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GM to End Production in Australia

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General Motors Company (GM - Free Report) has decided to stop vehicle and engine production in Australia by 2017-end. Furthermore, it plans a transition into a national sales company in Australia and New Zealand.

The automaker also plans to gradually cut down engineering operations in Australia over the next 4 years.

These plans are aimed at strengthening the performance of the global operations of General Motors. The automobile business in Australia is being affected by the strength of the Australian dollar against the American dollar, high production expenses, limited domestic market and stiff competition.

The actions will result in the laying off of 2,900 employees; 1,600 from the Elizabeth vehicle manufacturing plant and 1,300 from GM Holden’s Victorian workforce. However, GM Holden will continue in Australia as a national sales company, a national parts distribution centre and a global design studio. Moreover, the sale and servicing of Holden vehicles will continue uninterrupted.

General Motors projects pre-tax charges in the range of $400–$600 million, in the fourth quarter of 2013, due to these decisions. These include $300–$500 million for non-cash asset impairment charges including property, plant and equipment and $100 million for cash payment of exit-related costs including certain employee severance related costs. Further, cash payments of employee severance are expected to increase expenses till 2017.

Separately, General Motors announced that Chairman and CEO Dan Akerson will retire from his present positions on Jan 15, 2014. Akerson will be replaced by Mary Barra and Theodore (Tim) Solso, who will hold the position of CEO and Chairman, respectively. 51-year old Barra is currently executive vice president, Global Product Development, Purchasing and Supply Chain. On the other hand, 66-year old Solso is the former chairman and CEO of Cummins Inc. (CMI - Free Report)

General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked major automobile stocks worth considering are Ford Motor Co. (F - Free Report) and Honda Motor Co., Ltd. (HMC - Free Report) . Both these stocks hold a Zacks Rank #2 (Buy).

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