GM to Close Opel Plant Earlier - Analyst Blog

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Bad news for Opel! Employees at the luxury car making unit owned by General Motors Company ( GM ) have rejected its turnaround deal to save the struggling European unit. The failure of the deal means that the plant will be closed down by 2014 instead of 2016, significantly adding to the surging unemployment in Europe as the Bochum factory employs more than 3,000 workers.

Opel had initially intended to keep the plant in operation till 2016 and retain 1,200 of the more than 3,000 employees in other component and warehousing jobs. The company wanted workers at the plant to accept delay in wage increases. But about 76% of employees at the plant voted against the deal.

The Bochum 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. 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 General Motors by 2014.

Late 2012, Opel had 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 had already 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 an excess production capacity. These resulted in a total loss of more than $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 2012, GM's revenues from European operation declined 11.1% to $5.6 billion. The operation also reported a higher adjusted loss of $0.7 billion in the quarter, compared with $0.6 billion a year ago.

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.

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 higher profits of $0.8 billion or 48 cents per share in the fourth quarter of 2012, compared with $0.7 billion or 39 cents in the same quarter of 2011. However, earnings missed the Zacks Consensus Estimate by a penny. The results excluded net gain from special items of $0.1 billion or 6 cents in the 2012-quarter and net loss from special items of $0.2 billion, or 11 cents in the 2011-quarter.

Revenues in the quarter scaled up 3.4% to $39.3 billion, which was higher than the Zacks Consensus Estimate of $38.6 billion. Unit sales escalated 4.2% to 2.3 million vehicles. The automaker occupied a market share of 11.5% during the quarter, down from 11.6% in the year-ago quarter.

GM expects to boost its top-line in 2013 with the help of new vehicle launches. At the same time, the company believes cost control measures will boost its bottom line growth. It expects 2013 capital expenditures to be at the 2012-level.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: F , GM , HMC , MPV , PEUGY

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