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A Deal for GM in Europe

Did General Motors (NYSE: GM  ) just achieve a breakthrough in Europe?

GM just achieved something. GM Vice Chairman Steve Girsky, the former Wall Street analyst who has been leading GM's effort to transform its long-troubled European operation, said on Monday that he hoped to reach a significant cost-saving deal with Opel's German labor union by "the end of the month."

That's today, Thursday. And, as if on cue, GM and the union just announced what they're calling the "Deutschlandplan," a road map for Opel's future in Germany. The plan formalizes what GM has been saying for months: One of its German factories will close... eventually.

But will this deal be what GM needs to stem its huge losses in the Old World?

A long-standing problem that cries out for action
For months now, GM has been negotiating – or trying to negotiate – a rescue plan with representatives of IG Metall, the powerful German labor union that represents workers at Opel, the GM subsidiary that accounts for most of the company's business in Europe.

Opel needs rescuing, badly. GM has lost over $17 billion in Europe since 1999, $1.8 billion of that in 2012 alone. Its problems are familiar ones: Too many factories, too-rich labor deals, tough competition – and a protracted economic mess that nearly drove auto sales to a 20-year low last year.

Rival Ford (NYSE: F  ) , Europe's No. 2 player after giant Volkswagen (NASDAQOTH: VLKAY  ) , has faced similar losses in recent quarters. But last fall, Ford announced a sweeping plan to address its problems by 2015 – a plan that includes closing at least three factories. Investors were pleased.

So far, GM hasn't been able to do anything like that, and that has weighed on the company's stock price. While the General has made a lot of incremental changes at Opel, including a sweeping management overhaul, attempts to close factories had run into very stiff opposition from IG Metall – which has many friends in the German government.

That has made things complicated for GM. And at first glance, this agreement doesn't make things a whole lot easier.

The agreement: One factory closes, others carry on
The agreement spells out the near-term future of Opel's operations in Germany, where the company operates four factories – and where it will apparently continue to operate four factories for a while longer.

The biggest news is this: GM is not going to follow through on its threat to close the Opel factory in Bochum at the beginning of 2015. Instead, the plant will stay open through the lifecycle of its current product (the Opel Zafira minivan), which is expected to conclude at the end of 2016. But even then, the Bochum site won't shut down completely: GM will continue to make parts and operate a warehouse in Bochum, which will preserve 1200 jobs over and above what GM had wanted.

Plans to shut down a transmission production line in Bochum at the end of 2013 have also been shelved, though a shift will be cut later this year, eliminating 700 jobs.

As for the other three German Opel factories, and the big engineering development center that GM operates in Rüsselsheim? Status quo, pretty much. All three factories have been guaranteed new products to produce after mid-decade, and GM promises to present a "strategic concept for the future" for the development center by the end of June.

So much for drastic action to stem GM's European losses. So what does GM get out of this, exactly?

What GM gets from this deal
Here's what GM gets: It gets its desired factory closing, more or less, while avoiding a nasty battle with the union. GM gets a few years of labor peace in Germany, or put another way, it gets to avoid the expensive, massive disruptions that typically come with labor unrest in Western Europe.

No doubt some investors had hoped for deeper concessions from the German union. But GM may not need them: GM has already cut over 2000 white-collar jobs in Germany, and – with labor peace at its highly visible German factories assured for the time being – it has some political cover to make cuts and changes as needed at its factories elsewhere.

Long story short, here's the real upshot: Despite this deal, Opel's still not fixed and GM still has work to do.

Stay tuned
It's true that decades of mismanagement of General Motors led to a painful bankruptcy in 2009, but it emerged a leaner, stronger company. GM's turnaround, however, is still a work in progress. Investors around the world are wondering if GM has what it takes to reclaim its former glory. To help you sort fact from fiction, I've put together a brand-new premium research report telling you what you really 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.

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  • Report this Comment On February 28, 2013, at 2:13 PM, queenmilk wrote:

    The global company, Schaeffler Industries, is a leading provider of rolling and plain bearing solutions, and linear and direct drive technology,has many plants in Europe. Their European presence will definitely grow as the new car sales improve.

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