About 320 workers assemble the V6 engine in Port Melbourne before it is trucked to the Adelaide factory that builds the cars. The engines are also exported to other General Motors car factories in Thailand, China, Korea and Mexico.
But most car makers are dropping V6 engines from their line-ups and replacing them with four-cylinder engines. And Holden is unlikely to build the Commodore beyond 2017, instead adopting a global car from the General Motors world.
It would cost Holden more than $300 million to upgrade its Port Melbourne factory to build four-cylinder engines, but redundancies would cost of fraction of this amount.
Holden already imports all the four-cylinder engines for its locally made Cruze small car from factories with much bigger production outputs than Holden, which makes only 95,000 to 105,000 engines a year, most of which are exported.
The boss of Holden Mike Devereux told Australian reporters at the Detroit motor show overnight: “We have decisions to make. A significant amount of capital investment would be required to upgrade the engine plant [to build four-cylinder engines].”
He said the engine factory would remain viable for the remaining “lifecycle” of the V6 engine which runs to 2017, but what happens beyond that deadline is unclear.
“We do have a full production plan for the life of that engine … but then we do have some serious decisions to make.”
Devereux said Holden discreetly let go of about 30 to 40 workers in the middle of last year as demand for Holden’s V6 engines in China dropped dramatically following changes to government purchasing rules there.
Devereux said in years to come it would be unlikely that “massive amounts of V6s will be made anywhere” as car makers chase better fuel economy. If Holden were to shut the Port Melbourne V6 engine factory it would not be in breach of its agreement to keep making cars in Australia until 2022.
“We have very distinct, separate decisions to make around the future of engine building for us in Australia,” adding that the $275 million of government funding to run a second car line at Elizabeth for the next decade was signed and sealed.
However Tim Lee, the vice president of global manufacturing for General Motors, said if there was a change in government and the “co-investment” agreement was altered he would be forced to reconsider the company’s position.
“We have signed all the contracts with the Australian government, and we expect both sides to live up to the agreement. If there is a change in that pre-condition … we will rethink our position as well. I would have an obligation to go back to the most senior (General Motors) leadership and reconstruct a deal.”
Lee said General Motors had to decide whether or not to invest manufacturing capital in Australia or in “Russia, Korea, ASEAN, or Poland”. “We are looking at capital allocations quite differently. What’s going to pay, what’s the best use from invested capital?”
Meanwhile Holden remains tight-lipped about which car will replace the Commodore. Contrary to speculation it might be an SUV, News Limited sources say it is a medium-sized sedan likely to be shared with a future Buick model.
Holden boss Devereux said: “We haven’t made any comments on the second (to be built car alongside the Cruze) and hopefully we won’t until the end of 2015.” Lee said the car could wear a Commodore badge – even if it was front-wheel drive, rather than rear-wheel drive as the Commodore has been since 1978.
“The Commodore badge, the brand equity of Commodore is a significant piece of our consideration for sure,” he said. “I would say the Commodore badge means something to Australians. I wouldn’t put it on a Barina type vehicle but...” When asked if it could appear on a front-drive sedan, Lee said: “Maybe.”
This reporter is on Twitter: @JoshuaDowling