General Motors and Opel plant closures

General Motors have announced thousands of job losses in Europe with Opel plants in Germany the most threatened.

So why are GM making such cuts. I think it has something to do with the fact that GM Europe are losing shedloads of money each year, has production over capacity, has introduced cars that bombed, is losing market share (especially in Germany) and the Opel plants have high labour costs compared to cheaper plants in Eastern Europe.

My German girlfriend thinks that the German factories are threatened because Germany did not support Bush in Iraq and its now payback time.

I'm not really sure about this so who is right?

in a word - tosh.

The cost of labour in Germany is so expensive, it's no wonder they are closing down. I have a table in one of my MBA textbooks showing the cost of labour in a range of different countries. The book's at home, but from memory I think that only the Swiss and the Swedes (or maybe the Danes) were more expensive than the Germans (that's worldwide, not just Europe).
So if a company is facing tough competition and having to tighten up its costs, then it makes sense from a business perspective to focus your expenditure on cheaper sources of labour. By the same principle, if you found yourself in a tight spot financially you'd probably find yourself shopping less at Kaufhof's Feinschmeckerparadies and more in Aldi.
I don't think it's really anything to do with the war. I think these business people tend to be driven more by the bottom line than by politics.

Crap product badly marketed.
So they close the most antiquated / least productive of their European sites.

it isn't true. My company is doing the same thing, and we're a German company. Siemens is doing it, VW is doing it, Bosch is doing it, SAP is doing it. This is the trend of today.

The fact is, whatever a German takes home in pay, the company is matching that in additional costs. Our German production workers cost 8000 times more per hour than our Chinese workers. That is not a typo. 8000 times.

This would have happened whether Bush was in office or not. Nearly every country that borders Germany has lower labor costs. Hell, some companies have already moved production to Eastern Europe and are moving it to China because it's cheaper. When Hungary and Czech are too expensive, there's not a snowball's chance in hell for Germany.

This will be a disaster for Germany in a few years. Glad my contract ends soon...

Welcome to the real world folks. American companies have been "laying off" employees for years now. When the money gets tight, bettter to eliminate some people, make the rest of the employees work more hours(and not pay them - at least in the white collar world) and, bingo, you're saving money again.

Unfortunately, that breeds disloyalty to a company. It used to be that you started and ended your career with the same company in the States(and some people still do). But, after going through a couple of layoffs, you start to think 'why in hell should I be loyal to this company when they're not being loyal to me(ie. repaying my loyalty by showing me the door when money gets tight).

Having been through this process a few times in my career(never have been actually laid off), I have never had a problem with hopping on over to another company(and making more money too).

They did a small feature on it last night on Wiso. It boils down to 1 thing:
Cost of a German employee: €33 per hour (not all wages)
Cost of a polish employee: €7 per hour

Which equates to a per year per employee saving of around €45K.

You guys are missing something significant - the cost of missed communication, poor work ethics and shoddy quality. I agree that Germany is an expensive place to have a business, but you have to look at the long-term return on investment for moving your business. I read a dissertation about differences between German and Romanian work enviroments that highlighted all these things. I wish I could quote it here, but it's not published yet and I can't divulge. Suffice it to say, the companies that had moved their German-based businesses to Romania were not earning a profit.

Is that Germany you are talking about

Hah! It's Rover that no longer exists, not BMW...

Rover? Na und? Are you confusing me with someone from England?

Err, no. Just the first example that popped to mind. Yeah, yeah, Celtic Tiger and all that.

Our chinese plant, one year after opening has a measurable, repeatable and quanitified quality output as high or higher than the highest mark ever achieved in Germany. They beat the socks off of Canada, Hungary, Malta and Mexico as well. They are also cheaper and have a higer overall productivity.

I am in Beijing right now (so what am I doing on TT, I know, I know) and I am shocked at the quality, speed and professionalism of this facility compared to our other, well-established locations. There just is no comparison. We lose nothing by shipping jobs to China. The downside is we're helping to put the nail in the coffin of German manufacturing as a profession.

I have seen the future and it's China. In 20 years they're going to be eating the rest of the world's lunch. As a non-Chinese, it actually frightens me.

I'm sorry showem, but that's the same tired line all Germans are spouting right now and it is simply just untrue.

Well, I'm not saying it's true for every culture outside of Germany, but it's too easy to say the Germans are antiquated. I know of other companies who have difficulty with their Chinese subsidiaries too. The dissertation I read was written by a Romanian for a British university, no bias on her part.

But I agree China is the future. My kids will be learning the lingo.

Its not chaos. Or the end of Europe as we know it. Its just an adjustment. European and North American living standards, prices, wages, and those of Asia, Africa, etc are meeting in the middle. Europeans have had shockingly high standards of living for centuries now, and with the opening of trade, borders, the internet economy, and the global financial market, things are a lot more liquid. It makes sense that third world living standards rise, and western living standards fall, and they meet each other in the middle. This is a good thing. For one, its fair, and for two, by giving the third and second world jobs and the potential to earn income, they have hope, and have an interest in a stable peaceful future. Which is all most of us really want.

Its not so much "china is the future" more like "china shall have a future" more similar to what the western world has now.

Heh, I bet I know what will happen though, the west wont take kindly to even a small drop in living standards, and things will turn to shit. Look at how American programmers react everytime a company decides to outsource a project to India for example. The relevant company gets accussed of "unpatriotism"! Thats just embarrasing.

Our company has had trouble in Eastern Europe as well. I think we would not open a Hungarian operation if we could do it over, but Asia has been amazing.

We passed on Romania completely just recently because corruption is a killer and there is not the level of dedication to the job that you need to be successful.

The Ukraine is very interesting, though. Cheap, in Europe and with a lot of big investment (VW, Bosch, Siemens). They are far enough from entering the EU (20 years at least) that the return on investment is there. If I were going to fire a lot of loyal employees and turn them out on the streets, I'd send their jobs to Ukraine.

However, I feel dirty enough as it is. I ate a meal tonight with 7 courses and booze that cost 40€ for 5 people. The average worker in factories around Beijing makes 70€ per month (30 cents € per hour @ 60 per week).

showem, they both both still exist. I used to work for one of them and now work for the other. and i can assure you that both companies are still going.

Anther point:

BTW, if Germany is so expensive and has such bad productivity and quality, how come both Porsche and BMW have built new factories here within the last few years?

Maybe some of the problems stem from extremely bad management of GM Europe. Maybe if they had a President of GM Europe that would stay for longer than 6 months they could get something done. As it is rising stars have used the position as a stepping stone in there career in Detroit to the detriment of GM in Europe. Nothing actually ever gets done, they just spend six months analysing why everything is bad before the next President turns up and wants another study done.

There are multiple factors involved - the quality of the product doesn't exist purely in just how well it is built (especially true with cars), but also in how well it is engineered...and indeed marketed.
Skoda are all built in the Czech Republic, and whilst the workers are much cheaper, VW quality exists throughout the range - mainly because the tooling is made in the West, but operated in the former Eastern Bloc - doesn't matter if it's Czechs, Krauts, Brits or Monkeys running a steel press - the quality will always be the same if the presses are all the same...
Does that make sense? No??? Oh well - bugger it. Opel failed because they make shit cars. How's that?

oh so true!

just having a German manufacturing base does not necessarily mean you are going to be uncompetative. If you get the whole package right people will buy your product.

GM sealeed their fate many years ago by continually skimping on quality both in the design/engineering phase and the production phase. They build mass market cars that are inferior and undesirable, therefore they cannot command high prices. low prices combined with high manufacturing costs = losses. Management's inability to address these problems over many a year have led to the current situation.

BMW builds cars in Germany and makes stonking great profits. It seems not all is lost, if you do it properly

Opel makes shit cars? The few I've driven over here have put GM's North American counterparts to shame! Fit and finish in a car is STILL foreign to the US. I guess that's what happens when people choose product based on how many cup holders it has.

yep, but if you lok at them US market, the big three have been continuously losing market share over tthe last years. And who has been gaining share in the US? German manufacturers that produce above all in Germany. Again my point, it matters not only where you produce but how you produce. If Mercedes, Audi, Porsche and BMW can make cars that people want to buy IN GERMANY then others could too if they did it properly.

Opel and Ford in Europe have gone too far down the road of cheap and nasty to ever get back to quality/premium products, therefore they are forced to move production to cheaper countries to counter diminishing sales prices caused by díminishing desirability.

nuff sed.

Actually OG, you're right and wrong. The US automoakers have been losing market share - to the Japanese in the US. German cars make up an insignificant amount of the mid to low-range market in North America.

The Germans have been performing well in the luxury class, but that's mostly by gaining ground they had already lost to the Japanese back again. But with companies like Nissan heating up the luxury market, the outlook is not good for the Germans. Most of Nissan and BMW's success in North America is a result of taking market from Mercedes and Lexus (Toyota), not GM or Ford, who lost the luxury market nearly totally in the early 90's.

The Market share in North America looks something like this:

GM - 20%
Daimler Chrysler - 15% (19.5% Chrysler, .5% Daimler)
Ford - 16%
Toyota - 15%
Honda - 12%

That leaves the other 22% for Nissan, Hyundai, Subaru, Kia, BMW, Porsche, Audi, VW.

The fact is that the Germans are not significant players in North America and probably never will be (this all depends on where you put Daimler Chrysler - the Chrysler brand is still significant, Daimler is not). The only brand that is growing is VW on the strength of the Jetta, Beetle and Touareg.

The Japanese are steadily gobbling up market share and readily trounce the German automakers in the North American market. The market is totally different in North America. With a lack of high-speed limits, and a low fuel price - combined with a lot of room and a requirement to have a car, the demands of the North American consumer are totally different.

Fit and finish are not as important as features and price. Performance is not as important as comfort. German cars are too spare in their interior design and too high-priced to really satisfy the American consumer (and also not enough cup-holders). When you talk about markets in Automotive, you have to talk about them distinct from each other.

North America
Europe
Australia and New Zealand
Japan
China
The Emerging markets

Each of these have separate demands, and design requirements.

Opel is losing in Europe because of a ton of factors.

1) bad management
2) boring design
3) national loyalty in brand purchasing (buy VW, not Opel - the fact is that the features, performance, quality and price are all better in the latest generation of Astra compared to the VW Bora/Golf/Jetta/Beetle platform)
4) failure to differentiate their product (everyone knows why to buy a BMW, but what's special about an Opel?)

The list goes on.

BTW, the most popular German cars in North America are not built in Germany.

VW Jetta - Mexico
VW Beetle - Mexico
Mercedes M class - USA
VW Touareg/Porsche Cayenne (yes, they're basically the same vehicle) - Slovakia

BMW had its best year ever las year in the US and now sells almost as many cars there as in Germany. The absolute market share may be insignificant but volume has increased by about 20% p.a. and not because they are putting cash in the Kofferraum (notice the carefull avoidance of the boot/trunk issue) but because the cars are simply more desirable than anything ever built in Japan. You are right, the US manufacturers are losing shaer in mass market segment primarily to the japanese but in the luxury segment it is primarily to BMW, Porsche and Mercedes.

You say that the German manufacturers are insignificant, maybe in total. But the Germans sell more luxury cars in the US than US manufacturers do.

oh nd btw the US-build models from Germany maunfaacturers only represent a fraction of all German sales in the US.

But this is all beside the point. The point is that cars build in Germany can be profitable if you do it right.

US manufacturers cannot get it right in the US (losing market share in the mass segment to Japanese, and in the luxury segement to Europeans) a the moment and they are doing even worse in Europe.

(btw. "Daimler" is not the brand, "Mercedes" is. Here in Europe, at least, Daimler is a British marque and currently belongs to Ford thru Jaguar. But that is just picking hairs, so ignore me)

And Opel is still seen as a German brand by the Germans, so national pride is no argument here.

btw: The Porsche Cayenne IS BILT IN GERMANY, near Leipzig!

You know OG, sometimes you are like a British version of Chekov from Star Trek ("you know wheat is a British invention"). The automotive corporation that was formed by the merger of Daimler-Benz and Chrysler is called Daimler-Chrysler. That's the one I am talking about.

BMW is the largest european automaker in the North American market (excluding Daimler-Chrysler in total, but including their Mercedes unit). They will sell about 200,000 cars in NA this year (inlcuding mini, Rolls and BMW) or 1.7% of the market. The top 25 sellers in North America this year are either Japanese or American. Number 26 is the Jetta sedan with about 35,000 units. In comparison, the number one selling sedan (toyota camry) has about 325,000 units alone.

US manufacturers are quite strong in the US. Cadillac outsells BMW and Mercedes. So, as I said; German brands are still not a significant part of the North American market. Fact.

Some US manufacturers do ok in Europe. Ford is doing alright. Hell, Opel still sells a lot of cars.

And the fact is that yes, you can make a profit building cars in Germany, but you can make a bigger profit building cars somewhere else. This is not about Opel doing badly. This is about Opel wanting to make more profit. The slacking sales are just an excuse to do what they would do anyway. A public company seeks to maximize value to the shareholders. That means bigger and better profit margins. The consumers these days are smart so there is almost no profit in cars. The OEM's get 2-4% per vehicle. They want more. The easy way to get that is to reduce overhead.

And regarding the Cayenne: The final assembly, fit and trim are done in Leipzig. The main platform is built in Bratislava as part of a joint venture with VW. So, let's call that one a draw.

As I work in Automotive, I have access to all the sales figures from all the OEM's. If you want to see the numbers, let me know.

I'm pretty sure Slim knows what he's talking aboot here...

I agree with Ice here, when i worked at Lotus, i recall a few endless meetings about the above subject.

OW, in reference to
"But this is all beside the point. The point is that cars build in Germany can be profitable if you do it right."

that applies to almost any bussiness, anywhere. but at the end of the day they want the biggest profit, (thats what they're there for). FULL STOP

PROFIT!

all this war stuff is nonsense. big business will pat you on the back one day and F**k you up the arse the next. its about how much money they can make out of you at the time. nothing else.

loyalty etc doesnt come into it.

@ Ice: i work in sales in the automotive trade as well. I have the figures as well but you nicely avoided my point about distinguishing between mass market and luxury. And in total German brands outsell US brands in the luxury segement. FACT. The main competitor to Mercedes and BMW in the US is a Japanese brand Lexus not a US brand. And Toyota are on hte verge of replacing Chrysler as the US's third largest automotive firm. FACT. And GMs market share has been continuously slipping since the 1970's FACT.

Long term maximisation of profits does not always come from short term decisions like building an assembly plant in the country with the cheapest labour. When BMW chose Leipzig as the location for its new plant it did so despite other locations offering significantly lower wage bills. Other factors which reduces total overheads and maximised profits were taken into account. You have to take the whole logistics chain into account not just the cost of the bods building the cars in the assembly plant. Plus other issues such as taxation and repatriation of profits but that is by the by.