It wasn't all that long ago that General Motors' (GM) most reliable product might have been its earnings report for North America: Every quarter posted a huge loss, just like clockwork.

GM's operations at home were broken, a legacy of decades of poor products, and labor deals and infrastructure that the company could no longer afford. But now, thanks to the U.S. government and (it must be said) new managers who are mindful of the opportunity given to them by American taxpayers, GM's making a lot of money here at home.

But as this week's earnings report made clear, the company still has an awful lot of work to do elsewhere.

Big Profits and Big Challenges

GM made $2.2 billion in North America in the third quarter, but it couldn't expand on that number with earnings abroad. Increased profits in China were canceled out by weak Europe and South America numbers, and GM's total operating profit also came in at $2.2 billion. Total net income was $1.7 billion. Bankruptcy restructuring, new labor deals, and a smarter use of resources have all contributed to GM being profitable here at home, and those profits are big enough to carry the whole company. In fact, CEO Dan Akerson and his team have pushed GM's breakeven point in the U.S. down so far that the company should continue to be profitable even in a very deep recession.

Now, though, Akerson has to repeat that feat in places like Europe, even as the company continues to work aggressively to improve its profit margins here in the U.S. Europe, where the company has lost more than $13 billion since 1999, is an enormous challenge for GM. The same is true for rival Ford (F) -- but like Ford, GM has concluded that Europe is essential to its global operations. It has to be saved.

Europe Is One of the Keys to GM's Renaissance

Even when its European unit is profitable, as it was (barely) last quarter, it doesn't contribute a lot to GM's overall bottom line. But it's important for other reasons, namely the economies of scale and engineering expertise that it adds to GM's global business.

To understand why, we need to understand how GM is transforming itself by following a trail blazed by its ancient rival, Ford. Rather than developing a slew of different models for different regions -- as both Ford and GM used to do, and as companies like Honda (HMC) still do today -- Ford is committed to selling a single lineup of cars and trucks around the world, just 20 or so cars and trucks total.

That "One Ford" approach is the key to Ford's profitable revival: Under this new plan, Ford has fewer models to develop, and that means it can commit more money and attention to each model, improving quality and competitiveness. That in turn means bigger profits per vehicle and more money for the cycle to continue.

It's similar to the way Toyota (TM) approaches its global business. It's working out very well for Ford, and GM is actively following in the Blue Oval's footsteps, with some very good new products. And just as Ford uses its European operation as its center of small-car expertise -- the new Focus and Fiesta were both designed in Germany -- GM has drawn important new models like the Buick Regal from its own European design centers.

Europe's a critical part of the plan. That means that Akerson needs to find a way to make Europe profitable, even in tough times like these.

A Daunting Challenge

Making its European region profitable in good times and bad will be hard for GM: Rules set by labor-friendly governments mean that the kind of cost-cutting changes the company has won here will be slower to come in the Old World.

But making those kinds of changes, at least, is something that GM's current leaders know how to do. Earlier this week, Akerson replaced GM's longtime European chief with a rising star, Karl Stracke, who used to run GM's engineering team in Detroit. Stracke's mandate is clear -- it'll just take time to make it happen. The harder part is the thing GM can't change: Europe's economic mess, which is clobbering car sales. Until that starts to get better, GM's challenge in Europe will remain daunting.

At the time of publication, Motley Fool contributor John Rosevear owned shares of General Motors and Ford. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor.




Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Basics of Diversification

Learn one of the fundamental concepts of building a portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum

41 Comments

Filter by:
alfredschrader

Why don't they have the Thunderdrive ? I didn't sell it to them....Alfred-

November 13 2011 at 10:14 AM Report abuse rate up rate down Reply
savemycountry911

I hate Government Motors. Chevy to the levy and into the drink.

November 11 2011 at 10:25 PM Report abuse -3 rate up rate down Reply
1 reply to savemycountry911's comment
falcon38a

GM paid the government back as did the banks... know what you are talking about before you comment. We need to support American companies!

November 14 2011 at 2:41 PM Report abuse -1 rate up rate down Reply
billyjoeobama

Stevie is a Phony. Probably Barry's fluffer /////////////////////////////////////////////////////////LMAO

November 11 2011 at 7:04 PM Report abuse -3 rate up rate down Reply
1 reply to billyjoeobama's comment
billyjoeobama

FAT CAT NUT FLUFFER !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!SLEAZYSTEVIE

November 11 2011 at 7:08 PM Report abuse -3 rate up rate down Reply
billyjoeobama

Hillbilly Obama wants his job package passed so he can donate to his union pals to get more votes. This time people will be watching A.C.O.R.N. more closely.

November 11 2011 at 4:46 PM Report abuse -3 rate up rate down Reply
1 reply to billyjoeobama's comment
falcon38a

Obama needs to get out of bed with the unions. He also needs to go back to Chicago and quit ruining our country!

November 14 2011 at 2:43 PM Report abuse +1 rate up rate down Reply
geraldlsolis

Profitability in Europe is their NEXT Problem... yeah, right. Even though GM got $50 BILLION from Uncle Sap and us taxpayers, and then they were able to write off $45 BILLION in legitimate loans and debt to suppliers, dealers, bondholders and stockholders, they still can't make a profit! Give Me A Break! And, Uncle Sap has given them a free pass NOT to fund their employees' Pension Plan which they now owe $21 BILLION to. So, add up $50 BILLION in bailouts, $45 BILLION in write-offs, and $21 BILLION in Pension Plan defaults, and you see that Government Motors has blown $116 BILLION somehow and somewhere in the past three years. Oh, and by the way, the $50 BILLION they "PAID BACK" to Uncle Sap was in the form of fresh printed Stock Shares, issued at $36 a share, which Uncle Sap can't sell. Today it's worth $22 a share, so we taxpayers have already lost $20 BILLION of the $50 BILLION we were "paid back" by Government Motors. What a deal!

November 11 2011 at 4:35 PM Report abuse -3 rate up rate down Reply
billyjoeobama

Government Motors next big problem is getting the government off their backs !

November 11 2011 at 4:29 PM Report abuse -5 rate up rate down Reply
2 replies to billyjoeobama's comment
stevendy1

like I said about you, just a wishy- washy curmugeon

November 11 2011 at 6:30 PM Report abuse +3 rate up rate down Reply
2 replies to stevendy1's comment
billyjoeobama

You lie. You are nothing but a welfare slug. BSer

November 11 2011 at 7:01 PM Report abuse -4 rate up rate down
billyjoeobama

Is that you Barney Franks?

November 11 2011 at 7:40 PM Report abuse -3 rate up rate down
billyjoeobama

And you're a tweaked out Obama Zombie. How's that hope and change working out for you stevie ? HillBilly get your lost GM stock back for you yet?

November 11 2011 at 6:45 PM Report abuse -3 rate up rate down Reply
3 replies to billyjoeobama's comment
stevendy1

a total bunch if plainly mis-informed , ill-educated people on here making snide, uninformed remarks about which they obviously know nothing...this is our countries problem..you poor ,poor people...ahh to have everything your way as you thought it was and will never be...great to be ignorant isnt it ??

November 11 2011 at 4:02 PM Report abuse +1 rate up rate down Reply
2 replies to stevendy1's comment
billyjoeobama

This country's problem is dopes like Obama and his flock of sheeples

November 11 2011 at 4:40 PM Report abuse -3 rate up rate down Reply
billyjoeobama

You sound like the misinformed uneducated stevendy1

November 11 2011 at 4:43 PM Report abuse -5 rate up rate down Reply
2 replies to billyjoeobama's comment
stevendy1

with such a fake name as yours and your dithering back and forth in your opinions on here, just WHERE do you stand ? on anything wishy-washy?

November 11 2011 at 6:26 PM Report abuse +3 rate up rate down
billyjoeobama

You sound like a fake flake ! Lmao

November 11 2011 at 6:46 PM Report abuse -5 rate up rate down
Huskins Invest

Well the current attitude is to buy American. It backfires if and when the rest of the world decide to support THEIR own products.
.The US companies have been hustling products around the world and taking profit away for a very long time. If the US would change the tax structure, we could bring jobs back to america. We would prosper again. Take a look at FAIRTAX.ORG. This GM story is just a single example.

November 11 2011 at 2:58 PM Report abuse +1 rate up rate down Reply
hemipwr54

When GM dumps the Union Scumbags I will buy another GM product , until then , good luck Union Scumbags .
I don't dislike GM just the UAW Scumbags .

November 11 2011 at 1:47 PM Report abuse -4 rate up rate down Reply
1 reply to hemipwr54's comment
stevendy1

damn, you are really a big crybaby arent you.?? didnt get hired at a gm plant sometime and now youre still carrying that chip on your shoulder arent you..??? grow up or at least learn something besides retribution and paybacks !!

November 11 2011 at 4:14 PM Report abuse +2 rate up rate down Reply
1 reply to stevendy1's comment
hemipwr54

Funny when the UAW needs money they beg like little cry babies , but now they feel safe they call us peons and demand we buy their junk , reason why I hate UAW Scumbags .
Again how many Undocumented Workers does Unions employee ? Just as I thought !

November 11 2011 at 4:33 PM Report abuse -2 rate up rate down
hemipwr54

If the American people had not been forced to dole out billions GM would not be around period . GM (Government Motors) how to scam billions and keep the profits , Madoff of American Companies .

November 11 2011 at 1:42 PM Report abuse -3 rate up rate down Reply
2 replies to hemipwr54's comment
mhcontain

Yes, and the Japanese and Koreans don't subsidize thier companies and create barriers to keep imported products out.

November 11 2011 at 2:56 PM Report abuse +3 rate up rate down Reply
1 reply to mhcontain's comment
hemipwr54

UAW is owned by China now , subsidized by their communist brothers are we UAW !

November 11 2011 at 4:35 PM Report abuse -2 rate up rate down
hduplease

yea if it werent for unions you would be working for 5 bucks a hr,

November 11 2011 at 4:20 PM Report abuse +3 rate up rate down Reply
1 reply to hduplease's comment
stevendy1

hemi does make $ 5 an hour,,pretty much all he is worth apparently..

November 11 2011 at 4:29 PM Report abuse +2 rate up rate down