Global Insight Perspective | |
Significance | GM Europe yesterday confirmed what had been feared by its U.K. workers for some time: that the third Astra production shift at the company's Ellesmere Port plant in northern England will be cut, a move that will result in the loss of 900 jobs. |
Implications | The announcement exacerbates the general concerns surrounding the U.K. auto industry. According to GM, its U.K. plant has the highest costs in Europe. The company went on to say that efficiency must improve at the plant if it is to secure production of the new Astra in 2010. |
Outlook | The future of U.K. car production now rests with a handful of foreign manufacturers, whose demands for increased government support are likely to continue to grow along with production levels. Global Insight forecasts that total U.K. car output will nevertheless remain below 2005's level this year, with further weakness expected in the following few years. As a result, the complex reasons behind the falling overall output levels require increased government attention in the coming years if it is to prevent further lay-offs and downsizing. |
General Motors (GM) Europe yesterday confirmed what had been feared by its U.K. workers for some time: that the third Astra production shift at the company's Ellesmere Port plant in northern England will be cut, a move that will result in the loss of 900 jobs.
More U.K. Jobs Go
GM Europe said that it will cut 'around' 900 of the 3,250 jobs at Ellesmere Port through voluntary redundancies as part of a plan to start operating on a two- rather than three-shift basis. 'We are moving from a three-shift to a two-shift operation. That will entail approximately 900 job reductions. We will be seeking to achieve those job reductions through voluntary agreements with the employees affected', GM Europe's Jonathan Browning told reporters yesterday. The night shift is due to end in August this year.
According to Browning, the move is necessary amid falling demand for the ageing high-volume Astra model. The decision came after GM Europe rejected the pan-European labour unions' ‘pain-sharing proposal’, which suggested spreading the losses across GM's European plants. 'We are focusing this adjustment on the highest-cost plants across Europe - and today that highest-cost plant is Ellesmere Port', Browning said.
After having peaked last year, sales of the Opel/Vauxhall Astra will decline from this year onwards, resulting in problematic overcapacity issues at expensive Western European plants. The decision to cut Astra capacity in the United Kingdom is logical considering the plant's high costs, but this will come as little consolation to U.K. workers in the industry, who have been hit by increasingly frequent announcements regarding plant closures and staff lay-offs. 'This is another devastating blow to the car industry and U.K. manufacturing in general', Derek Simpson, general-secretary of the Amicus union, said.
Government to Step In
GM Europe is due to decide next year where it will produce the next-generation Astra model from 2010. Securing this high-volume model will be crucial for the Ellesmere Port facility's long-term prospects. 'Quality and productivity have shown significant improvements, but the issue of long-term competitiveness remains', Browning was quoted by the Financial Times as saying. Such comments are an ominous sign given that GM Europe has repeatedly warned that it can not rule out a plant closure in Europe. Coming in the wake of the news that a shift will be cut at Ellesmere rather than at GM's German or Belgian plants, the comments do not bode well for the U.K. plant's prospects.
Speaking to reporters at the Merseyside plant yesterday, U.K. Chancellor Gordon Brown said that the government would seek to back Ellesmere Port's efforts to secure production of the new Astra. 'We remain committed to doing whatever we legitimately can to ensure its success', Trade and Industry Secretary Alistair Darling added. According to unconfirmed media reports, Vauxhall has already applied for a government grant. The Independent reports that Vauxhall has asked the Department of Trade and Industry (DTI) for between £5 million (US$9.4 million) and £15 million of assistance to support its attempt to build the replacement for the Astra.
The DTI has confirmed that talks are now under way between GM Europe, Gordon Brown and Alistair Darling, as well as the TGWU and Amicus union leaders, Tony Woodley and Derek Simpson, respectively, to prepare the case for Ellesmere Port to secure future investment. Further details are yet to be made available, but whatever aid package is agreed, it will need to be a thoroughly planned and timely effort to ensure that it passes the EU's strict anti-competitive legislation and comes before GM Europe makes a decision. In the past, the government's proposed aid package to PSA came after the French company had already allocated the replacement model to another location.
Outlook and Implications
Albeit expected, yesterday's announcement came as another blow to the U.K. auto industry, which has been hit by frequent redundancy news over the past few years. Thousands of manufacturing jobs have been lost following the collapse of MG Rover and downsizing of Jaguar, while thousands more will be lost shortly as PSA closes its Ryton plant and GM moves to streamline Ellesmere Port. Total output is expected to carry on falling in the coming years in the wake of such devastating reductions despite the fact that other manufacturers, namely Japanese automakers and Mini, are gearing up their operations, leading to growing concerns among U.K. politicians.
The reasons behind many manufacturers’ decisions to target U.K. facilities with cuts rather than their continental European plants are complex. Battered manufacturing labour unions have cited the United Kingdom's flexible labour laws as a major culprit, but the reasons are not so simple. As David Coats, associate director at The Work Foundation, put it, 'Few businesses take decisions of this magnitude primarily on the basis of labour law alone - ease of hire and fire is but one aspect in the mix. There are many other issues that are more significant - skill levels, likely returns on investment, access to markets, patterns of demand and transport infrastructure'.
Infrastructural issues have been flagged by the U.K. auto industry as a major cause for concern before. In the latest Society of Automotive Manufacturers and Traders (SMMT) annual review, over three-quarters of the executives surveyed said that the transport infrastructure in the United Kingdom makes it increasingly difficult for U.K. companies to remain competitive. Ironically, another issue cited by the executives is the availability of staff. According to the SMMT survey, 48% of executives felt that it was 'hard to recruit appropriately skilled employees'. Added to this is the U.K.'s exclusion from the Eurozone, leading to potential currency risks and higher costs, while the fact that none of the manufacturers still present in the country are U.K.-based can be seen as another risk.
The future of U.K. car production now rests with a handful of foreign manufacturers, whose demands for increased government support for the industry are likely to continue to grow along with production levels. Global Insight forecasts that total U.K. car output will nevertheless remain below 2005's level this year, with further weakness expected in the following few years. As a result, the complex reasons behind the falling overall output levels require increased government attention in the coming years if it is to prevent further lay-offs and downsizing.