General Motors' (NYSE: GM ) abrupt removal of the president of its embattled European operation on Thursday continues to raise questions. The company's terse announcement on Thursday that Karl-Friedrich Stracke, a rising executive star who had been put in charge of money-losing GM subsidiary Adam Opel AG just over a year ago, would be moving to a vaguely-defined "special projects" role, seemed to put an exclamation point on what had been clear to astute observers for some time: GM Europe is a mess, and the pressure to get it fixed is increasing.
A surprising move in an ongoing mess
GM's stock fell over 3% on the announcement, as the markets struggled to digest the latest development in the General's long-running European saga. Opel, the long-troubled centerpiece of GM's European operation, has lost over $16 billion since 1999. It seems set to post big losses for years to come, thanks to major structural problems that have proven intractable after a series of restructuring efforts. That has weighed heavily on GM's underperforming stock price.
Dan Akerson, GM's current CEO, isn't one to be daunted by GM's past failures. Last fall, incensed by the mounting losses and the failure of the most recent restructuring effort, he put much of his inner circle, including Stracke, into key positions in GM Europe. Akerson's brain trust was tasked with orders to come up with a plan that would put Opel, and the rest of GM's operation in the region, on the path to sustainable profitability, as soon as possible.
Fixing Opel easier said than done
That has so far proven to be a challenge. Like nearly all European carmakers, Opel suffers from an excess of production capacity: too many factories making not enough cars. Auto sales throughout Europe have been hammered by demographic trends and difficult economic conditions, crushing sales volumes and squeezing margins, as automakers have been forced to slash prices to keep sales going. For the industry to thrive, several factories will likely have to close, at Opel and elsewhere.
But closing factories in labor-friendly Western Europe isn't easy. As Opel's union leaders have pointed out, no auto factory has closed in Germany since World War II. Any move to close a plant -- or two, or three -- will face fierce resistance from unions and government officials.
Of course, GM is hardly the only automaker suffering in the region. Ford (NYSE: F ) recently warned that its European division swung to a sharp loss during the second quarter, and suggested that its outlook for the next several quarters would be grim. But Ford's operation is generally seen as being in far better shape than Opel's. Ford is unlikely to have to close any factories, and its new cars and trucks -- the fruits of its acclaimed "One Ford" product plan -- are as solidly competitive in Europe as they are elsewhere. Ford will make some changes, but it will likely stay focused on riding out the current recession.
Opel's situation is different, as it has been losing money for years, in good times and bad. And, unfortunately, moving Opel from where it is today to where Akerson would like it to be, is proving to be a huge, frustrating challenge.
Frustration may have led to Stracke's ouster
Early reports have suggested that Stracke was ousted -- kicked upstairs, essentially -- by Akerson, out of frustration with the slow pace of Opel's turnaround. That slow pace has been widely criticized (here and elsewhere), after statements last winter suggested that GM's leadership expected a relatively quick resolution to Opel's chronic problems.
Stracke's interim replacement is Steve Girsky, GM's second-in-command, and a close confidant of Akerson. Girsky was dispatched to Europe last fall to take charge of the restructuring effort. Opel's labor chief said in a statement that Girsky's appointment "demonstrates that the European business is a cornerstone" of GM's global business.
That's certainly true. And it's also true that Girsky, a sharp and quick-witted executive, is likely to do all he can to increase the tempo of Opel's turnaround. What few details were released of the turnaround plan, approved last month by Opel's board, suggested that the restructuring effort would take years, and might not include the drastic moves (read: near-term factory closings) seen by most analysts as necessary to restore Opel to profitability.
I was surprised that such a plan would fly with Akerson. Apparently, it didn't, and that leaves the world -- and Opel's powerful, worried union leaders -- wondering what the next plan to fix Opel will look like.
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