General Motors chooses UK over Germany for new Astra

Reuters Business News
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Posted: May 19, 2012 12:34 AM
General Motors chooses UK over Germany for new Astra

By Rhys Jones

LONDON (Reuters) - General Motors Co <GM.N> opted to build the next generation of its Astra compact in Britain, leaving its plant in Bochum, Germany in danger of closure as it revamps the business to counter more than a decade of losses in Europe.

The U.S. carmaker said on Thursday it would invest $200 million in its Ellesmere Port plant in northwest England to build the car after workers at the site overwhelmingly agreed to a new pay deal.

GM said the 50 year old plant would become its lead producer of the five-door variant of the Astra, due to start in 2015, creating some 700 jobs at the site and another 3,000 in the supply chain and securing the factory's future until at least 2020.

GM, which sells under the Vauxhall brand in Britain, is expected to halt production of the Astra, its most important model, at its main plant in Russelsheim, Germany, making the car only at Ellesmere Port and at its Gliwice site in Poland.

"It's almost certain that one of GM's German plants will now be closed, probably the plant in Bochum," a source close to the negotiations said. The Bochum plant employs around 3,100 and has a production capacity of around 160,000 cars a year.

A closure decision would be one of the most dramatic so far as Europe's carmakers look to restructure or consolidate in response to more than four years of falling demand and profits.

Many factories are running at partial capacity and analysts estimate automakers have cut some 3 million cars, or 20 percent, from their production lines.

Opel was not immediately available to comment on possible plant closures. Earlier this year the company said no decision on factory closures was imminent and ruled out closing any sites until the end of 2014.

GROWTH STRATEGY

Opel has said a competitive Russelsheim plant would play a "key role" in its growth strategy and that management intends to "fully utilize" the plant beyond the run-out of the current Insignia and Astra model.

GM lost $747 million on its European operations last year, having lost money in Europe for 12 straight years.

"Industry overcapacity isn't a GM problem, it's an industry problem. Much work is left on this front, but today's news appears to be a good first step to stemming Opel's losses," said Citi analyst Itay Michaeli.

The source added that some production of GM's Chevrolet marque could be shifted from South Korea to Europe, with Russelsheim the likely beneficiary.

"Ruesselsheim is one of the most modern Opel-Vauxhall plants and management will make sure that this plant is running at full capacity," said Wolfgang Schaefer-Klug, Opel's head of labor relations. "It is important now that management will present a plan of how full capacity utilization can be achieved."

Analyst Tim Urquhart at information consultancy IHS said: "The obvious thing for GM to do now would be to shift production of the Zafira to Ruesselsheim, which leaves Bochum in a very marginal position ... It looks like GM have got the stomach for a fight with the German unions, who seem less sympathetic to what GM is trying to do to turn things around than UK unions."

Also GM's Korean union has warned the automaker it risks a "war" if it tries to shift production to Europe.

FOUR-YEAR DEAL

Britain's Unite union said 94 percent of those balloted voted in favor of changes to working conditions. Workers agreed a four-year pay deal including a pay freeze for two years, followed by rises of around 3 percent for the next two years.

The deal means a third production shift will be added at the Vauxhall factory, which employs 2,100 workers, to ensure 24-hour a day running, as well as the introduction of weekend working to guarantee the factory works at full capacity.

GM said production at the plant, whose sole product is the Astra, would rise to at least 160,000 cars a year from the current 140,000, with the potential to top 200,000.

"This (deal) is assisted by the government‘s industrial strategy, increasing its focus on the manufacturing sector and creating ideal ground for companies to build up long-term investments," said Vauxhall Chairman Duncan Aldred.

Ellesmere Port had been seen as the favorite to close because it sources most of its parts from Europe, only to export most of its output back there. However, fierce lobbying of GM bosses by UK business secretary Vince Cable paid off.

The deal provides a boost to the British government, which is grappling with a recession and weak opinion poll ratings.

Securing increased production by foreign-owned carmakers based in Britain has been one of the few bright spots in a drive to boost manufacturing.

"Once again we have seen the success of the UK auto industry and the crucial role it plays in growing and rebalancing our economy," said British Prime Minister David Cameron.

Japan's Nissan <7701.T>, Toyota <7203.T> and Honda <7267.7> as well as Tata Motors' <TAMO.NS> Jaguar Land Rover have committed to production in Britain in recent months.

British car production rose by 9.3 percent on the year in April, boosted by strong export demand, data from the Society of Motor Manufacturers and Car Traders showed on Thursday. Britain is exporting more cars than it imports for the first time since 1976.

($1 = 0.6282 British pounds)

(Additional reporting Estelle Shirbon in London, Christoph Steitz in Frankfurt and Ben Klayman in Detroit; Editing by Paul Hoskins and David Holmes)