GM's Europe Turnaround Makes Progress but Still Lags Ford's

Sales are rising, as GM finally reaches a deal to close an expensive factory in Germany.

Jun 24, 2014 at 6:33PM

Opel Mokka

GM's Opel Mokka is a close cousin of the small Buick Encore SUV, and it has turned out to be a much-needed hit for GM in Europe. Source: General Motors Co.

Lately it seems as though General Motors (NYSE:GM) has been drowning in bad news. But behind the blaring headlines, the company continues to make solid progress on its turnaround.

The latest evidence: Sales are up in Europe. As Motley Fool senior auto specialist John Rosevear explains in this video, GM's much-needed European turnaround is lagging rival Ford's (NYSE:F), but it's moving in the right direction, and GM recently hit some important milestones.

A transcript follows the video.

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John Rosevear: Hey, Fools. It's John Rosevear, senior auto specialist for General Motors is finally -- maybe -- making some progress in Europe after years and years of losses.

GM has lost close to $20 billion in Europe since 1999, and they've already been through a couple of turnaround plans that didn't quite manage to turn things around. The problem was really structural and really familiar, GM's German subsidiary Opel had too many factories and rich labor deals and models that really weren't all that competitive with the big regional rivals -- Volkswagen and Ford and so on -- and it needed a lot of work.

But under former CEO Dan Akerson, that work finally started to happen.

A lot of cuts were made at Opel, its product-development was more fully integrated with GM's global product plan, and it got a whole new management team led by a very sharp former Volkswagen executive, and now there are signs that things are moving in the right direction.

Auto sales in Europe continue to be sluggish because of the ongoing recessions in several key European countries. New vehicle sales actually hit 20-year lows for a time last year. They've rebounded a bit since, and Opel has started to get a little traction as the market has improved.

Through May, Opel's sales are up 3.6%. That's not as good as the 7.7% gain that Ford has posted over the same period, but it's progress for Opel, and it's a cautiously good sign for GM. Opel is having a lot of success with a small SUV called the Mokka.

It's a very close cousin of the Buick Encore. Under GM's global product plan, Opel and Buick are sharing a lot of products -- the same vehicles with different grilles and badges. That sounds like what GM did a lot of in the bad old days -- what we called "badge engineering" -- but it's different in that these vehicles are sold in different markets and don't compete side by side.

GM is also making progress in Europe on another front. The company said this week that it had finally reached a severance deal with the union at a German factory that the company has wanted to close for some time. This was a big, contentious thing. No auto factory has closed in Germany since the 1940s, and the labor union has a lot of political clout in Germany, and it has been quite a battle for GM.

This is the GM factory in Bochum, Germany, one of four Opel factories in Germany, and it's slated to wind down over the next year or two as part of GM's restructuring of Europe. GM wouldn't say how much these severance deals would cost, but Reuters has reported that they will cost at least 550 million euros, or a bit over $750 million.

That's expensive, but it seems to be worth it: GM had been saying for a while that they hoped to break even in Europe by mid-decade, but CEO Mary Barra raised that guidance a little earlier this month, when she said that GM now expects to report a profit in Europe during that same time frame. So GM isn't exactly setting the European market on fire, but the company is making progress, and I know that every GM shareholder will be happy to see these ongoing losses in Europe finally start to turn into profits. Thanks for watching.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of 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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