Business secretary flies to New York to ask General Motors executives to make a ‘long-term commitment’ to the UK
Business secretary Vince Cable has urged General Motors bosses to make a “long-term commitment” to the UK after holding a summit with the carmaker in New York over the closure threat facing the Ellesmere Port plant.
A week before the industry’s major players gather at the Geneva Motor Show, Cable met GM’s chief executive, Dan Akerson, in the US on Wednesday to press the case for saving the factory from a shutdown, with the loss of 2,800 jobs. The meeting came as GM announced a global alliance with PSA Peugeot Citroën aimed at saving $2bn (£1.25bn) and helping turn round its perpetually loss-making European business.
Government ministers and trade unions are fighting to save one of Britain’s biggest car plants, with GM expected to make a decision by the end of the month. A government source said GM asked about research and development spending in the UK, while Cable urged GM to follow the example set by Jaguar Land Rover, BMW and Nissan over the past year and announce multimillion pound investments in Britain. The source said: “Both [GM vice-chairman] Steve Girsky and Akerson were engaged and receptive. They were pleased that Vince Cable had gone to New York to make the case to them in person. Vince Cable also made a strong case for them to make a long-term commitment to the UK as others are doing. Investments from the automotive sector in the UK have been worth over £4bn in the last 18 months alone.”
It is understood that GM is seeking to reduce production capacity in Europe by around 400,000 vehicles – the equivalent of two factories. Ellesmere Port and Bochum in Germany have been identified by GM, maker of the Vauxhall and Opel brands in Europe, as among the most likely candidates for closure in a bid to stem European losses that reached $747m last year.
Amid the razzmatazz of Geneva, much of the talk on the sidelines among European manufacturers will be how to take capacity out of an industry that is suffering from a severe production glut. According to IHS Automotive, the passenger car market for western Europe has slumped from 14.8m vehicles sold in 2007 to just over 12m expected this year, which means that the likes of GM, Fiat, Peugeot Citroën and Renault-Nissan are running at less than 80% of their production capacity. Plants were built with the expectation that 14.8m vehicles was a floor, not a ceiling.
Mark Fulthorpe, an IHS analyst, said the scrappage schemes introduced by the UK and German governments in the wake of the Lehman Brothers collapse helped save the industry but they also brought forward buying decisions. With that temporary sales lift gone, manufacturers are left with the consequences of a depressed market, which saw British sales fall 4.4% last year to their lowest level since 1994.
“Many governments across the region stepped in to support demand and local manufacturing with scrappage incentives. Most of these have been worked out of the system now, so what you are left with is a landscape defined by the underlying strength of demand,” said Fulthorpe, adding that premium carmakers such as BMW and Audi have the outlet of exports outside Europe, which is a luxury mass-market producers do not have.
“We are talking about facilities which are primed to satisfy demand largely in western Europe and this is pretty much the profile that you can see at PSA, Renault and Fiat. And GM and Ford’s European operations are primarily in place to serve the European market. If that market goes down and these volume manufacturers are unable to find additional exports they will feel the pressure that comes from a declining European marketplace more acutely.”
Fulthorpe said Ellesmere Port’s problems are compounded by the transferable nature of the Astra cars that it produces. They can be made in other parts of GM’s European operations, including their German heartland. “There are a number of other facilities within Europe that can build Astra. Russelheim in Germany can do it, as can Gliwice in Poland and Bochum, also in Germany. That compounds the situation that has to be addressed vis-a-vis Ellesmere Port.”
The chief executive of the Society of Motor Manufacturers and Traders, Paul Everitt, warned carmakers against making hasty decisions that could shut European manufacturers out from developing markets such as China, India and Russia – which could in turn become exporters to Europe.
“Demand will move back to something similar to a more sustainable level. At that point people will ask whether we have enough capacity or not. We have to be careful of making strategic decisions that have self-fulfilling consequences. If you lose capacity today it will not come back. And when the market does come back you will have to import vehicles from places that we, in turn, would like to be exporting to.”
One industrial expert warned that the UK and Ellesmere Port could be a victim of the country’s flexible labour market. David Bailey, a professor at Coventry University business school, said: “It is easier to lay off workers in the UK because of our flexible labour markets, which are good at creating jobs but can also destroy them. We are always going to be vulnerable when foreign-owned multinationals are looking to cut capacity in Europe.”