The US auto market, hit hard by a lack of car finance and a drastic fall in demand for new cars across Europe due to the global financial crisis, has led General Motors announcing cutback in production at most of its 10 manufacturing plants in Europe and extending temporary plant shut downs at its UK plant in Luton.
Analysts say the financial crisis has prompted people to hold on to their money and spend less on buying cars in view of the uncertain economic outlook and fears of job losses.
Reports say that it is too early to say if the European closures are temporary or become a permanent feature as the word's largest auto maker, which is currently in the midst of an extensive restructuring, stops production or cuts shifts for 10 to 21 days in response to flagging demand of its Opel, Vauxhall and Saab cars.
It plans to cut its European output by 40,000 vehicles or a 2.3 per cent of its vehicles manufactured in Europe this year than originally planned.
GM closed its Opel plant at Bochum in Germany, which makes Astra and Zafira models as well as axles and gearboxes, for two weeks and will cease production for three weeks at its Eisenach plant that makes the new Opel Corsa compact.
Its Vauxhall factory in Ellesmere Port, which manufactures the Vauxhall Astra vans and Vauxhall Astra five-door cars will stop production for 14 days to reduce its output by 9,000 cars so as to match production to the current demand.
The Vauxhall factory produces 120,000 vehicles a year, out of which 46 per cent is exported to other European countries like Germany, Spain and Italy while its van plant in Luton, which manufactures the Vivaro will close for 10 days this month. Two thirds of its production at Luton is for the exports market.
A plant in Sweden, which makes Saab-brand cars in Trollhaettan, will also lose a shift because of the cutbacks.
It produced 1.74 million vehicles last year, so the cut amounts to 40, 000 vehicles which is equivalent to 2.3 percent of its total production in Europe.
Auto sales in Europe had the biggest monthly decline in the month of August when it fell by 16 per cent, the largest decline since 1999 with GM taking a hit with an 18 per cent drop. Vehicle sales have declined by 9.2 per cent in September in Western Europe.
GM said that it has no intention of laying off its employees at the moment because in Germany and Britain the employees work schedule is flexible wherein they stay at home during lean periods and make up for the hours lost when production is at full swing.
Europe has traditionally been a profitable region for GM and this gloom in sales not only in Europe but back home in the US has resulted in a $1billion loss every month this year.
It shares have taken a pounding and fell to their lowest level in more than 50 years on Monday.
Acording to a report in The Detroit News GM is mortgaging or selling its headquarters in Detroit to raise $500 million.
The US auto industry received $25 billion in direct federal loans, the largest federal aid ever offered to car manufacturers in the US, which won final US Congressional approval after a three-month industry campaign to help it retool factories to build more efficient models, such as the Chevrolet Volt.
Under the loan programme, automakers and suppliers can borrow at lowe interest rates of approximately 5 per cent, saving $100 million on every $1-billion loan at the market rates of interest.
Compared to the other two auto giants in the US, Ford and Chrysler, GM had better sales this September compared to September sales in 2007 as it cut prices of its cars. Ford sales declined by 33 per cent while Chrysler declined 16 per cent in a market hit by a 26-per cent overall decline in car sales in September.
Yesterday, all major car manufacturers in Europe announced production cuts with BMW AG, Daimler AG, Italy's Fiat and Renault of France and Ford's German subsidiary saying they would slow down as demand had fallen due to fears of the economic situation in Europe.
The demand for new cars is down by 25 per cent in Britain, by 12 per cent in Italy, 25 per cent in Spain and between 5 and 10 per cent in Germany.