US embassy cable - 03FRANKFURT7910

UNCLAS FRANKFURT 007910 
 
SIPDIS 
 
USDOC FOR COMMERCIAL SERVICE 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ELAB, EIND, ECON, ETRD, ELTN, GM 
SUBJECT: GM's Opel Chief Sees More Job Cuts Despite Company 
Turnaround, Pent-Up Consumer Demand 
 
SUMMARY 
------- 
 
1. (SBU) Opel (GM) Chairman Carl-Peter Forster is 
optimistic that the automaker can keep its market share 
growing but pessimistic about overall demand, profits, and 
the future of the German auto industry.  Forster expects 
that Opel will be forced to announce another round of 
layoffs at its facility in Bochum (North Rhine-Westphalia). 
Germany will remain a leading auto producer, but many jobs 
will move to countries where labor cost is lower, 
particularly Eastern Europe.  The Opel chairman faulted the 
German government and opposition for not offering a 
coherent economic vision that boosts consumer confidence. 
END SUMMARY. 
 
2. (SBU) The CG met GM-Opel Chairman/CEO Carl-Peter Forster 
at Opel's headquarters in Ruesselsheim in the lead-up to 
the IAA show in Frankfurt (the world's largest auto show). 
Forster, who engineered Opel's remarkable turnaround 
starting in 2001 (increasing its market share from nine to 
10.9 percent), fears a setback in the second half of 2003. 
The European car market has contracted three to four 
percent in the last four years and sales volume has fallen 
for all manufacturers.  Opel now faces a strong Euro and 
the expensive launch of the new Astra model.  Less volume 
and higher costs will likely translate into more layoffs, 
particularly at the Bochum plant in North Rhine-Westphalia. 
Worried about the economic situation, consumers continue to 
delay purchases and buy more basic cars (smaller engines 
and fewer accessories), reducing the profit margin per 
vehicle.  Forster is "frustrated by the lack of political 
leadership .... There is so little on Schroeder's 
achievement list and the opposition makes it worse by 
creating greater confusion".  Still, he expects the German 
car market to grow by five percent in 2004 because of pent- 
up demand (average vehicle age in Germany is now over seven 
years). 
 
3. (SBU) Opel depends on European markets because it cannot 
export to the US in competition with parent GM.  Forster 
rejects speculation that Opel would enter the US market: 
"GM's problem is not too few, but too many brands." 
Currently more decentralized than other producers, GM will 
more closely coordinate its brands in the future.  Forster 
said GM never managed to create synergy between the US and 
German markets, adding that competitor Daimler-Chrysler's 
merger is not working well either because of the very 
different product lines.  CG raised the issue of diesel 
engine technology; Forster said diesel passenger vehicles 
have a future in the US and could make a major contribution 
to reducing carbon-dioxide emissions.  Opel made a 
strategic mistake in moving its diesel competence center to 
Japan and now lags behind competitors in Europe's diesel 
boom.  GM/Opel are counting on their co-development/co- 
production with Fiat (the "Powertrain" alliance) to reduce 
costs and further expand market share in Europe. 
 
4. (SBU) The drive to lower costs will mean that auto- 
sector jobs continue to migrate out of Germany.  Forster 
noted that while Ford saves perhaps 20 percent by having a 
supplier park on its compound in Saarlouis (SW Germany), 
suppliers in Eastern Europe are up to 80 percent cheaper. 
Forster wondered why a public outcry ensued when Opel cut a 
few hundred jobs in Ruesselsheim, but the fact that 
suppliers have moved thousands of jobs to Eastern Europe 
attracts little attention.  Forster praised Opel's German 
workforce who identify with Opel and seldom strike.  "I 
prefer the sophisticated and well-educated workforce here 
who know what is going on in the company" through their 
participation (Mitbestimmung on Opel's supervisory board). 
Forster predicted, however, that labor has a tough road 
ahead because of EU integration and globalization.  The 
brand identity and core competence for technology will 
remain German, but most value-added will migrate out of 
Germany.  "Assembly will always remain where the markets 
are ... but assembly alone can be done by 300 employees," 
for instance at the new Porsche factory in Leipzig. 
 
5. (SBU)  COMMENT:  For Opel's 40,000 employees in Germany 
-- and for the millions of Germans who depend on the 
nation's auto production for their livelihood -- the future 
looks difficult despite the expected rebound in German 
demand for cars.  END COMMENT. 
 
PASI