GM British plant decision shows it means business in Europe

GM Europe’s Ellesmere Port plant in Britain, given a new lease of life by its selection to make a new Opel-Vauxhall Astra small car, was so superior in terms of efficiency to its German counterparts, that a different decision would have cast doubt on the seriousness of GM’s plans to turn around the European loss-making operation.

GM Europe’s plan to invest about $380 million in Ellesmere Port, north-west England and Poland to build the next generation Astra in 2015, shifts the pressure to German factories.

GM Europe’s Opel-Vauxhall subsidiary has lost about $12.4 billion in Europe since 2000, $747 million last year, and $256 million in 2012’s first quarter. One investment banker expects it to lose another $1.5 billion in 2012. European car sales are in free fall, and non-German manufacturers are drowning in red ink. A return to profitability for GM Europe probably means some factories will have to be closed, and the spotlight turns now to Opel plants in Germany, with the Bochum factory looking the most vulnerable.

According to Garel Rhys, emeritus professor of motor industry economics at Cardiff University Business School, Ellesmere Port was streets ahead of German operations.

“A study 18 months ago in GM Europe showed costs at various plants with Germany at 100, and the U.K. at 74 and Poland down in the 60s. The British one is stupendous  thanks to the cooperation of workers and the German figure is appalling,” Rhys said in a recent interview.

The Germans are relying on growth to solve their problems and that isn’t going to work, Rhys said.

“If commercial logic is applied GM wouldn’t close Ellesmere Port. This is a test of whether GM has seen the light,” Rhys said.

“GM has to be commercial everywhere. If all the German plants were kept open (at the expense of Ellesmere Port) that would not be logical in terms of commercial decision. GM can’t play that game anymore. If they deviate from that, investors in the U.S. would come to the conclusion that the new GM wasn’t being commercial,” Rhys said.

Rhys also pointed out that GM now sells more cars in Britain than Germany and is the fourth largest in the world for GM cars.

Rhys said British unions now had a completely different attitude to German ones.

British unions at Ellesmere Port agreed to a four-year pay deal including a pay freeze for two years, followed by rises of about three per cent in the next two years

“In Germany you don’t have this (cooperation) at all. Unions and management have their heads in the sand. All will be well when growth returns they say. There’s no attempt to solve long term overcapacity problems and they think that growth will solve all their problems. It won’t,” Rhys said.