The management of General Motors Company‘s (GM) European arm, Opel, will present a business plan to its board today about closing two plants in order to trim the manufacturing capacity of the unit by 30%. So far, the management has been cutting production hours at the plants located in Bochum, Germany and Ellesmere Port in the UK.
However, GM has to deal with the heavy cost resulting from the plant closures. The severance package could go up to EUR500 million ($665 million). But on the other hand, dealing with increasing losses at the European operations also poses major threat to the company.
Opel’s sales slashed 20% in the first two months of the year. Overall, GM’s European operations lost $747 million last year, resulting in a total loss of more than $12 billion in 12 years.
A few months back, Opel revealed that it expects to report an operating loss of EUR1 billion ($1.3 billion) in 2012 due to fewer-than-anticipated car sales. The unit expects to sell 1.4 million vehicles in 2012, which are about 100,000 units less than the earlier projected sales.
In order to reverse the 12 years of losses in Europe (totaling more than $12 billion), particularly from the Opel brand, GM has recently formed a pact with PSA Peugeot Citroen (PEUGY). The alliance will help both the automakers reduce at least $2 billion in costs.
The present Euro-zone financial crisis has affected the operations of many global automakers, especially GM and Ford Motor Co. (F). Both the automakers have a significant exposure to the market.
The car dealers in Europe are trying very hard to entice consumers with the help of steep discounts and other sales promotions, which will put downward pressure on their margins. The West European car market is expected to decline to 11 million units in 2012.
Recently, Ford revealed that it is likely to lose between $500 million and $600 million in 2012 in the 19 European markets covered by the automaker owing to the ongoing debt crisis in the region. The figure compared with a meager $27 million loss recorded by the company in 2011. In the fourth quarter of last year, the loss amounted to $190 million.
While releasing the fourth quarter results, Ford projected industry volume (including medium and heavy trucks) of 14.0 million units-15.0 million units for full year 2012 in Europe. However, industry-wide sales in the region are expected to reach the lower end of the forecast, according to the Chief Financial Officer of the company, Lewis Booth.
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