GM has made no decision: Devereux

GM Holden chairman and managing director Mike Devereux has refuted media speculation that General Motors has already decided to close its Australian operations, and is simply waiting for the best time to announce it.

Speaking today before the Productivity Commission inquiry into the state of Australian automotive manufacturing, Mr Devereux defended the industry and said the cost of its demise would “dwarf” the cost of saving it.

Mr Devereux also put the annual cost of supporting the industry, around $600 million, into context when he pointed out that the mining industry receives taxpayer subsidies of around $3 billion a year and the financial sector receives around $5 billion in assistance through the negative gearing mechanism alone.

Right at the start of what turned out to be a lengthy testimony at least twice as long as those given by other respondents, Mr Devereux was asked whether GM had made a decision about Holden’s future.

“No decision has been made,” was Mr Devereux’s response.

Before the hearing, GoAuto asked the Holden boss whether the future of GM’s Australian subsidiary was on the agenda for an imminent parent company board meeting in Detroit. Mr Devereux declined to comment.

Mr Devereux also told the commission he could not say whether the three main GM operations in Australia – assembly, engine manufacture and design and development – would be treated separately or as one if a decision was made.

He also declined to detail what further assistance the company would want to see before it made a decision to reinvest in Australia. Earlier this week, shadow industry minister Kim Carr said the figure stood at $150 million on top of existing commitments.

Mr Devereux outlined GM’s plan to invest $1 billion of its own money in two new models after 2016, and said he had presented the business case to both the prior and current federal governments. But he declined to detail the business case, and the assistance it rested on.

“There is no question in my mind that the government has the information to answer your question. I don’t think it is appropriate to disclose our business cases in this type of forum,” he said in answer to a question from commissioner Philip Weickhardt.

However, later in his testimony, Mr Devereux said he believed that the assistance to the car industry could not be a once-off decision that remained in force forever, as there were many variables that affect the viability of the industry.

These include currency exchange rates, tariff changes in other countries and the signing of free-trade agreements among them.

“We have a business case that involves … some level of assistance that needs to be there in order for GM to have a business case that is viable based on other places we can make the vehicles,” he said.

“It is always going to be relative. These things are not static. They don’t stay the same over a three- or four-year period. You can’t set it and forget it.

“If the currency doubled in value again between now and 2020 … the economic equation we set would be dramatically different if our cost base doubled again.”

Mr Devereux pointed out that, over the past 11 years, the Australian dollar has risen from around US50c to parity while at the same time Australian tariffs were coming down from 15 per cent to five per cent and, in some cases, zero.

Commissioner Mike Woods asked whether assistance arrangements would require an annual negotiation or would be set for a particular model cycle and then reset later on.

“Probably the latter,” Mr Devereux said.

Commissioner Weickhardt pointed out that GM Holden had lost money in six of the last 12 years and was averaging an annual profit of around $50 million over that time. He suggested this was probably below General Motors’ expected return on investment.

Mr Devereux said the return on capital for GM was not as good as the company would like, but that there was another return on capital to be considered.

“For that $150 million a year over 12 years, the economic activity of us making things in this country is $33 billion of economic activity to the Australian economy over that time, an 18 times multiplier,” he said.

“I believe (that) is a very good return for the economy of the country that, should we not make things here, must be replaced by something else.

“I wouldn’t comment on whether General Motors thinks that that $50 million is acceptable, but those are the numbers in terms of return to the Australian economy over that 12-year period.

“I wouldn’t speculate as to what the conditions need to be to turn that around in the future because I can’t tell you what the Australian dollar will be five years from now against a five-currency trade-weighted basket and I can’t tell you how many free-trade agreements might be signed by the government.”

Commissioner Weickhardt asked whether other companies which receive no government assistance but pay wages and taxes made a greater contribution to the Australian economy than GM Holden.

“The business case for having an auto industry is understood all around the world,” Mr Devereux responded, “because we believe there is a 3:6 multiplier for every job we create.

“The auto industry is certainly not the only industry in this county to receive assistance.

“I would tell you that the majority of the $3 billion a year that goes into the diesel fuel rebates goes to the mining companies. I think mining is very important to Australia and I am not criticising the fact that there is a $3 billion a year diesel fuel rebate, or $5 billion in subsidies for negative gearing, which obviously drives a lot of people’s decisions on how they manage their own personal portfolios.

“The budgetary cost of losing this industry would dwarf the cost of keeping it.”

Mr Devereux said that GM Holden would never be able to completely close the $3750 gap between the cost of manufacturing a car in Australia and in some parts of Asia.

More than half that figure – $2000 – was in labour costs, but Mr Devereux mounted a strong defence of the assembly workers at Elizabeth, which he said were the most highly “loaded” in any Cruze plant around the world.

“One of things I am quite proud of is the productive use of labour in this country. Every 60 seconds a vehicle rolls down the assembly line.”

He said the Elizabeth workers had to deal with a lot of complexity as they might have to switch from a Commodore to a Sportwagon to a Caprice and back to a Cruze in short order.

“A different job comes at these people every 60 seconds. On Cruze, they are loaded for 56 of those 60 seconds. That’s the highest loading of any plant that builds the Cruze.”

He said Elizabeth had an 8.8 hour line time to build a Cruze, which put Elizabeth in the top three Cruze plants around the world.

Mr Devereux also drew attention to the recent renegotiation of the enterprise agreement between GM Holden and it workers, which saw workers agree to a three-year pay freeze and an additional 16 minutes of daily work time.

“Forget the cost of labour. Are we employing the talented labour we have in a productive way? My answer is unequivocally yes.”“Is labour in Australia higher than it is in Asia? Of course it is. We have a very good standard of living here.

“That’s one of the challenges we have to overcome, but it is not the only driver of the difference between the cost to make things here and the cost to make them elsewhere.”