GM Slashes European Production, Global Insight to Lower Forecast Again

GM Europe Shuts Down for October

General Motors (GM) Europe has announced that it will halt production at all of its factories, except its main Rüsselsheim plant which is located near Frankfurt in Germany, later on this month in response to the region's fast-falling new car sales. That will mean a production cut of 40,000 units as the factories will be shut down for periods ranging from ten days to three weeks.

GM builds cars under the Opel/Vauxhall, Saab and Chevrolet brands in the region. The company has said that its Opel factory in Eisenach, Germany will start a three-week closure from next week whilst its Bochum plant will shut down for two weeks. Temporary shutdowns will also be implemented at Opel's Zaragoza factory in Spain, at Vauxhall's two factories in Ellesmere Port and Luton in the United Kingdom, at Saab's factory in Trollhättan, Sweden and GM's plants in Belgium and Poland.

Rüsselsheim will be kept open because it builds the new Opel/Vauxhall Insignia D-segment car, which was unveiled this year and is in the process of being launched on to the market. Production at Rüsselsheim has already been pared down substantially in recent weeks in order to prepare for the Insignia.

"The financial crisis is affecting the vehicle market. People are postponing their decision to buy a car, and this has an immediate effect on order intake,” GM Europe said yesterday in a statement. "In the present situation stockpiling would not make sense with regard to the residual values of our products."

Angry Trade Union Reaction

At this stage, GM Europe says that no workers will be laid off as a result of the temporary closures. At many of its factories, a flexible time-banking system is in operation, whereby workers make up lost hours from quiet sales periods at other times, for example when the market picks up or when a new model is being launched. However, GM Europe's trade unions have still reacted angrily to the news and are said to be threatening legal action against GM to try and prevent the closures because it allegedly did not consult unions as it should have. "Workers' delegates do not accept the one-sided approach of the management because such difficult situations can only be solved by working with the employees," Klaus Franz, the leader of GM Europe's employee forum was quoted by Automotive News Europe as saying.

Outlook and Implications

Although this is unprecedented action taken by General Motors, the struggling U.S. car-maker is not alone in drastically reducing its European production levels. Almost all vehicle manufacturers are also cutting their output in the region, whether they produce luxury, premium or mass-market cars, or light or heavy commercial vehicles. Bentley, BMW, Mercedes-Benz, Volvo, Jaguar Land Rover, the Volkswagen Group, Toyota, Honda, Ford, PSA, Renault and Fiat are among the carmakers that have announced production cuts in Europe for the remainder of 2008.

The situation is reflective of the current sales slowdown, which is being felt the most in the two key markets of Western Europe and the United States and exacerbated by a moderation in growth in the key emerging markets of Russia and China. Last week, we wrote that the implied annual selling rate for the Western European market in September is on target for a disastrous 12.8 million units, which will be the second month in a row it has been below 13 million units, and compared to the 14.8 million units for all of 2007, is clearly in recession (see Europe: 1 October 2008: Western European Car Markets Severely Hit by Credit Crisis; Double-Digit Decline Anticipated in September). As noted then, these figures will send a shudder through the entire industry, as the slowdown in showroom traffic, already experienced over the traditionally quieter summer months, worryingly extends into the traditionally strong selling month of September.

While we do not want to "overcall" the expected European car market downturn, we have significantly downgraded the near-term sales outlook for a number of markets. This reflects the sheer scale of the economic fallout from the credit crunch, which has now developed into a full-blown financial crisis. We also caution that for some markets at least the prospect of a simple V-shaped recovery appears unlikely. For these markets, Global Insight believes that the toxic nature of this economic shock could result in a far weaker trend level for new car demand for some time to come. This reflects the vital importance of stable credit and liquidity conditions for replacement demand—the availability of finance is the lifeblood of any modern mature consumer society. Although the negativity for 2008 and 2009 is far from broad-based, as not all economies are in for a period of painful adjustment, on a pan-European basis, consumers are reining in discretionary spending in the face of rising concerns over a blend of issues including inflation, the threat of unemployment, rising mortgage and other borrowing costs, or simply to restore savings in less certain times.

In Global Insight's latest Western European light vehicle production forecast, which was published just two weeks ago, we took 300,000 units out of the forecast. At that time, we predicted that 15.77 million light vehicles would be built in Western Europe this year, which would have been a 2.4% decrease on 2007's 16.16 million units. Our rationale at that time was that although the sharp deterioration in the home market prospects for the rest of the year meant that production line rates are being slowed, and shifts are being cut, the region is insulated to a large extent by the boom in sales in Central and Eastern Europe. We also predicted then that we would have to take out as much as 600,000 units out of 2009 vehicle output. However, because the liquidity and credit outlook has deteriorated so rapidly in a matter of weeks, which has had a clear knock-on effect on sales, we have taken another 200,000 units out of our forecast in the last two weeks and are looking at the possibility of taking another 200,000 out of the forecast by the end of the year. In that scenario, our Western European light vehicle production forecast for 2008 would stand at around 15.37 million units, down by almost 5% on 2007. We are also likely to reduce our 2009 forecast by a further half a million units. The truth is, however, that at the moment, the outlook for beyond 2008 is too difficult to call; with market dynamics deteriorating on a daily basis, no-one can be sure how far down this dire situation is headed, and where the bottom of the cycle lies.

Automotive Webcast: Global Auto Markets in a Credit-crunched World

8 October 2008
9:00–10:00 a.m. (New York Time)
Webcast

The deepening global financial crisis has severe implications for the global automotive industry. Previously, assumed "floors" to many auto markets in developed economies are already being tested as consumers retrench.

What are the critical factors impacting sales and build volumes in this current environment? How bad can it get before recovery sets in? Can Asia hold up?

Global Insight automotive analysts invite you to a special Webcast, Wednesday, 8 October 2008, to consider the current level of selling activity and implications for industry volumes for 2009 and 2010 across Europe, the United States, and Asia.

Presented by:
Nigel Griffiths, Group Managing Director, Global Forecasting
George Magliano, Director, Automotive Industry Research, North America
Tim Armstrong, Director, Automotive Industry Research, Asia & Middle East/Africa

Can't make this date? We offer playbacks of all our Webcasts. For a replay of this Webcast, register for the "live" event, and you will receive instructions to access the playback in the confirmation e-mail.

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