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Select Committee on Trade and Industry Written Evidence


APPENDIX 12

Memorandum by General Motors

THE GENERAL MOTORS FAMILY

  General Motors Corporation today employs about 327,000 people around the world and manufactures its cars and trucks in 33 countries. In 2005, 9.17 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, and Vauxhall. This figure was up 2% from the previous year, and the second-highest total in the company's history. GM operates one of the world's leading finance companies, GMAC Financial Services, which offers automotive, residential and commercial financing and insurance. More information on GM can be found at www.gm.com.

  GM is the majority shareholder in GM Daewoo Auto & Technology Co of South Korea, and has product, powertrain and purchasing collaborations with Suzuki Motor Corp and Isuzu Motors Ltd of Japan. GM also has advanced technology collaborations with DaimlerChrysler AG and BMW AG of Germany and Toyota Motor Corp of Japan, and vehicle manufacturing ventures with several automakers around the world, including Toyota, Suzuki, Shanghai Automotive Industry Corp of China, AVTOVAZ of Russia and Renault SA of France.

  Genuine GM Parts and accessories are sold under the GM, GM Performance Parts, GM Goodwrench and ACDelco brands through GM Service and Parts Operations, which supplies GM dealerships and distributors worldwide. GM engines and transmissions are marketed through GM Powertrain.

  General Motors divides its global operations into four regions: GM North America (GMNA), GM Europe (GME), GM Latin America, Africa, and Middle East (GMLAAM), and GM Asia Pacific (GMAP).

GM GLOBAL PERFORMANCE

  For 2005, GM reported global losses of $3.4 billion, including GMNA losses of $8.6 billion.

  GM is taking steps to improve its competitiveness and reduce its structural costs in all its regions. In North America, GM is implementing a turnaround plan based on a number of key elements including raising the bar in the execution of great cars and trucks, revitalizing the sales and marketing strategy, improving cost competitiveness and addressing health care and pension legacy costs.

GENERAL MOTORS IN EUROPE

  In Europe, GM sells its vehicles in over 30 markets. It operates 11 vehicle production and assembly facilities which produced just under 1.8 million vehicles last year. As of the end of 2005, GM Europe employed around 64,500 people. Based on an estimated multiplier of three, it is estimated that GM's European supply chain generates in the region of a further 190,000 jobs. Many additional directly related jobs are provided by some 8,700 independent sales and service outlets.

  In 2005, GM sold 1.98 million passenger cars and light commercial vehicles in Europe, keeping its market share at 9.4% of a total European market of 21.05 million units.

  In the first quarter of 2006, GM Europe reported adjusted earnings of $88 million, its first profitable first quarter since 2000, and an improvement of $180 million over the first quarter of 2005. This progress reflects continued progress in reducing structural and material costs, better vehicle mix and lower warranty and policy costs, and comes after consecutive losses amounting to $3 billion for the period 2000-05.

  Although a great deal remains to be done, GM Europe's restructuring plan is on track on the cost side, and the focus is now also on growth.

  GM's next quarterly results will be announced on 26 July.

GENERAL MOTORS IN THE UK

  The United Kingdom is GM's fourth largest national market worldwide, after the United States, China, and Canada. It is also GM's largest European market.

  General Motors (GM) operates a number of companies in the UK, namely Vauxhall Motors Ltd, Saab GB Ltd. and GMM Luton, all wholly owned subsidiaries of GM, as well as Chevrolet UK Ltd. (41% owned). Millbrook Proving Ground is also operated by GM, as a related business (www.millbrook.co.uk). GM has two manufacturing facilities in the UK: Luton, Bedfordshire, and Ellesmere Port, Cheshire.

VAUXHALL MOTORS LTD: OVER A CENTURY OF UK HERITAGE

  Vauxhall Motors, which built its first car in the Vauxhall district of South London in 1903, moved to Luton in 1905, and was acquired by General Motors Corporation in 1925. Production at Ellesmere Port began in 1964, where the first vehicle to roll off the new production line in June of that year was the Vauxhall Viva. In May 2003, Vauxhall celebrated its centenary, underpinned by the theme of "A Century in Motion".

  Vauxhall currently markets the Agila, Astra, Astra TwinTop, Corsa, Tigra, Meriva, New Zafira, New Vectra, New Signum and Monaro passenger cars. Its commercial vehicle range comprises the Vivaro, Astravan, Movano, Combo and the Corsavan.

VAUXHALL/GM PERFORMANCE IN THE UK

  In 2005, GM's UK plants produced a total of 279,331 vehicles, representing 16% of total UK car and light commercial vehicle production. In the same year, the company sold 415,640 units on the UK market. GM's share of the UK's total market for LCVs and cars in 2005 stood at 14.7%. Vauxhall was the second to top brand in the UK, with a market share of 13.07%.

GM'S CONTRIBUTION TO THE UK ECONOMY

  Currently, GM directly employs 6,567 people in the UK. Through affiliated dealerships, the company indirectly employs a further 12,630 people in this country. Aside from this, the company has 23,000 retirees in the UK, all benefiting from a GM pension.

  Since 1988, GM has produced a total of 6.62 million vehicles in the UK—more units than Toyota and Nissan combined. Over that period, the company has invested in excess of £1.5 billion in its UK manufacturing base. Last year, GM exported in excess of 180,000 vehicles from the UK.

  Including direct and indirect materials, machinery and equipment, aftersales, and logistics, approximately 1,400 companies in the UK are suppliers to GM. Total spend with these companies is in excess of £500 million annually.

PRODUCTION AT GMM LUTON

  GM Manufacturing Luton produces the Vivaro medium-sized van for sale under the Vauxhall, Opel, Nissan and Renault brands and in 2005, manufactured a record 90,414 units. Last year, it was also confirmed that GMM Luton would maintain the contract to produce the vehicle until 2013.

  In terms of GM's own global measurement system for assessing plant performance (GM-GMS), the company's plant has achieved a 77% improvement in production quality since 2002. Additionally, over that time period, the number of manpower hours spent producing each vehicle has been reduced by 30%, whilst cost per vehicle has reduced by 26%.

PRODUCTION AT GMM ELLESMERE PORT

  Vauxhall GM Manufacturing Ellesmere Port currently produces the 5-door Astra for Vauxhall and Opel. In 2005, the plant produced a record 188,917 vehicles. The plant will begin production of the new Astravan in August of this year.

  Since 2002, according to GM-GMS criteria, production quality at the plant has improved by more than 40%. Furthermore, the number of manpower hours spent producing each car has reduced by 49%. Meanwhile, total plant cost per car has fallen by 40%, whilst assembly cost per car has reduced by 37.3%. The plant has become GM's safest Astra plant, having maintained a record of zero lost working days through injury over the past 12 months.

MAY 2006: ANNOUNCEMENT ON REMOVAL OF THIRD SHIFT AT ELLESMERE PORT

  On 17 May this year, General Motors Europe began formal consultation with the trade unions to eliminate the third shift of production. Ellesmere Port currently has the highest operating costs and product lifecycle cost projections of the plants currently producing the Astra (which include Antwerp, Belgium and Bochum, Germany). The decision will affect approximately 900 employees at Ellesmere Port.

  It is expected that the shift reduction will help to increase the efficiency of the Ellesmere Port plant and will position the plant more positively for future product allocations.

  The company intends to achieve the job reductions necessitated by the loss of third shift at the plant via voluntary redundancies. The adjustment is expected to take effect following the summer shutdown of the plant in August, and will be implemented in line with existing agreements established with the trade unions.

GM INTERNAL MEASURES TO IMPROVE COMPETITIVENESS

  GM is working hard to improve the elements of competitiveness in its direct control. For example, we are bringing to market 45 new products and variants over the next five years. We are moving to fewer global vehicle architectures which will allow us to do more common sourcing of those vehicle components that do not differentiate a vehicle. In Europe, we have dramatically improved quality and reduced warranty rates by as much as 70% over the past six years. Between 2002 and 2005, the company also improved overall European manufacturing productivity by 23.5%, partly as a result of more competitive labour agreements and more flexible working practices.

  At the same time, as a legacy of the company's long history of manufacturing in the UK, we continue to face challenges in re-negotiating employee contracts in order to bring labour flexibility up to the world class standards already negotiated from the outset by those automotive companies with a much more recently established manufacturing base in this country.

  Additionally, there are a number of market forces, economic pressures and policy issues significantly impacting our profitability and competitiveness, that are beyond our control.

MARKET FORCES, ECONOMIC PRESSURES AND REGULATORY CHALLENGES

  The UK market, along with most West European markets, is mature, with little growth forecasted. In fact, it is projected that between 2005 and 2011, the UK market will actually contract by 5%. Meanwhile, Central and Eastern European markets are set to expand by 30% over that period.

  The market for traditional mainstream segment vehicles in Europe is currently shrinking, while the market for both premium and value vehicles is on the rise. At the same time, the net price of vehicles sold in Europe is declining 1% a year on average, making it vitally important for automotive companies competing in the value and mainstream segments to pursue cost reductions aggressively.

  With the emergence of new segments such as multi-activity vehicles, and small and compact monocabs, there are more and more niche product offerings with much lower volumes, making economies of scale increasingly difficult to achieve.

  Meanwhile, current overcapacity across the industry in the order of 25% in Europe (roughly equivalent to 20 excess assembly plants) is not economically sustainable. Automakers are adding about one million units of capacity in Central and Eastern Europe to support market growth in these countries and to reduce their overall manufacturing costs. This will exacerbate the challenge of excess capacity, especially in Western Europe.

  Raw material costs are also increasing dramatically, with prices for steel up 30% to 60%, aluminium up 25%, and plastic materials and resins up over 50% over the past seven years.

  At the same time, recent EU regulatory requirements are imposing a significant cost burden on all manufacturers. It is estimated that the combined effect of new legislation on design protection, the REACH directive, the End of Life Vehicles directive, new rules on mobile air conditioning and pedestrian protection, the draft Euro 5 emissions regulation, and the voluntary agreement on CO2 will be to impose an additional cost per vehicle of between €1,600 and €2,900.

  These pressures are squeezing profitability for all mainstream European auto manufacturers, whose average net profit has been less than 3% for the past three years, whilst a number of major automakers (including GM) have operated at a loss over that period.

CURRENCY VALUATION CHALLENGES

  Virtually all foreign exchange indices and experts agree that the Euro and Sterling are significantly overvalued against the Japanese Yen and other Asian currencies. The Bank of Japan has been intervening heavily in foreign currency markets to weaken the yen relative to the dollar while the European Central Bank and the Bank of England have allowed market forces to determine the value of the Euro and the British Pound respectively. The net result is a substantial undervaluation of the yen relative to the Euro and the Pound Sterling. Numerous independent forecasters estimate that the fair value Euro/Yen exchange rate should be in the range of 120-125 yen to the Euro, compared to the current exchange rate of over 140 yen to the Euro. The practical effect of this situation is to give vehicles exported from those markets to Europe a major unfair price advantage. Based on an average transaction price of €18,442 before taxes, a Japanese manufactured vehicle exported to Europe would incur an unfair advantage of over €3,000.

  Japanese-based manufacturers still import large numbers of vehicles from Japan, giving them a substantial unearned exchange rate advantage. This windfall can be spent on new product programs, subsidising new technology introductions, on marketing and sales, and other strategies to expand their operations.

CHALLENGES TO UK COMPETITIVENESS IN MANUFACTURING

  The UK faces some specific challenges when seeking to maintain a competitive automotive manufacturing sector.

  Utilities costs currently impose a disproportionately high burden on UK manufacturing industry, compared with continental Europe. For example, compared to 2005 expenditure, energy costs for GM's Ellesmere Port facility are projected to increase by 34% in 2006. This is considerably higher than the cost increases being experienced at some competitor plants in the EU.

  Logistical costs also create a substantial inherent disadvantage for the UK in relation to continental manufacturing locations. Taking account of the relative split between production for the domestic market and for export at each of GME's current three Astra plants, and a combined figure for logistical cost of transporting supplies into the plant and shipping finished vehicles out, the company's Ellesmere Port facility incurs an annual logistical cost disadvantage of €18.7 million compared to the company's other two Astra plants on the European mainland.

  GM continues to work closely with local and national government and other stakeholders in an effort to identify means of offsetting these specific disadvantages, and maintaining and enhancing the competitiveness of the UK as an automotive manufacturing location.

CONCLUSION

  Many factors play a role in product allocation decisions including logistics costs, utility costs, direct and indirect labour costs, labour productivity and flexibility, assembly cost per car, the regulatory environment of the country concerned, including the local taxation regime, availability of government grant funding, as well as market presence in that country. While some of these factors are within the direct control of the company, many are the result of the policy frameworks established by governments and our negotiated relationships with our unions.

  In the context of an extremely competitive global market, including a degree of unfair competition, an increasing regulatory burden, diminishing profit margins and shifts in projected future growth, excess production capacity, and the challenges to economies of scale resulting from market fragmentation, General Motors is compelled to continue to take aggressive action to improve the company's overall cost-competitiveness. This action is vitally important to secure the long term future of the company.

  In this challenging environment, we would call on all governments, including the UK, to develop a clear understanding of the challenges faced by the automotive industry, and to work with us to enhance automotive sector competitiveness.

21 June 2006





 
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Prepared 29 March 2007