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Jobs fears rise after shock Opel resignation

General Motors was pressed by unions Friday to respect job pledges at its German unit Opel after the shock resignation of its chief executive and as Europe's car sector struggles with overcapacity.

Jobs fears rise after shock Opel resignation
Photo: DPA

The situation in Germany is actually better than in many European countries where large auto sectors have been slow to react to a glut in output as sales slumped.

But after agreeing to management plans aimed at keeping as many workers employed in German plants as possible, unions are now drawing the line.

On Thursday, GM Europe chief Karl-Friedrich Stracke quit suddenly, raising fears that a deep restructuring plan to steer the loss-making unit Opel back into profit could now be in jeopardy.

The same day, GM’s French partner Peugeot Citroen (PSA) announced 8,000 jobs cuts as part of a radical overhaul much larger than expected.

In the western German city of Bochum, the head of the works council at the local Opel plant, Rainer Einenkel, told AFP that GM would be held to its word.

“Promises must be kept, regardless of who is in charge,” he said. “We tried to work on solutions with Stracke so plants would not be closed. I hope that GM sticks to the agreements.”

The works council also wrote to employees, warning Opel and GM to uphold the Stracke plan.

“A new debate about plant closures would further unnerve staff and customers and would lead to clear damage to the image and market share of Opel,” it said.

The head of trade union IG Metall, Berthold Huber, said GM must take “decisive and ambitious” action to help its ailing unit without closing factories or shutting labour out of the process.

“This is about nothing less than Opel’s future,” he said in a statement. The situation is similar, if not worse, in Italy and Spain.

Jürgen Pieper, an auto analyst at Metzler bank told AFP that in general, European car factories were working at about 70 percent of capacity.

Nicolas Bouzou, an Asteres economist noted that “to be profitable, an auto factory must function at least at 80-85 percent.”

Some have managed to do so, with German luxury brands BMW and Daimler, which owns Mercedes Benz, running at around 90 percent, and Audi, a high-end brand owned by Volkswagen, also maintaining a strong cadence.

They benefit from continued strong demand for premium autos in emerging markets, and VW’s solid presence in China allows it to compensate for higher labour costs back home in Germany.

In late June, Opel’s supervisory board approved a plan that involved deep restructuring, huge investment in the product range of the Opel and Vauxhall brands, and a new marketing strategy.

Material, development and production costs would all be cut and “better use made of synergies arising from the tie-up between GM and French partner PSA Peugeot Citroen,” Opel said.

Talks are currently underway to keep the Bochum plant, which had reportedly been mooted for closure, open until the end of 2016 in a deal.

Opel has also pledged to negotiate with unions to prevent job cuts across the board until 2016, two years beyond the already agreed date of 2014, in exchange for a pay hike freeze.

Talks are to resume in October, IG Metall said. But Stracke was reportedly pushed out after just six months in the job owing to poor sales and a lack of faith in his plans to turn the firm around.

Opel declined to comment but the company’s first-half 2012 sales fell by 9.3 percent. GM’s European operations have run up billions of dollars in losses over the past 10 years.

Many European automakers tried to avoid closing plants as sales fell during the global economic crisis and now face situations that have deteriorated even .

According to a study by AlexPartners, only three European plants have been closed since 2007. In the United States, 18 factories were shut down over a four-year period, allowing those that remained open to operate at around 88 percent of capacity.

“In the end, (European) production will have to adapt to demand. It is only then that they will become profitable again,” said Laurent Petizon, a director at AlexPartners.

UBS analyst Philippe Houchois said: “Given how overcapacity is spread across the European Union, each of the generalist automakers, PSA, Renault, Fiat, GM and Ford would theoretically need to shut down at least one plant.”

In early July, Fiat boss Sergio Marchionne warned that his group would have to close a factory if the European market remained in a slump over the next two to three years.

Automakers for the most part have the financial means to pay for such shut-downs without having to call on public funds, Houchois said, which reduces the amount of leverage available to governments.

In Spain, a PSA factory in Madrid-Villaverde is believed to be under threat, and experts say the Opel plant in Bochum will likely close after 2016.

AFP/jcw

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BUSINESS

Is Germany’s Volkswagen becoming ‘the new Tesla’ as it ramps up e-vehicle production?

When Volkswagen chief executive Herbert Diess joined Twitter in January, he used his first tweet to warn pioneering electric car maker Elon Musk that he was coming after him.

Is Germany's Volkswagen becoming 'the new Tesla' as it ramps up e-vehicle production?
ID.3 cars in the Zwickau, Saxony production plant in March. Photo: DPA

The bold proclamation raised some eyebrows, coming from a carmaker better known for its 2015 “dieselgate” emissions cheating scandal than its green credentials.

But all that has changed since the German group announced an offensive to dominate the electric car market globally by 2025, vowing to set up six battery factories in Europe by the end of the decade.

“Volkswagen is the new Tesla,” declared the Financial Times, referring to the now dominant Californian e-car group founded by billionaire maverick entrepreneur Musk in 2003.

“Our transformation will be fast, unprecedented and on a scale not seen in the automobile industry in a century,” Diess said at VW’s inaugural “Power Day” last Monday, where he fired off a flurry of announcements.

READ ALSO: Volkswagen to spend 60 billion to transition to electric cars

Industry watchers say it’s a credible bet. Bloomberg Intelligence auto analyst Tatsuo Yoshida said Volkswagen “has (the) potential to overtake Tesla’s number one position… in a few years”.

Karl Brauer, an analyst with CarExpert.com, said VW’s “combination of financial resources and manufacturing capacity make it a prime challenger for Tesla’s dominance” — even if catching up with its US rival is “not going to be easy”.

‘Saving face’

Diess, who has headed the 12-brand VW group since 2018, has never hidden his admiration for Musk, whose brash and unconventional ways have a habit of disrupting markets.

The two men have a friendly relationship and regularly exchange emails, according to an insider.

If the aim of Diess’s carefully choreographed “Power Day” was to capture some of the enthusiasm of a Battery Day Tesla held late last year, particularly in the United States, it appears to have worked.
Diess’s announcements saw US investors flock into Volkswagen shares, including many small traders using online platforms.

In just a week, the Wolfsburg-based car giant gained 15 percent on Frankfurt’s blue-chip stock exchange, giving the group a market capitalisation of more than 130 billion.

The rise puts Diess’s 200-billion-euro target within reach but he has a way to go before matching Tesla’s $619 billion valuation.

VW’s “forced transition” towards more environmentally friendly cars has now been “recognised by the market”, said Eric Kirstetter, an auto sector expert at the Roland Berger consulting firm.

VW ironically owes its change of course to the dieselgate scandal, which forced the group into “a face-saving dive into an all-in electro-mobility strategy”, said Germany-based industry analyst Matthias Schmidt.

The Volkswagen E-Golf in production in Saxony in March 2018. Photo: DPA

Industry watchers note especially its decision to focus on developing a single platform for all its brands which could well be the game changer for the German giant.

The platform was used for the first time on the ID.3 model which launched late last year. UBS analyst Patrick Hummel called it “the most significant bet on electric vehicles made by any legacy carmaker to date” as VW’s competitors are using mostly mixed platforms and a combination of technologies.

READ ALSO: Volkswagen to slash up to 5,000 jobs to fund electric vehicle drive

Not Apple but Samsung

VW’s move is aimed at achieving economies of scale for its 12 brands.

“Tesla is learning what is takes to move into high volume, whereas companies like Volkswagen already have volumes and it’s just a matter of switching volumes from one platform to another which they have done routinely in the past,” said Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore’s Nanyang Technological University.

But VW’s size also comes with its own disadvantages — consensus has to be found for each major decision not only with the powerful head of the workers’ committee but also with managements of the group’s various brands.

Beyond the core electric technology, Volkswagen is also playing catch up with Tesla on the just as important software.

Ben Kallo, an analyst at US investment bank Baird, believes Tesla will remain the market leader on electric cars because of its advances in battery cell production and autonomous driving.

“VW might not be the Apple but the Samsung of the electric vehicles world,”UBS said in a report.

On Twitter, Diess is still 49 million followers short of Musk.

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