Holden closure to cost it $600m

Closing Holden's Australian manufacturing operations would cost the company $600 million, general manager Mike Devereux has told government negotiators. Sources said the figure was discussed at meetings in Adelaide last week, and would be critical to Holden's decision on whether to maintain its Australian operations. Holden yesterday would not dispute the figure, saying only "we have no comment about anything that is discussed in private meetings".

The carmaker is seeking financial support from the Coalition to keep making cars at its Elizabeth factory in Adelaide, in addition to $275m committed by the federal Labor government last year. Industry Minister Ian Macfarlane and South Australian Premier Jay Weatherill began fresh talks with Holden last week on the new round of taxpayer assistance, which is needed to secure a $1bn investment on two new vehicles from 2016 to 2022.

Mr Macfarlane will today meet Ford and Toyota in Melbourne to discuss the Coalition's proposal to cut $500m from automotive assistance. The cost to General Motors of shutting down its Australian operations will be weighed against the annual losses incurred by its local manufacturing division, and how significantly the federal government is prepared to offset these losses. Holden has recorded losses in six of the past eight years totalling $730m, largely attributable to its Australian operations.

At the May release of Holden's 2012 financial report, the company's chief financial officer, George Kapitelli, said its $152m loss for the year was "a direct result of Holden building cars in Australia". RMIT professor of institutional economics Sinclair Davidson said Holden would be calculating whether to stay in Australia based on a loss-minimisation strategy.

"There is a huge cost associated with closing down the business and as long as they are still covering that cost, even if they are still making a loss, it doesn't pay for them to close," he said. "It pays them to keep going, even as a loss-making operation. (But) the calculation is... how much are you going to lose if you shut down now, compared to how much do you lose if you keep on going. At some point it will pay them to shut down."

The $600m cost of closure is significantly more than the $300m Mitsubishi spent to close its South Australian operations in 2008, which resulted in 1200 job losses. Most of the $600m is understood to be redundancy liabilities for Holden's 1750 factory workers, but it also includes the cost of decommissioning Elizabeth and site-decontamination work.

Ford announced its closure in May after posting an after-tax operating loss of $141m for the 2012 financial year. This followed a loss of $290m in 2011. Mr Macfarlane said the Coalition would wait for a draft report from the Productivity Commission, expected by Christmas, before making any commitment to Holden. "If that draft indicates there is a viable future for the car industry in Australia, it will provide a basis for the government in making sure the existing Automotive Transformation Scheme is operating in the best way for the industry," he said.