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The 2011 earnings General Motors (NYSE: GM ) reported Thursday came with good news and bad news. From a full-year perspective, it was really good: 2011 was the single most profitable year in GM's 103-year history. But a fourth-quarter miss on weakness in Europe weighed -- or so one might have thought.
The good news ran pretty deep: GM's products are strong and getting stronger, the current management team exudes competence, and its sales in key markets are up, so much so that the company was able to reclaim its old title as the world's automotive sales leader.
And the bad news? Apparently it didn't matter. Wall Street liked what it heard and sent GM's shares soaring: The stock was up almost 9% on the day.
So why do GM's own leaders sound so glum?
Things aren't as good as they might seem
The truth is, GM is still very much a turnaround story in progress. This is not necessarily visible to the casual observer, who might see that GM's debt is low, its profits are high, and its products look pretty good lately, so what's the problem?
The problem is that there are still lots of problems. The most visible one at the moment is GM's European operation, which has been a money-loser every year since 1999. GM implemented a turnaround plan in Europe a couple of years ago, and for a while it looked like it would work, but a worsening European economy led to a return to chronic losses.
The problem isn't a simple one, though it is familiar. GM Europe -- specifically, GM's German subsidiary Adam Opel AG -- is beset by many of the same problems that eventually drove GM into bankruptcy proceedings in 2009. Too much manufacturing capacity, too-rich union deals, bureaucratic redundancy, and a product line that has fallen behind competitors a bit are all (familiar) parts of the problem. But unlike what happened in the U.S., a fix-everything-at-once bankruptcy isn't in the cards.
Meanwhile, GM is losing ground to rivals like Volkswagen (OTC: VLKAY.PK) and Ford (NYSE: F ) , which have fresher, better products, although both have lost sales as European austerity measures have led consumers to postpone auto purchases.
A plan is taking shape
But decisive action is -- apparently -- coming. CEO Dan Akerson has declared Opel's situation "completely unacceptable" and has promised a fix, a promise backed up by the recent appointment of several of his most-trusted lieutenants to Opel's board. During a conference call for analysts Thursday morning, Akerson and CFO Dan Ammann again declared an intention to fix Opel's problems, promising that the troubled division would be brought into line with the expectations around costs and profitability that are in place for North America.
That emphatic language, coupled with their statement that other Opel stakeholders, like the unions and local governments, have agreed on the need to restructure the subsidiary for sustainable profitability, was probably a big part of why GM shares soared Thursday.
The hard work, though, may be just beginning.
Next steps will be big ones
GM's -- Opel's -- leadership now needs to sit down with the company's unions and hammer out a workable plan, a process that could take "a couple of months,, according to Opel's recently appointed chief, Karl-Friedrich Stracke.
Those talks are likely to be contentious, and a solution will likely require out-of-the-box thinking. Existing labor contracts prevent GM from closing plants or laying off workers until 2014. GM may instead seek to build more vehicles in the region to improve the profitability of its existing factories, possibly for export to China or other emerging markets. Stracke said on Thursday that GM would go forward with previously announced plans to invest 11 million euros in Opel through 2014.
GM launched two new products in Europe last year and has seven more set for 2012, as it continues to scramble to get its global new-product cadence on par with rivals VW and Toyota (NYSE: TM ) , companies Akerson sees as benchmarks for GM.
Still, it's now a sure bet that a plan to reshape Opel as a sustainably profitable operation is coming. After more than a decade of losses, that assurance was clearly a relief to investors.
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