MIKE DEVEREUX: Without Pay Cuts, Holden Won't Be Able To Make Cars In Australia

Holden is hurting. The company made a $152 million loss in the 2012 financial year and this month announced that it would stop making cars in Australia if it failed to bring factory costs down.

Holden CEO Mike Devereux told factory workers they had until August to come up with a plan to cut costs. Pay cuts of up to $200 a week are on the table.

Here’s what he told the American Chamber of Commerce on Friday:

[Australia is] literally one of the most expensive places in the world to make anything, let alone a car. So our cost structure, our plant, is one of the most expensive plants to operate in the GM world. We don’t make money actually operating our – specifically our Adelaide assembly plant right now.

We do make money importing cars, which a lot of people do, and what we’re trying to do is to say to our workforce, to say to everybody in the company, that we are facing a crisis, there’s no question.

Labour is about 65 per cent of the cost of making a car, and it literally costs us thousands of dollars more per car to make those cars in Australia … [Labour] alone will not erase the deficit in terms of the manufacturing cost challenge that we face, but it is exactly as important as every other piece in the chain, and it will stand the same scrutiny.

[…]

I took a pay cut … during the GFC of 10% in 2009.

And one of the things that’s really interesting about this debate is frankly our workers as well are non-award covered workers. Most of them haven’t had pay raises for the last three years.

So we have been on this journey already with one side of the equation and the difficulty and I think the emotion of the situation, this particular week, is now – that focus is also turning to manufacturing.

So from the executive suite, all the way down to the factory floor, we’re going to have exactly the same approach to this, I know, very emotional question.

[…]

We have to get our costs in line, and we have set August as a timeframe for us to be able to put that to our workforce.

The timing of it is that when you back up from where we are today and say, when is it that we would need to launch those next generation cars? And I’m talking about 2016, 2017 timeframe.

The product life cycles are really long in the auto business. Some folks might not realise how long they are. So it takes you maybe three or four years to do all the planning and execution. And then you’re going to run that model for another maybe five, six, seven years.

So the cycle actually is about a ten year cycle. And our decision points for that are likely to be yet this year.

Frankly, [with] the cost base that we’ve got today, with the dollar and with the entire economic equation, we must reduce our manufacturing costs for that next gen business case to be more viable.

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