Only two state governments are supporting the local automotive manufacturing industry, says Holden's Managing Director, Alan Batey -- and those two have a vested interest.
Batey (pictured), addressing the Committee for Economic Development of Australia (CEDA) last week, declared that local car builders are not supported by states other than South Australia and Victoria -- the two states in which the local manufacturers operate.
"It might surprise you to know that SA and Victoria are the only State governments which have so far bought more locally-built cars than imported cars this year," Batey told the Committee on Friday.
"Some other jurisdictions are plummeting towards 20 per cent. It's much the same in local government, which surprises and disappoints me when I look at the "source local" demands many of them make.
"Don't mistake this for a blind request to buy Australian. We're simply asking for a fair go. And I'm going to do everything I can to get Ministers, mayors and public servants out of foreign cars and back into local product."
Toyota won't have it all its own way though, following Holden's switch from importation to manufacture for the Cruze small car and Ford's introduction of its four-cylinder 'EcoBoost' Falcon to the market. Even though the Cruze is smaller than Camry and the Falcon is larger, added fleet sales for those two cars may take sales away from the Camry, but Toyota is not sitting still waiting for that to happen. Its Hybrid Camry model is due to commence production around the middle of next month.
During his speech to CEDA, Batey discussed issues ranging from the introduction of E85-capable cars within 12 months to Holden definitely not being up for sale -- to the Chinese or anyone else -- despite the rumours.
To the Honorable Kevin Foley, Deputy Premier and Treasurer;
CEDA executives, ladies and gentlemen -
Thanks for the invitation to speak to CEDA in the city which Holden has called home for 153 years.
Our founder James Holden would be pretty surprised to see what became of his saddlery shop.
He wouldn’t have predicted Holden would one day be planning to offer cars which ran on electricity.
Truth be told, he would barely have been predicting electricity!
But the leap the automotive industry faces today is almost as massive.
It’s high stakes stuff for the country.
So today I’d like to highlight where we have made important progress and those great steps yet to come but close enough to touch.
It all comes down to the basic concept of innovation.
I’ll apologise up front that I’ll jump between comments on Holden, the industry and the world markets.
But you can’t form opinions and make decisions without having a clear view of each.
Global experience
Firstly, a little global comparison.
The GFC caused a car market drop of 15 to 20 percent in Australia.
The US and Europe fell by about half and was regarded as the biggest hit since the Great Depression.
The US correction was so dramatic that China actually became the world’s biggest car market for the first time.
Closer to home, it led GM to enter Chapter 11 protection on before emerging as the New GM less than two months later.
As our CEO Fritz Henderson will tell you, it’s a chance for reinvention.
A chance for GM to jettison the legacy costs it had been carrying for many years while its foreign competitors were leaner and meaner.
Burdens which had nothing to do with building great cars and trucks, better for the environment and world’s best quality.
Now remember this was specifically about GM’s US operations, not the rest of the world.
It gives GM a great chance to make money at much lower volumes as markets recover.
Australian market
As with most parts of the economy, the Australian car business dealt with world events better than the US or Europe.
That’s not to say it hasn’t been a scary few months.
We’ve been riding big oil price shifts, environmental pressures, shifting buyer patterns, rising commodity costs, exchange rate swings and supplier collapses at the same time.
Rising interest rates could worry consumers into holding off purchases until they understand their new mortgage commitments.
On the upside, June sales were boosted by federal tax incentives and we expect a stronger finish into 2010.
The incentives were so successful that Holden had its best June Ute sales on record.
So if your builder turns up in a shiny new Ute, you know why.
And as we head into the end of the year, we are virtually back to a one million unit market on an annualised basis.
Government support
It’s one example of how a co-operative approach, rather than a flow of money, helped us protect the industry.
I feel I’m among friends when I say the world took notice of the strategic approach from Australian governments.
You might have worked out by now that I wasn’t born here.
I’m a proud third generation British automotive employee.
My grandfather worked on the line at Vauxhall’s Luton factory as they converted it to build Churchill tanks for the war.
I’ve been with GM for 30 years and worked in England, Europe, Middle East and Korea before coming here four years ago.
I’ve been horrified watching England throw up its hands and let its auto sector die.
The policy direction here is world standard.
The Australian Prime Minister told us he wanted to lead a country that “makes things”.
That could not have been plainer.
By comparison, GM’s Vice-Chairman Bob Lutz says the US is becoming a place where people thought they could mow each other’s lawn and cut each other’s hair.
But what happens when the lawn mower breaks down and the clippers go blunt?
Manufacturing has a value beyond simple job creation.
It drives innovation.
You cannot appreciate how other countries covet what we have.
Look at the Chinese, Indians and Russians bidding for global car companies.
Not Holden, I might add.
Sorry lads, not for sale.
And while local government is setting policy direction, there are certainly no free lunches and no blank cheques as some would have you think.
We don’t see a dollar unless we build a car or invest multiple times that dollar ourselves.
Holden invested $1.1 billion on our all-new car in 2006, including more than half a billion in Elizabeth.
We spent $360 million on R&D in 2008, keeping our place as Australia’s biggest private research spender.
I sign off $500 million in wages a year.
The Chevrolet Camaro was designed and engineered for the US by a team in Australia.
And it uses Australian V6 engines.
Our designers and engineers are resourceful, creative and above all, innovative.
Broader than just cars
And as we consider innovation, it’s not just about cars.
We can think strategically about manufacturing and innovation across many sectors and boundaries.
Defence projects, obviously including the submarines and ships but more recently the Joint Strike Fighter, give opportunities for companies to seek high end innovation projects.
We have one of the world’s premier science organisations, the CSIRO, as a willing partner in cutting edge projects.
And many of the world’s most precious natural resources for technology, notably titanium and components for lithium ion batteries, are being sourced from Australia today.
Advanced battery technology would be incredibly useful for electric cars but other applications as well.
Innovation as vehicle producer
So let me spend a couple of minutes exploring the concept of innovation.
For Holden, innovation can be considered in two basic forms –producer and employer.
Firstly, as a producer.
It’s been a big year for Holden on the innovation front.
We are building a case which methodically removes every possible reason to not buy Australian cars.
We are delivering family-sized vehicles with fuel efficiency better than some four-cylinder cars.
It was a major step to introduce advanced direct injection V6 engines, built right here in Australia, and offer them with no price changes for most models.
Just a few weeks ago, Holden engineers drove 3000 kilometres from Darwin to Adelaide.
It averaged 6.48 litres per 100 kilometres which would get you about 1100 kilometres which is a huge result.
We introduced V8 technology which shuts down four cylinders when you don’t need them.
There’s safety innovation with our entire locally built range now five-star safety vehicles.
That makes Elizabeth Australia’s only five-star manufacturing facility for standard safety.
We’re not finished yet. Not by a long shot.
Within the next 12 months, we will offer motorists cars which can run on E85 blend ethanol.
E85 has enormous benefits in what is called well to wheel emissions, or the process of creating and using the fuel.
Depending on how ethanol is made, well to wheel CO2 emissions are reduced up to 86%.
That’s huge.
It would be exciting to think we could potentially replace 30% of local petrol with ethanol in the next decade or two.
We can only do that one car at a time, one pump at a time.
Again, we will provide this innovation at zero cost.
We’ve helped form a consortium to produce ethanol in Australia from anything from old tyres to household rubbish.
How brilliant. It solves several environmental issues at once!
Cruze localisation
And perhaps the most innovative decision we have taken is to produce the Cruze small car here in Adelaide.
It’s a bold play to return to small car production but we know it’s right.
Cruze has been an instant hit in Australia as an imported vehicle and its features and fuel economy are a big part of the mix.
I can tell you the specifications on the local vehicle are going to be another step up.
Small cars have had mixed results for us but we have produced some beauties including Torana and Gemini.
The Vectra program in the 1990s gave us valuable learnings and we built the Cruze case on domestic success alone, rather than betting on export markets.
We would certainly love exports but have not staked the program on getting them.
We will make sedan and hatch variants.
Holden was responsible for the global design of the hatch and it looks stunning.
Work is progressing on refitting parts of Elizabeth for Cruze.
We met some of the refitters last month who told me this was one of the most exciting projects they had worked on at Holden.
Energy and Environment
Cruze is part of what GM calls our Delta or global small car architecture.
In 2012, we will import the Volt extended-range electric car which shares underpinnings with Cruze.
Volt will provide about 64 kilometres of electric-powered driving which is enough to cover many city people’s daily commute without using petrol.
Volt carries a small range-extending engine which means you don’t need to set out on a country drive with a map of charging stations.
Or a 300 kilometre extension cord.
There’s a lot of interest in Volt and we can’t wait to get it here.
Our energy diversity strategy has evolved into a cultural mantra and not before time.
Last year, we appointed a 20-year GM veteran, Richard Marshall, in the new role of Energy and Environment Director.
Richard is oversees our many E&E activities and I hope you have the opportunity to hear from him in coming months.
Innovation as employer
So there’s a clear and long list of innovations as a vehicle producer.
What’s just as important is our innovation as an employer.
The past 18 months have been incredibly hard for the industry.
It’s drawn incredible innovation in the way we manage the business and our people.
We cut plant stock from almost 10,000 a year ago to 200 units last month while increasing dealer sold stock from 4500 to 14,000.
We bent over backwards to ensure as many jobs as possible were protected.
Working with our unions, we introduced alternate shifts, flexible leave, smoothed work patterns and hit executives with pay cuts to try to share the impact.
Training our workforce has been a big opportunity to ensure we build the best possible cars and the most versatile, flexible workforce.
At the same, we are supporting people to make choices if they want to pursue other opportunities.
There were obviously easier and more brutal ways to deal with this.
We innovated to repay the faith in our brand from a range of interests, particularly our employees.
Faith from the government, GM itself, our car buyers and ultimately the broader Australian public.
We have a special brand which brings big responsibilities.
I’m thrilled to have been asked to take this great brand to a place where its future is not only assured … but prosperous.
Government
We certainly understand why so many take such close interest in what we and our manufacturing partners are doing.
The depth of detail we were asked to provide to the Federal Government last year on our long-range ambitions was without precedent in this country.
It required the sign-off of our regional President.
To their absolute credit, the South Australian and Victorian Governments recognised this in the way they do business with Australian companies.
It might surprise you to know that SA and Victoria are the only State governments which have so far bought more locally built cars than imported cars this year.
Some other jurisdictions are plummeting towards 20%.
It’s much the same in local government which surprises and disappoints me when I look at the “source local” demands many of them make.
Don’t mistake this for a blind request to buy Australian.
We’re simply asking for a fair go.
And I’m going to do everything I can to get Ministers, mayors and public servants out of foreign cars and back into local product.
Supplier base
We’re seeing much the same issue in our supply base.
A perfect example is tyres. With Bridgestone closing its Salisbury facility by next April, we will be unable to put Australian tyres on our cars.
The sustainability of suppliers, primarily in SA and Victoria, is our biggest concern right now.
Aside from declining volumes, there is the vexed issue of access to capital.
It’s not only government funding but good old fashioned commercial finance.
So the changing shape of the local supplier footprint makes hard when we’re trying to locally source as much as possible for Cruze.
We want to be in this together with local suppliers. 100 per cent.
So I’ve been meeting key suppliers in their factories and intend to take a very hands-on approach with our commercial relationships.
I only know one way to do business and that’s face to face.
There are a couple of practical things I’d like to call out about what we are doing.
Firstly, we are hiring more purchasing people into the business to localise control of more purchasing decisions.
We’re employing specialists who work with suppliers on their business plans and seek out every possible inch of operating advantage and capability.
We changed shift patterns in Elizabeth to remove the “on again off again” structure causing so much stress in the system.
We’re revising payment terms to help smooth supplier cashflow.
And we’re looking for opportunities to replace the Pontiac G8 export program.
The Chevrolet police car for the US has potential if we can resolve a couple of practical issues.
There are various fans of Holden within GM considering other ways to get the product back with American retail customers in future years as well.
Closing
So in closing, how about the big question?
Where is this all headed?
Firstly, we have to rebuild ourselves as a viable local business and a lot of that work has now taken place.
GM made it clear we are part of the new GM but that comes with responsibilities.
We have made sure our business is the right size and we are working on the right things, rather than every thing.
We are a high value added industry under intense competition.
We also have some of the best people in the world at what they do.
Minister Carr recently said about industry and innovation policy that “we are all elbowing our way up the value chain that we are all engaged in the same race to the top.”
There’s no better example than the car.
It’s transport, an expression of personal identity, a protector of our families and a personal freedom.
That concept stayed true for many decades and we must now embrace a new world for the car with new expectations.
We know we need to be meaner, leaner and greener.
The company which innovates with speed will stay ahead of the curve.
He or she who innovates wins.
We plan to be an industry standing tall among Australia’s biggest economic contributors.
I’m with the Prime Minister on this.
Let’s continue to have Australians driving world class cars designed, developed, enginereed and assembled by Australians for Australians.
Let’s make things.
Let’s make them well and let’s make them for many years to come.
Thank you for your time.
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