Holden Blames Margins As Profits Crash

Sydney Morning Herald

Thursday April 9, 1998

By JOHN ROUW and MICHAEL LYNCH in Melbourne

The car market-leader Holden yesterday blamed tight margins and production slowdowns from a model changeover for a 30 per cent profit crash in calender 1997 - a year when the Australian car market hit an all-time sales record.

The company made $172 million last year, well down on the previous year's $243 million.

The decline contrasts with the performance of Adelaide-based Mitsubishi, which last week reported a $171 million turnaround, reversing 1996's loss of $65.8 million for a 1997 profit of $106 million.

But Holden managing director Mr Jim Wiemels was optimistic 1998 would be a much stronger year as sales of the new model VT Commodore powered along. He said key reasons for the lower profit were costs and necessary delays in bringing the new model to the market in the fourth quarter last year.

"The first quarter this year, we are up significantly versus a year ago. The market is up around 14.5 per cent but we're up around 27 per cent," Mr Wiemels said yesterday.

Year-on-year comparison of results was complicated because the Holden Engine Company was brought into the fold.

Established in 1986, HEC was kept separate from the local Holden entity until last December. It clocked up a $24 million net profit for January to November 1997.

Mr Wiemels said that South Korean producers formerly bought half of HEC's production but "their buying has dropped off significantly" as a result of the Asian meltdown.

Holden was evaluating how this could impact on shift patterns and "on an employee standpoint", he added.

He said Holden had initially forecast a 1998 market down 1 per cent on last year's record 722,000 units but the first months of 1998 had encouraged him to think the market could at least match 1997's level.

A "squeeze on margins caused by market-driven price competition" was also a significant factor in the lower profit, Holden said.

Lower prices in many segments, particularly those where Korean manufacturers compete, had intensified price and margin pressures for several years.

Holden also said "an aggressive investment program" was a profit drain. It is in the midst of a five-year, $1.4 billion "investment cycle" started two years ago.