A New Leader for GM's Biggest Problem


Well, now at least we know who is going to be leading the effort to fix General Motors' money-torching European operation.

GM announced on Thursday that the supervisory board of its German subsidiary, Opel, had named former Volkswagen executive Karl-Thomas Neumann as the company's new CEO, effective March 1, succeeding interim CEO Thomas Sedran. Neumann will also be a vice president of GM and the official head of GM Europe, which includes Opel as well as GM's local Chevrolet and Cadillac sales operations.

Put simply, GM Europe is now his problem to fix. Can he get it done?

A huge, messy, turnaround project
It's a huge question, because to be blunt, GM Europe is a huge mess. Opel has lost over $17 billion since 1999, thanks to the same kinds of problems that haunted GM here in the U.S. for years: too much manufacturing capacity, too-rich labor deals, and a product lineup that has been overshadowed by offerings from nimbler competitors.

Making matters (much) worse is the deep recession currently plaguing much of Europe. European new-car sales in 2012 fell to lows not seen since the mid-1990s, and 2013 is unlikely to be any better. Opel's sales fell 16% last year, with the drop accelerating as the year went on - the German company's sales were down 27% in December.

Clearly, a lot of work needs to be done to restore Opel to health. Some of that work is already under way. GM Vice-Chairman Steve Girsky (Neumann's new boss) was installed as chair of Opel's supervisory board a little over a year ago, and his efforts so far have included some key management changes and a decision to close Opel's Bochum, Germany, factory when its current production run comes to an end in 2016.

Girsky said last fall that his changes had put Opel on course to break even in 2015. But analysts and industry watchers have been skeptical of that assertion, particularly since Ford announced its own much more robust Europe turnaround plan last fall. It's widely believed that Opel will need to close more factories - always difficult in Western Europe and especially in Germany, where unions have great political power - and make other changes to return to profitability.

Sorting that out is Neumann's job now.

The right man for the job?
Neumann's resume isn't an overwhelming one, but it's solid. He was head of VW's huge China operation from 2010 to 2012, during which time VW enjoyed solid growth and strong profits in the region. Before joining VW, Neumann was an executive with tire-maker and industry supplier Continental AG, where he eventually rose to be chairman for about a year before leaving for VW.

There's nothing bad there. Neumann looks like an entirely appropriate choice to head Opel - under normal circumstances. But these aren't normal circumstances: This is a turnaround situation, and a daunting one.

Bringing Opel back to health will require an ability to be very creative as well as a willingness to work with - and battle with -- a number of constituencies: powerful European unions, politicians in Germany (and possibly elsewhere), and key constituencies within GM, including perhaps Neumann's own bosses.

This is a job with a high risk of very public failure. It's possible that Neumann wasn't so much the best candidate for the job, as the best candidate who was willing to actually take it.

A daunting task with long odds of success
Can Opel even be fixed? Most likely: The brand still enjoys decent sales, and GM's moves toward a globalized product portfolio mean that Opel should have access to good, competitive products in coming years.

But the comparison with Ford continues to be instructive. Where Ford was able to come out with a clear-cut plan that made sense, for over a year now, GM has been edging skittishly (and seemingly halfheartedly) toward what seems painfully obvious to most observers: Opel needs to make big painful changes to survive.

Finding a real CEO for Opel was a step in the right direction for GM. But will Neumann be empowered to make the hard changes that seem needed? It's hard to say, but we'll find out.

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.

The article A New Leader for GM's Biggest Problem originally appeared on Fool.com.

Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors. 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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