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INFO RUEHBY/AMEMBASSY CANBERRA 3397
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RUEHGP/AMEMBASSY SINGAPORE 0231
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RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MELBOURNE 000044 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/USFCS/OIO/EAP/WZARIT/3132 
 
C O R R E C T E D C O P Y(ADDED CANBERRA AS INFO) 
 
E.O. 12958: N/A 
TAGS: EIND ELTN ECON AS
SUBJECT: NEW GM HOLDEN CHIEF LOOKS TO ADAPT COMPANY TO 
CHANGING AUSTRALIAN MARKET 
 
 
MELBOURNE 00000044  001.2 OF 002 
 
 
 ¶1. (SBU) Summary:  Newly arrived General Motors (GM) Holden 
Managing Director (MD) and Chairman Mark Reuss told Melbourne 
Consul General and Commercial Officer on May 14 that he 
intended to increase his company's dwindling market share 
through changes in marketing and making vehicles that 
consumed cheaper fuel.  He affirmed that GM Holden had a 
stake in continuing operations in Australia but was hampered 
by high labor costs.  In this connection, he awaited the 
findings of a report that would make recommendations to the 
government regarding continued subsidies to car 
manufacturers.  The new managing director criticized the 
Australian government's recently announced tax hike on luxury 
vehicles, which was promulgated without consulting the 
industry.  End Summary. 
 
¶2. (SBU) Reuss told Melbourne Consul General and Commercial 
Officer that he planned to implement a number of changes to 
improve the company's market share.  Chief among these was to 
produce cars with engines capable of running efficiently on 
85 percent ethanol and liquid propane gas in V6 models only. 
Reuss waved away concerns that greater ethanol consumption 
would deplete food stocks and raise prices, observing that 
ethanol production accounted for only 2 percent of food 
prices worldwide. 
 
¶3. (SBU) The GM Holden MD observed that his company was "not 
doing well, but it was not doing badly either."  Although GM 
produces less than 15 percent of the one million cars sold 
annually in Australia, it was making money on the cars sold 
domestically and abroad, mainly in the Middle East and the 
U.S.  Australian buyers tended to be mainly men and brand 
loyalty to GM Holden and Ford was "almost tribal" (Comment: 
Holden also benefits from significant domestic fleet sales. 
End Comment).  He affirmed he would like to shift the market 
paradigm to appeal more to women and ethnic communities and 
place less emphasis on high performance vehicles. 
 
¶4. (SBU) Our interlocutor noted that high labor costs in 
Australia, driven by a tight labor market and by gains of the 
unions that are working the mining boom, were hampering him. 
He said that GM Holden was eagerly awaiting the findings of 
the report, commissioned by the federal Department of 
Innovation, Industry, Science and Research, to be released in 
late July on Australia's automotive manufacturing industry. 
He stated that his company had prepared a detailed submission 
to the team headed by former Victorian Premier Steve Bracks. 
In the event the Bracks report recommends continued GOA 
support for automobile manufacturing in Australia, Reuss 
expected that a budget supplemental would be proposed to 
continue subsidies to the car makers.  At present he 
estimated that the Australian government gives GM Holden a 
subsidy of about A$700 per automobile produced to defray 
labor costs. 
 
¶5. (SBU) Since Australia is GM's "homeroom" for rear wheel 
vehicle design with a design and engineering shop in 
Melbourne, Reuss stated there is more flexibility in making 
design changes to keep up with the market. He contrasted GM's 
structure with that of Toyota which uses a much more 
centralized design path and control system with a long and 
very complex supply chain.  Reuss is convinced that GM Holden 
has a fundamental strategic competitive advantage over Toyota 
in the Australian market, in which GM has a long term stake. 
 
¶6. (SBU) Asked about the federal budget presented on May 13, 
Reuss characterized the increased luxury tax from 25 percent 
to 33 percent on cars above a threshold value of A$57,000 to 
be "very harmful."  He claimed that he had first heard of 
proposed increase when in Perth with Ford Australia Managing 
Director Bill Osborne.  Both men expressed surprise at the 
tax hike, as the government had not consulted anyone in the 
industry prior to announcing it.  GM Holden had made its 
negative views on the tax plain to the government, Reuss 
averred.  (Comment:  Some commentators saw this tax hike as a 
form of protection for domestic manufacturers.  Post 
understands that in fact, most cars in Australia costing over 
A$57,000 are imports; the flagship Holden Commodore comes in 
under that sticker price.  End comment.) 
 
¶7. (SBU) Finally, Reuss claimed that the fact there were 55 
brands of automobiles available to the Australian market was 
a result of "dumping."  Manufacturers from all over the world 
 
MELBOURNE 00000044  002.2 OF 002 
 
 
shipped excess vehicles to Australia because the tariffs were 
so low and profits to be made were high. 
 
¶8. (U) This message was cleared with Embassy Canberra. 
IRVING