Red team back in black

A LEANER GM Holden has snapped a five-year losing streak, reporting a $112 million after-tax profit in 2010 – its first year in the black since 2004.

The profit, propelled by greater efficiencies and a 16 per cent increase in revenues on the back of improved domestic sales and exports, represents a $323 million turnaround from 2009’s record $210.6 million loss that capped accumulated losses of $576 million since 2005.

Holden joins major rival Ford Australia back in the black, with the Blue Oval expecting another positive result when its 2010 financials are announced in May. Ford returned to profit in 2009 with a $13 million after-tax result after a record $274 million loss in 2008.

Toyota Australia is also likely to return to profit this year, after a huge $290 million tax slug in its 2009-10 tax year drove the company into the red to the tune of $107.9 million.

Holden’s 2009 financial disaster was largely attributed to the global financial crisis that not only drove down Holden’s local sales but killed its major export program, the Pontiac G8, with severe financial consequences.

The 2010 turnaround ends a turbulent period for Holden, with the company being forced to temporarily close one of its two factory shifts at its South Australian vehicle factory in 2009, putting workers on a shared shift arrangement until late last year.

To stave off a potential cash crisis at the height of the global financial crisis in 2009, Holden also had to request a $200 million line of credit from the federal government when its General Motors parent company plunged into chapter 11 bankruptcy. The line was not used.

From top: Holden chief financial officer Mark Bernhard, Holden Cruze, Holden Commodore Sportwagon.

A restructuring of the company included the slashing of Holden’s workforce from about 6700 in late 2008 to 4600 now.

Announcing the 2010 result today with the release of an incomplete set of numbers, Holden’s chief financial officer Mark Bernhard said the harsh impact of several years of challenging global economic conditions had forced greater efficiencies on the company.

“The economic climate experienced during 2008 and 2009 required us to improve our structural cost base and business model to ensure the long-term profitability of our domestic business,” he said.

“The measures we took to restructure our organisation and reduce costs during this period saw us emerge as a leaner, more flexible automotive manufacturer.”

In 2010, Holden domestic vehicle sales were up 11 per cent from 2009, vehicle exports rose 13 per cent and engine exports were up 25 per cent.

“This growth was underpinned by more efficient and robust manufacturing, delivering consolidated revenue of $4.4 billion in 2010 compared to $3.8 billion in 2009,” Holden said.

However, sales revenue was still well short of the $5.8 billion reported in 2008.

Sales of the locally made Holden Commodore were up 5.3 per cent in 2010, with the related Caprice sales volumes gaining 4.4 per cent, and the Ute declining 1.1 per centThis year, however, Holden’s first-quarter domestic sales are down 11.8 per cent, with Commodore and Ute volumes both slipping, down 6.3 and 24.3 per cent respectively.

Mr Bernhard said he would not like to speculate on the potential for another profit in 2011, saying its goal was to make its domestic operations profitable.

Holden expects overall sales of its locally made vehicles to increase in 2011 with the arrival in showrooms late last month of the locally produced Cruze small sedan and, later in the year, the Cruze hatch. As well, Holden has started production of its Chevrolet Caprice Police Patrol Vehicle (PPV) for export to law enforcement agencies in North America.

Mr Bernhard said the investment to produce a small car alongside Commodore at Holden Vehicle Operations in South Australia formed an important part of Holden’s long-term strategy.

“We are pleased to announce a return to profitability, and to achieve our goal of putting Holden ‘back in the black’ in 2010, but sustained business performance, and our ability to meet the needs of the Australian market, is critical for Holden’s long-term viability,” he said.

Holden said its spend on research and development in 2010 had grown to $179 million – up from $146 million in 2009 but well down on the $360 million spent in 2008.

Holden’s profitability hit the wall well before the GFC, with a whopping $336 million profit in 2004 sliding to a $145 million loss in 2005 and then a record-equalling $147 million loss in 2006.

Holden had almost pulled the company back into the black in 2007 when the GFC hit, resulting in three years of successively greater losses – $6 million in 2007, $70 million in 2008 and $211 million in 2009.

The latter was compounded by costs incurred in the final closure of the company’s four-cylinder engine plant in Port Melbourne, leaving its newer V6 plant as its only manufacturing operation in Victoria.

Federal innovation and industry minister Kim Carr hailed Holden’s 2010 financial result as a resounding vindication of the Australian government’s $5.4 billion New Car Plan for a Greener Future.

“This return to profitability is a $320 million turnaround that shows that the New Car Plan is working,” Senator Carr said.

“Not only are domestic vehicle sales for Holden up by 11 per cent for 2010 compared with 2009, but vehicle exports to Brazil, the Middle East, New Zealand, South Africa and North America also underwent a 13 per cent boost.

“Australian engine exports also rose by 25 per cent and, coupled with greater demand for engine products, this led to a second production shift at Port Melbourne.

“The reinstatement of a second shift at Elizabeth was also a fantastic result for the company and its loyal workers.

“The fact that there are excellent prospects for further export growth at a time of a strong Australian dollar further underscores our faith in the company and the industry.”

Senator Carr said the introduction of the locally produced Holden Cruze and the potential of Caprice PPV for the North American market would add further strength.