GM finalises "Deutschlandplan" Opel labour agreement with German unions

The management of Opel has announced that it has agreed a comprehensive new labour agreement with the company's works council and the industrial union IG Metall, which will govern and safeguard the short-to-medium-term operations of General Motor's (GM's) main European production arm in its main location of Germany. According to a press release, the "Deutschlandplan" (Germany-wide plan) has secured agreement on a wide range of measures which will improve the competiveness and lower the cost base of Opel's German operations.
The main points of the agreement are as follows:

• Opel will guarantee passenger car production at the Bochum plant until the phasing out of the production of the current Zafira, which is expected at the end of 2016. Opel's management had previously floated the possibility of phasing out car production at the plant as soon as 2015 if an agreement was not reached with IG Metall and the works council.
• Opel has pledged to retain Bochum as a component manufacturing site, with a total of 1,200 full-time contracted "tariff-bound" workers being retained, with the site's warehouse also being retained. The posts at the site will be split between 600 jobs at the warehouse site, while 600 jobs will be created in high-quality component production, the precise details of which have yet to be determined. However, the company has also pledged that there will be no compulsory redundancies between now and 2016.
• Instead of the original plan to cease production of the F13 gearbox at the plant at the end of this year Opel has instead pledged to continue production, although the plant will move to a two-shift production schedule on its gearbox programme. Opel says it will offering severance and partial retirement programmes to the 600 affected workers.
• In return Opel has secured a pledge from IG Metall and the works council that tariff-bound pay increases across the German production network will be deferred, although salary components above the general pay scale – such as Christmas bonuses – will be excluded from the freeze.

In addition negotiations have also taken place with regards to the other locations in Opel's German production network:

• The Eisenach plant will continue producing two models after 2015 at the manufacturing site of the small cars Corsa and the ADAM.
• The future of the Kaiserslautern component plant has also been secured beyond 2016, with around 1,800 employees.
• Along with production of the next-generation D-segment Insignia continuing at Rüsselsheim, Opel will produce a second model at the facility after 2015. This next-generation Zafira would be an obvious contender to be switched to Rüsselsheim when production ending at Bochum. In addition, production of the F40 gearbox remains exclusively in Rüsselsheim.

Outlook and implications

The agreement with Opel's works council and the IG Metall union, which will govern the future shape, production provision, headcount and cost base of Opel's domestic production locations, has been months in the making. However, now the agreement has been reached and signed off by the respective parties, it at least gives Opel's management a stable set of numbers on which to work on in terms of salary costs and headcount, while the eventual of closure of the Bochum plant will also significantly improve the capacity utilisation of the other two car manufacturing plants that will continue to build cars in Germany, Eisenach and Rüsselsheim. With capacity utilisation likely to be averaging around 60% at Opel's German plants, this will be a welcome development, However, there are still significant concerns over whether the Opel plan will deliver the cost savings to move GM's main European unit back into the black in the kind of timescale that will placate investors, especially institutional investors in the US, who have been vocal in their criticism of GM Europe's performance, which has been a consistent drag on the balance sheet of the parent company. The fact remains that the Western European passenger car market, the majority of which Opel's German production goes to serve, is experiencing something of a severe contraction. In 2012 the Western European market contracted by 8.2% y/y across the EU 27 countries, according to ACEA data, while Opel's brand sales fell at almost twice the rate, with a 15.8% y/y decline to 815,961 units in the same territory. In 2012 GM Europe lost USD1.8 billion (see United States: 15 February 2013: GM's 2012 earnings fall 35.5% y/y on European woes) and the company does not expect to break even until the middle of the decade. However, if the European car market continues in its current slump any kind of timescale to break even could be significantly extended. The cost savings will come, but it remains to be seen whether the company can afford to wait until the end of 2016 for the full extent of these savings to take effect, especially in an environment where the mainstream mid-market European brands are faced with either engaging in profit-slashing discounting in order to maintain volumes, or losing both share and volume while attempting to maintain transaction pricing. However, one highly positive aspect of the agreement from GM's point of view is the agreed pay freeze. Opel could not be expected to match the pay increases agreed throughout the sector when it is operating in a completely different market paradigm to the likes of BMW, Volkswagen and Mercedes-Benz, which continue to book strong profits from high export sales, especially in the premium markets in the US and China.