GM's Turnaround in Europe

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The structural cuts are now generating €600 million ($792 million) in annual cost reductions. Getting Europe turned around is part of the company's plan to boost profits even as rising health care costs and slimmer truck profits hurt business at home. "Geographic diversity will smooth out earnings bumps," says GM Vice Chairman Robert A. Lutz. "That's my answer to our cyclicality."

But some trouble spots remain: GM Europe's premium unit Saab is still racking up heavy losses. GM Europe doesn't break out results for individual brands, but analysts estimate that Saab, which sold only 80,000 cars in Europe last year, lost €300 million ($400 million) in 2005. And Opel's plant in Russelsheim, Germany, is operating at only 60% of capacity, a level analysts say is unprofitable for any automaker.

Transatlantic Collaboration

To make the turnaround stick, Forster will have to continue to cut costs and boost productivity, Pieper says—or achieve an even higher premium for Opel's cars, which is a hard sell in a European market crowded with small premium cars like the BMW 1 Series or the Mercedes A Class from DaimlerChrysler (DCX).

The 52-year-old Forster, hired from BMW as managing director at Opel in 2001 and named president of GM Europe in June 2004, insists GM has a medium-term plan to boost production at Russelsheim by producing other GM brands in the factory, and that lower costs and a new generation of models in the pipeline will help put Saab back in the black. Saab's European sales for the first 10 months of 2006 are up 13.7%. Forster is also looking to Eastern Europe and Russia for growth and he plans to bid on a factory in low-cost Romania.

And to stretch its research-and-development dollars further, Forster, together with General Motors Vice-Chairman Robert Lutz, another BMW veteran, are ramping up a transatlantic collaboration between Opel and the U.S.-based Saturn brand that has shown early success. "It leverages our engineering costs and will allow us to introduce models that otherwise might not have been viable alone," says Forster.

Learning Lessons in Europe

One example is Saturn's hot Sky roadster, introduced in early 2006 and based on the 2005 Opel GT. The Sky has flown out of showrooms and now boasts a lengthy waiting list. The next Opel-based hit looks to be the new Saturn Aura (starts at $20,595), which trade magazines are praising as one of the best cars GM has ever built. Lutz says collaboration like the joint development between Opel and Saturn will save GM "hundreds of millions a year in development costs." He says Opel would have had a tough time justifying the cost of the GT roadster if GM didn't have similar cars being sold in the U.S. Says Lutz: "Opel will have a roadster like the [Saturn] Sky for almost no investment."

Though larger in size, the Aura was derived from the successful Opel Astra compact. Even though the Astra is a smaller car, its design and engineering were fresher than the Opel Vectra, Forster says. Sales of the Astra through October totaled 424,082, or 2.32% of the European market, slightly behind the market leader in the compact segment, the VW Golf, which sold 471,060.

What's the lesson for Wagoner and his U.S. management team? European analysts point to Forster's strong focus on better products—as opposed to the typical GM focus on financials—which produces weak products. "It's get the brand right and listen to the market," says Global Insight's Stuermer.

Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau.