GM Wins a Round in Battle With Unions

It looks like General Motors (NYSE: GM  ) is going to get its long-sought German factory closure earlier than expected.

Workers at GM subsidiary Opel's troubled factory in Bochum, Germany, voted Friday to reject a deal that called for a winding down of production between now and the end of 2016. The workers' union leaders had been hoping to squeeze further concessions out of GM.

But the joke – or at least, the squeeze – was on the union: After the deal was rejected, GM officials declared that no further negotiations will take place. And instead of waiting until the end of 2016, the factory will close next year, the company said.

Clearly, this was a strategic blunder by the union. But is it good news for General Motors?

A big win for GM -- if it holds
You might be saying, "It's just one factory. Other than the people who work there, who cares?" But closing this plant is a big deal for GM. Opel, the German automaker wholly owned by GM, has lost massive amounts of money in recent years. GM lost $1.8 billion in Europe in 2012, its thirteenth consecutive year of losses in the region.

CEO Dan Akerson has made it clear that this is a problem that has to be solved once and for all, and has put several of his top lieutenants on the case. And on the surface, this is a simple problem that's familiar to anyone who remembers GM's troubles of a few years ago: too many factories, too many workers, not enough cars being sold.

The magnitude of the problem has increased in the last couple of years, as deep recessions in many parts of Europe have crushed new car sales. Sales hit a 17-year low in 2012, and most analysts don't expect sales to recover to levels seen before the economic-crisis for at least a few years – maybe longer.

It's not hard to figure out what GM will have to do to return to profitability in Europe. But solving the problem has proven to be a lot harder than you might expect. One big reason: It's really hard to close a factory in Western Europe, and especially hard in Germany, where the unions have a lot of political clout – and where no auto factory has closed since the end of World War II.

That's why this closure will be such a big deal for GM – if it actually happens, which is not yet a sure thing. And as a rival's experience recently showed, closing a European car factory can be an expensive proposition.

A $750 million parting gift for workers
Rival Ford (NYSE: F  ) – like most of Opel's European competitors – has had its own troubles in Europe. Ford lost $1.75 billion of its own in the region last year. Last fall, CEO Alan Mulally presented a plan to return Ford Europe to profitability.

Ford's plan has several parts, but capacity cutbacks are a key component. Ford currently plans to close three of its factories in Europe. The company reached a deal with workers at one of those plants, in Genk, Belgium, last week. The deal provides for lavish separation packages for the workers -- an average of $187,500 per worker, expected to cost Ford some $750 million over the next several quarters.

That's a huge bill, but for Ford it's worth it: Reducing production capacity is a critical part of Ford's plan for returning the business to sustainable profitability. Just as the company shed factories and jobs in the U.S. in its painful restructuring last decade, so must it close factories – and make other structural changes – in Europe.

The takeaway for GM watchers: Closing Bochum, or any other plant in Europe, could still turn out to be a costly move for GM. Stay tuned.

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  • Report this Comment On March 25, 2013, at 5:27 PM, edyarbrough wrote:

    I'm not anti-union or anti-europe, I think there's a place for unions in protecting workers and I think we could use some of the social safety net that europeans get, but still, $750mil just to close a factory? And $187k severance per worker? That just seems ridiculously anti-business! I wonder what happens if GM or Ford just says "bye, no more car built after xxxx 2014 and no more paychecks either!"? I assume the governments would fine them big-time? It would make me think twice before EVER opening a new factory in the EU :)

  • Report this Comment On April 01, 2013, at 6:30 PM, Jason87467 wrote:

    What is wrong with those workers. GM has lost 16 billion dollars in the last ten years and they think this can go forever. I guess they'd rather not have a job. I find that stupid.

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