So how is General Motors looking as it prepares for its IPO?

For potential investors, the list of good stuff is a long one: Last quarter was solidly profitable, debt is at a manageable level, new models like the Cadillac SRX and Chevy Cruze are strong no-excuses entries in their segments, sales in key overseas growth markets like China are booming, and while the jury is still out on new CEO Dan Akerson, new key executives like Chief Financial Officer Chris Liddell and Chief Marketing Officer Joel Ewanick already look like very strong hires. Much is going right for the company.

Put another way, while GM's turnaround hasn't quite reached the heights of rival Ford's (NYSE: F) yet, much of the company is looking better than it has in years -- with one glaring exception.

That exception? Europe.

Germany-based Opel, the core of GM's European operation, is, to put it mildly, a mess. The unit -- which builds and sells vehicles under the Opel badge in mainland Europe and under the Vauxhall name in Britain -- is in deep trouble, with market share falling and losses mounting.

What happened? And can it be fixed?

The sale that didn't happen
Opel's recent history is a complex and ugly tale, involving difficult battles with unions and governments and a widely expected sale -- that was called off at the last minute. After GM emerged from bankruptcy last year, then-CEO Fritz Henderson moved to sell Opel to a consortium of buyers led by Canada's Magna International (NYSE: MGA). The deal was heavily favored by the German government, and by Opel's unions, who would have gotten 10% of the new company -- but GM backed out of the sale at the last minute. The list of folks who were not happy with that decision, as you might expect, is a long one.

Why did GM back out? A group of board members, including now-CEO Akerson, stopped the sale on the grounds that Opel was GM's primary center of compact-car expertise. No doubt they were looking at Ford CEO Alan Mulally's "One Ford" strategy, which calls for a tightly integrated product lineup that can be sold in many different countries, and in which Ford's own European operation plays a key development role. (Ford's hit Fiesta and upcoming all-new Focus are both products of that operation.)

Now, to be clear, holding on to Opel -- which developed the impressive new Buick Regal -- was the right move for GM. GM needs Opel -- if not the Opel brand itself, at least the unit's engineering and product-development expertise -- and the attempt to sell the unit was probably a key contributor to Fritz Henderson's downfall.

But keeping Opel is one thing. Turning it around is proving to be a formidable challenge.

Losing $483 per car
A recent Wall Street Journal article noted that GM Europe's $200 million second-quarter loss worked out to $483 lost on every car sold. In a quarter where GM as a whole posted a solid $1.3 billion profit, that's a glaring red spot. Still, that's better than the first quarter, when the unit lost a hearty $500 million. Sales have been down for everyone in Europe, but Opel is getting a smaller piece of the pie than it used to: Western European market share fell to 7% in the first half of 2010, down from 7.4% last year.

So what is GM doing about it? Opel is in the midst of a restructuring, but GM is constrained in what it can do by local governments. Although the unit will shed 8,000 employees, it will only be able to close one of its 13 plants -- and most of its production will stay in Western Europe, where costs are among the highest in the world.

It'll help, but it probably won't help enough. That has to be giving bankers at JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) fits as they prepare GM's upcoming IPO "road show," but there's no dodging it: Opel is a mess, and while it might break even at some point in 2011, it isn't going to be fixed anytime soon.

Fix it? Or scrap it?
Longer term, I think the solution will have to be more drastic -- maybe a sale, maybe a more drastic restructuring, and possibly even the end of the Opel brand. It's worth noting that "GM Europe" includes more than Opel -- it includes models that GM sells in Europe under two of its familiar "global" nameplates: Chevy and Cadillac. GM has been beefing up those brands in Europe -- the company just announced that the new Chevy Aveo small car will be unveiled in Paris later this month, alongside the Cruze and the all-new Orlando minivan (which won't be coming to the U.S.) -- and an important Opel small car.

Yes, while they don't (yet) quite cover the same turf, GM has Chevrolets competing with Opels in Europe. One might ask, hasn't GM learned the lesson of having its divisions compete for the same customers? I think they have. Opel says that it has plans to expand outside of Europe, but I'm skeptical. I'd bet that the long-term future of GM involves a strategy not unlike what Ford, Toyota (NYSE: TM), Honda (NYSE: HMC), and Volkswagen do: Sell a tightly knit family of products under a few familiar nameplates in lots of different products around the world. It just makes too much sense. And while GM for the moment seems content to have Opel be a sort of European cousin to Buick, I wouldn't be surprised to hear that "Opel" isn't going to be one of those nameplates.

Put another way: If you live in Europe, you'd best get used to those golden-bowtie Chevy badges. I think you're going to be seeing a lot more of them.

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