Angry about Holden? Blame Elon Musk, GM and Trump

Washington | Holden was probably always doomed. But seen from the perspective of an under siege General Motors' headquartered half a world away in Detroit, it's a wonder the demise of the iconic Aussie brand took this long. Add up America's complicated trade disputes with Canada, Mexico and China, a long and bruising labour union fight last year, fierce competition from Silicon Valley's electric vehicle upstarts, and a president prepared to bash you on Twitter for the slightest misstep, and it's no surprise GM CEO Mary Barra let Holden crash into a ditch. Most of all, say US and European car industry analysts, GM has turfed Holden as part of a broader strategy of retreating to the US market, effectively turning its back on globalisation, in order to preserve capital and invest in electric and self-driving autos. It's also building a buffer for the next recession - completing a complex mix of factors that are intensified by political and investor pressure, they said. "It shows there's a recognition the auto industry is going to change radically with these global mega-trends around electrification and autonomous vehicles," said Gavin Harper, a Faraday Institution research fellow at the University of Birmingham, UK. "For a company to adapt to that change they need resources and GM is trying to get those resources by hacking back at some of the unprofitable units." As the industry transitions away from two of the basic ingredients that have underpinned its business model for decades - the internal combustion engine and pressed steel bodywork - towards EVs and lighter non-steel composites, the pressure to adapt is only going to grow. "The industry is in a massive process of transformation and you have new firms coming in that are unencumbered by all this legacy and existing automakers are trying to defend brands but muster the resources to face this enormous change," Dr Harper said. In terms of size, scale and up-front costs, the Holden shutdown is one of CEO Barra's smaller moves. The industry veteran triggered a brutal public backlash from President Donald Trump in November 2018 when she announced the closure of four factories - three in the president's heartland states and one in Canada, as well as an end to unprofitable sedan production. Around 15 per cent of the workforce was cut. "This country has done a lot for General Motors," Mr Trump complained, reminding Americans of the Obama administration's car industry bailout after the global financial crisis. "They better get back to Ohio and soon. So we have a lot of pressure on them." Under Ms Barra, GM has also dumped most of its European businesses, selling Opel in 2017 to France's Peugeot, and doubling down on its SUV business as well as the $US1 billion ($1.49 billion) 2016 purchase of a San Francisco-based self-driving startup.

GM reversing into its home market

It's been a tumultuous time and one that has brought little joy for GM's investors. Since mid-2018 the company's share price has fallen almost 23 per cent. Tesla in the meantime has leapt from around $US300 to more than $US800. "It's a question of management's time and attention and resources. At a two-or three-hour boardroom meeting they'd run out of time before they got to Australia," says Philippe Houchois, an automotive analyst at Jefferies based in London. Mr Houchois nominates among GM's challenges the fact that its much-hyped Volt was no match to the Tesla, weakening its strategy of finding future growth drivers to offset collapsed Cruz sales and stiff competition for pick-ups (as utes are known in the US). GM's attempts to rebalance its future market share haven't panned out as cleanly as planned, he said. "And in the meantime they've come under pressure in that profitability is high but the cash conversion hasn't followed, and they had the strike." Those wondering what final straw sealed Holden's fate should probably have been watching for clues in GM's 2015 move to shut its Russian factory and wind down the Opel brand in the country. With Russia's economy on the slide because of Western sanctions over the Ukraine crisis and falling oil prices, demand for GM's vehicles took a hit. At the time, GM said it would cost $US600 million to restructure its Russian business. The withdrawal from Australia, New Zealand and Thailand announced on Monday will cost the carmaker $US1.1 billion in charges including $US300 million in cash.

Warning signs in Russia and Europe

"From the headquarters' perspective this move is just one more in a continuum of business decisions by GM to focus only on the most profitable parts of the business," said Bernard Swiecki, an Ann Arbor, Michigan-based assistant director at the Centre for Automotive Research. "It's certainly not an isolated industry thing where in some way Holden was singled out, because you see similar moves around the world including multiple plant closures right here," he said. He adds that GM's units in Europe and elsewhere have lost money in the past, with Detroit willing to put up with the pain as a way to maintain market share, spread development costs and hedge currency fluctuations. "In the past there was more of an emphasis on these secondary factors," said Mr Swiecki. "In today's financial environment with activist shareholders and more pressure to make money, these sort of strategic considerations take a back seat." The pressure on Ms Barra "never stops being tremendous, particularly as here in America anyway we're wondering when does the next recession start?" he said. "The Detroit three have historically been criticised for waiting until they find themselves in the midst of a downturn and that's when they act."