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UPDATE 2-GM says to halt manufacturing in Australia, industry in crisis

Lincoln Feast and Sonali Paul
Wednesday, 11 Dec 2013 | 12:09 AM ET

* GM says closure of vehicle, engine plants to affect 2,900 jobs

* GM exit plans follows Ford, concerns about Toyota future

* High A$, slipping sales, high costs hammer Australia auto industry

* Toyota says decision puts it under "unprecedented pressure"

SYDNEY/MELBOURNE, Dec 11 (Reuters) - General Motors Co said it would stop making cars in Australia within four years due to high costs and a cripplingly strong currency, fuelling fears rival Toyota Motors will follow suit and put the entire domestic industry at risk of collapse.

The decision by GM, the world's second-largest auto maker, to close its Holden plants in South Australia and Victoria states caps a dire year for Australian manufacturing in general and auto production in particular.

"No matter which way we apply the numbers, our long term business case to make and assemble cars in this coutnry is simply not viable," General Manager Mike Devereux told reporters at GM's car plant in Adelaide.

It will pile more pressure on Prime Minister Tony Abbott's conservative government, which is seeking to manage a slowdown in the $1.5 trillion economy as a decade-long mining investment boom slows.

"The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world," GM Chairman and CEO Dan Akerson said in a statement.

In May, Ford Motor Co said it would shut its two Australian auto plants in October 2016, following the exit of Mitsubishi Motors in 2008.

There have been widespread concerns that an exit by GM Holden would be followed by the sole remaining producer, Toyota, threatening around 150 parts and component suppliers directly employing more than 40,000 people.

"It's now highly likely that Toyota will leave Australia. In fact it's almost certain," Australian Manufacturing Workers Union national vehicles division secretary Dave Smith told reporters outside Holden's head office in Melbourne.

Wednesday's announcement came only one day after a local GM executive said the company needed more assistance from the Australian government to survive long term.

"GM has made this decision. It is irreversible," said Devereux, reponding to a question on whether it would have changed its mind if the government provided assistance.

STRONG DOLLAR WEIGHS

Australian manufacturing employs around 921,000 people, having declined by more than 117,000 in the past decade as a persistantly strong Australian dollar and high costs make imports more competitive.

"If the automotive sector leaves then that's a sector of manufacturing in Australia that has been a source of innovation and skills that has spilled over to other forms of manufacturing in Australia," said Stephen Clibborn, a lecturer in work and organisational studies at the University of Sydney Business School.

Toyota said that GM's decision to stop production in Australia would place "unprecedented pressure" on its ability to make cars in the country.

"This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia," Toyota Australia said in a statement.

The company said it would work with suppliers and the government to determine its next steps and whether it could continue operating as the only auto maker after GM leaves.

The world's largest automaker is currently negotiating changes to its workplace agreement with the union, with a vote due on Friday.

"A no vote is going to send a very strong message to our parent company that we are not serious about transforming our business," Beck Angel, spokeswoman for Toyota Australia, told Reuters before the GM announcement.

Australia has annual sales of around 1.1 million new vehicles, but sales of locally manufactured vehicles have fallen to less than a quarter of that, from almost 389,000 in 2005.

GM said it expects to record pre-tax charges of $400 million to $600 million in the fourth quarter of 2013.

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