UPDATE 3-GM to halt car production in Australia, industry in crisis

Wed Dec 11, 2013 1:41am EST

* GM says closure of vehicle, engine plants to affect 2,900 jobs

* GM exit plans follows Ford, concerns about Toyota future

* Strong A$, slipping sales, high costs hammer local auto industry

* Toyota says decision puts it under "unprecedented pressure"

By Maggie Lu Yueyang and Sonali Paul

SYDNEY/MELBOURNE, Dec 11 (Reuters) - General Motors Co said it would stop making cars in Australia by 2017 due to high costs and a cripplingly strong currency, fuelling fears rival Toyota Motor Corp will follow suit and put the entire local autos industry at risk.

The decision by the world's second-largest auto maker to close its Holden plants in South Australia and Victoria states is the latest blow to Australia's manufacturing industry and the auto sector in particular.

"No matter which way we apply the numbers, our long term business case to make and assemble cars in this country is simply not viable," General Manager Mike Devereux told reporters at GM's car plant in Adelaide on Wednesday.

The decision to halt domestic production of Holden cars, long a source of national pride, will pile more pressure on Prime Minister Tony Abbott's conservative government, which is seeking to manage a slowdown in the $1.5 trillion economy as a decade-long mining investment boom slows.

GM Chairman and CEO Dan Akerson said the decision reflected a "perfect storm" of negative influences facing the Australian automotive industry including the sustained strength of the Australian dollar, high cost of production, and a small, fragmented and highly competitive domestic market.

In May, Ford Motor Co said it would shut its two Australian auto plants in October 2016, blaming similar factors.

There have been widespread concerns that an exit by GM Holden would be followed by the sole remaining producer, Toyota, threatening around 150 parts and component suppliers directly employing more than 40,000 people.

"You need two manufacturers to get that critical mass," said influential independent Senator Nick Xenophon. "You lose that critical mass, they fall like dominos."

Australian Manufacturing Workers Union national vehicles division secretary Dave Smith said it was "almost certain" Toyota would follow suit and leave Australia.

STRONG DOLLAR WEIGHS

Toyota said it would work with suppliers and the government to determine its next steps and whether it could continue operating in Australia, where it employs 4,000 people and produced almost 100,000 vehicles last year.

"This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia," Toyota Australia said in a statement.

The world's largest automaker is currently negotiating changes to its workplace agreement as it seeks to improve productivity and cut costs. A worker vote is due on Friday.

"A no vote is going to send a very strong message to our parent company that we are not serious about transforming our business," Beck Angel, spokeswoman for Toyota Australia, told Reuters before the GM announcement.

Deputy Prime Minister Warren Truss said it was important that Toyota was given "every opportunity to survive these difficult times".

Australian manufacturing employs around 921,000 people, having declined by more than 10 percent in the past decade as the strong Australian dollar and high costs make imports more competitive.

"If the automotive sector leaves then that's a sector of manufacturing in Australia that has been a source of innovation and skills that has spilled over to other forms of manufacturing in Australia," said Stephen Clibborn, a lecturer in work and organisational studies at the University of Sydney Business School.

ICONIC BRAND

Holden traces its roots in Australia to a saddle maker in 1856 and is part of the Australian psyche, fuelled by a fierce rivalry with Ford in showrooms around the country and on racetracks such as Mt Panorama at Bathurst.

GM may look at shipping more South Korean-made cars to Australia as part of a global production restructuring, a source told Reuters last week.

Devereux declined to comment on where it would source imported cars.

Wednesday's announcement came only one day after Devereux said the company needed more assistance from the Australian government to survive long term.

Abbott's government had earlier ruled out providing the industry further additional assistance, saying it needed to stand on its own feet.

The government has also come under pressure to support flag carrier Qantas Airways Ltd, which is shedding 1,000 jobs in an attempt to stem mounting losses.

Australia has annual sales of around 1.1 million new vehicles, but sales of locally manufactured vehicles have fallen to less than a quarter of that, from almost 389,000 in 2005.

GM said it expects to record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013 due to the closure.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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