IHS Global Insight Perspective | |
Significance | Opel chief executive Nick Reilly has confirmed that the company will follow through with plans to close its Antwerp plant in Belgium and that it will also look to shed 8,300 jobs throughout Europe in an attempt to become profitable once more. |
Implications | The decision will mean that all 2,606 workers at the company's Belgian plant will lose their jobs, while a further 4,000 job losses will be sought from the company's German operations. The remainder of the job losses will be spread between Opel and Vauxhall's other European operations. |
Outlook | As Reilly stated during the announcement, Opel and Vauxhall have to face up to reality and the company will not have a sustainable future unless it makes significant cost reductions and takes out excess capacity. Opel will now await the reaction to the news of the job losses, especially from the German workers' council, with industrial action a not unlikely outcome. |
General Motors (GM) will cut 8,300 jobs from the production operations of its Opel and Vauxhall units, with the main reduction resulting from the total closure of the company's production facility in Antwerp (Belgium), while around 4,000 jobs will be lost at the company's four German production plants. The cuts are in line with expectations, with the company looking to cut 20% of its total European workforce of around 48,000 workers. According to a company statement, Opel chief executive officer (CEO) Nick Reilly said, "We fully understand the effect this announcement has on the Antwerp employees and their families and we sympathize with them…Many have been dedicated to the plant over generations and have done an excellent job producing great quality cars. The decision to announce this today, was not taken lightly; instead, it is the unfortunate result of the current business reality. We must make this announcement now so that we can secure a viable future for the entire Opel and Vauxhall operations." Opel's Antwerp production facility was first established in 1924 and the number of workers at the plant has fallen from 7,000 at its peak to almost exactly one-third of that amount. Reilly said that production at the factory is set to conclude in the next few months and that formal discussions with the company's workers will begin in order to try to close the plant down in a "socially responsible manner". Reilly said that the decision to close the Antwerp plant had been taken as it was the most logical step in terms of rationalising Opel and Vauxhall's European production capacity and adjusting output to falling demand. He said that GM expects the European passenger car market to decline by at least 1.5 million units in 2010 in comparison with 2009, and the company does not believe the market will return to the peak level of 2007 at any time in the near future, if at all. The Belgian government had tried to stave off the Antwerp plant's closure by earlier this year offering the company up to 500 million euro (US$707 million) to upgrade the facilities.
Reilly and his management team are still in discussions with other European governments about securing financial support in the shape of loan guarantees to underpin the short- and medium-term restructuring plans for Opel and Vauxhall. The company is looking to secure financial backing to the tune of 2.7 billion euro, with the full turnaround plan expected to cost in the region of 3.3 billion euro; GM is already putting 600 million euro into the company. Opel's trade unions across Europe said in a joint statement that the company was breaking a commitment to make a small new sport utility vehicle (SUV) at the Antwerp plant that will now be manufactured by the GM Daewoo unit in South Korea. Reilly said that the economic crisis has forced the company to change its plans and that sales projections for SUVs have suffered a big correction as a result of rising fuel prices and increasing legislative demands. This stance is hardly likely to facilitate negotiations with the workers' council in Germany over plans to generate 265 million euro-worth of annual savings in wage concessions. Kris Peeters, the premier of the regional government of Flanders, where the plant is located, said that he would ask European Commission president José Manuel Barroso today for the Opel business plan to ensure that no other Opel plants had had an unfair advantage over Antwerp in terms of loan guarantees being offered in exchange for job protection, with would be in contravention of European Union (EU) law. It was on this very issue that the original Magna International bid for Opel faltered (see Europe: 12 November 2009: EU Prompted Opel U-Turn, Says GM Chairman; Talks Begin with German Government). Peeters said, "We will explicitly ask to what extent the Commission will allow other countries to provide aid."
Outlook and Implications
Reilly said that the decision to close the Antwerp plant had nothing to do with its efficiency or the quality of its products. Rather, he said that it was based around "economics and the distribution of our products." As a result, Western European Opel production can be catered for comfortably by the firm's German plants, which are just over the Belgian border. Opel has an even geographical spread around Europe, with plants in Gliwice (Poland) and Zaragoza (Spain), while the company's Vauxhall operations largely cater for right-hand-drive demand as a result of the company's Ellesmere Port (United Kingdom) facility being a major production site for the new Astra. However, Reilly is correct in steadfastly sticking to the point that GM's European unit needs major structural surgery if it is to have any chance of returning to profitability and viability. The new reality in the European passenger car market means that Opel and Vauxhall simply have too much capacity and therefore too many workers. It is a harsh message but one that Reilly is not shirking from communicating. According to the 2009 sales data from the European Automobile Manufacturers Association (ACEA), Opel and Vauxhall suffered a combined sales decline of 7.8% to 1.064 million units in 2009, against an overall market decline of 1.6% to 14.46 million units, so the unit lost significant market share across Europe to add to its difficulties. This was despite the company faring surprisingly well as a result of the scrappage scheme in Germany, its sales rising by 31.3% in that market last year despite the negative publicity surrounding the future of the brand throughout 2009.
Reilly and his management team will announce the finalised restructuring plan in the next few weeks and it is likely to contain a full list of job cuts across the company's European operations. These are likely to mirror previously announced job cut plans that were outlined by GM in November following the company's decision to retain Opel and Vauxhall and abandon the sale process to Magna International (see Europe: 26 November 2009: GM Announces Allocation of Opel Job Losses; Germany to Bear Brunt). The fact that it appears that the German works council is not currently negotiating with Opel's management and the highly discouraging initial reaction from unions and the works council suggest that Reilly and his team have a long way to go before they can secure a meaningful labour agreement over job losses and improved working practices (see Europe: 20 January 2010: Opel Restructuring Hits Labour Snag; U.K. Government Willing to Invest in Vauxhall). The German workers' council, led by Klaus Franz, is still said to be holding out for the 10% stake in the company it believes it has already negotiated, although this was discounted by Reilly at the recent North American International Auto Show (NAIAS).