Car maker Holden will axe 500 jobs, casting doubts over the future of its manufacturing operations in Australia and its chances of keeping millions of dollars in government assistance.
The company will cut 400 jobs at its assembly operations in Adelaide and 100 at its product development facility in Melbourne.
South Australian Premier Jay Weatherill said the move was in breach of last year's agreement to provide Holden with AUS$50 million (NZ$61.5m) from SA taxpayers to develop two new cars and guarantee the future of local operations until at least 2022.
The key auto union said the job cuts had come as a total shock to workers, who were briefed just an hour before the official announcement.
Holden chairman and managing director Mike Devereux said the move had been forced on the company by the high value of the Australian dollar and a fall in sales of the Cruze small car.
He said the strength of the local dollar made manufacturing in Australia 60 per cent more expensive today than it was 10 years ago.
"This is a very difficult decision because people and their families are involved," he said.
"These are hard-working Australian men and women. A workforce reduction is always the last resort."
Holden said workers would be offered voluntary redundancy packages and the company expected the restructuring to be complete by August.
The measures would reduce vehicle production levels at the Elizabeth plant from 400 to 335 a day.
The job cuts come after Holden was promised AUS$275 million in federal and state government funding last year to develop two new cars in Australia and to ensure the future of local manufacturing until at least 2022.
Devereux said Holden remained committed to that development program and much of its problems were out of its control.
But he declined to directly respond to questions on whether or not the assembly plant in Adelaide was under threat of closure.
Weatherill said the government would reflect on Holden's decision with respect to its promise of AUS$50 million, part of a joint federal-state funding package worth AUS$275 million.
"I have made it very clear that I regard this decision today as completely inconsistent with the agreement," the premier said.
But acting federal Industry Minister Gary Gray said the commonwealth remained committed to the automotive sector.
"We will work with the industry to ensure it is sustainable in a period where the Australian dollar is very strong," he said.
Coalition spokeswoman for Innovation, Industry and Science Sophie Mirabella said the latest job losses, on the back of 170 job cuts at Holden in November, raise serious questions about the federal government's assistance to the car industry.
Mirabella said the coalition was committed to a review of assistance and to creating a funding model aimed at long-term viability, less regulation and a stable economic and policy environment.
Australian Manufacturing Workers Union spokesman John Camillo said it was doubtful that Holden would get enough workers putting up their hands to leave.
"That's my view. The senior shop stewards have indicated that they think they will get 400," said Camillo.
"But I think it's going to be a bit tough."
Camillo said union representatives will meet Holden officials to discuss the job cuts on Friday.