Vauxhall plants require ‘new direction’ to survive post Opel-PSA merger

February 28, 2017

Vauxhall’s UK plants must take a ‘new direction’ if they are to survive long term, said the CEO of the PSA Group, which is in talks to buy Opel and its British sister brand Vauxhall. 

Carlos Tavares has warned that ‘performance is paramount’ for Vauxhall’s two plants Ellesmere Port and Luton to stay in operation. This would come from boosting output and thus improving capacity utilisation. Costly excess unused capacity is a wide problem across the Opel operation. 

He said that the combined Opel-PSA would aim to sell 5 million vehicles annually within ‘a few years’, up from a combined 4.3 million in 2016. PSA is also looking to engineering solutions to make further savings. In a plan Tavares put to the PSA board last Wednesday, sources told Reuters he wants to build the next Corsa subcompact car on the same architecture as its Peugeot 208 and Citroen C3 models. 

Tavares has already promised to honour existing work agreements, which secure the two plants’ future in the short term, if his purchase of General Motors’ (GM’s) European operations is successful. Manufacturing of the best-selling Astra hatchback at Ellesmere Port is secure until the end of the decade. 

However, making the plants more competitive is essential to guarantee the ‘long term success for Vauxhall’, Tavares said. Following a meeting on Friday with Len McCluskey, general secretary of the UK’s biggest union Unite, a statement from Tavares commented: ‘performance is paramount for the longevity of a company in a very challenging environment.’  

McCluskey said: It was a relatively positive first meeting […] It was also heartening to hear that PSA Group wants to work with Unite and recognises the skill and efficiency of our members. 

British business minister Greg Clark was also in the meeting alongside McCluskey, and said he was ‘reassured’ Tavares wanted to improve the plants rather than close them. He added: ‘We discussed how PSA's approach is to increase market share and expand production rather than close plants. I was assured that the commitments to the plants would be honoured.’ 

However, to turn around loss-making Opel, cuts are expected following the expiry of existing agreements. Vauxhall’s two plants in the UK are particularly vulnerable as they are deeply integrated with continental markets, so will suffer disproportionately if tariff barriers are erected once Britain leaves the European Union. One option could be to realign Vauxhall’s plant production to more directly serve the UK market. 

One of Vauxhall’s issues is the Vauxhall pension scheme, which has a deficit of up to £1 billion (€1.17 billion), a source told Reuters. Clark said: ‘There was also recognition that members of the Vauxhall pension fund will be no worse off.’ GM and PSA are currently haggling over Opel’s wider $9 billion (€8.47 billion) pension deficit. GM and PSA are also at loggerheads over Opel’s patents, with Der Spiegel reporting that it will only sell licenses for the manufacture of Opel cars to the French company if it agreed not to sell them in North America, Russia or China. However, PSA says that it wants to export Opel cars globally. 

Under the threat of job concerns, Opel’s European works council has said it has agreed to open a line of communication with its counterpart at PSA. 

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