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GM Wants to Leave Australia, but Breaking Up Is Hard to Do

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06/11/2020 | 05:45am EDT

By Mike Cherney

SYDNEY-- General Motors Co.'s decision to scrap much of its Australia business is facing resistance from dealers, politicians and regulators, highlighting the difficulties the auto maker faces as it attempts to leave unprofitable foreign markets.

Days after the Detroit company said in February that it would close its Holden brand--part of GM in Australia for nearly a century--lawmakers in the country's Parliament launched an inquiry. Dealers, meanwhile, say that they aren't being fairly treated during the transition. And Australia's competition regulator is investigating allegations that Holden pressured dealers to accept a compensation formula.

GM's decision to dump Holden, which began in the 1850s as a saddle and leather company but now has 1.6 million vehicles on the road, caught some employees by surprise, a worker told the parliamentary inquiry. Australian government officials for their part have said they didn't receive much warning despite handing out subsidies to the company over the years. Holden closed its last Australian car factory in 2017.

GM has exited other foreign markets, including India and Europe, in part to free up capital for bets on electric and autonomous vehicles. The move to retire Holden, which also sold cars in New Zealand, comes in the midst of a decline in new-vehicle sales because of the coronavirus pandemic, which is hurting auto makers and dealers world-wide.

Holden is cooperating with the government inquiries, said Kristian Aquilina, Holden's interim chairman and managing director. He said that the company had wanted to notify its employees and dealers first of the decision to retire the brand and that it let government officials know as soon as possible afterward.

"We were all surprised and shocked," Mr. Aquilina said, adding that many employees devoted their life's work to the brand.

The parliamentary inquiry is collecting written submissions until June 25 and could hold hearings after that. A written report with recommendations is due in November.

One concern is how much GM will pay its dealers for winding down Holden by next year, even though its dealer agreement was supposed to run through 2022. GM and representatives of 185 Holden dealers--the second-biggest dealer network in Australia after Toyota Motor Corp.--met this week by videoconference for mediation, but both sides said late Thursday that no agreement was reached.

"Management from GM made a lot of promises to Australian dealers about models that would be coming on the market and long-term plans they had in Australia," said James Voortman, chief executive of the Australian Automotive Dealer Association.

In general, dealers have until June 30 to accept a compensation package from Holden, and if not, their dispute could end up in court. Following pressure from Australia's competition regulator, Holden agreed to extend that deadline from May 31.

"No one wanted this," Mr. Aquilina said of the decision to retire Holden. Right now, "what General Motors is very much focused on is making sure that our exit is a dignified one, treats people well and is orderly in its conduct."

Holden has said that the launch of new models in recent years showed it was committed to the Australian market and that it decided to close the brand recently. Holden officials have said that they tried to justify keeping the Holden brand but that it didn't meet GM's investment thresholds.

A GM spokesman in Detroit referred questions to the Holden team in Australia.

Mr. Aquilina said the small size of the Australian and New Zealand markets, the fact that they are among the few countries where motorists drive on the left side of the road and tough competition from other auto makers factored into the decision.

Holden sold about 43,000 vehicles in Australia and about 12,000 in New Zealand last year, according to industry groups in those countries, compared with the 7.7 million vehicles GM sold globally. Holden's market share in Australia fell to about 4% last year from nearly 13% in 2010, according to the Federal Chamber of Automotive Industries.

Holden has offered dealers 1,500 Australian dollars (US$1,050) per new car sold over a set period to cover lost profits, but dealers in Australia want A$6,110. Part of the difference stems from how to account for aftermarket sales, such as service and repairs.

Holden's offer included allowing dealers to serve as authorized Holden repair shops until 2025, with the opportunity to negotiate another agreement after that. Some dealers worry customers will be more likely to have their cars serviced at independent repair shops if the brand doesn't exist.

Holden recently sold vehicles with a seven-year free-scheduled-servicing deal, Mr. Aquilina said, so there will be servicing opportunities for dealers. "Our preference is that our existing Holden dealers are the ones delivering that service," Mr. Aquilina said.

Another concern is the renovation of showrooms, which was required under some franchise agreements between Holden and dealers. One dealer in South Australia state had nearly finished construction on a A$6.5 million facility when GM announced its plans. Holden has offered to help dealers recoup some of the improvement costs, Mr. Aquilina said.

Ben Selwyn, director at ACA Research, a consulting firm with a focus on the auto market, said Holden was slow to pivot to SUVs, which became a consumer favorite. He also said it failed to win over motorists when it redesigned its Commodore sedan.

Mr. Aquilina said the decision to retire Holden was based more on what was needed for the brand to succeed in the future, rather than a reflection of past sales or local execution.

"We were arriving at a point in time where we needed to make some significant investments," he said.

Write to Mike Cherney at mike.cherney@wsj.com


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Financials (USD)
Sales 2020 118 B - -
Net income 2020 2 220 M - -
Net cash 2020 2 248 M - -
P/E ratio 2020 16,3x
Yield 2020 1,38%
Capitalization 39 870 M 39 870 M -
EV / Sales 2020 0,32x
EV / Sales 2021 0,18x
Nbr of Employees 164 000
Free-Float 92,7%
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