General Motors Company (GM): Will It Pay Big to Close This Factory?

Opel headquarters in Rüsselsheim, Germany. Photo credit: General Motors Company (NYSE:GM).

It’s a done deal. General Motors’ money-losing German subsidiary Opel has approved the closure of one of its German factories – the first German auto factory to close since the end of World War II.

Opel said on Wednesday that its supervisory board, which includes four senior GM executives, had voted to approve General Motors Company (NYSE:GM)’s plan to close the factory in Bochum, which has been in operation for 50 years, at the end of 2014.

This is a big victory for GM’s effort to turn around Opel, which has lost $18 billion since 1999.

But as rival Ford Motor Company (NYSE:F) recently discovered with its own European factory closings, it’s a victory that may come at a very steep cost.

Why closing a factory in Western Europe can be an expensive move
Ford Motor Company (NYSE:F), like General Motors Company (NYSE:GM), posted a huge loss in Europe last year. New-car sales in the region fell to a 17-year low in 2012, and nearly all of the automakers doing business in the region were hit hard.

Unlike GM, Ford had been making money in the region recently – so putting together a turnaround plan was a relatively straightforward exercise. Ford said it would close three factories, focus on retail sales over fleet sales to maximize margins, and bring a bunch of new products to the region to capture additional business.

But Ford Motor Company (NYSE:F) found out the hard way that factory closings in Western Europe are rarely cheap, especially when powerful labor unions are involved. Ford disclosed last month that its plan to close a plant in Genk, Belgium, would cost it at least $750 million.

That’s a huge sum to close a factory. What’s it for? Severance payments.

Yes, the 4,000 auto workers at Genk are set to get severance payments that will average at least $187,500 each. That’s a nice bonus to tide you over while you job hunt, isn’t it?

To American eyes, at least, it’s quite lavish. And if the union leaders at GM’s Bochum plant have anything to say about it – and they will – General Motors Company (NYSE:GM)’s payouts are likely to be even more lavish.

Opel labor leader has threatened an all-out war
GM’s Opel has four factories in Germany, and their workers are represented by a powerful union, IG Metall.