* GM drops Chevrolet brand in Europe; to hit S.Korean production
* GM has decided to cease Australian production - reports
* GM Holden exit would threaten Australian auto industry
* PM Abbott calls on GM Holden to clarify position
* Australia, S.Korea just signed free trade agreement
By Hyunjoo Jin and Lincoln Feast
SEOUL/SYDNEY, Dec 6 (Reuters) - General Motors Co may consider shipping more South Korean-made cars to Australia, a source said on Friday, as part of a global restructuring that will see its Chevrolet brand in Europe dropped and production in Australia potentially scrapped.
GM, which has been mulling its future in Australia for months, has decided to pull out as early as 2016, Australian media reported on Friday.
One option that would be looked at was to supply Australia using factories in South Korea affected by GM's announcement on Thursday that it will drop the Chevrolet brand in Europe by the end of 2015.
GM Korea shipped 187,000 Chevy cars to Europe last year but the brand has failed to gain significant share in the market.
"GM Korea could consider exporting Korean-made cars such as the Cruze compact to Australia if it were to shut down a plant there," the source, who asked not to be identified because of the sensitivity of the matter, told Reuters.
GM Korea has not started discussions on the plan yet, the source added.
GM Korea last year exported about 30,000 vehicles including Barina/Aveo subcompact and Captiva sport utility vehicles to Australia, where they are sold under the Holden badge.
Such a move might face a backlash in Australia, where there are widespread concerns that any exit by GM Holden will be followed by Toyota Motor Co, causing a collapse of the entire domestic industry.
"When Holden pulls out of this country, it will be a domino effect," said opposition Senator John Madigan, whose state of Victoria is the one of the major centres for Australia's auto industry.
"Already car component manufacturers have lost critical mass with the decision of Ford to pull out of Australia. If another one pulls out, that's the end, then we're going to be hearing about Toyota - there are going to be tens of thousands of jobs lost."
A spokeswoman for Toyota Australia, which has previously said it expects to make to a decision on its manufacturing future in the country in 2014, declined to comment.
AUSTRALIAN PRODUCTION UNDER PRESSURE
Citing unnamed senior government sources, the Australian Broadcasting Corp said GM had been expected to make an announcement on its plans to quit Australia this week but had put it off until early next year.
A GM spokesman in Detroit declined to comment on the reports, while Holden said its discussions with the government were ongoing. Australia's Industry Minister Ian Macfarlane said no decision had been made.
Holden, which traces its roots in Australia to a saddle maker in 1856, makes vehicles at its Elizabeth plant in South Australia and engines in Port Melbourne, Victoria, employing almost 4,000 people and producing around 95,000 vehicles a year.
Australia's auto industry has been under pressure for years as high costs, a strong local dollar, weak exports and tough international competition take a toll.
In May, Ford Motor Co announced it would shut its two Australian auto plants in October 2016, following the exit of Mitsubishi Motors in 2008.
The industry has been propped up by billions of dollars in government support, which has become less certain since Prime Minister Tony Abbott's conservative coalition won power in September.
"The message we are getting from Holden is they are in two minds and I would like them to clarify what their position is," Abbott told local radio on Friday. "There is not going to be any extra money over and above the generous support taxpayers have been giving for some time," he added.
Adding to the pressure on the industry, Australia on Thursday signed a free trade deal with South Korea, cutting tariffs on imports of cars and car parts.
"You've got to look at the relative size of the industry. Korea pumped out 4.5 million vehicles last year - we did 221,000 - so you can imagine the size of their supply chain," Richard Reilly, the chief executive of Federation of Automotive Products Manufacturers said. "They are going to be getting better access to our market going forward."
Ian Park, an analyst at IHS Automotive, said he expected GM Korea to seek to export more cars to Australia after Chevy is withdrawn from Europe, boosted by the trade deal.
GM Korea said in a statement that: "The phase-out of Chevrolet in Western and Eastern Europe will increase focus on driving profitability, managing costs and maximising sales opportunities in Korea."
Even before the FTA, vehicles were Australia's second-largest import from South Korea, worth more than A$2 billion last year.
Morgan Stanley analyst Adam Jonas also said the trade deal could offer opportunities in Australia for GM's Korean-made cars.
"It also serves to put a little pressure on the Koreans. The costs in Korea are rising. The labour environment is not the friendliest in the world," he told Reuters.