very difficult decisions to make, as does the government of the day."

For the moment, while we're still looking for scapegoats, we're failing to find a solution.

No rebirth this time
The history of the automotive industry in this country is littered with examples of companies that came and went. But in the past there was always some new player to replace one retired hurt. That's no longer the case.

In the period following World War II, the British brands manufacturing in Australia banded together under the corporate governance of BMC and subsequently British Leyland to remain afloat. British Leyland finally pulled out of Australia because – ironically – it couldn't compete with three successful American brands building cars in Australia: Ford, GM and Chrysler.

When the first Japanese cars began to arrive in Australia in some numbers, it was the coup de grace for BL. Companies like Toyota and Nissan – both of which took to building cars early on – were selling vehicles that were usually better built, better engineered and better equipped, at a lower purchase price.

The two Japanese companies took up where BL left off. Their products were often conservative, but that suited the conservative buyers that merely wanted a car to get them from point A to B – and for minimal running cost in that period after the first oil shock in 1973.

Other companies came and went during that time too. America's AMC supplied Rambler CKD kits to be assembled here by Australian Motor Industries, which also assembled Standard Vanguards and Mercedes-Benz models. All that ended when AMI was snapped up by Toyota.

Various British and European brands had local production facilities here to assemble cars as diverse as Hillmans, Peugeots, Renaults, Volkswagen and Volvo. The Rootes Group, selling well known British brands like Hillman, Humber and Singer eventually joined with Chrysler Australia. Renault assembled its own cars and Peugeots at a plant in the Melbourne suburb of Heidelberg, but shut up shop once tax concessions for Volkswagen's Clayton plant, which assembled locally-delivered Volvos also, was eventually acquired by Nissan.

Mostly these manufacturers arrived and departed because currency exchange rates were so volatile, or the government withdrew tax concessions or changed the playing field in other ways – reducing imported vehicle tariff rates, for example. Some companies folded up and slunk off into the night because the parent companies were enduring problems on a global scale. That's why Chrysler sold its Australian arm to Mitsubishi in 1980.

It's also why GM has ordered Holden to abandon local manufacturing from 2017.

Holden coverage on motoring.com.au

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