Page last updated at 16:26 GMT, Thursday, 10 September 2009 17:26 UK

What now for Opel and Vauxhall?

By Jorn Madslien
Business reporter, BBC News, Wolfsburg, Germany

Slowly rotating wind turbines litter the North German landscape to the west of Berlin.

The way the wind is blowing in Germany these days, the country's political capital has become central to the future of its car industry.

People checking out VW Scirocco in Autostadt amusement park
To many Germans the car is like another member of the family
Hans-Joachim Stuck, racing driver

This was where Chancellor Angela Merkel announced that US carmaker General Motors (GM) will sell a majority 55% stake in its Opel and Vauxhall subsidiary to Canadian parts maker Magna and the Russian state-owned bank Sberbank, a decision clearly swayed by her government's offer of substantial financial backing.

Germany has already lent 1.5bn euros ($2.18bn; £1.31bn) to Opel, and will now put up an additional 3bn euros in loan guarantees for Magna, thus safeguarding thousands of German jobs while also potentially securing some votes for Chancellor Merkel in the run-up to the election later this month.

"My analysis is that it helps Merkel," says Gerd Langguth, political scientist at Bonn University.

Klaus Franz, Opel's works council chairman representing the company's 25,000-strong workforce in Germany, responded with cheer.

Automotive passion

The fortunes of the German car industry are not taken lightly by visitors to Autostadt, a couple of hours west on the E30 Autobahn that connects the country's political capital with the Wolfsburg headquarters of its largest carmaker, Volkswagen Group - Opel's main competitor here.

Autostadt - or car city - is a a cross between a family theme park and a car distribution centre, designed to strengthen the bonds between the carmaker and its customers who flock here in their thousands to take delivery of their cars, taking in the car museum and exhibitions featuring the latest in automotive technology in the process.

Sign for Opel factory
Opel was a big beneficiary of German government funding

Such automotive pilgrimages are central to the German psyche, according to racing driver Hans-Joachim Stuck, famous for a 40-year-long career ranging from Formula One to endurance racing for BMW, Ford, Porsche and VW.

"To many Germans the car is like another member of the family," he explains.

This cultural phenomenon is not lost on German politicians, who earlier this year responded to a crisis in the industry by introducing a 5bn-euro subsidy scheme that paid 2,500 euros towards the purchase of a new car by owners who scrapped their old ones.

German car buyers responded instantly, flocking to the showrooms.

Volkswagen was among the winners, receiving some 14,000 pre-orders for its new Polo, which hit the road in June this year, and with soaring sales of its latest Golf, launched last year.

Overall, German passenger car sales rose 26% during the first half of this year when compared with the same period in 2008, estimates the German car association Verband der Automobilindustrie (VDA). Similarly strong sales were seen in July and August.

Slow recovery

But Germany's automotive production levels fell nevertheless, down 24% during the first half of this year to about two million units in response to a sharp drop in demand from abroad.

And with the scrappage scheme having run out of cash, sales in Germany are set to fall off a cliff.

"The artificially inflated domestic demand in 2009 increases our concerns that the market may see a significant fall next year," observes BMI Western Europe Automotive Insights.

VDA predicts sales to slump to just 2.6 million cars in 2010, and BMI says "it could be 2013 before the market returns to its pre-crisis level".

Reliance on Germany

Ahead of next week's Frankfurt motor show, where Opel is to unveil the next generation of its best-selling Astra model, it is clear that GM is eager to retain a strong presence in Europe - something it could not afford to do without government assistance this side of the pond.

Consequently, the American giant - which will retain a 35% stake in Opel and Vauxhall - could ill afford to alienate the government and the unions in Europe's largest car market, where it still retains a 9% market share after seeing sales soar 32.1% so far this year, in spite of the uncertainty surrounding the Opel brand.

We need to make sure that British plants and people are not treated disproportionately during the restructuring that will take place
Tony Woodley, Unite

But Magna is set to embark on a restructuring process that is expected to result in the loss of a fifth of its 50,000 strong workforce, with Germany is expected to account for about a quarter of the 10,000 redundancies.

Opel thus risks the wrath of governments elsewhere in Europe where other Opel and Vauxhall factories are based, though this is unlikely to be as severe as Germany's anger since neither of these countries rely on the automotive industry the way Germany does.

Job losses

Nevertheless, Opel should not be complacent, warns Tony Woodley of the union Unite.

"Any attempts to close UK plants would have an adverse market effect, never mind industrial relations," he says, adding that if the company wants British taxpayers' money by the hundreds of millions, which it will need, then it will have to offer jobs assurances here too.

Vauxhall workers in Luton
Will UK workers have to "bear the burden" of job cuts too?

Such assurances may not be that hard to offer, at least not if additional tax payers' funds start flowing in.

It seems likely that as part of talks with others in Europe, Germany will agree to cut some 2,500 jobs in its factories - a tenth of its workforce there.

Indeed, Chancellor Merkel says she wants to discuss with her European partners "the distribution of the burden", which probably means that any European government that wants to safeguard jobs at home must also provide substantial sums of money.

With a further 4,000 or so job cuts likely to result from the sale of GM-subsidiary Saab, expect there to be some 4,500 job cuts left to be shared between factories in Spain, Belgium, Poland and the UK. Or less.

Further subsidies?

There is also the outside chance that jobs will be created in new areas while cuts take place in others.

Though Magna will surely be cutting costs, it will also continue down the path of seeking subsidies in any shape or form, and Germany is certainly no bad place to start.

Its Opel Ampera, a plug-in electric car with a range-extending petrol engine (named Chevrolet Volt in the US), will fit neatly in with the government's plan to have a million electric cars on the road in a decade, rising to four million by 2030.

Not only is it likely that much of this development will be funded by the German government, and supported by energy companies operating wind farms and nuclear power plants; it will also require manufacturing capacity.

The battle for European automotive jobs is not over yet.

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