Holden’s decision to Exit Australia – and the Processes surrounding it…

Holden’s decision to Exit Australia – and the Processes surrounding it…

It is a well known fact that the Liberal Party of Australia had the following policy on their website pre Election.

If elected to office, an Abbott Government would immediately proceed with the abandoned 2008 Productivity Commission review of the industry (a review that was supported by each of the local manufacturers at the time it was announced) in order to ensure there is again a sensible, evidence-based approach to taxpayer funded subsidies as well as better funding benchmarks aimed at the long term viability of the industry.

13 June 2013. Liberal Party Website.

On 30th October 2013, Joe Hockey, the new treasurer of Australia wrote to the productivity commission and instigated such an enquiry.

His brief called for an interim report on or before 20th December, 2013, and a final report by 31st March 2014.  So whilst I am writing this review, the Productivity Commission is still doing its enquiry.

Yet Holden has made the decision to exit Australian manufacture.

Much speculation was seen in the press on 11th December when the Managing Director, Mike Devereux announced Holden’s decision.

This speculation was caused because the day before, Devereux attended the public hearing of the Productivity Commission in Melbourne and stated that no decision had been made by Holden. I believe him.

I believe him for the following reason. On 27th November 2013, Holden submitted a comprehensive paper to the Productivity Commission detailing Holden’s Australian operation.

This paper is illumination to the uninitiated. It is fascinating reading. The overview states the following.

Automotive is one of the strongest job multipliers; it is heavy manufacturing capability; it

drives innovation, learning and skill development; and it generates wealth through its

extensive supply and logistics chain. Nineteen of the G20 countries all have automotive

manufacturing at their core.

The highly sophisticated production, logistics and efficiency processes, innovation, advanced

technology, robotics and skilled jobs utilised by the automotive industry, can be transferred

throughout whole economies.

This is why countries compete strongly for automotive manufacturing.

In terms of economic activity generated, on average, for each dollar of government assistance received, Holden has generated 18 times the amount in its economic activity in Australia. Holden would not make this same economic contribution without building cars locally.

 

Did you know that? I had some idea but not the detail.

The submission goes onto explain the level of skill that Holden invests in the suppliers and names them.

It also highlights that Holden pays for their tooling costs which lead to further market opportunities outside the Automotive Industry.

Further, it describes Australia as the most competitive marketplace in the world for cars with the lowest tariffs. (Page 5 of the submission)

This highlights the complete rubbish that we have a competitive world trade scenario.

The Holden submission is full of economic reasons why an automotive manufacturing industry is good for Australia and why government assistance is common in all of the world Automotive manufacturing plants.

These are the reasons I believe Mike Devereux, when he said that Holden had not made a decision.

In fact Holden had made a decision under the Labor Government to stay for at least the next 10 years. Their decision to review the decision surely rested on the recommendation of the Productivity Commission and its report.  Once again I remind readers of the Liberal Party Policy:

in order to ensure there is again a sensible, evidence-based approach to taxpayer funded subsidies as well as better funding benchmarks aimed at the long term viability of the industry.

Lets back track a bit.

Labor had decided to advance the Industry an extra $500 million to assist for the very reasons decided above. The Liberal Party decided not to honour that agreement.

They decided to withdraw that amount of money which drew this response from Mike Devereux on November 27th 2012, in The Australian:

“I believe 2013 will be a year that Australia decides whether it wants to have an auto industry or not,” he said.

The comments suggest the 2013 federal poll could resemble the recent US presidential elections where Barack Obama’s successful protection of auto workers in key states Ohio and Michigan helped secure his re-election.

“It became an election issue, it was front and centre,” he said.

Holden benefited from $275 million in federal and state government assistance earlier this year as part of a co-investment agreement to remain in Australia for at least 10 more years.

Under the Government’s $5.4 billion New Car Plan, in place until 2020, $1.5 billion has been committed by 2015. However, the Coalition’s policy is both less generous and less certain.

Senior economic figures from Joe Hockey down have advocated a dramatic reduction in subsidies.

So that has set the scene before the Election. Liberals didn’t want the extra money in the Automotive Industry and opted for an enquiry. The Labor party had secured the continuance of an Automotive Industry in Australia for a further 10 years.

Now comes the most extraordinary bit of the story:

Having committed to an Enquiry with a proper terms of reference, (written by Hockey) and with a process in train we see the following facts emerge.

3rd December 2013 – Public hearing of the Productivity Commission in Adelaide.

4th December 2013 – Public hearing of the Productivity Commission in Melbourne.

10th December 2013 – Public hearing of the Productivity Commission in Melbourne.

It was after this meeting that Mike Devereux stated that Holden had not yet made any decision.

Mike Arriving at the Productivity Commission hearing, published at 10.11am (Thanks ABC)

His statement re Holden in Australia published at 3.14pm

You will note that this story says:

Federal Coalition ministers have told the ABC they believe Holden has decided to quit manufacturing in Australia as early as 2016.

Which Coalition members? I presume that they are the ones looking out of the bushes!

But the story gets even more bizarre. The globe theatre (new Parliament House) with players Hockey and Truss perform Act xx of the play. I’m not sure which Act it really is because there are so many plots, sub plots and confusions in the Liberal Party that it’s a web of intrigue difficult to fathom.

Remember readers it is still the 10th December, 2013.

In Question Time the second question of the day was by the Member for Deakin, a Liberal MP named Michael Sukkar. He asked the following Dorothy Dixer question at 14.05 (That’s 2.05pm).

My question is to the Acting Prime Minister. Will the Acting Prime Minister update the House on progress the government is making to provide certainty to workers in the automotive industry?

Now having read the Policy and with a properly constituted Productivity Commission Enquiry into the very thing the Question was about, one would imagine that the simple answer would be:

I thank the member for his question and would remind the house that the Productivity Commission is working diligently on “a sensible, evidence-based approach to taxpayer funded subsidies as well as better funding benchmarks aimed at the long term viability of the industry.”  (taken from Liberal Party policy).

 

Warren however decided to answer thus.

Mr TRUSS (Wide Bay—Deputy Prime Minister and Minister for Infrastructure and Regional Development) (14:05): I thank the honourable member for his question because I know that there is considerable anxiety within the motor vehicle manufacturing industry about the future of General Motors in Australia. The comment made this morning by Mr Devereux, the general manager, that no decision has

been made at this point just adds to the uncertainty. What this government have said is that we want is

a clear commitment that General Motors will remain active in Australia. The statements today include

no clear commitment to stay in manufacturing in this country, yet it was only two years ago when

Holden said it had achieved ‘sustained profitability in Australia’. So just two years ago the company was

reporting sustainable profitability and now it has not ruled out abandoning manufacturing in this country.

This government are doing their part to endeavour to create a better atmosphere for manufacturing in

Australia. As far as the motor vehicle industry is concerned, we have got rid of the $1.8 billion changes

to the fringe benefits tax which were going to have such an enormous impact on the motor vehicle

manufacturing industry. Of course, we have legislation in the parliament to get rid of the carbon tax, which adds to the cost of every vehicle made in this country. Holden is an Australian icon, and we want to have a nation where companies such as Holden can prosper and achieve their objectives in manufacturing. So today I have written to the general manager of Holden, Mr Devereux, asking General Motors to make an immediate statement clarifying their intentions in this country. They owe this to the workers of General Motors. Let us not go into the Christmas period without General Motors making a clear commitment to manufacturing in this country and responding to this government’s endeavours to improve the manufacturing environment in Australia.

 

The government is committed to making Australia a place where manufacturing can prosper and where

we can work together as a society, as a community and as an economy, not to just allow manufacturing

jobs to drift away as they did under the previous regime, but instead to work together to find ways to

make sure that manufacturing continues to employ people in this country and that we have a strong and

robust manufacturing industry for future generations of Australians.

I want to make a couple of points here –

In 2012 Holden made 82,000 vehicles. The cost per vehicle of the carbon tax was $45 per vehicle. (page14 of Holden’s submission).  They do not pass on that tax/price to the customer.

It therefore amounts to $3.69 million per annum. This is well at odds with a Liberal Party claim in their policy document (see above) of a total cost saving the Automotive Industry of $640 million if the Tax was removed.

The second point is that the question of Holden staying or going, could only logically have been settled at the conclusion of the Productivity Commission enquiry and recommendations, which was due to produce an interim report on 20th December, 2013 and a final report on 31st March, 2014.

The next Question was by:

Ms PLIBERSEK (Sydney—Deputy Leader of the Opposition) (14:08): My question is to the Treasurer.

From 2001 to 2012, Holden generated $32.7 billion of economic activity in Australia and paid $21

billion to other businesses in Australia. During that period Holden received $1.8 billion in Commonwealth

Government assistance. Does the Treasurer consider 18 to 1 a good return on investment?

Now this Question shows that the Labor Party had actually read the Holden submission where it mentions at page 4 this fact. She didn’t say that during that time Holden had also:-

 Returned $1.4 billion to the Government as PAYG income tax revenue (from the submission).

The response was typical.

Mr HOCKEY (North Sydney—The Treasurer) (14:08): The best return on investment that you can

have is for a business to invest its own money, make its own profits and remain sustainable. That is the

best return of investment you can have. It is a foreign concept to the Labor Party. I was looking at the

frontbench yesterday, and I was wondering: who has ever worked in the private sector in the Labor Party?

Hockey forgot the idea that investing in Holden actually keeps Australians employed. The number for Holden is 3,700 employees directly making cars and between a 3 to 6 jobs multiplier or between 11,100 or 22,000. That sounds to me like a good return on investment.

What has the fact that working in the private sector got to do with the question? The answer of course is nothing. Look at Hockey’s past – he was 31 when he entered politics as a Federal MP and apparently was a banking and finance lawyer and so can’t have had much of a time in the “private sector” himself – certainly not investing his money in an enterprise.

Remarkably after this childish set of remarks he goes on:-

 Mr HOCKEY: There you go—we know what return on investment looks like. Return on investment comes about by doing the hard yards; by having a government that can accommodate investment and risk and that does not look at someone who is profitable and say, ‘I want that,’ which is what Labor does. Labor does not ever witness a profit that it does not want to take off a hardworking employer or a hardworking employee. As the Deputy Prime Minister said, ‘we want to have a strong manufacturing industry in Australia’. But we have inherited an economy where one job in manufacturing was lost every 19 minutes under Labor. Under Labor, Ford closed their doors and Mitsubishi closed their doors. How about that? Talk about return on investment! That is what you judge to be a good return on investment, is it? Labor’s answer to everything is just to throw more money at it. Their response is always to put their political interests ahead of the commercial interests of individual companies. So I would say to the Leader of the Opposition: put Australia first, put the workers first and join with the Acting Prime Minister and the Government in calling on Holden to come clean with the Australian people about their intentions here. We want them to be honest about it—we want them to be fair dinkum—because, if I was running a business and I was committed to that business in Australia, I would not be saying that I have not made any decision about Australia. Either you are here or you are not.

 

Reading the Holden submission, there is little risk to the Government.  Holden put in $3 and the Government $1 and they create $18 and through that $18 the Government gets back 77% of the dollar.

(Between 2001 and 2012 Government assistance was $1.8 billion and they got back $1.4 billion in PAYG revenue. So in 11 years the net loss to the Government was $400 million or $36.4 million a year – but at the gain in economic activity of $32.7 billion, nearly $3 billion a year. The fact of the matter is that Holden are putting in.

His last statement is priceless. Said, I might add, in coward’s castle:

We want them to be honest about it—we want them to be fair dinkum—because, if I was running a business and I was committed to that business in Australia, I would not be saying that I have not made any decision about Australia. Either you are here or you are not.

In my opinion that was the straw that broke the Holden’s economic back. They saw the monumental ignorance of the Treasurer of Australia. He fundamentally called them dishonest when they were being as co operative with the Productivity Commission as they could be.

They were following a process, a process which the Government and Hockey failed to follow.

So Holden decided that it was not worth kicking against the pricks (to fight against people in authority) as despite their Commission of Enquiry and the uncompleted process their time was much better spent making motor vehicles elsewhere than trying to convince an ideologically driven Government to invest in their own people and economy.

On 11th December Mike Devereux announced that General Motors had decided to cease Motor Vehicle Manufacture in Australia.

A sad, sad loss to Australia in so many ways. The thing that has left me wondering though, is how competent is Joe Hockey? How competent is this Government and how many of them have really worked in the private sector in a real job? Not many I suspect.

When you read the Holden Submission, you might also like to peruse the section on the Unionised work force who:

agreed to a wage freeze of three years and 39 other conditions which helped to make Holden’s original plan to stay in Australia.

This shows a mature and sophisticated negotiation process between real adults and to Australia’s benefit. The details can be seen at pages 41 and 42 of Holden’s Submission.

Finally I would like to reiterate the Liberal Party policy words:

sensible, evidence-based approach to taxpayer funded subsidies?

You make up your mind.

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