Astra move challenges GM-Peugeot jigsaw

PARIS Tue May 22, 2012 11:30am EDT

PARIS May 22 (Reuters) - General Motors' decision to stop making its second-bestselling European car in Germany may complicate further restructuring and joint production plans with PSA Peugeot Citroen, unions and analysts say.

GM will concentrate assembly of its Opel Astra compact in Britain and Poland from 2015, the company said last Thursday. Production will halt at the brand's home plant in Ruesselsheim and increase in Ellesmere Port, England - at a time when the U.S. automaker is seeking to cut European capacity overall.

The plant choice, while seen as economically rational, raises the remaining hurdles for GM and alliance partner Peugeot by leaving more capacity to be filled - or closed - in Germany and France.

"It highlights their willingness to make tough decisions, even at the risk of more confrontation in their home markets," Barclays Capital analyst Michael Tyndall said.

GM and Peugeot are braced for industrial unrest over planned factory cuts, declining to give assurances beyond 2014 for GM's Bochum plant in northwest Germany and Peugeot's Aulnay factory near Paris - earmarked for closure in a company document leaked last year.

The Astra decision fires the starting gun on an expected bout of politically fraught capacity juggling with Peugeot - on which the success of their new alliance partly depends.

Although both companies say their restructuring needs are separate from the alliance plan, the decisions are inevitably intertwined, sources close to the discussions have said.

Peugeot had no comment to make on capacity decisions or the GM alliance plan, a spokesman said. GM also declined to comment.

GOVERNMENTS WATCHING

The French and German governments are watching developments closely.

Peugeot executives are scheduled to hold talks with union officials next week while GM bosses will meet workers' representatives at a June 28 board meeting.

Under their partnership, which saw GM acquire a 7 percent Peugeot stake, the automakers have pledged to share future midsize cars built at GM plants and smaller cars based on Peugeot models.

Peugeot aims to halt production of its midsize Citroen C5 in Rennes, western France, factory chief Jean-Luc Perrard told regional newspaper Ouest France earlier this month.

"The current plan is to build the next C5 in a General Motors plant," Perrard was quoted as saying.

In return, Peugeot managers have told workers that Rennes may build another Astra-sized GM model such as the Zafira minivan, sources with knowledge of the discussions said. Annual French production of the four-year-old C5 model has dwindled to about 66,000.

But the Astra decision leaves GM with its own production hole to fill in Germany - making it unlikely that a significant number of compacts would be left over for Peugeot plants.

GM said annual production at Ellesmere Port can increase to as many as 200,000 Astras from the current 140,000.

Unlike their Bochum colleagues, who build the Zafira, Opel Ruesselsheim workers have won assurances from GM that their plant has a future within the group. German unions now expect Zafira production to move to Ruesselsheim.

"The Astra decision worries us," said Xavier Lellasseux, an official with Peugeot's centre-left CFDT union. "All in all we're pretty sceptical about the alliance's impact on jobs."

GM's Opel division employs some 40,000 workers in Europe, of which 22,000 are in Germany. That compares with Peugeot's European workforce of 167,000, which is 60 percent French.

Production at Peugeot's European car plants will fall to 75 percent of installed capacity this year from 84 percent in 2011, while GM car output drops to 72 percent of regional capacity from 84 percent, according to IHS Automotive forecasts.

According to the leaked Peugeot documents, executives decided early in 2010 to prepare for Aulnay's closure four years later - when the company's 10-year plan forecast 2.6 million deliveries in a European auto market seen at 17.2 million light vehicles.

The market and Peugeot's share of it have both worsened since.

Peugeot can now expect 2.06 million European deliveries in 2014, based on Barclays Capital's 15.5 million vehicle forecast and the automaker's 13.3 percent market share last year.

That is 540,000 vehicles below the company's medium-term forecast and 340,000 below the worst-case "stress test" scenario outlined in the same confidential presentation.

The likely shuttering of Aulnay and Bochum would be a "a step in the right direction", Tyndall said.

"But a single plant closure by each manufacturer is not going to be enough for the current market situation."

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