The decision to close the Vauxhall plant at Luton is a major shock to the European auto industry. But excess capacity in the industry, and the loss of market share to smaller rivals, leaves the Big Three with little choice. If GM does not take radical cost-reduction steps and improve its product range, it risks losing its position.
General Motors chiefs yesterday announced restructuring plans affecting two of its major markets, the US and Europe. In Europe, GM aims to slash capacity by 400,000 units a year, with the loss of 5000 jobs. In the UK, Vauxhall's plant in Luton is set to close; job losses are also expected in Germany as the company implements 'lean manufacturing'.
Earlier in the year Ford announced similar proposals, culling its UK Dagenham plant, whilst DaimlerChrysler (DC) also recently announced a restructuring. At first sight, such severe cuts seem unnecessary. In Europe, new registrations are only marginally lower than last year, and the US market is experiencing record sales, although it has slowed in recent months. However, although cars are leaving the showroom, there is still excess supply, resulting in intense competition and lower prices to shift stock. The 'Big Three' (and others) have misread the market, and their product lines have generally failed to grasp motorists' attention.
Now, their complacency has come home to roost. As GM and Ford close plants, smaller manufacturers such as PSA continue with record production and sales. Clearly, a fresh outlook is required amongst the majors. A reduced cost base, increased flexibility and innovative products will be the key if the Big Three are to emulate the relative minnows' success in winning market share.
The industry must do whatever is necessary to bring back confidence, steering clear of the problems of the late 80s and early 90s. For GM, cutting losses whilst it has the power is imperative, but it must also re-examine its overall strategy. Losing Luton may be difficult to accept, but in the long-term sacrificing Luton for GM may just be worthwhile.