Holden plunges to record $210 million loss

THE demise of Holden’s Pontiac car export deal amid the global financial crisis last year dragged the Australian arm of General Motors down to a net loss of $210.6 million in 2009 – the worst result in its history.

Revenue plunged by more than one third, from $5.8 billion in 2008 to $3.8 billion last calendar year, with the ill-fated Pontiac G8 program the main culprit.

The company has now posted negative results for five consecutive years, compiling cumulative losses of more than $500 million.

However, Holden said the company had been back in the black in recent months, indicating the worst of the troubles were behind it.

Holden's previous record loss was $147 million in both 2006 and 1986 – the latter when GM head office in Detroit was forced to weigh in with a major cash injection.

However, Holden believes there is no such need for such drastic measures this time, with an improving car market and export opportunities helping to lift its bottom line.

Holden’s latest pot of red ink is not as bad as Ford Australia’s most recent result – a net loss of $274 million – posted last year.

Holden says it would have made a small after-tax profit of $12.8 million except for special one-off charges totalling $223.4 million, stemming mainly from “program cancellations” – including the Pontiac G8 project – and the final closure of the company’s four-cylinder engine plant in Port Melbourne.

As Holden is between managing directors, the delivery of the bad news was left to chief financial officer Mark Bernhard, who described the result as disappointing, adding that it was the “by-product of one of the most severe economic downturns in recent memory”.

“Much of our loss was incurred as a result of GM’s decision to discontinue the Pontiac brand in North America,” he said.

“This action resulted in the high-volume export program of the Holden-built Pontiac G8 range ending in April.

“As we know, other key Holden export markets were also affected by global economic conditions which led to a dramatic decline in demand for our product from overseas customers.

“At a local level, despite producing Australia’s top-selling car, the Commodore, our domestic market was also impacted. These factors resulted in revenue declining from $5.8 billion in 2008 to $3.8 billion in 2009.”

Australian sales of the locally made Commodore fell 13.1 per cent last year, but because of the collapse of exports, total production of the car in all its forms plunged 42 per cent, from 119,000 units in 2008 to 67,000 units last year.

As well, engine exports fell from 136,000 units in 2008 to 88,000 in 2009 – a decline of 36 per cent – mainly a result of the four-cylinder engine plant closure.

Asked if Holden would seek recompense from GM North America over the broken export deal, Mr Bernhard said Holden was pursuing other export opportunities with its American parent company, including the proposed Caprice-based Police Pursuit Vehicle (PPV).

The PPV project is not expected to pay dividend this year, however, as Mr Bernhard said tenders for the vehicle were not due until late in the year.

Mr Berhard said he was not at liberty to disclose how much of the decline in revenue resulted from the Pontiac program closure, but he described it as the most significant factor.

He said Holden’s finances began to improve in the second half of last year, in line with the health of the world economy.

“At this time that we started to witness the benefits of some of the more difficult restructuring decisions made during the year to ensure we were operating on a leaner, more efficient base,” he said.

“This contributed to the company’s positive operating cash flow of $289.8 million.

“These decisions included aligning production with consumer demand at our South Australian and Victorian manufacturing facilities.

“To this end, we have been able to ensure the business is in the best possible position leading into the start of small car production at Elizabeth (South Australia) in the first quarter of 2011.

“These streamlining initiatives, as well as improvements in the domestic market in Q4 2009 and January and February 2010 saw our sales and financial performance improve, with the company making a profit in those months.”

Holden is set start production of the Cruze in sedan and five-door hatchback styles next year, by which time it hopes to be able to restore the second shift that was deleted at the Elizabeth assembly plant due to falling customer demand last year.

Mr Bernhard said some of the workers at the plant had taken voluntary redundancy in the interim, but he said he did not have the figures of overall staff cuts in the financial year.

He said the current workforce was 4500.

According to figures posted on the internet, the Holden workforce in March last year was said to be 6300, suggesting a reduction of about 1800 people by natural attrition or redundancy.

Mr Berhard said in a memo to staff that Holden’s senior leadership team – which will soon include incoming chairman and managing director Mike Devereux – was committed to plans that underpinned an efficient and profitable company in the long term.

“We all have an important role to play in lowering operating costs, improving efficiency and positively impacting the company’s bottom line,” he said.

“We must now continue our relentless pursuit towards the exciting and profitable position we know and expect Holden to reach.”