General Motor Co. (GM:US) shares slid yesterday after saying it plans to reduce work at two Opel sites in Germany starting in September as the automaker seeks ways to stem losses in the region.
Opel agreed with unions to cut 20 days out of its schedule at operations in Ruesselsheim, Germany, and at a component plant in Kaiserslautern through the end of the year, Ulrich Weber, an Opel spokesman, said today in an e-mail. GM has too much inventory in Europe, where sales are heading toward a fifth year of sales declines
The automaker lost $361 million in Europe before interest and taxes in the second quarter bringing total losses in the region to $16.8 billion since 1999. The announcement is “a bit part” in GM’s effort to restructure its European operations, Matthew Stover, an analyst with Guggenheim Securities LLC in Boston, said.
“That’s inventory management,” he said in a telephone interview. “If you look at their results in the second quarter, they over-built versus what they shipped to dealers so they had a backlog of inventory that they have to work through.”
Sales in Europe by the GM unit, including the Vauxhall brand in the U.K., dropped 15 percent in the first half, more than double the market’s 6.3 percent decline, according to data of the European trade association ACEA. The industry group predicts that car deliveries in the region will fall 7 percent this year to the lowest level since 1995.
Dan Ammann, GM chief financial officer, acknowledged GM’s inventory issue in Europe during a conference call with analysts Aug. 2.
“We still have work to do on both the dealer and the company on inventory, and we expect to address that through the third and fourth quarters,” he said.
The schedule changes help secure jobs, Wolfgang Schaefer- Klug, Opel’s works council leader, said in the statement.
The work-hour cutback program is supported by German state aid to balance lost wages.
The Ruesselsheim location, which includes Opel headquarters, employs 13,800 people, including 3,500 production workers. The work-hour cutbacks will affect the manufacturing employees and 3,300 employees in the administration, Opel said. The factory builds the Insignia sedan and the five-door version of the Astra hatchback. The 7,000 research-department engineers at Ruesselsheim aren’t affected, Opel said.
The Kaiserslautern plant, in Germany’s western state of Rhineland-Palatine, employs about 2,500 people.
“The European car market is declining substantially,” Holger Kimmes, head of personnel at Opel, said in the statement. “Until recently, the decreased production schedules could be compensated by applying corridor shifts and accrued overtime. Now short work is the right bridging measure.”
The production cut will save GM an estimated $52 million, Brian Johnson, a Chicago-based analyst with Barclays Plc, wrote in a research note.
The move doesn’t remove GM’s need to close two plants in Germany, Johnson said in a telephone interview.
“It definitely gives us greater confidence that at least these level losses we forecast can hold and we’re not looking at another downward revision,” Johnson said. “It’s a small step in the right direction.”
GM slipped 1.8 percent to $21.34 at the close yesterday in New York. The shares gained 5.3 percent this year through yesterday.
GM shook up Opel’s management team in July, assigning Thomas Sedran, the head of strategy, as an interim replacement for former Chief Executive Officer Karl-Friedrich Stracke. The Detroit-based company is still seeking a permanent appointment to the post.
In September, Michael Lohscheller, a Volkswagen AG (VOW) manager who helped to turn around the U.S. business of Europe’s biggest carmaker, will start as chief financial officer at Opel and Vauxhall. The company has also named Michael Ableson as new head of engineering.
Sergio Marchionne, the CEO of Italian carmaker Fiat SpA (F) and president of the ACEA, has been pushing for capacity cuts by European carmakers to respond to the market’s contraction.
Ford Motor Co. (F:US), the second-largest U.S. auto manufacturer, plans to stop production for four days next month at its plant in Cologne, Germany, where Ford has its European headquarters, Ragah Kamel, a spokeswoman, said last week. The move adds to seven days of production halts in May and June. In North America, by contrast, Ford shortened its summer shutdown at six assembly plants from two weeks to one to increase output.
GM, the world’s top seller of cars and light trucks last year, struck an alliance with French carmaker PSA Peugeot Citroen (UG) in February, becoming the Paris-based manufacturer’s second largest shareholder after the founding Peugeot family by taking a 7 percent stake in the company. The partners intend to combine purchasing and share vehicle platforms.
Peugeot has laid out plans to erase 8,000 jobs and close the Aulnay factory on the outskirts of Paris, a move opposed by the French government.
To contact the reporters on this story: Dorothee Tschampa in Frankfurt at email@example.com; Tim Higgins in Southfield, Michigan, at firstname.lastname@example.org
To contact the editors responsible for this story: Chad Thomas at email@example.com; Jamie Butters at firstname.lastname@example.org