NEW GM HOLDEN CHIEF LOOKS TO ADAPT COMPANY TO

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SENSITIVE
SIPDIS

USDOC FOR ITA/USFCS/OIO/EAP/WZARIT/3132

C O R R E C T E D C O P Y(ADDED CANBERRA AS INFO)

E.O. 12958: N/A
TAGS: EIND ELTN ECON AS
SUBJECT: NEW GM HOLDEN CHIEF LOOKS TO ADAPT COMPANY TO
CHANGING AUSTRALIAN MARKET


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1. (SBU) Summary: Newly arrived General Motors (GM) Holden
Managing Director (MD) and Chairman Mark Reuss told Melbourne
Consul General and Commercial Officer on May 14 that he
intended to increase his company's dwindling market share
through changes in marketing and making vehicles that
consumed cheaper fuel. He affirmed that GM Holden had a
stake in continuing operations in Australia but was hampered
by high labor costs. In this connection, he awaited the
findings of a report that would make recommendations to the
government regarding continued subsidies to car
manufacturers. The new managing director criticized the
Australian government's recently announced tax hike on luxury
vehicles, which was promulgated without consulting the
industry. End Summary.


2. (SBU) Reuss told Melbourne Consul General and Commercial
Officer that he planned to implement a number of changes to
improve the company's market share. Chief among these was to
produce cars with engines capable of running efficiently on
85 percent ethanol and liquid propane gas in V6 models only.
Reuss waved away concerns that greater ethanol consumption
would deplete food stocks and raise prices, observing that
ethanol production accounted for only 2 percent of food
prices worldwide.


3. (SBU) The GM Holden MD observed that his company was "not
doing well, but it was not doing badly either." Although GM
produces less than 15 percent of the one million cars sold
annually in Australia, it was making money on the cars sold
domestically and abroad, mainly in the Middle East and the
U.S. Australian buyers tended to be mainly men and brand
loyalty to GM Holden and Ford was "almost tribal" (Comment:
Holden also benefits from significant domestic fleet sales.
End Comment). He affirmed he would like to shift the market
paradigm to appeal more to women and ethnic communities and
place less emphasis on high performance vehicles.


4. (SBU) Our interlocutor noted that high labor costs in
Australia, driven by a tight labor market and by gains of the
unions that are working the mining boom, were hampering him.
He said that GM Holden was eagerly awaiting the findings of
the report, commissioned by the federal Department of
Innovation, Industry, Science and Research, to be released in
late July on Australia's automotive manufacturing industry.
He stated that his company had prepared a detailed submission
to the team headed by former Victorian Premier Steve Bracks.
In the event the Bracks report recommends continued GOA
support for automobile manufacturing in Australia, Reuss
expected that a budget supplemental would be proposed to
continue subsidies to the car makers. At present he
estimated that the Australian government gives GM Holden a
subsidy of about A$700 per automobile produced to defray
labor costs.


5. (SBU) Since Australia is GM's "homeroom" for rear wheel
vehicle design with a design and engineering shop in
Melbourne, Reuss stated there is more flexibility in making
design changes to keep up with the market. He contrasted GM's
structure with that of Toyota which uses a much more
centralized design path and control system with a long and
very complex supply chain. Reuss is convinced that GM Holden
has a fundamental strategic competitive advantage over Toyota
in the Australian market, in which GM has a long term stake.


6. (SBU) Asked about the federal budget presented on May 13,
Reuss characterized the increased luxury tax from 25 percent
to 33 percent on cars above a threshold value of A$57,000 to
be "very harmful." He claimed that he had first heard of
proposed increase when in Perth with Ford Australia Managing
Director Bill Osborne. Both men expressed surprise at the
tax hike, as the government had not consulted anyone in the
industry prior to announcing it. GM Holden had made its
negative views on the tax plain to the government, Reuss
averred. (Comment: Some commentators saw this tax hike as a
form of protection for domestic manufacturers. Post
understands that in fact, most cars in Australia costing over
A$57,000 are imports; the flagship Holden Commodore comes in
under that sticker price. End comment.)


7. (SBU) Finally, Reuss claimed that the fact there were 55
brands of automobiles available to the Australian market was
a result of "dumping." Manufacturers from all over the world

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shipped excess vehicles to Australia because the tariffs were
so low and profits to be made were high.


8. (U) This message was cleared with Embassy Canberra.
IRVING