How Will GM Fix This Mess?

A day later, it's still a puzzling move: General Motors (NYSE: GM  ) surprised the business world on Thursday by abruptly ousting its well-regarded European chief, Karl-Friedrich Stracke.

Stracke's removal -- officially, he was reassigned to a vague "special projects" role -- came just a couple of weeks after the board of Opel, GM's long-troubled European subsidiary, approved a turnaround plan that Stracke himself had spearheaded.

That turnaround plan was a big deal. GM has lost over $16 billion in Europe since 1999, as its operation has been put through a series of painful-but-inadequate restructurings. Europe is GM's biggest challenge, CEO Dan Akerson said recently -- and probably the biggest drag on its underperforming stock price.

So how will Akerson and his team fix this mess?

A tough job changes hands
The good news for GM and its shareholders is that the European crisis has the full attention of GM's leadership: Stracke's interim successor is Steve Girsky, GM's Vice Chairman, second-in-command, and a close confidant of Akerson's.

Officially, Girsky is just holding the fort while a search is mounted for Stracke's successor. But unofficially, he's likely to be there for a while, and that's a good thing: He's a smart no-nonsense leader who led the turnaround of auto supplier Dana Holding (NYSE: DAN  ) a few years back. He has the experience -- and the authority -- to make stuff happen for Opel.

The bad news for GM and its shareholders is that fixing this mess is going to be complicated and, well, messy. The joke going around Detroit circles after the news broke was that finding a successor for Stracke will be impossible, because it's a job nobody will actually want. That said, Girsky's appointment makes it clear that something is going to happen. But what?

The way forward is obvious, but seems impossible
It's a tough question to answer. Opel, which is the heart of GM Europe, actually has several serious problems. Some, like its hit-or-miss product line, will be fixed in time, as GM's global full-court press to revamp its cars and trucks bears fruit over the next couple of years.

But the key problem is a biggie: Opel has too many factories. Auto factories have to be run at fairly close to their full capacity (typically, above 80% or so) to be profitable. Auto sales in Europe have fallen because of tough economic conditions. In the current environment, Opel's market share won't support all of its factories -- and its prospects for increasing market share are grim, with tough competition from euro leader Volkswagen (OTC: VLKAY), resurgent Ford (NYSE: F  ) , and regional players like Renault and PSA Peugeot Citroen (OTC: PEUGY).

That means Opel will have to close some factories -- at least one, likely two or three. But closing factories in Western Europe is hard: Unions have great power and friends in high government places, and will fight threatened job losses tooth and nail. Closing plants -- at least, without several years' notice -- won't happen without some messy intervention, like (for example) an Opel bankruptcy.

So what will GM do?

Is the latest plan already obsolete?
Stracke's ouster suggests that the just-approved turnaround plan didn't pass muster with Akerson or GM's board. The nuts and bolts of that plan haven't been made public yet, but the details that have emerged suggest that Stracke made a valiant effort to skirt the plant-closing dilemma. Plans for new products and an expansion of Opel's sales in places like Russia won't hurt, but they aren't likely to improve Opel's total sales volumes enough to solve the too-many-factories problem.

The plan provided for factory closings, but not for years. GM's board apparently isn't willing to bless a plan that all but guarantees big quarterly losses until factories can be closed in 2016 or 2017 -- at least, not if an alternative can be found.

But can it? That's a question that Girsky now gets to try to answer.

GM's stock is currently hovering near its post-bankruptcy low, but it could have significant upside in coming months as new products hit showrooms and improvements continue around the world. However, investors need to stay attuned to fluctuating demand and the ability of automakers, like GM and Ford, to respond in unison. For starters, one of our top equity analysts has compiled a premium research report with in-depth analysis on Ford's competitive edge. To find out what could propel Ford down the road, get instant access to this premium report now.

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, as well as 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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