Holden to lay off 500 workers

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The sad, drawn out demise of Australian manufacturing continues with car maker Holden announcing the redundancy of 400 workers from its South Australian factory and a further 100 redundancies from its Victorian product development office.

For the SA plant it is the equivalent of a one-in-five reduction from the total factory workforce. As the media release from Holden explains, the layoffs are the result of declining demand for the Holden Cruze. The Cruze model has not been popular with consumers due to a preference for both smaller cars and SUVs. At the same time higher production costs in Australia, coupled with the high Australian dollar continues to make imported cars more competitive.

It goes to show the futility of governments subsidising an uncompetitive industry – both past and present governments are to blame. Just last year $275 million was handed to Holden to help sustain its operations until 2022. The last decade has seen Holden receive around $2 billion in hand-outs. Just imagine if that government funding had instead been used to create sustainable jobs rather than to prop up an ailing industry!

Aggressive import competition due to high Aussie dollar

Last week’s stimulus package introduced by the Bank of Japan was aimed at kick starting the Japanese economy and lowering the Yen. It also means Japanese-made automobiles will be significantly cheaper to import, increasing competition for the Cruze even further. It’s not just the car industry feeling the exchange rate heat of course. For example, steel manufacturers BlueScope (BSL.AX) and Arrium (ARI.AX) have had to undergo massive restructuring projects just to survive, while Pacific Brands (PBG.AX) and ARB Corp (ARP.AX) have both moved manufacturing off-shore to remain competitive in a high Aussie dollar world.

Foolish takeaway

It is always important as investors to consider structural changes occurring within industries. The domestic car industry is a case in point — it has suffered headwinds for many years and alert investors who incorporated this structural trend into their investment decisions could have avoided investing in certain car companies that went from bad to worse.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in Pacific Brands.

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