Opel Employees Reject Deal, General Motors (NYSE: GM) Europe Facing Unease

The days for the Opel may be numbered. The Opel brand, part of General Motors (NYSE: GM) has been struggling to rebound from the financial crisis, as falling sales have sapped its profitability and caused GM to explore alternative plans for the brand. It seems the plans aimed at saving or reviving the brand have faltered. Employees at the luxury car making unit have rejected its turnaround deal to save the struggling European unit. The failure of the deal means that the plant will be closed down by 2014 instead of 2016, significantly adding to the surging unemployment in Europe as the Bochum factory employs more than 3,000 workers.

Opel had initially intended to keep the plant in operation till 2016 and retain 1,200 of the more than 3,000 employees in other component and warehousing jobs. The company wanted workers at the plant to accept delay in wage increases. But about 76% of employees at the plant voted against the deal. The Bochum plant manufactures Zafira compact multi-purpose vehicle. Opel management started discussion with German employees in June last year to reach a resolution that would guarantee significant savings and flexibility to the company. Opel operates three more plants in Germany.

Just prior to the end of 2012, Opel announced plans to sell six facilities in Europe to GM in order to win extended funding. The transaction includes an engine plant in Hungary, a development center in Turin, Italy, and a facility in Gliwice, Poland. The decision will help the Ruesselsheim, Germany-based automaker receive funding till 2016. Opel is obligated to pay back a loan to General Motors by 2014.

Opel faces weak car sales, high fixed costs and an excess production capacity. These resulted in a total loss of more than $17.3 billion since 1999 due to uncompetitive models and weakening European market. Therefore, the company’s turnaround plan incorporated cost reduction measures, new model launches and efforts to boost export sales. In 2012, GM’s revenues from European operation declined 11.1% to $5.6 billion. The operation also reported a higher adjusted loss of $0.7 billion in the quarter, compared with $0.6 billion a year ago.

In order to reverse the 12 years of losses in Europe, particularly from the Opel brand, GM formed a global alliance with PSA Peugeot Citroen. The pact will help both the automakers reduce at least $2 billion in costs. The present Euro zone financial crisis has affected the operations of many global automakers.

GM expects to boost its top-line in 2013 with the help of new vehicle launches. At the same time, the company believes cost control measures will boost its bottom line growth.  The firm is striving to reinvent itself amidst difficult market conditions – the unease in Europe is keeping buyers on the sidelines,  and this may prove to be just the beginning of a much larger trend.