GM's Bochum plant in Germany is an acute example of Europe's struggling car industry, writes Jack Ewing.
UDO Moede steered his Opel compact car slowly over the cracked pavement of the half-empty parking lot at the company's plant in Bochum, Germany, on a recent workday.
"This used to be full," said Moede, 59, who worked 40 years at the plant before taking early retirement several years ago. "You had to get here early to get a spot." The only people visible on this day were a couple of truck drivers standing idly next to rigs with Czech licence plates.
The two-storey brick factory is a visible manifestation of the problems facing car makers in Europe and the communities that depend on them for jobs.
Built atop a former coalmine, the Bochum plant has already suffered waves of layoffs. From more than 20,000 in its heyday, a little more than 3000 people work there now 5000, counting subcontractors.
Now, after losing $US747 million ($A717 million) on its European operations last year its 12th straight year of losses General Motors, Opel's owner, is under intense pressure to make further cuts.
Worker representatives at Opel say they have been told the company must reduce production capacity by 30 per cent. Bochum, as one of the oldest Opel plants, with some of the most highly paid workers, is considered the most endangered.
Opel is an acute example of a problem that also afflicts competitors such as Fiat, Renault and PSA Peugeot Citroen. All makers of midprice cars have more factories than they need, while the West European car market is entering what appears to be a severe slump. New registrations of passenger cars fell nearly 10 per cent in February compared with a year earlier, according to the European Automobile Manufacturers Association.
The burden of reducing that costly production surplus is likely to fall disproportionately on communities such as Bochum, which depend on the automobile industry for jobs.
The city of 367,000 people in Germany's industrial Ruhr Valley has already suffered its share of setbacks. All that is left of the mining industry is a museum. The Nokia mobile phone factory shut down in 2008. The unemployment rate is 10 per cent, compared with a national average of 7.2 per cent.
Despite waves of job cuts, Opel remains the biggest private employer in Bochum. The regional chamber of commerce estimates that 40,000 jobs depend on Opel Bochum, at businesses ranging from parts suppliers to local restaurants.
GM has promised to honour an agreement with workers not to close any Opel plants until after 2014, part of an earlier cost-cutting program. But Bochum workers worry that Opel would stop investing in operations there in preparation for a shutdown once the agreement expires.
The Opel supervisory board met last week in Ruesselsheim, Germany, the centre of European operations, but did not announce any decisions. While saying it has not decided to close any plants, GM has made it clear that major cost cuts will be necessary in Europe.
"All participants are in agreement that Opel must operate profitably and that measures must be taken to increase sales, raise margins and reduce costs," GM and worker representatives said in a joint statement.
Workers vowed at the weekend to do everything they could to prevent GM from leaving. Several thousand gathered at an indoor arena in Bochum for an informational meeting organised by the Opel workers' council in response to the speculation. Employee representatives handed out T-shirts in bright yellow, the Opel colour, that said, "We're staying in Bochum."
"Bochum won't budge, we made that clear," Carsten Adametz, a toolmaker at Opel, said outside the event.
Workers have some leverage. German labour laws give them a voice in cost-cutting plans. As well, Bochum is the only factory producing a new generation of the Opel Zafira minivan. A strike could deprive Opel dealers of a key model.
Worker representatives insist that shutting down Bochum would cost more than it would save, because of the need to clean up the site, with its legacy as a former coalmine, to make severance payments to employees and to move production to another factory. In addition, the shutdown would further damage Opel's image in Germany, workers say.
"If Bochum closes, it will be one of the most expensive shutdowns in history," said Rainer Einenkel, chairman of the Bochum workers' council.
Opel's plant at Ellesmere Port, Britain, is also seen as endangered because of its age and wage costs. Britain and Germany are the company's biggest markets, with sales of about 268,000 vehicles each last year.
GM has to make cuts somewhere. It has not reported a profit on its European operations, which consist mostly of Opel, since 1999. It has lost well over $US10 billion in Europe since then.
Among Bochum residents, hostility towards GM is combined with fear about what would happen if the company left.
"Trust in American company managers is not very big," said Joerg Linden, spokesman for the regional chamber of commerce. At the same time, he said, "Bochum needs Opel and Opel needs Bochum."
Many workers, who call themselves Opelaners, blame GM for what they say were years of mismanagement. They say GM prevented Opel from developing export markets and, more recently, has promoted Chevrolet brand cars in Europe at the expense of Opel. The Chevrolets are made in South Korea or other countries outside Europe.
Karl-Friedrich Stracke, the chief executive of Opel, denied last month that GM had prevented the unit from selling outside Europe. Nevertheless, except for Russia and Turkey, Opel's sales outside the European Union are negligible.
Opel's history of losses and labour turmoil which includes noisy disputes with workers and a planned sale of the unit in 2009 that GM backed out of at the last minute has unsettled workers and ensured a steady flow of negative headlines. It may also have contributed to a slide in market share to 6.4 per cent in February from 7.1 per cent a year earlier.
The city's hopes to hold on to Opel remain bleak for many here. "The closing of the factory has been looming for years," said Ruediger Woellmann, a 46-year-old Bochum resident who left the factory in 2006 after 18 years there.
"Everyone who isn't stupid already left Opel," said Woellmann, who still lives in an apartment building originally built for Opel workers. Many restaurants and shops in the neighbourhood have closed, he said. "The town is now a shadow of what it once was."
Frequently Asked Questions about this Article…
Why is Opel’s Bochum plant under threat and what does it mean for investors watching European car makers?
The article says Bochum is seen as endangered because Opel needs to cut capacity after losing US$747 million on European operations last year and running 12 years of losses. Workers were told production capacity must be reduced by about 30%. For investors monitoring European car makers, Bochum is a visible example of excess factory capacity, high labour costs and restructuring risk that can weigh on margins and market sentiment in mid‑priced European auto manufacturers.
How big are GM’s losses in Europe and how might that affect Opel’s future?
According to the article, GM lost US$747 million on its European operations last year, marking its 12th straight year of losses in Europe and more than US$10 billion lost since 1999. That track record increases pressure on GM to enforce major cost cuts at Opel, which could include production reductions, plant closures or reduced investment — factors investors should watch when assessing Opel’s turnaround prospects.
What is the local economic impact if Opel reduces production or closes Bochum, and why should investors care?
The article reports Bochum’s plant has fallen from 20,000 employees in its heyday to a bit over 3,000 (about 5,000 including subcontractors). The regional chamber estimates around 40,000 jobs depend on Opel Bochum through suppliers and local businesses. A shutdown would worsen local unemployment (Bochum’s unemployment rate is noted at 10% vs a national 7.2%) and could create reputational and operational costs for Opel that affect the company’s financials — information investors may factor into risk assessments for GM/Opel exposure.
Could Bochum workers block cuts or closure, and how might labour actions affect Opel’s business?
The article highlights that German labour laws give workers a voice in cost‑cutting plans and Bochum is the only plant making the new generation Opel Zafira minivan. A strike could deprive dealers of a key model and give workers leverage. However, worker representatives also acknowledge Opel must become profitable, so labour actions would be a material operational risk investors should monitor.
Has Opel’s market share been changing, and what does that indicate for investors?
The article notes Opel’s market share slipped to 6.4% in February from 7.1% a year earlier. Combined with years of losses and negative headlines, the slide in market share suggests competitive pressures and brand challenges in Europe — signals investors use to gauge how difficult a turnaround might be for Opel/GM’s European unit.
Are other European car makers facing similar factory and demand problems?
Yes. The article names Fiat, Renault and PSA Peugeot Citroën as competitors facing the same issue: mid‑price carmakers having more factories than needed while the West European car market weakens (new passenger car registrations fell nearly 10% in February year‑on‑year). This broader industry context is important for investors comparing auto sector risk across manufacturers.
What arguments do workers give against closing Bochum, and what financial implications do they point to?
Worker representatives argue closing Bochum would cost more than it saves because of site cleanup (it sits on a former coal mine), severance payments and the expense of moving production. They also warn damage to Opel’s image in Germany. These potential one‑off closure costs and reputational impacts are relevant to investors modelling restructuring expenses and longer‑term brand effects.
Has GM committed to keeping Opel plants open, and how binding is that promise for investors?
GM has promised not to close any Opel plants until after 2014 as part of an earlier cost‑cutting agreement, but the article says GM has made clear that major cost cuts will still be necessary in Europe. For investors, the promise provides a temporary constraint on closures but does not eliminate the risk of later restructuring once the agreement expires.
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