General Motors' (NYSE: GM ) efforts to fix its long-troubled European operation have attracted significant attention from investors over the last year. That's no surprise: GM's German subsidiary Opel has lost billions over the last decade, and stopping those losses has been a big priority for CEO Dan Akerson since he first announced an overhaul of Opel's board in November of 2011.
So far, though, reviews on those efforts are mixed. A parts-sharing alliance with deeply troubled French automaker PSA Peugeot Citroen (NASDAQOTH: PUGOY ) raised eyebrows, as did management turmoil that resulted in the ouster of GM's respected Euro chief. Investors who have hoped for a decisive plan to fix Opel -- like the one Ford (NYSE: F ) announced for its own troubled European operation in October -- have so far been disappointed.
GM Vice Chairman Steve Girsky insisted not long ago that the incremental changes made so far were working and that GM Europe was on course to break even by mid-decade. He may well be right. But the latest news from Europe doesn't inspire confidence.
An ever-evolving and mysterious French alliance
GM's alliance with Peugeot has been a head scratcher since February, when GM first announced that it would take a 7% stake in the cash-burning French automaker. Originally announced as a parts-sharing alliance, the arrangement later expanded to include plans to jointly develop and produce several new models.
It's been clear from the start what Peugeot gets out of this arrangement: a lifeline. The company has been hammered by the rough European auto market, where sales are hovering near a 20-year low. But for GM, which already has massive economies of scale thanks to its vast worldwide footprint, the benefits were less clear. Was a deeper plan being set in motion?
Back in October, rumors of an even more elaborate arrangement suggested that might be the case. Some, including your humble Fool, speculated that Opel and Peugeot would be merged into a new entity, a move that would take the German company's massive losses off of GM's corporate books. That had the potential to be a really smart move from GM's perspective, albeit one that wouldn't directly address the chronic weakness in Opel's (or Peugeot's) business.
But it wasn't to be, as GM suspended talks a few weeks later amid concerns about Peugeot's (scary) financial condition. Politics was also a concern, as both the French and German governments were expected to move to protect jobs that would be at risk in a merger. Peugeot has since said that a merger with Opel has been ruled out.
Meanwhile, though, GM's plans to produce several models with Peugeot appear to be moving forward. Last week, the companies announced that they had signed agreements on previously announced plans to jointly develop small cars and minivans, but had scrapped plans for a joint mid-sized sedan program. Plans are also under way to co-develop new small-car gasoline engines, they said.
None of that is necessarily bad news. But it'll be years before these plans help Opel's bottom line. Meanwhile, moves to shore up Opel in the short-term -- and perhaps, to prepare for a possible bankruptcy -- continue to unfold.
Could Opel be preparing to go bust?
Earlier in December, the Frankfurter Allgemeine Zeitung newspaper reported that Opel had sold six of its European facilities to GM in exchange for a two-year extension on a $3.3 billion loan that was originally due in 2014. (GM had no comment on the story.)
On the one hand, it's a move that makes some sense if Opel's management really does expect a business recovery by mid-decade. On the other hand, it's a move that makes a lot of sense if GM is planning to push Opel into liquidation: The facilities sold to GM include some of Opel's best plants, and specifically don't include those that have been targeted for potential closure.
At least one of the latter is now all but certain to be closed. Earlier in December, Opel's interim chief Thomas Sedran told workers at the company's plant in Bochum, Germany, that the company's management saw no alternative to closing the factory in 2016, a move likely to eliminate some 3,000 jobs. If it happens, it'll be the first closing of a German auto factory in decades.
The upshot: The saga continues
GM's European operation -- which consists mostly of Opel -- lost $478 million in the third quarter alone, and a similar loss is widely expected when GM reports fourth-quarter earnings early next year.
That's heavy bleeding, and it needs to be stopped -- not least because it's probably weighing heavily on GM's share price. A clear announcement of a plan to deal with Opel would likely do wonders for GM's stock, but the politics surrounding the situation -- Opel's powerful unions and the German and French governments, for starters -- make it likely that GM's real plan for Opel will remain a mystery for a while longer.
GM's stock has surged in recent days in the wake of the announcement that the government would sell its stake. But problems like Europe continue to weigh on the General's shares, leading many to wonder whether GM is still a buy at current prices. I've put together a brand-new premium research report telling you what you need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.