GM Europe Board to Meet Today As Closure Rumours Continue

The Opel/Vauxhall supervisory board will meet today (28 March) amid continuing rumours that the company is preparing to close two of the plants that comprise its European production network. According to a Reuters report, the board may make a final decision today while high-level sources told the BBC last week that a definitive announcement could be expected today. This seems unlikely on the balance of probability, given that Opel/Vauxhall CEO Karl-Friedrich Stracke said at the weekend that there would be no further plant closures before 2014 (see Europe: 26 March 2012: GM Europe CEO Says No Plant Closure Until 2014 at Earliest). However, this does not discount the possibility that GM Europe could announce plant closures with an extended timescale for the actual end of production at the plant in 2014. This would give GM Europe a significant lead-time in terms of working out early retirement/redundancy packages with the unions and possibly limiting the scope for industrial action through as consensual an approach as possible.

The two facilities that continue to be mentioned in press reports as most at risk are the Ellesmere Port plant in the United Kingdom and the Bochum plant in Germany. Opel/Vauxhall is already engaged in talks with Bochum's unions about measures to reduce costs and improve overall efficiency, even though GM's European facilities are already running lean. However, if the supervisory board does vote to finalise plant closures today, these discussions are likely to end and industrial action could be in the offing instead. A statement from Bochum's works council, reported by Reuters, said, "Opel Bochum's employees are rightly asking themselves, "What happens after 2014?" Plant closures have not been taken off the negotiating table, just the opposite." The Bochum plant directly employs about 3,100 workers, but the works council estimates its closure would cost 45,000 jobs when related services companies and suppliers are included. The Ellesmere Port plant employs about 2,100 workers plus contractors.

Given the strong representation of labour leaders on the Opel supervisory board, it will not be an easy task to push through plant closures. However, GM Europe's management is likely to use the argument that if it announces closures in the short term, it will be giving workers and unions as much time as possible before 2014 to find new employment while being offered what will no doubt be healthy redundancy packages.

Outlook and Implications

In terms of the actual plans, it appears that Ellesmere Port and Bochum are the obvious targets in terms of cost base and the models they manufacture. It is often said that Ellesmere Port is one of the most efficient plants in GM's global production network. This may be the case, but the differences in efficiency are likely to be small and it will still have significantly higher fixed costs than other facilities in GM's European network. Both Bochum and Ellesmere Port make the Astra C-segment model, two of the three plants across the company's European production network to do so, with the third being the Gliwice plant in Poland, which is the lowest-cost production location for the model. With Opel/Vauxhall's sales suffering a 20% fall in the first two months of 2012, the Astra is simply not generating enough sales volume to justify three separate production locations. Combined Opel sales are actually expected to remain static in 2012 compared to 2011 at 1.23 million units, with sales falling to 1.13 million units in 2013. Given the USD747-million loss in 2011, the need for further meaningful cost cuts is obviously pressing, especially in a market where there is likely to be a depressive effect on pricing in the short term.

In addition, GM has just signed an alliance agreement with PSA Peugeot Citroen, which will see GM acquire a 7% stake and look for purchasing synergies, eventually working to develop shared vehicle platforms. Arguably PSA has an even greater need to cut capacity as it has a far higher proportion of overall production capacity concentrated in Western Europe. Despite the plan to share purchasing and develop vehicles together, there is little industrial logic to the alliance unless both companies work together for a correctly-sized production network to fit the new reality of the Western European market.