Holden stopped being a car company many years ago. In recent times it's been a government-sponsored employment agency. In the United States, Holden parent company General Motors wasn't just government-sponsored — it was government-owned. In 2009, after General Motors went bankrupt, the US government ended up owning 61 per cent of the company. The joke was GM stood for Government Motors.
In federal Parliament this week, Treasurer Joe Hockey talked about how all those companies that were not car companies would no doubt also like to remit Australian taxpayers' funds to their head offices "in Detroit, London, Tokyo or anywhere else". But that's only half the story. It's not just the issue of where Australia taxpayers' money was being sent. There's also the issue of who it was sent to. The Australian government has been paying the American government so that Holden could stay open. Anyone who believes that untrammelled free market capitalism exists in Australia or the US should study General Motors.
On Monday this week the US Treasury sold the last of its shares in General Motors. US taxpayers spent $US49.5 billion on a majority shareholding in GM and have got back $US39 billion — a loss of $US10.5 billion. GM chairman and chief executive Dan Akerson says the company "will always be grateful for the second chance extended to us [by the US government]". And so he should be.
Akerson was appointed to the GM board by the Obama administration. He had previously been a managing director of the Carlyle Group, a private equity firm. It was Akerson who presided over Tuesday's decision of the board of GM to shut down Holden's manufacturing operations in Australia, in which 2900 jobs will go in Melbourne and Adelaide. Since the global financial crisis, GM has cut 27,000 jobs in the United States.
The story of General Motors coming to Australia is told in Alfred Sloan's My Years with General Motors. Published in 1964, it's one of the most important books on business and business strategy ever written. Sloan became president of GM in 1923 and was chairman from 1937 to 1956. Under him, GM became the largest private industrial enterprise in the world. At its peak in 1979 it had 853,000 employees worldwide (today it has 212,000).
In 1926 General Motors established operations in Australia and in 1931 it bought Holden to form General Motors-Holden's. Sloan explains a key point that's all too often forgotten in the discussion about Holden. It was only because of the Australian government that General Motors started manufacturing in this country in the first place. The high tariffs of the 1920s on imported US car bodies meant it was cheaper for GM to make cars in Australia and sell into a domestic market than to import them. Back then GM made cars profitably, but it was a profit generated behind a tariff wall that stopped competition from imports.
In the 1920s, when General Motors expanded into Europe, Sloan encountered exactly the same attitude as Australian governments have had since the 1980s. Nationalism has led many foreign nations to press for production at home, even when the home market appeared too small to sustain an efficient, integrated automobile industry. It's just as dangerous for governments to pursue economic policies out of nationalism as it is for car makers to hope customers will buy their product out of national pride.
After Ford announced in April it was closing its local manufacturing, BHP's Jac Nasser lamented Australians weren't sufficiently patriotic about cars. Ford, and now Holden, have discovered when it comes to buying cars, price and quality are more important than patriotism.
In the end, Holden forgot a basic insight of Sloan's — "the big work behind business judgement is in finding and acknowledging the facts and circumstances concerning technology, the market, and the like in their continuously changing forms".
Sadly, Holden stopped finding and acknowledging the facts and circumstances concerning technology and the market a long time ago. Any business that spends as much time lobbying politicians as it does satisfying customers will eventually and inevitably fail.