Ellesmere Port saved after GM's divide-and-rule game secures concessions from Government and Workers?
Hopes are rising that GM Europe will soon announce a 'reprieve' for its Ellesmere Port plant, after gaining support from the UK government on new model launches and supply chain efficiencies as well as concessions from workers on wages and flexible working.
GM Europe had earlier announced it was looking to cut up to 400,000 units of capacity a year from its European operations from 2014 (when its current deal with unions expires), with the firm suggesting that Ellesmere Port and Bochum in Germany were the most vulnerable.
That enabled the firm to kick off a fresh round of its well-honed divide-and-rule strategy, pitting plants and governments against each other in a bidding war to offer the most concessions to the firm. It's a typical feature of the auto industry, controlled as it is a in a top-down way by giant, mobile 'original equipment manufacturers' (OEMs) keen to screw down costs by playing off sites against each other.
The strategy appears to have paid off for the firm, which is looking to cut costs at it its loss-making GM Europe operations. It is thought that GM will now keep Ellesmere Port open through a plan that would see the plant make more cars across 3 shifts a day rather than 2, thereby cutting fixed costs, along with support from the government for new model launches and supply chain improvement.
That would take output at the plant to around 200,000 units a year - something close to what's seen by many auto analysts as the 'Minimum Efficient Scale' for a car assembly plant. Under the plan, as well as going to 3 shifts a day, costs would be cut by sourcing more parts locally in the UK (a very recent trend given higher transport costs making local sourcing a more competitive option).
The Coalition government has recently unveiled a £125 million fund to help develop local suppliers around the UK's major manufacturers, and this support is seen as important along with training and launch aid for a new model.
Ellesmere Port employs some 2,100 people directly, and up to 700 contractors or agency workers, and supports more in the supplier chain (including here in the West Midlands) and at dealers. It's thought that GM Europe is expected to announce the addition of another 500-700 extra jobs to build the next generation Astra model at Ellesmere Port from 2015.
Ellesmere Port was seen as vulnerable to possible closure in part because it currently sources a large proportion of components from mainland Europe and exports assembled cars back to the continent, in part because of the ease of laying off workers in the UK as against other sites, and in part because of the lack of a supportive industrial policy to support long term investment.
To be fair to the current government, its steps have been useful in securing the plant, and the challenge now is to use that support (wrung out of the government by the firm) so as to get spillovers in terms of wider capacity building in the supply chain.
I'd previously suggested that the three elements of GM Europe's recent strategy were: 1. capacity reduction (i.e. closing plants); 2. shifting production outside of western Europe; and 3. playing plants and workers off against each other to secure cost reductions even in those plants remaining open.
On 1, the decision to spare Ellesmere Port suggests that Bochum in Germany is firmly in the firing line, with Astra production at Russelsheim also ending. On 2, the German magazine Der Spiegel recently claimed that GM plans to produce as many as 300,000 more cars in low cost locations such as Brazil, China, India, Mexico, Poland and Russia and exported to Europe.
The third element, highlighted here, has been an attempt to reduce costs even at European plants that remain open by engaging in a divide-and-rule game whereby GM signals that it has excess capacity and then plays off plants against each other so as to screw down costs and wages and to get workers to work as flexibly as possibly.
Ideally from the firm's point of view this involves some state support in terms of new model launches, training and supply chain initiatives so as to 'safeguard' plants and jobs - at a cost to the taxpayer. This is exactly what seems to have been forthcoming.
Academics have suggested that GM has had more capability to engage in such "coercive comparisons" as it has followed a deliberate production strategy of setting up parallel lines of production across countries through widespread platform sharing. In contrast some other firms (Ford, Daimler and VW) displayed varying degrees of specialisation across countries and hence had a lesser ability to undertake such actions.
But in reality, such practices are common in the industry especially at times of over-capacity, and means that GM Europe has looked not only to cut capacity but also to squeeze concessions out of remaining plants to screw down costs.
Make no mistake, though: I'm delighted if Ellesmere Port is kept open and invested in. The plant has a lot going for it - the plant is flexible and efficient, the workforce is very good, and the exchange rate is currently in the UK's favour (for now at least despite a recent 10% appreciation).
Government launch aid support and other help also appears to have been critical - despite Vince Cable stating last year that he wouldn't go around 'waving chequebooks' at car firms. Quite what he meant by that was not clear, but basically launch aid is a key part of keeping production in the UK, and Cable appears to have realised that.
After all, all our research on 'life after Longbridge' has shown the importance of high quality manufacturing jobs. Manufacturing really does matter, especially when we need to 'rebalance the economy' as politicians keep on saying.
And let's not forget the role of workers and unions here. It's again a textbook case of management, unions and workers working flexibly, as they did during the recession and at GM Luton last year, to safeguard jobs and encourage investment.
Professor David Bailey works at Coventry University Business School