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General Motors' Opel Cuts Production in Germany Post Brexit

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General Motors Company (GM - Free Report) recently announced that its subsidiary in Germany, Opel, is reducing working hours at two of its plants. The automaker took this decision in the view of the sluggish demand for Corsa and Insignia models post Britain's decision to exit the European Union.

General Motors stated that it will be reducing the work hours at the plants in Ruesselsheim and Eisenach this year. The exact number of days of condensed work hours depends on the sales of the Corsa and Insignia models in the U.K. – the biggest market for both these vehicles.

Brexit is crucial for all businesses in the European economy. It will impact General Motors’ financial performance in Europe if the value of pound remains at the current level for the rest of the year.

General Motors considers the drop in pound value to be the reason for the fall in sales of these vehicles. Since Jun 23, the pound has declined 11% against euro. Thus, the automaker deems it necessary to reduce its cost of operations in Europe by around $400 million to deal with the sudden turn of events.

Earlier, in Jul 2015, the automaker had announced plans to reduce work hours at the German plants due to declining sales stemming from a weak economy.  Apart from Germany, General Motors has also decided to halt vehicle and engine production, and cut down engineering operations in Australia by 2017-end owing to the strengthening of the Australian dollar against the American dollar, high production costs, limited domestic market and stiff competition. This will result in the layoff of 2,900 employees. Due to this, cash payments for employee severance are expected to result in increased expenses through 2017.


General Motors currently carries a Zacks Rank #3 (Hold).

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