David Prosser: Is Vauxhall running out of road?

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The Independent Online

Outlook No wonder the unions representing Vauxhall workers are nervous. While the German Chancellor, Angela Merkel, was cock-a-hoop yesterday about GM's decision to sell its European arm to Magna – having offered huge loan guarantees in return for promises on local jobs – the British Business Minister Pat McFadden could only promise to carry on talking to the Canadians.

It would be unfair to accuse Mr McFadden and his boss, Lord Mandelson, of having let Vauxhall workers down. Germany was always going to have the whip hand in this negotiation because GM's Opel employs five times as many workers in the country as Vauxhall does in Britain. And the UK Government may yet be able to secure some commitments from Magna on jobs in this country by offering its own more limited package of financial support.

In any case, the outlook for this business is not necessarily as grim as has been painted. GM is selling its European subsidiary out of desperation rather than necessity – and partly because of US laws that do not allow taxpayers' funds to be used to sustain foreign jobs. Opel and Vauxhall combined is far from being a basket case of a business, having made only small losses before the havoc wreaked by the recession.

Nevertheless, Magna will want to cut jobs at its acquisition – as many as 10,000 of the 50,000-strong workforce by some estimates. And having made a pact with the Germans, other GM plants, such as those in the UK, are by definition more vulnerable to redundancies.

Among Vauxhall staff employed in Ellesmere Port and Luton, the latter have most to fear, having not made any cars since 2002. Instead, Luton produces commercial vehicles – its own Vivaro vans, as well as the Trafic van on contract for Renault Nissan. And while the car business is picking up – possibly temporarily – thanks to all those scrappage schemes, there has been no such respite for the commercial sector.

There are a couple of reasons to be hopeful. First, Luton is the only producer of Vivaros, so if Magna wants to maintain its presence in this market, it may choose to stick with the plant. Second, the contract with Renault does not expire until 2012, which would make full-scale closure of Luton tricky.

Less happily, Magna could simply slash Vivaro production, or even move the line elsewhere – to Spain, for example, where the Zaragoza factory makes the Combo, a smaller van. As for Renault, it has a clause in its contract with GM that entitles it to pull out of the Trafic production deal should ownership of Luton change, as it is about to do.

The news is brighter for Ellesmere Port. Magna will already know that the plant tops GM Europe's productivity rankings. That's one reason why it is home to production of the new model of the Astra, which began a fortnight ago.

While four-fifths of the new Astras are to be exported back to the Continent, badged as Opels, taking the production line away from Ellesmere Port would be hugely complicated and costly. For now at least, this line looks safe.

Ministers could also do more to ease concern about jobs in the North-west. Gordon Brown believed he was close to securing agreement from GM to build its new electric car, the Ampere, at Ellesmere Port. Getting Magna to stick with that plan could be a crucial boost for the plant.

Let's hope the Canadians prove better bedfellows than their neighbours. Before we get carried away blaming the Germans – or our own Government – for the plight that Vauxhall finds itself in, remember that the US in effect handed the company to Magna six months ago. Talks with rival bidders collapsed when the Americans announced at the last minute that $400m of the funding it had initially offered to provide GM Europe would not be forthcoming.

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