Holden has recorded its biggest ever financial loss in the wake of its announcement that it would cease local manufacturing.
The Australian arm of General Motors recorded a net loss after tax of $553.8 million in calendar year 2013, with enormous one-off costs incurred following the announcement the brand intended to stop manufacturing its cars by the end of 2017. The company said it recorded “a $500.4 million one-off impairment charge on property, plant and equipment” before tax, along with $122.3 million (before tax) in charges for “employee separation costs”.
Holden also recorded its slowest year for sales in recent memory in 2013, with just 112,059 units sold (down from 174,464 in 2005 – a drop of 35 per cent over eight years).
The loss easily eclipses Holden’s previous biggest loss of $211 million, which occurred in 2009 at the height of the global financial crisis. It’s also a blow-out compared with the company’s 2012/2013 financial year loss of $152.8 million – the chief reason for the blow-out being that the announcement regarding shutting down its production plants came in the second half of 2013.
However, the company says the loss was expected – indeed, Holden said that in the wake of the December 2013 announcement that it predicted “pre-tax charges of $400 million to $600 million” to be recorded before the end of the 2013 calendar year.
Holden received a reported $82.6 million of government funding in the last calendar year from a total $1.8 billion over the past 12 years. Over the past eight years, it has lost close to $1.8 billion.
The company points out it also spent $145.2 million spent during 2013 on research and development, with a further $190.9 million injected into the economy through tax payments. It says despite the lagging sales and announcement regarding the future of the brand, Holden’s consolidated revenue increase from $4.02 billion (2012) to $4.05 billion in 2013.
Holden chief financial officer, Jeff Rolfs, defended the company’s decision to cease manufacturing, claiming the record loss will help make the brand more sustainable and that it will return to a profitable state in the future.
“Clearly there are significant costs associated with our decision to cease domestic manufacturing of vehicles in Australia by the end of 2017,” Rolfs said. “These costs drove the financial loss for Holden in 2013.
“We are mindful of the impact on our employees and our financial results, but it was the right decision. Manufacturing vehicles in Australia is, unfortunately, unsustainable.
“All three domestic OEMs have now announced they will cease domestic vehicle manufacturing as auto manufacturing in Australia faces a perfect storm of negative influences: a persistently high Australian dollar; one of the most fragmented and competitive markets in the world; and higher costs compared to other manufacturing source countries,” he said of the Holden and its fellow local manufacturers Ford and Toyota to also close their Australian operations.
“We are determined to work with all levels of government and the rest of the industry to deliver support, training and links to future opportunities for Holden employees impacted by our decision.”
Rolfs said Holden’s move to being an import-only company bodes well for the future, as these models are the cars that currently make a profit for the brand. The majority of its models are sourced from either South Korea (Barina Spark, Barina, Cruze wagon, Malibu, Trax, Captiva 5 and Captiva 7) or Thailand (Colorado, Colorado 7), while the Cruze hatch and sedan, Commodore, Caprice and Ute are built locally.
“Addressing our high fixed cost base is certainly a key to returning Holden to sustainable profitability into the future,” he said. “We are profitable on our imported portfolio and Holden is focused on taking the right decisions to grow sales and revenue in the immediate term and manage our other costs very closely.”
So far in 2014, Holden has outperformed the soft Australian car market. Its sales are up 8.1 per cent, while the overall market is down 3.1 per cent. The VF Commodore has been its best performer by far in 2014, with more than 10,000 units sold to the end of April.