Government 'optimistic' it will save Holden

Federal Industry Minister Ian Macfarlane is confident he can save Holden and will "arm wrestle" Treasurer Joe Hockey to secure the funding required to keep the Adelaide car assembly line running until at least 2022.

Mr Macfarlane wants to finalise a deal with Holden by the end of the year - when General Motors will be forced to make upgrades to its Adelaide factory - and has called for the Productivity Commission Review into the industry to be fast-tracked and delivered in three months rather than the original plan of 18 months.

"I'm optimistic that we can do something," Mr Macfarlane told News Corp Australia. "It's the most urgent issue in my portfolio. I want it resolved and I want Holden factory workers to know what their future is and I'm optimistic that their future is building cars in Australia."

Mr Macfarlane's comments represent a significant shift from the Coalition's pre-election stance, which had concerned Holden executives. But Holden now appears to share Mr Macfarlane's optimism and sources within the company have expressed greater confidence about its future, based on the tone of talks with the new Federal Government.

When asked about the Coalition's plan to cut $500 million from industry funding, Mr Macfarlane said it's likely there will still be enough money left over to support Holden and the rest of the automotive manufacturing sector. When Macfarlane previously held the industry portfolio under the Howard Government he allocated $4.3 billion to the industry.

Holden had secured $275 million from State and Federal Governments in March 2012 to guarantee manufacturing until 2022 - but has since come back for more money because it says economic conditions have "changed dramatically since then".

"I'm asking how much of that $4.3 billion is left, how much has been promised and how much has been locked in," said Mr Macfarlane, adding that he was prepared to negotiate with Treasurer Hockey, who is opposed to any funding increases to the industry.

"I've had a few arm wrestles," said Mr Macfarlane. "I've won a few, I've lost a few. Let's have that arm wrestle, I'm happy to do it. I'm sure Joe (Hockey) will be clean. "He won't try to gouge me. Joe might grind me into the ground, who knows I might grind him into the ground."

Mr Macfarlane said he would visit the Holden factory on October 3 "with empty pockets" but "I might get some shillings for them later" once the Treasurer had finalised budgets.

The negotiations between the Federal Government and Holden would start "within weeks" but would remain confidential, said Mr Macfarlane, who on Thursday ordered a new Holden Calais from his ministerial allowance.

There may be one roadblock to negotiations, however. Mr Macfarlane has demanded Holden export cars in significant numbers - even if it is unprofitable - because domestic demand is not enough to support local production.

Holden exported 14,500 cars last year, down from its peak of 60,500 in 2005. "We have got to export cars," said Mr Macfarlane.

"Next time a person in Detroit tells me 'we're going to build a car and not export it, I'm going to say 'well you're not building a car in Australia because you won't sell enough locally to pay for the factory'."

At its peak in 1998, Holden sold 94,600 Commodores in Australia but deliveries fell to a record low of 30,500 last year, which means Holden must look to exports to increase production volume to a viable level.

Domestic demand is no longer sufficient to support locally-made cars because the market is so fragmented. Last year's top selling car, the imported Mazda3, led the market with less than 45,000 sales.

However, Australia's high labour costs and exchange rates - compared with neighbouring Asian countries - currently means exports are unprofitable. "I understand that Toyota don't make much money on the cars they export, if any," said Mr Macfarlane.

"They've made a decision to do that to keep their plant in Australia going. I would expect the same decisions from General Motors."

Toyota exports about 70,000 of the 100,000 cars it makes at its Altona factory on the outskirts of Melbourne. "I'm not interested in only building cars for Australia," said Macfarlane. "I'm interested in building cars for the world, in Australia."

Meanwhile, the Port Melbourne engine factory - which employs 300 workers - will be a likely casualty in the new, leaner Holden.

News Corp Australia has been told the engine plant is in grave doubt beyond 2016 given the sharp drop in demand for V6s globally, and the likelihood that the next generation Commodore will have a four-cylinder engine.

Holden would not comment on Mr Macfarlane's export demands or the future of the V6 engine factory in Port Melbourne.

But at the Detroit motor show in January Holden boss Mike Devereux said: "We do have a full production plan for the life of that (V6) engine (to 2016) … but then we do have some serious decisions to make."

Devereux said in years to come it would be unlikely that "massive amounts of V6s will be made anywhere" as car makers chase better fuel economy.

If Holden were to shut the Port Melbourne V6 engine factory it would not be in breach of its agreement to keep making cars in Australia until 2022.

"We have very distinct, separate decisions to make around the future of engine building for us in Australia," Devereux said at the time.

Mr Macfarlane praised the Holden factory workers for their contribution by agreeing to a wage freeze for three years, among other conditions.

"The unions have done a fantastic job … and have shown a responsible attitude which is making sure they're members have every chance of keeping their jobs," he said.

This reporter is on Twitter: @JoshuaDowling