BERLIN (AP) -- While the rest of General Motors Co. rose to its financial feet in the first quarter, the auto giant\'s European unit continued to struggle with high costs and a declining market.
On Friday CEO Ed Whitacre got the last big piece of his plan to resurrect GM -- a $1.25 billion restructuring deal with its European union, designed to stop Adam Opel GmbH from being a drain on GM profits.
The cuts, though, may not go deep enough for Opel to thrive in a competitive European market.
"It\'s a start, but they clearly need to go very much further than they have," said Howard Wheeldon, Senior Strategist at BGC Partners in London who specializes in auto and aerospace companies.
Opel, which includes the Opel and Vauxhall brands, lost more than $1.3 billion in the past two quarters, including $506 million in the first quarter. In contrast, GM\'s North American and Asia/Latin America operations each earned about $1.2 billion from January through March.
The restructuring deal will produce savings through 2014 and assure the unit\'s future, Opel CEO Nick Reilly said at a joint union-company press conference in Ruesselsheim, Germany, where Opel is headquartered.
Workers will contribute the savings to an account that Opel will use to develop new products as it tries to stay up-to-date in a saturated market.
The company, in turn, will offer employees job security and guarantee production sites. Moreover, Opel workers across Europe will get a share of future profits, said Klaus Franz, who heads the company\'s powerful workers council.
Reilly reiterated that previously announced restructuring would go forward. That includes cutting factory capacity by 20 percent and eliminating 8,000 jobs, nearly half of them in Germany. Once the restructuring is complete, Opel will not eliminate more jobs until 2014.
Opel and Vauxhall employ about 48,000 people in Europe. More than 24,000 are in Germany.
Wheeldon and others say even with the cuts, Opel still has too many factories and workers, and will have trouble competing, a problem that the old GM management saw when it tried to sell the unit last year.
"I just think they\'ve still got a real capacity and cost problem with all these underutilized plants in these expensive countries," said Logan Robinson, a former Chrysler attorney and professor of corporate governance at the University of Detroit Mercy.
Eventually Whitacre stepped in to overrule then-CEO Fritz Henderson and save Opel, in part because engineers in Ruesselsheim are key to designing GM\'s new generation of small and midsize cars.
Wheeldon said it will be politically difficult for Reilly to cut more than 8,000 workers, especially if GM wins aid from European governments. He said GM walked a fine line between alienating governments and the union with job and cost cuts.
Reilly and Franz urged the German government to move swiftly to free up loan guarantees to support the company\'s turnaround. The company has requested loan guarantees of more than euro1 billion ($1.24 billion).
Annual cost savings of euro265 million ($328.4 million) shouldered by the workers -- who will delay pay raises and give up half of their holiday and Christmas supplements for the coming years -- will be managed by a trustee and have to be invested in the development of the new models, Franz said.
Reilly said the agreement is a "major milestone" for the company\'s future, giving Opel "a common base for profitable growth." Full details of the plan will be worked through September.
Opel will also change its legal status, becoming a listed company named Adam Opel AG. "This guarantees transparency and a high degree of autonomy within General Motors," Franz said.
It also gives the union more of a say in running the company, said Robinson.
The framework agreement still has to be ratified by local worker councils before taking effect.
GM has roared back from bankruptcy to a quarterly profit in less than a year, posting a net income of $865 million for the first quarter 2010.
It announced in March that it would triple its funding for the turnaround of Opel and Vauxhall to about $2.57 billion.
"It\'s more than 50 percent of what we need," Reilly said.
GM also applied for state aid of some euro2.7 billion ($3.65 billion) from European governments in loans and loan guarantees. Germany is reluctant to put up the guarantees as it ponies up billions of euros to bail out Greece while GM is again profitable.
Reilly dismissed the idea that GM could shoulder the turnaround on its own.
"You need to remember that GM is first of all funded by U.S. taxpayers," he said. Pointing to the challenges still lying ahead of GM to stage a full recovery, he added: "Frankly, GM needs the money it has got."
Krisher reported from Detroit.
