Memorandum by General Motors
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
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
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
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.
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,
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.
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%.
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 UKmore 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.
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%.
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 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
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.
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
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.
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
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.
UK COMPETITIVENESS IN
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
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