Al Koch, Vice chairman of AlixPartners

By Kim Da-ye

In the first quarter of 2011, General Motors (GM) posted $1.7 billion in operating profit in North America and $0.3 billion in losses in Europe. The disparity between the two regions is expected to widen in second quarter earnings.

What accounts for the difference was an aggressive restructuring plan in the U.S. with aid from the government, Al Koch, the vice chairman of the global restructuring advisory firm AlixPartners, said Tuesday at a press meeting in Seoul.

The North American operation has slimmed down and become more efficient with heavy support from the U.S. government, while Europe ― challenged by hostile labor unions and modest injections of public money ― keeps providing more vehicles

Chung Yung-hwan, Managing director of AlixPartners

than the market can digest.

“Short-term pain of taking an aggressive approach will generate a successful turnaround whereas making a very modest change is likely to prolong the pain,” said Koch, who served as GM’s chief restructuring officer (CRO) throughout the car manufacturer’s Chapter 11 reorganization. When a debtor files for Chapter 11 bankruptcy, its business affairs and assets get restructured by experts appointed by the court.

Koch visited Korea last week to promote the opening of AlixPartners’ Seoul branch. It’s the fourth Asian office after Japan, China and Hong Kong, and is headed by former McKinsey & Company partner Yung H. Chung.

According to Koch, GM North America cut the number of its employees from 139,000 to 96,000 and shut down some assembly plants between 2007 and 2010. Iconic brands such as Hummber and Saab were deemed unprofitable and sold off.

Closing plants and reducing operations all require money which the U.S. government provided.

In the meantime, the number of employees in Europe inched down to 49,000 in 2010 from 57,000 in 2007 and 54,000 in 2008.

As the biggest proof of success of GM North America’s turnaround, Koch pointed to the stabilizing market share despite reduced production. The company also began making money on small cars ― in the past, it had lost on every passenger car it made and gained on trucks.

GM Europe, however, still suffers overcapacity issues. Despite hostile labor unions, the company continues to try and turn the situation around. In frustration, GM kicked out Karl-Fredrich Stracke, CEO of Opel and president of GM Europe.

The turnaround guru identified four “top” indicators for the decline of a corporation: weakening revenue and profit margins, inefficient operations, too much debt or too little capital and a poor industry environment.

When GM filed for bankruptcy in June 2009, the automotive maker was beleaguered by intense global competition, soaring costs of raw-materials and gasoline prices, heavy sales incentives hurting profit margins, overcapacity and was tens of billions of dollars in debt.

Albert Stein, the managing director at AlixPartners is specialized in turning around distressed shipping companies. He discussed “core restructuring techniques.”

Companies should pay “strict attention” to short term liquidity, have a total overhaul, not just for the balance sheet, focus on efficiency, and have realistic business plans that concentrate on the core businesses, Stein said.

“It’s a fairly simple strategy but it is often misunderstood,” Stein said.

Chung, representative of the Korean office, said that domestic carmakers except for Hyundai Motor Group have been mediocre here and Hyundai faces a new challenge ahead to maintain its success.

“Hyundai-Kia needs to address how they will deal with a new demographic ― consumers in a digital society with unique tastes who don’t regard vehicles as just methods of transportation,” Chung said.