What really went wrong with Holden

The AAP's Tim Dornin takes a deeper look at the issues facing the Australian car industry following the news carmaking giant Holden, is to pull out of manufacturing in Australia.

Holden's problems are both simple and complex.

Simple in that the company is just not selling as many cars in Australia, and particularly locally-made cars, as it used to.

Complex in the reasons behind that decline.

So far this year, demand for Holden's locally-built Commodore is down 11 per cent, while sales of the four-cylinder Cruze have dropped by 15 per cent.

But why? Both cars are among the best the company has ever built.

The problem is Australia's car industry is now swamped with more brands and models than ever before, thanks largely to falling tariffs over the past 20 years and more recently the strength of the Australian dollar.

Quite simply, buyers are spoilt for choice.

So, Holden is competing against companies that can match or better it on features, reliability, refinement and most importantly, price.

On top of that, buyers in the 21st century have changed.

Australians are no longer happy to have the same car in the driveway as other people in the street.

They want to be different, show their individuality, and that often translates to buying a Volkswagen, an Audi or some other brand.

A fundamental feature of the market, and one where Holden was traditionally strong, has also changed.

In years gone by many of Holden's Commodore sales, and those of the Ford Falcon for that matter, were courtesy of fleet buyers.

People driving company cars often weren't given a choice in what they could drive and, if they were, it was limited.

Fast forward to today and arrangements have changed. Many people with subsidised transport are now responsible for picking their own vehicle and partly for paying for it or at least covering the cost of running it.

So some have downsized while others are now casting a wider net.

Now, let's look at some international factors.

Like all companies producing goods for both the domestic market and potentially for export, Holden has been hit hard by the strong Australian currency.

It has almost killed off the company's ability to sell into many major markets.

At the same time it's made imported models from its competitors cheaper in the domestic market, leading to a double whammy for local car producers.

Holden has also worked hard in recent years to become more integrated into General Motors' global operations.

That offers benefits. It has been able to use its design and engineering expertise to secure work from its international partners while it has also helped with sourcing cars and components from overseas.

But when you become a small cog in a global giant, there's the potential that you're more easy to discard, especially when your particular operation doesn't shape up favourably compared with others around the world.

That has been made clear by Holden chief Mike Devereux in recent weeks when he revealed that the cost of building a car in Australia is $3750 more than in other GM plants, a fundamental problem the company has to address.

Cost pressures on Holden that won't be easy to overcome, must be front and centre for senior GM officials in the US, especially at a time of excess capacity at a number of its manufacturing operations.

After going through their own meltdown, including bankruptcy proceedings and government bailouts, GM chiefs can also be expected to cast aside any lingering sentimentality to subsidiaries like Holden, regardless of their iconic status.

It's a case of perform or perish.

So when it comes to deciding whether Holden should get more government help, it's not as simple as either supporting a company and an industry which injects billions of dollars into the local economy or, as some would suggest, a case of throwing good money after bad.

For Holden to flourish in the future, a range of factors needs to fall into line.

They have to finds ways to cut costs, they must continue to produce great products and the currency gods need to smile on them, to name a few.

Governments can help, but extra cash is not the only answer.

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