GM to Close Plant in Portugal, Consolidate in Spain

General Motors Corp. tells 1,100 employees at its Azambuja, Portugal, assembly plant it will end production of light-commercial vehicles there by December.

The auto maker plans to transfer annual production of 75,000 LCVs to a larger plant in Zaragoza, Spain. The Zaragoza plant makes the Opel/Vauxhall Corsa and Meriva.

GM cites high logistics costs in Portugal and the potential cost advantages of consolidating more production in Spain as the reason for the shift. The Azambuja plant is a small facility with high overhead, contributing to increased costs of €500 ($638) per vehicle, GM says.

GM had planned to close the plant Oct. 31, but at the beginning of July said it would open negotiations with the union to try to save the facility. GM previously had said it would have to shut down the plant if talks with workers and the Portuguese government did not lead to lower production costs.

The negotiations ended in the decision to keep the plant open several more weeks.

The government appears unimpressed with the extension, however, saying GM’s contract was valid until 2008 and included financial incentives in return for investment.

“Faced with clear contractual non-fulfillment, the government will immediately launch all the legal and contractual mechanisms to compensate for the serious damage this decision brings to the country,” the Economy Ministry said in a statement.

GM says it is prepared to make “an appropriate repayment of any unearned state aid.”

The plant closure is a blow to Portugal, which once offered some of the lowest-cost labor in the European Union but now faces stiff competition from Eastern Europe. Its economy grew by just 1% in the first quarter.

GM says it will work with labor leaders to establish job retraining and other initiatives for idled workers.

“This is an extraordinarily difficult situation, and we are taking this step with real regret,” GM Europe President Carl-Peter Forster says in a written statement. “While GM has been proud to produce vehicles in Portugal with an excellent workforce for many decades, the microeconomic conditions today allow no alternative to this production shift to Zaragoza.”

This week’s announcement follows a wave of protests and warning strikes by workers at 18 GM Europe plants.