Will Austerity Come Home to Germany?

Econintersect:  The countries in the periphery of the Eurozone have gotten into an economic quagmire partly because their labor priced itself out of competitive markets.  The core, especially Germany, has taken the position that the solution to the disequilibrium in the EU can be rectified if the periphery reduces spending and forces labor into a lower cost competitive condition.  In that way the periphery can regain balance with the virtuous German laborer.  Now there are rumors that the lack of competitiveness may be coming to German manufacturing.  Could it be that austerity can come home to roost?

According to Spiegel Online, an internal General Motors strategy paper reveals that the U.S. automaker wants to close its plants in Western Europe and transfer production to low-cost countries. The document means that the future looks bleak for Opel manufacturing plants in Germany.  Here is some of what Spiegel Online had to say:

An internal strategy paper titled “Global Assembly Footprint” was presented at a “GM Global Business Conference.” According to the document, the US company plans, if sales increase, to produce 80 percent of the additional vehicles in so-called low-cost countries such as Poland, Russia, China, India, Mexico and Brazil. Currently, General Motors still produces nearly half of its cars in high-cost countries in North America and Europe.

The strategy means that plants in the United States, Britain and Germany are threatened with closure. In low-cost countries, however, production will be expanded. While production in Bochum is to be stopped by 2015 at the latest, production capacity in Gliwice, Poland, will be increased by 25 percent. Another reason why factories like those in Bochum have no future is because GM wants to increasingly supply the European market with imports from low-cost countries. By 2016, an additional 300,000 vehicles will be exported to Europe from plants in Mexico, Korea and China.

At the same time, the US automaker plans to consolidate its global range of models. According to an internal plan, the number of vehicle platforms, currently 30, will be cut to less than half that figure by 2018. In the future, there will hardly be any models that are developed specifically for a market like Europe.

The Spiegel Online article says that the moves may make GM more profitable in the short run and boost stock prices but the company may continue to lose market share to Volkswagen which has a better long range strategy.  In the meantime German factory workers may have to face the same upsetting fact as have those in the peripheral countries:  They have priced themselves out of the global labor market.

John Lounsbury

Source: Internal GM Plan Foresees Plant Closures in Europe (Dietmar Hawranek, Spiegel Online, 26 March 2012)