If Holden leaves, Toyota follows: The “disastrous” impact on small business

Speculation is rife this morning that if General Motors Holden ends its Australian car manufacturing operations in 2016 without an exit strategy, Toyota will be forced out of business too.

Coalition sources have reportedly been told Holden intended to announce the end of its Australian operations as early as yesterday, but delayed the announcement in light of a decision in Beijing.

The Australian reports a senior Coalition minister as saying the announcement had been “well advanced and was ready to go”, but Industry Minister Ian Macfarlane has so far denied the reports.

Opposition industry spokesperson Kim Carr also told ABC Radio this morning a formal decision is yet to be made.

“What we’re looking at is government ministers trying to play out a scenario where they say it doesn’t matter what they do, the company’s going to go anyway,” he says.

Holden is yet to respond publicly on the issue.

The latest reports follow months of speculation about the future of Holden in Australia. The car company has been pushing the government to increase its funding to the automotive industry.

Earlier this year, Ford announced the closure of its Geelong and Broadmeadows manufacturing divisions, following losses of $600 million over the past five years.

The federal government has also launched a Productivity Commission inquiry into the support of the sector to determine whether or not car manufacturing in Australia is viable.

University of Technology Sydney Business School dean Roy Green told SmartCompany the initial impact of Holden leaving Australia could be disastrous.

“If not well prepared for, it will be disastrous for the South Australian economy and to some extent Victoria as well and even more widely spread through the supplier network,” he says.

“The estimates have come in at over $1 billion for the South Australian economy alone with many jobs lost and knock-on effects.”

Manufacturing expert Green headed Australia’s participation in the 2009 productivity study on why manufacturing matters for Australia. He has been involved a variety of productivity reports for the federal government. 

A Federal Chamber of Automotive Industries study released in November tipped that by 2018, the Australian economy would be $7.3 billion smaller if automotive manufacturing left.

Green says the impacts would be felt not only by the people directly employed by Holden, but also services businesses, scientists, engineers and designers.

“It would be far better for the government and the industry to determine a transition plan. This should have been done years ago… there has been a legacy of poor policy-making in this area for at least 15 years,” he says.

He says the loss of car manufacturing needs to be filled by other sectors.

The FCAI study predicted the closure of the Holden and Toyota in Australia would see the loss of 33,000 jobs in Melbourne by 2018 and 6000 in Adelaide.

Green says if Holden closes in the near future without adequate planning, it will result in Toyota’s closure, as Holden’s suppliers can’t simply switch companies.

“If one more large company in car manufacturing is to end there needs to be a clear understanding of the way it is done so the whole supplier network doesn’t just collapse,” he says.

“If it happened tomorrow, Toyota wouldn’t survive either. But over a period with a well-structured framework it could be possible to retain Toyota and build the car component manufacturing sector.”

Green says through exit planning, a group of SMEs he dubs micro-multinationals need to be positioned to fill the gap in the manufacturing sector.

“These are companies which are growing faster than the rest of the sector and feature in many advanced countries now with highly specialised skills. These companies, including those in the car component sector, are the best in the world at what they do,” he says.

“SMEs should start diversifying and understanding what it takes to be a micro-multinational company in a global context. They need to expand with specialised products and services in a globalised market.”

Green says Australia has the capability, through its small businesses, to specialise in specific automotive parts, which would minimise the loss of the car manufacturers. 

“We could be the world’s best suppliers of rear vision mirrors or dashboard equipment – that would be just as productive as manufacturing a whole car if we export on the world scale.”

But small businesses unable to adapt would cease to exist.

“Those that have put all their eggs in that basket won’t survive. They could close from one day to the next should the operations of Holden cease tomorrow,” Green says.