Global Insight Perspective | |
Significance | GM Europe has confirmed that its Portuguese Azambuja plant will close by the end of this year, with production of the Opel Combo van due to be relocated to its Zaragoza plant in neighbouring Spain, where it will share a platform with the Opel Meriva before moving onto the same platform as the new Corsa. |
Implications | GM said that it will reimburse the Portuguese government for any financial aid it has received for the plant. The closure is likely to affect GM's short-term financial results in the form of asset write-downs and staff lay-off costs, but long-term efficiency gains will eventually outweigh these. |
Outlook | The next-generation Combo is due to move over to the high-volume 199 platform, and given that no other models were scheduled for Azumbuja, the retooling costs necessary for production of the model at the plant could not be justified. By consolidating the models due to be built on Fiat's 199 platform at Zaragoza, GM can continue to rationalise its manufacturing strategy. |
GM Announces Closure of Portuguese Plant
General Motors (GM) Europe yesterday confirmed that its Portuguese Azambuja plant will close by the end of this year, with production of the Opel Combo van due to be relocated to its Zaragoza plant in neighbouring Spain.
The decision came after eleventh-hour rescue talks with the Portuguese government failed to produce results. According to GM, it would have cost 500 euro (US$630) more per unit to produce the new-generation Combo in Portugal. The decision to shut the plant will result in the loss of 1,100 Portuguese jobs. The announcement did not come as a surprise after comments made by GM executives last month indicated that the five-week extension to talks with the Portuguese government was agreed even though the decision to close the plant had already been made.
Production in Azambuja will be brought to a halt by the end of this year – three months later than initially suggested. The fact that production will be ceased in December rather than October is a concession to the unions by GM. The unions have not announced plans to conduct further industrial action for the time being. Last month, strong opposition from GM's Portuguese and European workers against the closure plans forced the company to resort to emergency airlifts of components. GM will now work with the Portuguese government to find a buyer for the Azambuja facility. This will be a challenge, however, given that Portugal has lost its competitive edge as a low-cost manufacturing site to the new European Union (EU) states in Eastern Europe.
Outlook and Implications
GM has said that it will reimburse the Portuguese government for any financial aid it has received for the plant. The closure is likely to affect GM's short-term financial results in the form of asset write-downs and staff lay-off costs, but long-term efficiency gains will eventually outweigh these.
Tough competition from Asian entrants and premium manufacturers has hurt traditional volume manufacturers such as Opel in Europe. Falling market share has led to expensive excess capacity, which, along with rising raw material costs, is adding pressure onto manufacturers' profit margins. Faced with immense pressure to cut costs, GM Europe is continuing to rationalise its manufacturing strategy, placing the future of small plants such as the Azambuja facility under threat; the next-generation Combo is due to move onto a new platform (199) in 2009, and given that no other models were scheduled for Azumbuja, the retooling costs necessary for production of the model at the plant could not be justified.
Instead, the Combo will move to Zaragoza, where it will share a platform with the Opel Meriva before both models shift over to the new 199 platform from 2008. GM already builds the new-generation Corsa on the 199 platform at Zaragoza, and following the launches of the next-generation Combo and Meriva in 2009, the Spanish plant will be able to concentrate production on just one platform.