Oct 15, 2004 5 min read

RUESSELSHEIM, Germany (AP) – Blaming high labor costs and weak demand for cars, General Motors Europe said Thursday it plans to shed 12,000 jobs – almost 20 percent of its work force – in order to halt widening losses. The European arm of the U.S.-based General Motors Corp. said the job cuts, to be carried out by the end of 2006, would result in annual savings of about $620 million but shouldn’t lead to the closing of any of the 10 plants that turn out its Opel, Saab and Vauxhall brands.

The company’s unions across Europe accused GM in a statement of pursuing “a course of confrontation” with employees.

GM Europe President Carl-Peter Forster said weak consumer demand, especially in Germany, had confounded the company’s expectations and forced heavy discounting to maintain sales numbers.

“If you look back three years ago, nobody would ever have predicted the softness of the European market, particularly the softness of the German market,” Forster told reporters. “We see tremendous price pressure in Europe, particularly in Germany.”

“There is an extreme reluctance by the middle part of society to spend, so we have to offer incentives and that costs a lot of money,” he said.

Most analysts expect car sales in Germany to fall short of last year’s lackluster 3.24 million vehicles, although Europe-wide sales are expected to rise slightly.

Economists say that people are intimidated by fear of losing their jobs, with Germany’s unemployment rate above 10 percent, and that budget deficits and talk of cuts in social benefits leave people unsure of their spending money.

GM Europe on Thursday reported a loss of $236 million in the third quarter compared to a loss of $152 million in the same quarter a year earlier. Worldwide, GM earned $440 million in the July-September period, up from $425 million in the third quarter of 2003.

The 3.5 percent rise in overall earnings was slimmer than expected as GM’s global automotive business lost $130 million – primarily because of the losses in Europe and lower production and intense pricing pressure in North America.

Most of the GM Europe cuts will come in Germany, where the company is burdened with high labor costs due to traditional labor practices such as a 35-hour week and up to two months’ paid time off a year for many industrial workers.

Exactly how many cuts are made at which plant must be worked out in negotiations with employee representatives in talks starting immediately, the company said. However, Saab said 500 jobs would go at its Trollhaettan plant in Sweden, which employs 6,000.

“Today is a pretty sober day for us,” GM Europe chairman Fritz Henderson told reporters at the headquarters of GM’s Adam Opel AG subsidiary in Ruesselsheim. “The impact – 12,000 people – is not just numbers, not just paper, it affects the lives of 12,000 people, their families and communities.”

“But it’s apparent our business needs to be significantly improved. We are not making money.”

Henderson did not rule out closing a factory, but added that the targeted savings “can be accomplished without closing plants.”

Henderson said he expected European unit sales for all its brands, including imports from the U.S. such as Cadillac and Chevrolet, would be roughly flat at around 1.9 million, with some growth in Eastern Europe and Russia.

The deputy leader of Germany’s IG Metall industrial union, Berthold Huber, blamed management mistakes for the company’s problems but said “we are ready to negotiate.”

In a joint statement, the company’s European unions warned that “there is a danger that this confrontation will have consequences similar to those seen in the U.S. automotive workers strike at General Motors in Flint in 1998.”

But Klaus Franz, the chief employee representative at Opel, had a more muted response, saying “the word ‘strike’ has not crossed my lips.”

Two 1998 strikes against GM in Flint strained relationships between the automaker and the United Auto Workers union. The walkouts shut down GM’s North American production, costing the automaker $2 billion.

GM has struggled to fix its European problems for several years. Opel’s current management concedes that its predecessors let quality problems get out of hand in the late 1990s.

A restructuring program dubbed “Olympia” was launched in 2001, and the company won praise from analysts and the motoring press for a sharply improved model line.

But even as market share and product reputation improved, weak demand and pressure from European and Asian competitors forced GM into offering price discounts that have eaten away earnings, especially from the lower-priced, mass-market cars that are Opel’s bread and butter.

One problem stressed repeatedly by Forster to reporters was labor costs in Germany, Opel’s home.

He singled out the company’s aging plant in Bochum, where 7,600 workers turn out Opel Astras. “Bochum has a competitiveness issue in terms of production costs, and we have a labor cost problem in Germany,” Forster said. “In the competitive arena in Europe this is unsustainable.”

“If we don’t do something now, the future of a place like Bochum is very bleak.”