FRANKFURT/DETROIT General Motors' (GM.N) European unit Opel is negotiating a deal with labor unions to close the Bochum plant after production of the Zafira Tourer van ends in exchange for guaranteeing German jobs through 2016.
Opel's management, the IG Metall trade union and the works council representatives of the German plants will continue talks in the coming weeks to reach an agreement over job cuts, a freeze in wage hikes, building a wider range of models and a deeper expansion into export markets.
"Opel must structure its business in such a way that it is also profitable in a difficult market environment," Opel Chief Executive Karl-Friedrich Stracke said in a statement on Wednesday. "It would not be responsible were we not to act in view of a 20 percent decline in the European car market versus 2007."
The company said the goal is not just to reduce costs but "to lower the dependence on imported vehicles and parts."
Investors have been focused on the turnaround at Opel, which GM opted to keep in 2009 after halting a planned sale. GM has lost money in Europe the last 12 years, including $747 million last year, and has said the losses could continue for another two years.
The world's largest automaker has scrambled to cut costs in the region. In late February it said it would form an alliance with France's Peugeot Citroen (PEUP.PA). In May, GM said it would build the next generation of its Astra compact in Britain after workers at a plant there agreed to a two-year wage freeze, intensifying speculation about Bochum's fate.
Wednesday's announcement also included plans to boost sales through the introduction of new vehicles, something Opel has previously outlined and a strategy that is needed in the declining and competitive European market, Citi analyst Itay Michaeli said.
"Shutting down a plant or even two is rarely the magic wand that takes losses up to profitability," said Michaeli, who has a "buy" rating on GM's stock.
Reuters reported on Tuesday that GM's board of directors was expected to decide on the closure of the Bochum plant as part of a business plan through 2016 that will be presented to Opel's labor leadership on June 28. GM Chief Executive Dan Akerson said during the company's annual shareholders meeting that actions to fix Europe would include "removing capacity when and where we can.
Under the compromise outlined Wednesday, GM and Opel would be able to reduce the company's fixed cost base by letting Bochum wind down its production when the Zafira Tourer's life cycle ends, generally expected for the end of 2016.
While this would cost the jobs of 3,300 people employed at Bochum, management had relinquished considerations of ceasing production in 2015 when a current labor deal expires that protects the 20,000-odd German workers at Opel's three car plants and one component plant.
As part of the talks, IG Metall is prepared to discuss "a delay in the implementation" of the recent collective wage bargaining deal, which foresees hiking pay by 4.3 percent over a 13 month period retroactively from May.
The sides did not say how long such a delay would last and a GM spokesman said that period has not been established. Michaeli suggested the triggers to end the salary freeze could be based on Opel profits and sales.
In agreeing to step outside the industry deal, labor hopes the talks would allow job guarantees to be extended another two years through the end of 2016.
Opel reaffirmed plans to run all of its European plants in three-shift operation at full capacity. Company sources have confirmed that the company's cost base would ideally require it to build 500,000 more cars than it manufactured last year.
The carmaker pledged to look into shifting overseas production back to Europe, including making non-Opel vehicles in the region. Opel currently imports the Antara sports utility vehicle from Korea, which will also begin exporting the smaller Mokka subcompact SUV to Europe come October.
German labor leaders have expressed a desire to shift production from Korea to Europe, which Korean union leaders have vowed to block. GM declined to say whether it has opened talks with Korean union workers over such a move, but the head of GM Korea said last month there were no such plans.
The higher output in the remaining European factories would mean roughly half of the planned investments through 2016 would be made in Germany, home to just over half of Opel's workforce of more than 40,000 people.
"Opel remains a central pillar of our global business, and I am absolutely convinced that we are on the right path," said GM Vice Chairman Stephen Girsky, who leads Opel's board.
Wolfgang Schaefer-Klug, Opel's top Labor leader since January, expressed support for the deal but said "many points still must be negotiated." He called the agreement against job cuts through 2016 a "necessary precondition."
IG Metall boss Berthold Huber said the talks based on a preliminary plan showed both sides were accepting responsibility for the losses at Opel, which abandoned its plans to achieve profitability this year amid a severe drop in the market.
"We expect that the management of GM and Opel do not simply pay lip service to the plans but support them with the necessary investments," he said.
GM also said on Wednesday that Opel has developed a plan to be voted on at the June board meeting that includes "significant" but unquantified investments in Opel's product portfolio. It also will introduce more vehicles like the Mokka in new segments, use different sales strategies it did not outline and boost Opel sales in such markets as Russia, Turkey, China and Australia.
(Reporting by Christiaan Hetzner and Ben Klayman)