Poor Performance GM Considers Closing Opel Factory in Germany

US automaker General Motors is reportedly losing its patience with its European unit Opel/Vauxhall. Steep losses may now result in factory closures and layoffs, including the Opel factory in Bochum, Germany, according to media reports. The labor conflict could be reminiscent of 2009, when GM elected not to sell Opel.

GM may be regretting its 2009 decision not to sell Opel.
REUTERS

GM may be regretting its 2009 decision not to sell Opel.


In 2009, General Motors had a deal in hand to sell its European unit Opel/Vauxhall. But at the very last moment, despite months of negotiations facilitated by the German government, the America automaker backed away, deciding to restructure the company itself. It was a decision that infuriated Berlin and led many in Germany to doubt the company's trustworthiness.

Now, it appears that GM is suffering from a bout of non-seller's remorse. According to a report in the Wall Street Journal, the carmaker is frustrated with mounting losses at Opel/Vauxhall and is considering significant job cuts and plant closures.

"There is increasing frustration with Opel and a feeling the cuts two years ago did not go nearly deep enough," the paper quotes an unnamed GM official as saying. "If Opel is going to get fixed, it is going to get fixed now and cuts are going to be deep." The official told the newspaper that GM's patience is running out and revealed that, in addition to GM's $580 million worth of losses in the first nine months of 2011, fourth-quarter losses, which will be officially announced next week, were "horrendous."

Opel's works council, an elected body within the company that represents employees' interests, on Wednesday issued a statement saying that it had heard nothing about approaching cuts or factory closures. The statement noted that existing contracts prohibit layoffs and closures through 2014. The article in the Wall Street Journal specifically mentioned factories in Bochum, Germany, which employs 3,100 workers, and in Ellesmere Port, England, with 2,100 employees, as candidates for shuttering.

Opel has belonged to GM for eight decades. Since 1999, the carmaker's European business operations have lost some $14 billion, according to the newspaper.

Labor Battle?

The German government fought hard to ensure that Opel would not fall victim to the immense problems GM ran into in 2008 -- problems that led to a $17.4 billion bailout of the company by then-President George W. Bush, an aid package that was substantially expanded by President Barack Obama. Several meetings of Chancellor Angela Merkel's cabinet were devoted to the problem and Merkel herself lobbied Obama on Opel's behalf. The German government put together a €1.5 billion package in bridge financing until a buyer for Opel could be found, resulting in a clash with the European Commission.

When GM pulled out of the deal in November 2009, then-Economics Minister Rainer Brüderle said the decision was "completely unacceptable." Many other German politicians were likewise furious.

At the time, GM cited an improved economic environment in Europe as the basis for its decision. But the last two years have not been kind to the German carmaker. Despite restructuring efforts, including the elimination of thousands of jobs, Opel has yet to meet expectations. Although losses in the first three quarters of 2011 are well below the $1.2 billion the company lost in the same time period in 2010, GM had expected performance to be better.

As they did in 2009, Opel workers are likely to fight hard to prevent job cuts or factory closures. Wolfgang Schäfer-Klug, who became the new works council head in January, already promised to secure a 2.7 percent pay raise for Opel workers. Now, it looks as though he may have an entirely different fight on his hands.

cgh -- with wire reports

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