The good news: General Motors (NYSE: GM) officially has a plan to fix its European mess.
The bad news: The plan might not go far enough. It doesn't seem to address the biggest problems facing GM's troubled European operation. What's more, despite mounting losses, the company can't even get started, because the unions haven't yet bought into it.
So how is this likely to play out?
The latest in a long line of plans to fix Opel
GM announced on Thursday that the supervisory board of struggling German subsidiary Opel had approved, in GM's own words, "a business plan that will be instrumental in bringing Opel back to sustainable profitability."
That will be quite a trick. Opel has lost more than $16 billion since 1999 as several generations of GM managers have tried -- and failed -- to "bring Opel back to sustainable profitability" with restructuring plans of various kinds. Losses have widened as Europe's economies have headed south -- even stronger rivals like Ford (NYSE: F) and Volkswagen (NASDAQOTH: VLKAY.PK) are suffering as auto sales have declined.
But Opel's problems run deeper than the current European economic mess.
Current GM CEO Dan Akerson has made it clear that he intends to fix Opel -- or, properly, GM Europe, of which Opel is a big part -- once and for all. By that, he means reducing Opel's fixed costs to a level that ensures the company's profitability even during a deep recession -- just as GM has been able to do at home in the United States.
Of course, it took a big loan from the government, a bankruptcy proceeding, and the dismantling of more than a dozen surplus factories to get GM's U.S. operation fixed. Opel -- which is headquartered in a country where no auto factory has been closed since World War II -- is unlikely to enjoy such an abrupt transition. Akerson himself said on Thursday that he would be "disappointed" if Opel couldn't get to profitability in five years -- clearly, not even he is expecting a quick fix at this point.
But is this a plan that's likely to work?
Specifics are thin, but what's known isn't promising
It's hard to tell, because many of the specifics of the plan haven't yet emerged. What's known is that GM plans to provide Opel with 23 new products and 13 new powertrains -- most or all of which are likely variations on products and powertrains being developed for GM's global portfolio.
In addition, GM said it will look to increase sales of Opels in Russia and exports to markets like China; will continue to reduce material, development, and production costs; and will seek to leverage "further synergies" with its new partner PSA Peugeot Citroen (NASDAQOTH: PEUGY.PK). GM's press release also referred to a "revised brand strategy" for Opel, though it's unclear quite what the General has in mind.
Most of these are moves that GM can make without the blessing of Opel's powerful unions. But most of these are not moves that will solve Opel's essential problem: too many factories, not enough sales. GM is known to be in negotiation with the unions about delaying a planned wage increase -- but the union is hoping to extend an agreement not to close any plants or lay off any workers that currently runs through 2016.
The upshot: More action will be needed
Fixing Opel without plant closings will be hard, to say the least. GM has been expected to close its plant in Bochum, Germany, after the agreement expires in 2016, and a factory in the U.K. is believed to be in the crosshairs as well. Unless Opel is able to increase its sales significantly -- which is not likely -- factory closings will be critical to that "sustainable profitability" GM is so determined to attain.
But whether those closings will actually happen still seems unclear, though it's certainly possible that GM's management is keeping those plans quiet until its negotiations with Opel's unions bear fruit. But until that's resolved, it's hard to get excited about any plan to "fix" Opel.
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