Opel has confirmed plans for short working at two plants but these measure will not address the fundamental issue of overcapacity.
IHS Global Insight Perspective | |
Significance | Opel has confirmed plans to put its Rüsselsheim plant and Kaiserslautern powertrain and components plant on short working hours to counter plummeting demand across Europe. |
Implications | Opel plans to halt production for 20 days in the last four months of the year. Given the huge slump in passenger car sales across Europe more plant in Germany and in GM's European production network are likely to follow. |
Outlook | Given that it will not be until 2014 at the earliest before there is any kind of concerted recovery in the European these plants are unlikely to return to normal work patterns any time soon. More temporary stoppages and working hour cuts are likely to follow with the European market down 6.8% in the first half of the year. |
Opel has confirmed that a number of planned stoppages at Rüsselsheim, which manufactures the Astra and Insignia passenger cars, and at its Kaiserslautern powertrain and components plant, will take place in the final four months as the company attempts to balance output with demand for these models. The move has been under discussion for some time with Opel management intensifying talks with works council leaders and union leaders in recent days over the move. Around half of Rüsselsheim's 13,800 employees will be affected by the move with most of Kaiserslautern's 2,700 staff will be affected by the move. In a statement Opel/Vauxhall's head of personnel Holger Kimmes said, "The European car market is declining substantially. Until recently, the decreased production schedules could be compensated by applying corridor shifts and accrued overtime. Now, short work is the right bridging measure."
According to a company press release the manufacturing lines at both Rüsselsheim and Kaiserslautern hours will be reduced by short-work shifts or short-work days starting in September, while cuts in the administrative and service functions will begin in October, the automaker said, adding that engineering jobs would not be affected. Commenting on the move, Wolfgang Schäfer-Klug, head of Opel's works council, said short-time work would "safeguard jobs".
Outlook and Implications
Given the fact that GM Europe lost USD747 million last year and the company has suffered a further 10.7% loss in terms of the sales volume in the first half of 2012 on the sales numbers that incurred last year's loss, the need for Opel/Vauxhall to trim production is obvious. With the European industry showing few signs of a concerted recovery as a result of the fundamental weakness which is resulting from austerity measures, particularly in the Southern European countries, these measures are unlikely to be the last to be imposed on Opel/Vauxhall's European production network. Other European carmakers have already imposed shorter working hours—Ford introduced short-time working or a reduction in working hours at its Cologne plant earlier this year—as the overall business and industrial environment begins more and more to resemble what was happening in 2009 when the worst effects of the global financial crisis began to hit industrial output. During this period nearly all the German OEMs and carmakers operating in Germany engaged in short-time working and temporary production stoppages, helped by the German government's scheme which is known as Kurzarbeit. The scheme allows a company to preserve jobs by cutting employees' hours when plant usage is low and having the government compensate workers for part of their lost wages. The government pays workers in the programme 60% of their net lost wages for up to six months, or 67% if they have children, and Opel will once more tap into this scheme with these latest stoppages.
However, despite a Barclays report which claims that GM will save up to USD52 million as a result of the stoppages, these stoppages at Rüsselsheim and Kaiserslautern are a mere sticking plaster to cover the issue of massive structural overcapacity, both at Opel, and other European OEMs. PSA Peugeot-Citroën is the only company that appears to have grasped the nettle and made an announcement stating that it plans to trim its domestic production capacity, including the complete closure of the Aulnay plant (see France: 12 July 2012: PSA Announces Further Restructuring Plans for Domestic Operations). However, it has been rewarded for its realism by having the opprobrium of François Hollande's newly elected left-wing government heaped upon it (see France: 18 July 2012: French Government Continues Protesting Against PSA Cuts). However, given the outlook for the European industry, PSA's stance is likely to be increasingly vindicated. And Opel/Vauxhall's policy of addressing overcapacity, which at the moment stands at not having any further production planned for Bochum when production of the current Zafira ends in 2016, may be revisited. In Western Europe sales are forecast to fall from 14.4 million units to 13.1 million units in 2012 according to IHS Automotive's light vehicle forecast, with sales flat-lining again in 2013 to 13.0 million units. As such further action on short-time working and temporary plant closures throughout Europe in the next few months looks likely.