After Germany, General Motors Company’s (GM - Analyst Report) ill-fated European arm, Opel has decided to axe its operations in Britain on the back of a weak auto market in Europe triggered by mounted government debt.
Opel plans to shut down two plants in Britain, located in Ellesmere Port and Luton, for a week beginning on September 24. The move will idle 3,000 workers at the plants. However, they will continued to be paid during the shutdown and their work hours will be banked for future production.
Both the plants manufacture Vauxhall branded cars for the U.K. market. However, most of the output from the plants is exported to Europe under Opel branding.
Late-August, Opel announced its plan to cut work hours of thousands of workers at two of its four plants in Germany in response to a sluggish demand for cars in the troubled Europe. The company will reduce work hours at its main facility in Ruesselsheim and its component plant in Kaiserslautern for 20 days between September and the end of the year.
The move will affect half of 13,800 workers in Ruesselsheim, especially those in production lines and administration. On the other hand, it will affect 2,500 workers at the company’s Kaiserslautern factory.
Opel lost $747 million last year due to weak car sales, high fixed costs and excess production capacity. This resulted in a total loss of more than $12 billion in 12 years.
In the first half of 2012, Opel’s loss amounted to €938 ($1,200) per vehicle sold, according to the CAR Center of Automotive Research at the University of Duisburg-Essen. Its deliveries in Europe dipped 15% to 457,630 vehicles due to weak demand emanating from the debt-crisis in Europe and strong competition from Asian automakers.
In December last year, Opel had revealed that it expects to report an operating loss of €1 billion ($1.3 billion) in 2012 due to fewer car sales than anticipated. The unit expects to sell 1.4 million vehicles in 2012, which are about 100,000 units less than the earlier projected sales.
In order to reverse the 12 years of losses in Europe, particularly from the Opel brand, GM formed a global alliance with PSA Peugeot Citroen . The pact will help both the automakers reduce at least $2 billion in costs. In order to strengthen the market position, GM also plans to expand Opel’s lineup by introducing 23 models by 2016, including the Mokka compact crossover in October.
The present Euro zone financial crisis has affected the operations of many global automakers, especially GM and Ford Motor Co. (F - Analyst Report). Both the automakers have a significant exposure to the market.
Ford expects to lose more than €1 billion in Europe. It has already cut back production at its Cologne-based plant in Europe in May and June that affected 4,000 workers.
GM, a Zacks #3 Rank (Hold) company, reported a sharp 41% fall in profits to $1.49 billion or 90 cents per share in the second quarter of the year from $2.52 billion or $1.54 in the same quarter of 2011. Nevertheless, profits exceeded the Zacks Consensus Estimate by 15 cents per share.
Revenues in the quarter fell 4.5% to $37.61 billion, which is lower than the Zacks Consensus Estimate of $37.98 billion. Unit sales rose 3% to 2.39 million vehicles from 2.32 million vehicles in the second quarter of 2011. The automaker occupied a worldwide market share of 11.6% during the quarter, down from 12.3% a year-ago.
The decline in profits and revenues was attributable to strengthening of U.S. dollar against most of the major currencies as well as weak macroeconomic conditions globally, especially in Europe and South America.