GM's Opel to halt production at two plants

FRANKFURT Thu Aug 23, 2012 9:07am EDT

The logo of the carmaker Opel is seen on a roadside in Istanbul February 17, 2012. REUTERS/Osman Orsal

The logo of the carmaker Opel is seen on a roadside in Istanbul February 17, 2012.

Credit: Reuters/Osman Orsal

FRANKFURT (Reuters) - General Motors' (GM.N) ailing German unit Opel will cut the hours of several thousand workers at two of its four plants in response to a drop in demand for cars in Europe.

Opel agreed with labor representatives to halt production for a total of 20 days at its main factory in Ruesselsheim and its component plant in Kaiserslautern between September and the end of the year, it said on Thursday, confirming an earlier report.

GM lost $747 million on its European operations, which include Vauxhall in Britain, last year as a weak economy hit car sales in the region, forcing it to confront high fixed costs and excess production capacity that equates to 10 plants.

"The European automobile market is declining dramatically," Opel's head of personnel, Holger Kimmes, said in a statement, adding that flexible working hours were no longer sufficient to offset a decline in use of the Ruesselsheim factory.

Yet shortening staff hours may only grant a short-term reprieve to Opel, but will do nothing to alleviate the carmaker's structural problems of unused factory space, said Frankfurt-based Commerzbank analyst Sascha Gommel.

"Closing down plants for a few days isn't going to help Opel with its most pressing problem of overcapacity," Gommel said.

The GM division is squeezed between sagging consumer demand in Europe's indebted economies and growing competition from Asian volume-car makers. Opel lost an average 938 euros ($1,200) before interest and tax per vehicle sold in the first half of the year, a survey of the CAR Center of Automotive Research at the University of Duisburg-Essen showed.

Opel's first-half European deliveries plunged 15 percent to 457,630 vehicles.

It has 13,800 workers in Ruesselsheim, about half of which will be affected by the agreement, the company said. It is cutting the hours of employees on the production lines as well as in administration.

The Kaiserslautern factory has a workforce of 2,500.

Now that it has the approval of the works council and labour union IG Metall for the plan, Opel can apply for subsidies under the German government's short-work program, called "Kurzarbeit".

The scheme was used by many struggling companies in the 2008-2009 recession, allowing them to preserve jobs by cutting employees' hours when plant usage was low and having the government compensate workers for part of their lost wages.

U.S. carmaker Ford (F.N), which expects to lose more than 1 billion euros in European operations this year, cut back production at its Cologne-based main European factory in May and June, affecting 4,000 workers.

(Additional reporting by Peter Dinkloh; Editing by Erica Billingham)