This GM Mess Isn't Going Away

Will General Motors' (NYSE: GM  ) European operation ever get fixed?

On the one hand, it's hardly a new problem: GM has lost nearly $16 billion in the region since 1999, and several former CEOs' best-laid turnaround plans failed to stop the flow of red ink.

On the other hand, current CEO Dan Akerson is determined to get the job done once and for all. He promised swift action late last year and took big steps to back that up.

However, as is becoming clearer with each passing week, fixing GM Europe won't be a simple job.

A "couple of months" later, no visible progress
The latest evidence of GM's struggles to right its European ship comes from Akerson himself. Speaking to reporters in Beijing earlier this week, GM's CEO said that it would be "a couple of months" before GM would be able to give details of its plan to turn its European operation around.

Sounds reasonable, but we've heard that line before: Akerson and GM's European head, Karl-Friedrich Stracke, both said in February that more details would be forthcoming in "a couple of months," and Stracke said something similar again in March. Now it's nearly May, and we're hearing the same tune.

I don't think anyone's being flippant. I think the effort being made by GM's senior managers is serious, sincere, and intense. But I also think the obstacles to progress are bigger and more intransigent than Akerson and his team realized.

The last straw for a no-nonsense manager
Akerson was spurred to action after GM's last turnaround plan for its German subsidiary, Adam Opel AG, failed to stem the losses when Europe's economic situation worsened last year. While GM had originally projected that its European division -- which includes the troubled Opel and a sales operation for the Chevrolet and Cadillac brands -- would break even in 2011, renewed economic troubles led the unit to post a $747 million pre-tax loss for the year.

Losses are nothing new for GM in that part of the world, though. GM's losses in Europe from 1999 through the end of last year totaled $15.6 billion, and analysts expect another billion-plus in red ink in 2012. Past GM managers made sporadic efforts to stanch the bleeding, but transatlantic culture clashes -- and the bigger problems GM was having at home -- kept the company's U.S. leaders from taking decisive action.

That is, until now. Akerson has put several of his senior executives on Opel's board, appointed Stracke to replace GM Europe's longtime chief, and put his right-hand man, vice chairman Steve Girsky, in charge of creating a plan that would make GM Europe profitable once and for all.

Girsky, like Akerson a Wall Street veteran, set about crafting a solution to Opel's woes that would fly with its powerful unions and concerned government officials -- only to find that simple solutions weren't available. While the kinds of cuts that need to be made are no secret, the details and timing of making them happen are proving difficult to negotiate.

Small steps and a long horizon
GM has taken some visible action in the meantime. A new alliance with troubled French automaker PSA Peugeot Citroen (OTC: PEUGY) was announced as a simple joint purchasing arrangement -- but came with hints that much more significant tie-ups could be announced in time.

Meanwhile, nearly every automaker doing business in Europe is struggling. Ford's (NYSE: F  ) European sales were down more than 7% in the first quarter (although other automakers like Peugeot struggled so badly that the Blue Oval actually gained market share). Only Volkswagen (OTC: VLKAY) and the German luxury brands are seeing sales growth, but it's small, and VW is making a point of focusing on more promising markets like China and the U.S.

It's a conundrum for GM, and one that will likely weigh on profits -- and GM's share price -- for at least a few more quarters. Opel's union contracts prevent it from closing any factories before the end of 2014. Unless the union agrees to drastic action (which looks unlikely right now), GM's losses in Europe seem set to continue for some time.

While GM has struggled in Europe, its efforts to find growth in China have been a shining success. And GM's not alone; Motley Fool analysts have identified three other big-name companies that are particularly well-positioned to profit thanks to growth in emerging markets. Learn more right now with our new free report: "3 American Companies Set to Dominate the World." It's completely free for Fool readers.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 25, 2012, at 4:29 PM, dennypat38 wrote:

    Where is our 50 BILLION that GM owes taxpayers REAL WORLD NOT SMOKE AND MIRRORS

  • Report this Comment On April 25, 2012, at 5:18 PM, dennypat38 wrote:

    When is GM going to pay back the 50 BILLION they owe tax payers

  • Report this Comment On April 25, 2012, at 6:27 PM, neamakri wrote:

    GM took (my income tax) bailout money. Since then it has been business as usual. GM is still trying to sell high margin Cadillacs as evidenced by TV ads. Meanwhile Hundai, Toyota, and Honda continue to sell high quality family cars for a good value. GM makes big cars that are pretty and ride nice, but... on my wife's Buick we had to replace motor mounts six times and all four electric window regulators; obviously of poor quality. GM's products sell okay when the economy is good, but at this time people are looking for a good value, which GM is not.

    Bottom line: GM will not make a profit in Europe for a long long time.

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