Boston, MA 12/19/2013 (wallstreetpr) – In a move widely seen as making economic sense, General Motors Company (NYSE:GM) has announced plans that it will be closing down the Australian production units.
Economic pressure:
General Motors holds the number two position in the Australian market with almost 10% market share. Toyota with 19% market share reads the pack. Even at the number two position, General Motors sells only 82,000 cars here. These numbers do not make for economic justification of carrying out manufacturing activities in Australia, as modern factories have the capacity to churn out several times more. Divide this number by the various models and the situation becomes far worse.
Ford Motor Company (NYSE:F) has already announced it decision to quit manufacturing activities here and Toyota is also expected to follow soon. General Motors Company (NYSE:GM) may service the markets by importing from South Korea.
Other factors are also to blame for this most notably the rise of Australian dollar against major currencies and the weakness of Japanese Yen. These currency fluctuations have made Australian made cars less competitive to the imported ones. Australia also has a very low customs duty on imported cars. The Australian government’s subsidies on Australian made cars if offset by cheaper labor elsewhere and economics of scale. Though General Motors has received average subsidy of $180 million over the past 12 years, the Australian operations lost $140 million last year.
Investment in America
General Motors Company (NYSE:GM) continues to reinvest in America on the back of good demand potential there. The company has announced plans to invest almost $1.3 billion on upgrading at least five plants including a major overhaul of one plant, in the U.S.; this follows moves by Ford to hire 5,000 new workers and to launch 16 new models in the coming year. Both automakers have been profiting from the rising demand in the North American markets. “Today’s announced plant upgrades continue the momentum of a resurgent auto industry,” Mark Reuss, head of G.M.’s North American division, said on Monday
General Motors Company (NYSE:GM) seems to have started taking financial decisions based on hard macroeconomic factors at last.
