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GM Europe Gets Traction


There was a time when the execs at General Motors Corp. could expect nothing but trouble from their European operations. GM Europe piled up $3.9 billion in losses over the past five years, a result of lackluster styling, quality problems, and high labor costs.

But now the beleaguered Detroit auto maker is finally getting some traction on the other side of the Atlantic. GM Europe, which includes the German Adam Opel unit and Swedish Saab, posted a $36 million operating profit in the second quarter of this year, on sales of $8.5 billion. Analysts expect GM Europe to just about break even this year.

That's just one sign GM Europe Chairman Frederick A. "Fritz" Henderson's restructuring plan -- GM's second in four years -- is finally yielding dividends. Opel and its sister company, Vauxhall Motors Ltd., have successes to brag about. The latest generation $19,600 Astra compact, introduced in 2004, is closing in on the VW Golf in the race for the title of best-selling car in Europe, and the new $24,000 Zafira compact van is off to a strong start. These new models -- along with strong sales of Korean-made Chevrolets -- nudged up GM's share in Europe to 9.7% in the third quarter, from 8.6% three years ago.

Next year, GM will launch an Astra convertible, an athletic-looking crossover sport-utility vehicle called the Antara, and a Corsa subcompact to replace a boring model that lost out to sharper-looking competitors. "The products coming to market now and those in the pipeline show the true spirit of GM," Vice-Chairman Robert A. Lutz told the crowd at the Frankfurt Motor Show on Sept. 12.

After losing $2.5 billion in North America in the first half of the year, GM sure could use a pickup in Europe. But don't call this a full-fledged turnaround yet. GM is challenged by resurgent French carmakers PSA Peugeot Citro?n and Renault, fast-growing Toyota (), and Korean upstart Hyundai.

What's more, the American giant is weak in the luxury market. "The second-quarter profit is nice, and it's a start," says Henderson, who successfully patched up Isuzu Motors Ltd. () and stanched the bleeding in GM's Latin American business. But, GM's Mr. Fixit adds, "we have a lot more work to do."

EDGY GOOD LOOKS

At least Henderson can count on spruced-up models to rev sales. GM had been losing ground in Europe since the mid-1990s because of slipping quality and dull styling. But quality is up across the board, according to J.D. Power & Associates, and the styling on the new Astra compact -- which has a sporty stance sculpted with a dash of avant-garde edginess -- has won converts. The 240-horsepower Astra OPC performance car also has added spark to GM's image.

The launch of the new Astra Twin Top convertible -- a popular segment the company joined late -- could drive sales of the Astra to well over 500,000 next year, says GM President Carl-Peter Forster, the executive who initiated the face-lift for the European lineup. That's 25% higher than the previous generation sold in its last year. The car has the Astra's edgy looks and a hard top that automatically retracts at the push of a button.

One area to watch is GM's efforts to promote Cadillac in Europe, where sales of the luxury marque number only a few thousand. Cadillac will have a serious European entry next spring with the launch of the BLS, a new midsize sports sedan with brash American styling and the lithe frame and diesel engine Europeans crave. Says GM'S Forster: "We have to build the brand step by step." If GM can sustain its momentum in Europe, it may generate enough profit to build the brand even faster.

By David Welch in Frankfurt


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