U.S. Markets open in 1 hr

GM May Close Opel Plant Earlier

Zacks Equity Research

Employees at the luxury automaker Opel, owned by General Motors Company (GM), are now in a “do or die” situation. The company has asked them to accept the turnaround plan to save the struggling European unit or face an early closure of Bochum plant in Germany.

Last month, the automaker announced plans to suspend car production at Bochum, located in northwestern Germany, by the end of 2016. The plant manufactures Zafira compact multi purpose vehicle (MPV). Opel management started discussion with German employees in June last year to reach a resolution that would guarantee significant savings and flexibility to the company.

If the company fails to reach a deal with the employees, the company’s Plan B decision would significantly add to the surging unemployment in Europe as the Bochum factory employs nearly 3,000 workers. In the absence of a resolution, the plant would be closed on Jan 1, 2015, after the agreement to keep the plant open expires. Opel operates three more plants in Germany.

Late December, Opel announced plans to sell six facilities in Europe to GM in order to win extended funding. The transaction includes an engine plant in Hungary, a development center in Turin, Italy, and a facility in Gliwice, Poland. The decision will help the Ruesselsheim, Germany-based automaker receive funding till 2016. Opel is obligated to pay back a loan to GM by 2014.

  A few months back, Opel also announced to cut its administrative workforce by 30% or 1,000 jobs at its Ruesselsheim headquarters in Germany as part of GM’s 10-year plan “Drive Opel 2022” that include reduction in personnel costs. Opel also shut down two plants in Britain, located in Ellesmere Port and Luton. The move had idled 3,000 workers at the plants.

Opel faces weak car sales, high fixed costs and excess production capacity. These resulted in a total loss of $17.3 billion since 1999 due to uncompetitive models and weakening European market. Therefore, the company’s turnaround plan incorporated cost reduction measures, new model launches and efforts to boost export sales.

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. Opel expects to report an operating loss between $1.5 billion and $1.8 billion in 2012.

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 (PEUGY). 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.

Apart from GM, the present Euro zone financial crisis has affected the operations of many global automakers, such as Ford Motor Co. (F) and Honda Motor Co. (HMC).

GM, a Zacks Rank #3 (Hold) stock, posted a 9.7% fall in earnings to 93 cents per share (excluding special items) in the third quarter of the year from $1.03 in the corresponding quarter a year ago. However, earnings per share in the quarter far exceeded the Zacks Consensus Estimate of 61 cents.

Revenues in the quarter grew 2.5% to $37.6 billion, surpassing the Zacks Consensus Estimate of $36.3 billion. Worldwide sales volume inched up 1.6% to 2.3 million units from 2.2 million units a year ago. However, total market share declined to 11.6% from 12.1% in the third quarter of 2011.

Operating income fell 11.2% to $1.6 billion from $1.8 billion a year ago. However, adjusted earnings before interest and tax rose 4.5% to $2.3 billion from $2.2 billion a year ago.

Read the Full Research Report on F

Read the Full Research Report on HMC

Read the Full Research Report on GM

Read the Full Research Report on PEUGY

Zacks Investment Research

More From Zacks.com