GM Holden Gets $287 Million Australian Government Handout

Automaker Holden was handed a $287 million government subsidy on March 22 to keep its Australian plants open, avoiding a "knock-out blow" to the manufacturing industry.

In return Holden, an Australian subsidiary of U.S. giant General Motors (IW 500/5), agreed to inject over $1 billion into vehicle production in Australia and to build two next-generation cars at its plant in southern Adelaide.

The announcement abates the threat of Holden shuttering its Australian operations as the industry suffers the effects of a high Australian dollar, rising production costs and faltering domestic sales.

Prime Minister Julia Gillard said the agreement would see Holden continue making cars in Australia until at least 2022, warning there had been a real risk of the company pulling out of the country.

"It would have been a knock-out blow for manufacturing in this country given the importance of the auto industry to all of manufacturing," she said.

Gillard acknowledged that a high Australian dollar and strong competition from other countries in the region were "putting strain on our automotive industry."

"Through hard work and extensive negotiations we have struck an agreement that will see the company maintain a strong manufacturing presence in Australia for at least 10 more years."

She added that Holden, which has been in business in Australia for more than a century, estimated the new investment package would return around $4 billion to the local economy.

"Most importantly, this co-investment will support thousands of jobs at Holden that would have been lost if the company had stopped making cars in Australia," said Gillard.

Australia's auto industry employs more than 50,000 people and is central to the jobs of 200,000 more, which Gillard said made it a vital component of an economy that has become increasingly reliant on the resources sector.

Holden chairman Mike Devereux said the government cash injection was crucial to sustaining the firm's design and manufacturing operations.

"Co-investment of this kind is critical for our industry and helps Australia compete against other car-making countries that protect their industries through tariffs and/or financial support," he said.

"We are acutely aware that with government investment comes great responsibility. We are focused on continuously improving our efficiency and quality to help us be amongst the best in the GM world."

The subsidy is made up of $223 million from the federal government, $52 million from the South Australian state government and $10 million from the Victorian state government.

Australia extended a multi-billion-dollar lifeline to the nation's ailing auto industry at the height of the global financial crisis, after Ford cut 450 jobs.