GM is closing Opel Factory; What’s next? image

General Motors is preparing to close one of its factories in Germany at the end of 2016– the Bochum plant. Factory closings are expensive and politically difficult in Germany, where severance costs can be high, worker representatives sit on company boards and unions have political clout.

GM has made clear it is determined to return to profitability its money-losing European business, which includes Opel and the Vauxhall brand in Britain, despite tough competition among mass-market carmakers.

But the main problem in Europe is overcapacity.

“One would need to close at least one factory per volume manufacturer in Europe, which would be about five factories in total,” said Philippe Houchois, a UBS analyst in London, referring to Renault SA (RNO), PSA Peugeot Citroen (UG), Fiat SpA (F) and Ford Motor Co. (F) as the other four companies needing to shut plants.

Europe’s mass-market carmakers have about 20 per cent more plant capacity than they need and the glut of small cars has led to a round of discounting among all producers.

Political and union pressure has prevented Europe-based carmakers from rationalising their operations. However, waning consumer confidence has brought the issue to a head this year.
Car sales in Europe are down, and the future doesn’t look very bright.

Fiat-Chrysler CEO Sergio Marchionne said a eurozone breakup could cut European car sales to less than 10 million this year. So far, estimates of Western European car sales center around a fall of six to eight percent to under 14 million in 2012. This would be the fifth year in a row of declines, but Marchionne’s forecast would be disastrous. [view May sales in Europe]

VW, BMW and Mercedes-Benz’s parent Daimler use more than 90 percent of the capacity in their European factories, compared with rates of 60 percent to 75 percent for other carmakers in the region, according to Philippe Houchois, a London-based analyst with UBS.