Holden $250 Million Bailout Imminent

Quarter-billion-dollar Holden prop-up deal virtually done, but four experts highly critical of Holden's long-term taxpayer funding

GM Holden’s addiction to your tax dollars is getting to be about as dignified, and as justifiable, as the performance of a strung-out, crack-addicted whore in South Central Los Angeles. “Australia’s own” Holden currently has its hand out for – wait for it – an additional quarter of a billion dollars jointly funded from the Federal and South Australian Governments. And if current news reports are accurate it appears those funds will shortly be forthcoming.

It’s undignified when corporations threaten governments, and the implied threat here is pretty clear: give us the money or the jobs are toast.

Just three weeks after the South Australian Centre for Economic Studies (CES) slammed taxpayer-funded subsidies for GM Holden as (paraphrasing) bad public policy, it appears the floodgates on another officially sanctioned tsunami of your taxpayer funds are about to open.

Twilight, eat your heart out: this is an Austraslian automotive vampire chronicle, starring the antipodean outpost of the world’s largest car company with a flawed business model as the vampire, and the unsuspecting Aussie taxpayer as the ripe virgin copping it in the neck. If the Vampire wins, the bloodsucker gets to make the Commodore and the Cruze in Elizabeth (SA) until 2020.

"Our first objective is to protect and preserve Holden." - SA Premier Jay Weatherill. (Source.)

It’s important to remember here that Holden is about as Australian as McDonald’s, and in the process of building Australia’s former most popular car (the Commodore) it managed to lose more than half a billion dollars in five of the past seven years. Therefore Holden (and its big brother GM) is neither a sound economic manager nor even a local firm doing it tough. And it’s just delivered across the board pay rises, at the same time as firing all its casual employees at the plant. The bottom line is: the extreme arrogance that played a part in the globally notorious corporate jet/congress begging scandal on the eve of the GFC in the US remains alive and well at Fishermans Bend in Victoria. This assumption that obligatory government funding goes hand-in-hand with making cars is the kind of concept one could learn only from a Kardashian.

Holden boss Mike Devereux is not a Kardashian. He’s an outwardly very pleasant chap with a happy demeanor, the common touch and considerable charisma. He’s very good at answering media questions, and he’s always what the PR and press types would refer to as ‘on message’. As in: Mr Devereux never calls the money his organization seeks to extort from the taxpayer ‘taxpayer funds’ or a ‘bailout’, or a ‘handout’ or even ‘support’ or ‘assistance’. Nope – nothing short of ‘co-investment’ is what he’s after. Like, we’re all in this together, right? Investment is after all a considered process; something we all aspire to do for the future. However, the term ‘investment’ traditionally implies taking part ownership of the company you're investing in, and receiving both income and a reasonable rate of return.

If you think that’s going to happen here, I’m sure I can locate some land in a Florida swamp precinct for you to ‘invest’ in.

Mr Devereux's position is that nations around the world must pitch for the privilege of having a GM factory parked in their backyard. What is this: The Olympics?

"Most industries view competition through the prism of producing a world-class product at the best possible price, whereas the GMH boss envisages it more in terms of which country can stump up the biggest corporate welfare package." - Sydney Morning Herald business commentator Ian Verrender. (Source.)

It’s also interesting to note the topics Mr Devereux seems never to discuss, too: like a restructuring plan that ultimately delivers profitability in the absence of protracted sucking on the taxpayer teat. Instead, this issue is currently framed by Holden in terms of protecting jobs (or so it seems). When questions are posed to the contrary he adopts a position more commonly seen on the faces of government ministers: we know this issue better than you.

It's a classic disinformation gambit. Holden doesn't produce jobs, or altruism. It makes cars. If it did a good job it would be a profitable contributor to the Australian economy via the hi-tech miracle of taxation. Typically a company is in a good way when it declares a profit in the absence of taxpayer support. You know it's in a bad way when it starts talking about EBIT (earnings before interest and tax). You could infer it's in a really bad way when all it can offer is the protection of jobs.

Despite protests to the contrary, this issue is actually very simple. Even if you were a Kardashian, you’d probably still get it. Businesses make things (products or services). They turn a profit, which is taxed. Money goes from business to the treasury where it greases society’s wheels; not the other way around. Holden's business model is wrong, the cars Holden builds are wrong, and using taxpayer funds to prop it up in the name of jobs is profoundly wrong.

You have to ask yourself what good are the jobs if the enterprise is failing to turn a trick? What good is hitching up the hot pants and strapping on the stilettos if the Johns are cruising elsewhere for hotties? (This is exactly what car buyers are doing today.) Is government subsidy to protect jobs in an unprofitable industry merely just a perverse way of subsidizing welfare? It's true that a lot of jobs are at stake.

The Centre for Economic Studies in South Australia (CES) has an interesting take on this: CES boss Michael O’Neil dismissed Mr Devereux’s claims that the automotive industry has a ‘unique multiplier effect’, suggesting many other industries offer similar economic returns. He’s saying the car industry’s not a special case. O’Neil’s solution is that Holden change its business model – possibly even to one that’s viable in the absence of taxpayer handouts. Now there’s a radical concept.

"Subsidising General Motors Holden is not good public policy ... unfortunately, we have a subsidy approach which continues to fail and continues to favour some sectors over others." - Michael O'Neil, Centre for Economic Studies. (Source.)

Mr O’Neil called for an independent cost-benefit analysis (another radical concept), but SA Premier Jay Weatherill refused to discuss the deal ‘until the Holden board had signed off on it’. Since when do governments need the imprimatur of the corporations they might bail out? It makes you wonder what really goes on in these closed-door meetings, the subject of which is public money.

The fact is, a single mum on unemployment has to justify her meagre taxpayer assistance package harder, and conform to a stricter set of criteria, than a car manufacturer on the hunt for a quarter of a billion taxpayer dollars with bugger-all attached in the way of strings. Additionally, the latter deal is likely to remain confidential.

If ‘investing’ in Holden were an attractive proposition, fund managers would be lined up out the door to throw money Holden’s way. However, they would require a few pesky strings to be attached: such as equity and the reasonable expectation of a profit. Only a government would be dumb enough to invest in the absence of that – and only an Australian government. Even in the US, the Federal Government there demanded equity in exchange for bailing GM out when it went belly-up during the GFC.

"You need to intervene in order not to lose it, but your intervention should be temporary and you should ensure you get your money back."- Former SA thinker in residence Goran Roos. (Source.)

Former SA thinker in residence (how does one get that job?) Goran Roos has also commented on this issue. He says corporate welfare should be short-lived and is only palatable if a clear return-to-viability policy is enacted. (A state of affairs for which, to my knowledge, Mr Devereux has never actually tabled a plan of timetable. His stated position is that so-called ‘co-investment’ is a long-term condition of building cars here.)

Last year Holden received $31 million from the SA Government. All other businesses combined received just $23 million in taxpayer assistance. That’s some special case for no-strings-attached welfare.

The fact is, if you’re a major car company, Australia is the last place you’d set up a factory today. You’d be laughed out of the boardroom even for suggesting it. However much of your money some Australian government ministers decide to chuck Holden’s way, at some stage the ugly truth must be confronted: the patient’s on life support, and unresponsive from the neck up. Dr Kevorkian is in the wings with a potassium-and-barbiturate-filled syringe, the priest is on standby, and someone somewhere is telling the fat lady she’s on in 10. The only real question is how much of your money is going to get burned up between now and the point at which reality bites the vampire.