Europe sees new GM

November 22, 2011

Europe sees new GM

Automaker moves to fix Opel with speed, decisiveness


General Motors Co. is sending big guns to Germany.

In a move that signals strategic commitment to finally repairing its troubled European operations, the Detroit automaker said Monday that Vice Chairman Steve Girsky is now chairman of the Adam Opel AG’s governing supervisory board. Also joining the Aufsichtsrat are GM CFO Dan Ammann and Tim Lee, head of GM’s international operations and GM-Europe’s former vice president for manufacturing.

“This is not GM taking control of Opel,” Girsky said in an interview from Germany. “We’re very keen to fix the situation because Opel is a critical piece of our business strategy. Our priority is to get the business profitable, sustainable first. It’s in everybody’s interest to get this business fixed.

“Let’s be clear — the situation is not stable here, the economic environment in Europe,” he continued. And the impact of the roiling sovereign debt crisis on economic growth, consumer confidence and credit availability is likely to shape GM’s business from a comparatively healthier Germany to weaker markets in southern Europe.

In other words, worsening macro-economic prospects, worsening earnings in Europe and the expected year-end retirement of Opel’s top-ranking labor leader — Deputy Chairman Klaus Franz — offer a unique opportunity for GM to size its European business realistically and competitively, not hopefully.

Only last Wednesday, in reporting its third-quarter earnings, did GM acknowledge the perils of the debt crisis by saying that it would fail to break even in Europe for the year. The concession rattled investors, even as it signaled refreshing frankness from atop a company whose previous leaders typically elevated excuse-making and delayed decisions to high corporate art.

Not anymore.

“They moved fast, didn’t form a work group and graphics package, and sent serious insiders to fix the problem,” says Warren Browne, vice president of business development for AutomotiveCompass LLC who also spent eight years working in Europe for GM. “The old GM would have said we need to have another cost-reduction plan.”

The new GM? Elevate a German national, Karl-Friedrich Stracke, to chairman of Opel’s management board and head of GM-Europe. Concede to investors what is already clear, namely that business in Europe is deteriorating. And dispatch ranking executives with experience in the right places to seats on the board that oversees operations in Europe — all in less than one month.

Still, yet another restructuring and improved results to follow could take at least three years to realize, according to a ranking GM source close to the situation. Because the automaker has too much capacity amid slack demand across Europe, plant closings, rationalized operations and a revised product plan are likely — not unlike GM’s workout in the United States under a government-induced bankruptcy.

The legal processes may be different, but the desired result is the same: Lower GM-Europe’s break-even point at least to the “scrappage rate,” positioning the automaker to be profitable at any sales level north of the rate consumers buy new vehicles to replace those they discard.

Getting there won’t be easy. The history of relations between Detroit and Rüsselsheim, home to Opel, is fraught with recrimination, mistrust and cultural dissonance. GM’s post-bankruptcy plan to peddle Opel to a Russo-Canadian consortium — reversed by GM’s directors, including CEO Dan Akerson — infuriated German labor leaders and politicians, who considered the deal a chance to free Opel from its American overlords.

GM’s commitment to Opel and its European operations, implicit in Monday’s moves, should be seen as a positive first step. On the record and off, GM executives eagerly reassert the automaker’s long-term commitment to Opel, to Europe, to fixing the business, to positioning it to profit and grow.

But persuading Germans, chiefly, that fresh cutbacks are the best path to revival will prove challenging, no matter how fervently Stracke and his team may agree. One option: Point to results in the States, where GM and such rivals as Ford Motor Co. are booking fat profits because their businesses are sized right for their market and the revenue it generates.

A second option: Reminding GM’s understandably weary European workforce that their business has been a drag on GM’s results for practically a generation — and that patience has its limits, especially for a CEO and slate of directors back in Detroit that have something to prove.

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