Global Insight Perspective
GM Europe has announced further cost reduction and plant restructuring measures linked to the production allocation of the next generation Opel/Vauxhall Astra.
The carmaker's decision to concentrate production of the next Astra in four European plants and end Astra assembly in Belgium indicates that the carmaker is seeking to achieve radical productivity and capacity utilisation improvement prior to launching the replacement Astra in 2010.
GM Europe may have ambitious targets for the next Astra but the carmaker's decision indicates that European based manufacturers can only respond to aggressive competition from Asian brands with further productivity improvement, which sometimes require headcount adjustments.
GM Europe Follows VW's Lead
After eliminating around 13,000 jobs across its European operations since 2005 and closing down its Azambuja plant in Portugal in December 2006, General Motors (GM) Europe has announced further cost reduction and plant restructuring measures linked to the production allocation of the next generation Opel/Vauxhall Astra. Similar to Volkswagen's (VW) decision with the next Golf, GM has confirmed that it will concentrate production of the replacement Astra at plants in Germany, Poland, Sweden and the United Kingdom from 2010. This also means that the model will no longer be produced at the Opel Antwerp plant in Belgium. GM has stressed that it does not intend to close the Antwerp site and would consider alternatives for assembly operations at fair volumes together with the European Employee Forum (EEF). GM’s Antwerp plant currently employs 4,500 people to produce the three- and five-door version, the station wagon and the convertible of the current-generation Opel Astra. Total output came in at around 224,000 units in 2006.
GM said that Astra production in Belgium will be scaled back gradually before ending altogether in 2010. In 2007, the Antwerp site will lose an entire production shift, which will result in the loss of about 1,400 jobs. The carmaker also explained that negotiation with unions will begin on severance packages and related issues, which will eventually determine the costs of the restructuring. Even though GM hinted that it may consider setting up production of a small Chevrolet car in Belgium, workers immediately went on strike to protest against this decision. Teams did not work on Tuesday night and Wednesday morning shifts but production is expected to resume on Wednesday afternoon (today).
Strategic Interest Drove Decision not Costs
In a statement, Carl-Peter Forster, President of GM Europe said "Product allocations are extraordinarily difficult decisions to take. All of our Western European plants have significantly improved over the past few years and are now very close in terms of the various measures of performance, such as cost, productivity and quality. In the end, it is a strategic decision based on a number of factors such as capacity planning, brand and market considerations, as well as ongoing restructuring activities.”
GM explained that it will soon start the preparation work with teams in Gliwice, Bochum, Ellesmere Port and Trollhättan for the production of the next generation Astra, which will require reduced assembly time and an increase in productivity of 30%. The carmaker will spend about 3.1 billion euro to develop the model and raise annual output to 750,000 units from 520,000 units in 2006. Since Germany and the United Kingdom remain GM Europe's two largest European markets, it was logical to maintain production in Bochum and Ellesmere Port. However, improved productivity may result in job cuts at Bochum, although the carmaker has not made any comment on this yet.
With the Vauxhall brand, GM Europe has a large exposure to the British pound, and maintaining production at Ellesmere Port provide natural hedging. In addition the U.K. government is reportedly working on a substantial package of support for the plant as it prepares for the new model. After deciding to bring production of Saab vehicles to Germany to concentrate medium-size vehicle assembly there, it was natural that GM would seek to fill capacity in Sweden with a small model, mainly since the company plans to launch production of a small Saab model (possibly called 9-1) based on the Delta 2 platform from 2010. In Gliwice, GM Europe has gradually ramped up production and recently took on assembly of the Astra sedan. Like Bochum, the Polish plant produces the Zafira, which will also move to the Delta 2 platform in 2010.
Outlook and Implications
Before making a final decision about production allocation, GM was reportedly looking to cut the costs of the new Astra by some 450 million euro and significantly reduce assembly time. Given the recent shift in the European market structure and competitive pressures, the carmaker strives to garner more flexible work conditions from its European workers so it can adapt production to demand without incurring additional costs. The company is expected to continue reorganising its European production operations to optimise the cost saving potential of its global platform strategy.
As part of their efforts to improve productivity and capacity utilisation, Ford and VW have also had to take delicate decisions regarding their Belgian operations. In late 2003, Ford announced it would concentrate production of the high-volume Ford Focus in Germany and Spain, at the expense of the Genk plant, where up to 3,000 jobs were subsequently eliminated. More recently, VW said it would end production of the Golf at the Forest plant near Brussels, as the carmaker is also grappling to cut over-capacity but also secured more flexible work conditions for German employees.
On a larger perspective, GM Europe may have ambitious targets for the next Astra but the carmaker's decision indicates that European-based manufacturers can only respond to aggressive competition from Asian brands with further productivity improvement, which sometimes requires headcount adjustments. Meanwhile, GM is also turning to the offensive in China and India. The carmaker may almost double its production in China to 1.7 million vehicles a year by 2010 to keep pace with growing demand, by adding a shifts and reorganising production at the Shanghai GM joint venture. this could raise output to 1 million units per annum. At another Chinese plant, GM wants to raise capacity to 700,000 units from about 400,000.