GM to Close Portuguese Factory by End of 2006; 1,200 Lost Jobs Possible

July 12, 2006

GM is to close its factory in Portugal this year and move production of its Combo vehicle to its factory in Zaragoza, Spain, the company’s Europe vice president said July 11.

The move means 1,200 lost jobs at the Opel plant in Azambuja, near the Portuguese capital, which produces 75,000 Combo light commercial vehicles a year, Eric Stevens said.

“GM Europe has decided to transfer the Combo’s production to its Spanish factory,” due to high costs and logistical matters that made the Portuguese plant less competitive, he said.

“The transfer will begin in December this year, when the Azambuja factory shuts down,” he said. That date was extended for the initial closure date in October.

GM Europe President Carol-Peter Forster said the decision had been difficult, but that “microeconomic conditions today allow no alternative to this production shift to Zaragoza,” according to a statement.

GM has said it costs euro500 (US$632) more to make a car at its Portuguese plant than at other European plants.

Analyst Stephen B. Cheetham, of London-based Sanford C. Bernstein Ltd., said however that the move appeared to be part of a GM consolidation strategy.

“Certainly there are other factories that cost GM more to keep, like those in the UK, and Portugal’s Azambuja plant is not an expensive unit,” Cheetham said. “What GM is doing is consolidating the volume of a small plant into a larger plant. You need to be making at least 150,000 cars to be cost effective, and Azambuja only makes over 70,000 while the Zaragoza plant made 400,000 last year.”

The decision puts an end to long talks with the Portuguese government, which had been trying to keep the factory in Portugal by offering solutions for narrowing the cost gap.

GM said that “in the end, the cost gap could not be closed,” but that the company was ready to repay the government “any unearned state aid” and would help the government to identify new investors for the site and to guarantee a smooth transition for workers.

The Portuguese plant employs 1,200 factory workers, as well as 800 people in administration. The company employs 64,500 people across Europe.

The company said it would work with unions to find a transition agreement for affected workers, which may include retraining and other initiatives.

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