Adam Opel and German Reunification Darral G. Clarke Professor of Management April 18, 2000

Wall Down Prior to Reunification VW joint venture with IFA Kombinat PKW (including Eisenach) –Trade engines for TKD assembly, sales of VW in eastern Europe –Bigger investment planned Exploit protected market, low wage costs Liedtke, Director, Eisenach, persuades Ministerium to OK joint venture with Opel GM makes small investment in Eisenach –Trade engines for TKD kits in Eisenach for sale in eastern Europe –Bigger investment planned Exploit protected market, low wage costs

Changes Resulting from Reunification Eastern block markets are open, especially East Germany (EU membership) so protected market is gone West German unions drive wages up, parity in 2-4 years Monetary union puts money in ossie’s pockets Joint venture investment must now compete on globally competitive terms –Market, labor costs, investment costs, government subsidies, labor force capabilities.

Eisenach Wins GM builds its most modern, efficient automobile factory in the world –Biggest investment in Eastern Germany (1billion DM) –Opportunity to introduce Japanese lean manufacturing to Europe Eisenach provides opportunity to circumvent most of problems with West German investment –skilled but desperate workforce, pliant unions –Generous local administration, greenfield site –Initially lower wages

Eisenach Results –18 hours to make Astra in Eisenach, (28 in Bochum), 33 in Zaragoza) –6-7 defects in Eisenach, 20 Bochum –150,000 cars with 2000 employees –Absenteeism 3% compared with 10% in western German plants