Trying To Sort Through The Opel Mess: It's A Pre-Programmed Crash

Bertel Schmitt
by Bertel Schmitt

I have been trying to make heads or tails out of yesterday’s contradicting news about the big deal between Opel and the unions, and so does German media. So much is clear: The truth and GM’s press release about a “successful conclusion” of the negotiations with the Opel works council are miles apart. There is no deal. Unions and Management are still in negotiations, the negotiations will continue this coming week. Then, the workers have to vote. It does not look good: Bochum’s works council is dead set against the deal. It gets worse.

Bochum’s works council chief Rainer Einenkel tells Handelsblatt that he “does not agree” to the deal. He characterizes his negotiations with management as “very brief.” He says that management told him that there is “nothing to discuss,” and that Bochum either says yes, or jobs will be imperiled from 2015 on.

Einenkel did not want to sign on to what appears to be on the table:

  • Opel continues building cars in Bochum, at least through 2016
  • The Bochum auto plant will be converted into a component and logistic hub for a total of 1,200 jobs or more.
  • Opel attempts to settle new companies and technologies in Bochum, and expects ”a four-digit number of high-quality, new industrial jobs.”
  • Bochum goes from three shifts to two, at the expense of 700 jobs, starting in the second quarter of 2913. Affected workers will receive “attractive severance packages and partial retirement programs.”
  • Production and jobs at the other three German plants in Eisenach, Kaiserslautern and Rüsselsheim are safe.

And what would the concessions of the unions be? What would Opel get in return?

  • The payout of salary increases under the collective bargaining system is deferred until the next salary increase goes in effect.

The last “concession” makes you wonder how bad the situation really is at Opel. Management had tied its hands before and agreed to keep plants open through 2014. Now it puts itself into handcuffs and agrees to keep the doors open and the lights on in Germany through pretty much the end of the decade? And the price for that is what? A contractual pay raise on credit? How much are we talking about? Let’s check.

Last October Opel owed its German workers some $15 million due to a 4.3 percent pay hike negotiated for all IG Metall workers in May. That money was paid in November. The next contractual pay hike is due this May. Then, another $15 million are due. After that, the workers will get their extra 4.5 percent monthly, and whatever the next raise is will be loaned to Opel for another year. Let’s call that $30 million, or three years of Akerson’s salary. Is Opel so hard up for money that it has to bargain away its ability to make serious adjustments of its capacity for what looks like a payday loan? Remember: These are not salary concessions. Instead of getting paid monthly, it’s paid by the end of the year.

And it’s not that the bleeding will stop. Those 700 jobs of the third shift? They will be very expensive to make go away.

Let me again kill a myth. It is not impossible to close a factory in Europe. Not at all, if you have the money. You can close factories to your heart’s content. You can’t fire the people. If you do, it costs you. A lot.

The closure of Ford’s Genk factory was estimated at $1.4 billion, or $332,000 per worker. Ford allocated money, the matter went down with a minimum of fuss. When GM closed its Antwerp facility, it did cost GM around $532 million in termination benefits. Divided by 2,600 workers, it came out to a little bit over $200,000 per worker.

How much do you think those “attractive severance packages” for the third Bochum shift will be if there is a contract that says that their jobs are safe through 2014?

How much will it cost to shift 1,000 workers into those mythical “high-quality, new industrial jobs?” The workers aren’t stupid. Every year they worked at Opel is worth serious money in severance when they get fired. Close to retirement, very serious money. They won’t give it up for nothing. You will have to pay them – a lot – to take those high quality jobs.

Ford did the right thing. It bit the bullet, paid, and moves on. GM on the other hand …

Opel and GM strike me at someone who refinances to a few bucks of a lower payment, but with a much bigger balloon a few years down the road. There is only one way to escape the inevitable: Take Opel bankrupt. The more problems are being kicked down the road, the more attractive and likely a bankruptcy will get.

Today is Karl-Thomas Neumann’s first day on the job as Opel CEO and chief of GM Europe. Germany’s news channel N-TV greets him with the headline:

“The Opel Adventure Begins: Neumann Takes The Ejection Seat.”

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3 of 25 comments
  • Inside Looking Out Inside Looking Out on Mar 02, 2013

    I see a lot of vampires on global scene and poor US taxpayers betrayed by their own Government and CEOs. Let's see. Daimler sucked out all money Chrysler had before throwing it away. FIAT got 1B $$ from GM as a gift and then Chrysler from US government as a gift too and continues to pump money out of Chrysler to keep itself afloat. Opel sucks out tens of billions of US taxpayers money and I am sure German government will soon join the feast. And Additionally Germany and other European countries for last 60 years sucked US tax payers money out for not providing own defense (how convenient!) and now we are talking about 100 billions dollars a year of defense budget. And how many hundred billions of USD Iraqis got from US tax payers before they decided to kick us out (I am sure they will continue to receive our $$). All Japanese, Korean and Chinese companies suck uncounted amount of money from US customers as a good healthy habit. So who said Americans are smart businessman or smart voters who were consistently fooled by the entire world.

  • OAlx OAlx on Mar 03, 2013

    I don't see the situation in anyway as very dramatic. Opel will survive in some form. If it is really worthwhile, that is another question. Opel just very recently started marketing its products in Australia, which makes me wonder about the future of Holden there, which seems as shaky. I also don't believe in any shape or form in the here preponderant union bashing. If anybody wants to have their economies set up as to be competitive with wages in China or wherever, go for it. The base of consumers will be reduced accordingly when the old Ford model - every employee should also be able to afford their products - is abandoned. With limited pleasure I remind the readership here, that Opel is a classic example of the mismanagement exerted by US automotive manufacturers. Opel was, ahead of Daimler Benz, the leading Luxury car manufacturer in Germany in the 1950s with their Kapitan model. Opel misread the target audience with the replacement models of the 1960s, the IMHO pleasant enough, but too American Admiral/Diplomat range. This reduced Opel to a - very profitable - mid-range competitor, leading its segment until Detroit headquarters ordered management in Germany to reduce costs whatever the cost. They did so, very successfully. Accordingly, the output was shit and wrecked the image of the brand. Arguably,it is not the best of times for GM to put bets on the mid-range automotive market globally. Probably even less so, when the German government runs a strategy to expand its low wage sector ("successfully" according to the government there) at the expense of the size of the middle class. A failure of Opel in the second largest middle-class market outside Asia will probably also be relevant for the rest of the western manufacturers serving that segment, ie. Ford, PSA ... That GM probably is for all practical intents and purposes bankrupt as we speak is a different matter. Insofar, what GM does at this stage with Opel, Holden, Vauxhall, etc. is to be interpreted as rearranging the deckchairs on the Titanic. From a global economic perspective, we should not fail to observe the current goings on in the USA, where there is currently the big conflict going on between shifting money to consumers or investors. Investors are currently happy to park their money for next to zero interest in US government bonds - which to me is a sign to move money to consumers in order to open worthwhile opportunities for investors.

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  • ToolGuy Gut feel: It won't sell all that well as a new vehicle, but will be wildly popular in the used market 12.5 years from now.(See FJ Cruiser)