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General Motors (GM) Thursday said it will produce the next version of its best-sellling European model in just two manufacturing plants, a major step in its attempts to turn around the loss-making Opel unit that raises further questions over the future of one of its German plants.
The company said that the new model of its compact Astra car, scheduled to go into production in 2015, would be manufactured at plants in the U.K. and Poland and production of that model at its Ruesselsheim plant in Germany would halt. It said the Ruesselsheim plant was safe but was silent on the future of another German plant, Bochum, which also produces the Astra.
GM is moving to halt years of losses at its Opel unit, a drag on its recovery from a U.S. government bailout and a trip through bankruptcy court nearly three years ago. The company's global profits hit a record last year at $7.6 billion, but its stock, 27% of which is still held by the U.S. government, continues to languish in large part due to the problems in Europe. GM lost $256 million in Europe in the first quarter of this year, $747 million in 2011 and more than $14 billion since 1999.
Its U.S. plants run at near full capacity, whereas its European plants are operating at 65% capacity, among the lowest of any European car manufacturer according to analysts. Many of its U.S. plants run a three-shift system, whereas in Europe two shifts are the norm, and it lost $630 on every car built in Europe in 2011 on average, compared with a $2,460-a-vehicle profit in North America.
In recent weeks the company has announced a new partnership with PSA Peugeot-Citroen (UG.FR) and the planned sale of a transmission factory in France, but is gearing up to make what it calls "unpopular decisions" to further cut costs and improve efficiency at its under-utilized plants.
GM said the decision to build the new Astra in Poland was down to the Gliwice plant's cost competitiveness. In the U.K., the British government said Thursday it had a part to play in ensuring the car will be produced at GM's Ellesmere Port plant after it lobbied the company intensely. However, GM has previously said it was minded to keep producing cars in its second-biggest European market because it limits exposure to fluctuations in the pound-euro exchange rate. And key to the deal was a new labor agreement that will significantly increase the efficiency of the plant, meaning cars will be produced by the three shifts that are normal in the U.S., rather than the current two shifts.
"What I told the Americans is that Britain is a very good place for the car industry," U.K. Business Secretary Vince Cable said. "We have a good workforce here who are willing to be flexible. What they wanted to know was that the government and the industry and the trade unions were working together." No financial incentives were given, he added.
GM moved to reassure workers at its Ruesselsheim plant, saying it would remain open despite the loss of Astra production. It currently also produces the Insignia model there, but needs to produce another car if it is going make full use of its capacity. The company has previously said the Ruesselsheim workforce needs to be more flexible and costs per vehicle need to be reduced at the plant.
"A competitive Ruesselsheim plant plays an important role in our growth strategy. It has an outstanding and highly capable workforce, and it delivers excellent quality," Opel Chief Executive Karl-Friedrich Stracke said in a statement Thursday.
GM is heading for a wider showdown with its labour unions in Germany. It has said it will stick with a current deal that rules out compulsory layoffs and plant closures until the end of 2014, but can only make the production changes it plans if it closes some plants, shifts production among plants and does more labor deals that ensure better productivity. Under the new deal in the U.K., which comes into effect in 2013, a minimum of 160,000 vehicles will have to be produced at Ellesmere Port each year, up from nearly 140,000 vehicles in 2011.
The loss of the Astra raises questions about the Bochum plant, which produces the Astra and Zafira minivan. Labor unions fear GM will move production of the Zafira to Ruesselsheim when Astra production ends and shut the Bochum plant.
Wolfgang Schaefer-Klug, the Opel Works Council chief, said the council and IG Metall Union wouldn't accept any move to shift production of the Zafira from Bochum to Ruesselsheim. He criticized GM for putting pressure on the workers at the British Ellesmere Port Plant to accept a deal or face the closure of the plant, and urged the company to clarify the position of all its plants as soon as possible rather than making locations compete with each other to stay open.
The union had fought moves to move Astra production away from Germany and criticized GM for using the cutbacks as a way to squeeze concessions from local unions and governments. Mr Schaefer-Klug said the decision to move production of Opel's best-selling model away from its home market has wounded the pride of its German workers and sent them the wrong signal about the company's intentions.
The car manufacturer said it would invest a total of EUR300 million into the U.K. and Polish plants so that they will be ready for production of the new Astra. A total of 700 new jobs will be created at the British plant.
-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; firstname.lastname@example.org
(Nico Schmidt in Frankfurt and Ainsley Thomson and Steve McGrath in London contributed to this article.)