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Holden to quit Australia in 2016?

Prime Minister Tony Abbott has called on General Motors Holden to make a decision on whether the automaker wants to stay in Australia or leave.

Speaking to Fairfax Radio, Mr Abbott, said that the government was getting mixed messages from the car manufacturer. “I do wish Holden would clarify their intention because at the moment they have got everyone on tenterhooks,” he said.

Prior to the election, the Coalition had a policy of cutting $500 million out of the Automotive Transformation Scheme, the main means of government funding for the local car makers, including Holden, Toyota and Ford. Mr Abbott said there would be no more payments beyond what was promised during the election campaign.

Senior union officials are demanding the federal government intervene, to prevent the Holden factory shutting down – a move that is likely to see the entire car manufacturing industry in Australia close down. Suppliers to the local car makers are believed to be unable to survive if Holden goes. Ford has already announced that it will end local manufacturing in 2016.

Paul Bastian from the Australian Manufacturing Workers union says if the car industry goes, Australia will be looking at a $21 billion hole in the economy. It is believed that the industry directly employs 50,000 Australians and many more indirectly.

Holden is struggling with high labour costs and the high Australian dollar, and has already negotiated lower wages with some of its workers to keep its factories alive for a bit longer. Holden says it is unable to compete globally without public assistance, and has repeatedly pointed out that virtually every country with a car manufacturing industry is supported by the local government.

Several federal ministers believe support should be withdrawn altogether, allowing the industry to sink or swim on its own merits.

Foolish takeaway

It’s a tough decision for the government. Holden is partly to blame for producing cars that Australians no longer want. Big family sedans have been out of favour for many years, while smaller cars and SUV sales have soared. But the question is, can the government afford to set the industry adrift and face the economic and political consequences?

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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