Opel/Vauxhall CEO Unveils "Plan for the Future"

General Motors' (GM's) European unit, Opel/Vauxhall has unveiled its plan for the future of the business, under which the company aims to restructure its manufacturing operations as well as spending around 11 billion euro (US$15 billion) over the next five years. Chief executive officer (CEO) Nick Reilly said in a statement that the "announcement marks the beginning of a new era for Opel/Vauxhall. It is the biggest overhaul in the company's recent history."

Under the plan, which has been verified by external auditor Warth & Klein, the company expects that it will break even by 2011 and be profitable by 2012, and takes into account Western European passenger car sales falling around 20% from 2007 levels during 2010. In order to achieve this, the company will reduce its current production capacity by 20%, with around 6,900 staff cut from its manufacturing operations. Opel will continue down the route towards closure of the Antwerp (Belgium) facility, as previously announced (see Europe: 22 January 2010: Opel Confirms 8,300 Job Cuts and Closure of Antwerp Plant), with the loss of 2,377 jobs. However, a further 3,260 jobs will be lost at its plants in Germany including Bochum, Eisenach, Rüsselsheim and Kaiserslautern, and the remainder of cuts will be at Zaragoza in Spain and Luton (United Kingdom). Once this reduction in capacity is achieved, the company is expecting to run facilities at approximately 112% of its installed capacity on a two-shift basis and 87% on a three-shift basis. There will also be around 1,300 jobs in the region lost from its sales and administration areas, including 650 jobs in Germany, 150 in the United Kingdom and the elimination of its EM Europe management structure in Zurich (Switzerland) which will see the loss of a further 80 staff.

The plan also expects 80% of the models that Opel sells to be no more than three years old by 2012. In order to achieve this, the company will launch eight new and revamped models during 2010 including the latest generation Meriva, Movano and Astra Sports Tourer, as well as a further four in 2011 including the Ampera plug-in hybrid electric vehicle (PHEV). The launch of this model will be part of the plans to invest around 1 billion euro in alternative powertrains and fuel efficient technologies. Under this aegis, it will also introduce electric powertrains for small models and expand its rol-out of liquid petroleum gas (LPG), compressed natural gas (CNG), start-stop technology and engine down-sizing. There will also be a push to launch a vehicle smaller than the B-segment Corsa and expand the light commercial vehicle (LCV) business.

However, in order for this to be a feasible strategy, Opel reiterated its need for 3.3 billion euro in short-term funding. Its parent company GM has already injected 600 million euro of this into the business, with a further 650 million euro in advanced payment having taken place in January to ensure an appropriate cash position. However, Opel said that it would "continue to work with European governments to secure funding approximately 2.7 billion euro of further funding through loans or loan guarantees," adding that it had formally applied for loans and loan guarantees from the German government.

Outlook and Implications

The success of this plan, which even GM is calling "ambitious," is key to turning its operations in the region around, although it is not without its pitfalls. Not least of these is the process of trying to gain the financial support from governments in the region. GM is approaching the German government for 1.5 billion euro, and Reilly has said that it would seek a further 1.2 billion euro in aid from the United Kingdom, Spain, Poland and Austria. The task is likely to fall mainly to the automaker's new vice-president of government affairs Volker Hoff (see Europe: 29 January 2010: Opel Adds Former German Politician to New Management Team). However, despite its previous role in the German political system, this unlikely to be an easy task to achieve, not least because of the severe embarrassment which was caused by GM's decision to retain Opel/Vauxhall, reversing a decision to sell the unit to automotive component manufacturer Magna. Chancellor Angela Merkel and her political allies backed the sale which became a key issue in the German general election in September last year. Hoff will no doubt need to have to repair relations with the German government, as well as use his political contacts to advocate that German public money be used in Opel's restructuring. Added to this has been the response that has come from the Spanish government, which is set to see 900 jobs axed. Industry Minister Miguel Sebastian said that it was a "huge sacrifice," adding "we need to sit down with the unions and the local Aragon government to evaluate the proposal and find out all the details, particularly its long term viability which, logically, is something we need to be concerned about," according to Automotive News Europe. The U.K. government appears to be in a more relaxed mood, with a spokesperson for the Department for Business, Innovation and Skills telling Dow Jones International News that it had conducted due diligence on its plan and was discussing potential support for the automaker. However, even if this hurdle is surpassed, GM's business plan would also need to be put in front of the European Commission, and "demonstrate that its European unit can survive the mid-term without state aid," according to European Competition Commissioner Neelie Kroes earlier this week.

Another stakeholder that Opel/Vauxhall will need to persuade is its union and employees. Relations between the automaker and staff had already been fraught, but the announcement that it would be cutting 8,300 workers and closing Antwerp has added to difficulties. The head of Germany's biggest industrial union IG Metall described the plans as a "declaration of war", and it has not been helped by rumours that a further 2,000 jobs could go, subsequently vehemently denied by Reilly. Opel's labour organisations have effectively frozen negotiations with GM over the proposal for 265 million euro in annual wage cuts across Europe over the next five years. The announcement of the business plan seems to have added to the deterioration of relations, with IG Metall reiterating that it was refusing to contribute wage concessions and recommending that the state and federal governments decline its request. However, as things stand, Opel's labour force has a stark choice. It can persist with the rhetoric and strategies of outmoded trade unionism which will just further erode Opel and Vauxhall's competitive position in the European market. Alternatively, it can actively engage with Reilly and the company's management in helping to formulate a competitive and viable future for the company in a European car market that is evolving rapidly and becoming ever more competitive.

This competitive market place could also add to the difficulties in making the plan work. Reilly said in a press release "Opel/Vauxhall has a clear vision: to be a leading European manufacturer of high quality, desirable automotive products, based on German engineering." To underpin this strategy, it aims to develop vehicles at its International Technical Development Centre in Rüsselsheim, with plans to transfer vehicle architecture developed elsewhere back as early as possible "to ensure they deliver on the Opel/Vauxhall brand promise." While German quality and technology standards are measures by which others in the automotive world compare themselves, it does not necessarily translate that those with manufacturing and engineering bases in the country are tarred with this brush. Certainly, rival Ford has been developing and manufacturing vehicles in the country for many years now and despite its best efforts has seen some areas of its business flag as customers shift towards more premium brands, or cheaper vehicles emanating from Asia. While it has also said that it undertaking several studies to export vehicles to the Middle East and the Asia-Pacific, it has tried to undertake similar strategies in the past, but to no avail.

Although Reilly told the Financial Times (FT) that the company had enough liquidity to last it through final talks, expected to take several more weeks to wrap up, this is further pressure and may well be the most vital. Opel/Vauxhall has done enough to warn unions and governments up to now as to its requirements, but it remains to be seen whether in the upcoming weeks it can persuade all these parties to be forthcoming with both cash and concessions. While Reilly has confidence that Germany will support its plan, adding that "I don't know a reason why they wouldn't want to support us," it could well be the labour unions that will be the key to the future of the company, as any protests or strike action against its aims and goals could easily damage the automaker's position going forward.