May 20, 2012 6:52 pm
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Automobiles: On course for collision
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By John Reed and Chris Bryant
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All eyes are on GM, which looks increasingly likely to resort to a plant closure in Europe
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General Motors is contemplating doing something no leading carmaker has dared do in Germany since the second world war: announce it is closing a plant.
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On Monday Karl-Friedrich Stracke, chief executive of Opel/Vauxhall, will brief 3,200 workers in the once-mighty northwestern industrial town of Bochum on plans to restructure the American company’s lossmaking European operation.
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Mr Stracke will have cause to be nervous as he strolls on to the factory floor, where Opel – the group’s German-based European arm – makes its Zafira compact people mover. It looks increasingly likely that GM will allocate the plant no new cars after 2014, and could close it sometime thereafter.
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If so GM’s American-led managers, tasked with sorting out Opel, would be breaking one of continental Europe’s biggest industrial taboos – and risking a worker or consumer backlash that could damage the brand.
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At a similar meeting at Opel’s headquarters in Rüsselsheim near Frankfurt last week, Mr Stracke faced whistles and jeers. At a time when job cuts in the eurozone are politically toxic, German leaders and GM’s competitors – notably PSA Peugeot Citroën of France, with which it formed a strategic alliance in February, and Fiat of Italy, which may also need to shut plants – are closely watching its next move.
Opel’s ability to chart a new future will be a test for its management, and more broadly offers potential lessons for the region’s industry as it faces chastening new realities amid the eurozone debt crisis.
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“Listen, there’s a new economic reality in Europe – we can’t deny it, we can’t hide from it, we can’t hope that it’s going to get better,” Steve Girsky, Opel’s supervisory board chairman, said in March. “We’ve got to live with it, and that’s what we plan on doing.”
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GM has said clearly that it can no longer bankroll Opel’s losses. Daniel Akerson, the former US Marine and private equity boss who serves as GM’s chief executive, this month described the European unit as a “work in progress” and vowed to restore profitability, whatever it takes.
Few who know the car industry would dispute that GM Europe, which lost $747m last year, should act decisively to cut back its industrial footprint to match the continent’s decreasing car sales, of which it is claiming a diminished share. With six car plants in Germany, the UK, Spain and Poland, Opel sold fewer than 1m vehicles last year, compared with over 1.5m a decade earlier, in 2001.
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Unlike Ford Motor of the US or Renault of France – which are also weathering a tough year but have big global franchises – Opel’s business is confined almost entirely to western Europe’s oversupplied car market, tipped into crisis this year as consumer confidence has withered in the face of struggling economies. Executives at GM and its rivals do not expect sales in Europe to recover for several years.
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In the US, analysts and shareholders say the time has passed for incremental measures at GM Europe, where the Americans have already undertaken two partial restructurings in the past decade – most recently, cutting 8,300 jobs and closing a plant in Antwerp in 2009-10. At some point US taxpayers, who put more than $50bn into rescuing GM three years ago, will want to be repaid.
.“The European situation is the number one factor weighing on investor sentiment for GM,” says Adam Jones a New York-based analyst at Morgan Stanley. He estimates that GM Europe puts a discount of $5 on the global carmaker’s share price. Shares in GM, which is 32 per cent US government owned, are trading well below their 2010 share price.
But seen from Germany, by enacting an aggressive and decisive restructuring of Opel, GM’s managers are tampering with sacred corporate governance principles such co-determination, whereby workers have boardroom representation, and collective bargaining at what many locals still consider a “German” brand.
GM has infuriated Opel’s works council – which represents employees at shop floor level – by not negotiating a deal centrally. “The strategy of Opel [management] seems to be to travel from factory to factory and put workers under pressure to make concessions so that at the end of the day they can secure as great a sacrifice of wages as possible and toughen employment conditions across Europe,” Wolfgang Schaefer-Klug, Opel’s head labour representative, said earlier this month.
GM’s plant in Ellesmere Port, northwest England, was saved from the threat of closure when workers agreed to four years of wage restraint and increased flexibility on hours and vacation times. The plant will move to three-shift production from 2015, making the next-generation Astra, the small family car that is Opel’s best-seller, alongside the brand’s low-cost factory in Poland.
The move to three shifts will only add to GM’s total overcapacity – among the highest of any European carmaker – raising further questions over Bochum’s future.
Rainer Einenkel, head of the works council in Bochum, has called for “urgent” clarity over GM’s plans, but Mr Stracke will not be showing the company’s full hand on Monday, people who know its plans say. The plant’s fate may be sealed only when GM finalises a new business plan for Europe, expected next month.
While Mr Stracke is Opel’s Germanic public face, Mr Akerson has since late 2011 stocked the brand’s supervisory board with many of his most senior lieutenants from Detroit. Behind the scenes, they have been trying to fashion a future product plan, brand strategy and industrial blueprint for Opel durable enough to withstand a long European downturn.
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Mr Girsky, GM vice-chairman, is himself a former car industry analyst who went on to advise the United Auto Workers union before GM’s bankruptcy filing in 2009 – after which he joined the company’s board. Speaking in March, he joked that the group’s history in Europe is “a bunch of Americans trying to sell German cars to French people, and wondering why it never works”.
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Within GM, fixing Opel is seen as an important management test for both Mr Girsky and Mary Barra, GM’s product development head, who also sits on Opel’s board. Both are mentioned as likely candidates to succeed 63-year-old Mr Akerson as chief executive.
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The stakes are high. Opel has already played a role in undoing one GM chief executive. Fritz Henderson presided over his company’s politically rancorous, bungled attempt to sell the European unit in 2009, a move that ended up entangling the German, US and UK governments, demoralising employees and even affecting consumer sentiment and depressing the brand’s sales.
If anyone has the credentials to get it right this time, it is Mr Girsky. He played a critical role in GM’s much more dramatic and deeper restructuring and bankruptcy in the US. When the US government forced GM to restructure as a condition of financing GM’s bailout, the carmaker axed four brands and cut more than 30,000 jobs between 2008 and 2010.
-He should ostensibly have an easier time in Europe. Opel has smaller financial losses and some promising forthcoming models in popular segments, including its Mokka small sport utility vehicle and Adam city car. Reviewers have compared their designs and features favourably with those of industry leaders such as European market leader Volkswagen.
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German unions have urged GM’s Detroit brass to allow the brand to take on the competition – spread its wings and grow out of its troubles by exporting more overseas, and building Chevrolets at its plants. But Opel’s cars do not command the sticker prices or resale values of those made by, say, VW. Opel sells the industry’s cheapest German-made cars while paying German fixed costs.
GM’s ability to set Opel right is further constrained by its promise to workers, made during its earlier restructuring, not to close any plants before 2014. However, GM has given no guarantees that Bochum has a future beyond that date. Within GM, executives have for months described the factory as likeliest of any at Opel to be closed.
Doing so would carry risks, and not only from the threat of costly industrial action. Another is an exodus of customers: Opel’s brand was sullied during GM’s earlier restructuring. Since 2008, the marque has made news headlines in the context of trouble at its business, not its cars .
Across western Europe, Opel has lost a point and a half of market share to rivals including VW and Hyundai/Kia since 2008. Market share now stands at about 6.5 per cent, down from 8 per cent four years ago – a considerable amount in Europe’s intensely competitive, segmented car market. “Opel hasn’t been helped by the broader issues around GM in the last few years,” says Jonathon Poskitt of LMC Automotive, a consultancy.
GM’s deal to keep its UK plant open only makes Bochum look more precarious. Announcing plans for the Astra, Mr Stracke’s team also said that Opel’s mother plant in Rüsselsheim had a future. This heightened anxiety in Bochum, which labour leader Mr Einenkel speculated might lose the Zafira to Rüsselsheim, serving the plant a “death blow”.
He also railed against the deal reached with UK workers, describing it as a “declaration of war against the German factory”. In cutting a deal in Ellesmere Port, GM could conceivably be laying the groundwork to pitch for similar sacrifices from workers at Bochum – and to hand the plant a reprieve if it receives them.
.But with the UK plant now preparing to make Astras around the clock, GM’s overcapacity problem will only grow. “What they are doing at Ellesmere Port only makes sense if they close another plant,” says Tim Urquhart of the IHS Automotive consultancy.
GM is for now keeping its plans discreet. Amid last week’s booing and whistling, Mr Stracke announced a 10-point turnround plan for Opel, in which he spoke of opening new export markets, improving customer satisfaction, and strengthening the brand’s value – none of which is a controversial prospect for unions.
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But he also hinted that the axe was still hanging over the operation’s manufacturing base. “We must do our homework in Europe,” he said.
Peugeot alliance: Carmakers avoid talk of closing plants in tie-up
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As Opel’s board decides what cars to build at which plants later this decade, its parent General Motors is also grappling with another part of its strategy to fix its European business: the group’s three-month-old alliance with PSA Peugeot Citroën, writes John Reed.
Experts from both sides have been working in teams to see how the two car makers – which face similarly straitened circumstances in Europe – can pool manufacturing and cut costs.
The tie-up, which the two companies say could save them $1bn each a year by the middle of this decade, will probably see PSA plants making some GM models and Opel facilities turning out Peugeots and Citroëns.
One logical division of labour – because of Opel’s proven expertise in making larger cars – could see PSA farm out some of this work to Germany, and Opel develop more small cars in France, capitalising on PSA’s minicar expertise.
PSA is, alongside Fiat, arguably the only European carmaker facing financial challenges as deep as Opel this year.
Like Opel, it works in a country where car plant closures are almost taboo. Also like Opel, PSA is being secretive about its plans as it weighs the costs and benefits of closing what industry analysts expect would be at least two west European factories.
While Opel’s managers are taking flak from unions and regional politicians where it has plants, PSA’s plans are under even more intense scrutiny after a French presidential election that swept François Hollande, a socialist, to power.
Little wonder, then, that both companies are seeking to stress the merits of their partnership and restrict details of which cars will be made where – and subsequent speculation about how synergies could cost jobs.
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Responding to a report Opel might cut jobs in research and development, Karl-Friedrich Stracke, chief executive, last week reassured workers any development work GM gave to PSA in France would be made up for at its technical centre in Rüsselsheim.
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Both PSA and GM have said they will pursue any rationalisation of their oversized manufacturing operations on their own, outside the framework of the alliance.
But analysts say the industrial logic of a tie-up of two lossmaking European carmakers points inexorably toward cuts in manufacturing.
But analysts say the industrial logic of a tie-up of two lossmaking European carmakers points inexorably toward cuts in manufacturing.
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“The GM and PSA alliance only makes sense if they share production networks across Europe,” says Tim Urquhart, an analyst with IHS Global Insight.
That would then make the closure of some PSA plants inevitable.
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Copyright The Financial Times Limited 2012
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