General Motors reports weaker but surprisingly solid third-quarter profitability and says while the outlook for its struggling European operations remains gloomy the turnaround plan for its German Adam Opel unit already has yielded some positive results.

GM reports net income of $1.5 billion in the July-September period, a decline of nearly 12% compared with $1.7 billion year-ago but ahead of most Wall Street expectations.

The returns provide common shareholders with $0.89 per share vs. $1.03 in like-2011.

Revenue in the latest quarter grew 2.5% to $37.6 billion from prior-year’s $36.7 billion.

“This was a solid quarter for GM in almost all respects,” GM Chairman and CEO Dan Akerson says.

Akerson points to an improvement in operating earnings of 5% to $2.3 billion, from $2.2 billion in like-2011, “despite the ongoing negative impact of the European debt crisis on our business and the industry.”

Analysts say operating earnings sometime provide a clearer picture of a company’s profitability than net income.

Akerson also notes four of GM’s five subsidiaries posted profits, with Europe the sole loser, and cites an increase in automotive free cash flow to $1.2 billion from $300 million in the prior-year.

More free cash flow, or money available to GM after spending on items such as new products, plants and equipment, gives the auto maker flexibility to pursue other revenue-boosting and market-share opportunities.

Akerson says highlights for GM in the third quarter included new-product momentum in Europe, where Opel’s weak competitive position was strengthen with the introduction of the Mokka small cross/utility vehicle and Adam small car at the Paris auto show.

Chevrolet posted an eighth-straight quarter of record global sales, and Cadillac added two key products in the XTS large sedan and the ATS compact sports sedan to give it broader coverage of the luxury market, he says.

China continued to show strength and corporate undertakings, Akerson says, and the realignment of GM’s product development unit and revamping of its information technology group kept the company’s rebound from its 2009 bankruptcy on track.

However, Europe posted additional losses in Q3, jumping to $478 million from $292 million year-ago. GM expects its European operation to post a pre-tax loss in 2012 of between $1.5 billion and $1.8 billion, much wider than the $747 million loss in 2011.

The auto maker predicts a “slightly better” performance from the region in 2013 and breakeven for the unit by the middle of the decade. “We expect that the weakness in Europe will continue to impact our business and the industry for the next several years,” Akerson says.

Chrysler and Ford reported strong Q3 profits earlier in the week. But Chrysler parent Fiat says Europe’s economic malaise weighed on its earnings, and Ford detailed a plan to close three facilities to help it return to profitability by 2015.

GM Vice Chairman Steve Girsky says while the economic environment in Europe remains terrible, the auto maker’s turnaround plan at Opel has yielded some “green shoots sprouting in the mud.”

He cites favorable results from shifting Opel’s go-to-market strategy to product-based rather than price-based; marginal improvements in brand recognition; and improved retail share, although the subsidiary’s overall piece of Europe declined in the quarter to 8.6% from 8.8%.

Opel saw a positive reception for its newly launched Mokka CUV, with dealer orders this year topping 45,000. Girsky believes the auto maker will deliver 30,000 units. “It’s been a long time since Opel has had a product that has been tight,” Girsky says.

The new Adam small car also was well received, and early Opel sales in Australia and Russia, among other new markets for its products, show promise.

GM remains an active bidder for the international business of auto finance group Ally, which would give Opel the captive finance arm it currently lacks, and GM’s cost-saving alliance with French auto maker PSA Peugeot Citroen was cemented in the quarter, Girsky says.

Inventories were down at Opel, while fixed costs were shaved by $300 million to help give the German auto maker positive cash flow in the quarter for the first time in years. Opel continues to carry out capacity reductions in Europe.

The positive developments came on top of significant personnel changes that placed a number of top GM executives in charge at Opel, a unit Girsky admits previously operated too independently. The management shuffle left just four or five of Opel’s top executives with the company, he says.

Girsky declines to comment on persistent media reports saying GM continues to shop Opel or is interested in Opel entering into a joint venture with Fiat, but he admits it can be difficult keeping employees focused amid the speculation.

“We’re very transparent with the organization internally; what the issues are, keeping it in front of people,” he says. “It’s still bloody out there, but we are making some progress. We’ve just got to keep pointing out these small wins. Small wins lead to big ones.”

Elsewhere, GM International Operations, which includes the important market of China, saw income surge to $689 million from $365 million year-ago, while the South American unit earned $114 million before interest and taxes after posting a loss of $44 million in like-2011.

GM North America provided the biggest windfall, earning $1.8 billion, compared with $2.2 billion year-ago. The decline was less than expected due to stronger-than-anticipated vehicle pricing, favorable material costs and fewer engineering expenses.

GMNA’s share of the U.S. market declined to 17.6% from 19.7%, reflecting healthier Asian auto makers after the natural disasters in Japan last year.

Looking ahead, GM Chief Financial Officer Dan Amman expects a fourth-quarter performance similar to that of last year, when the company earned $468 million.

GM announces today 30% of eligible U.S. salaried employees have elected to take a lump-sum payment from the auto maker instead of monthly payouts. GM is offloading its pension obligations to Prudential Insurance this month to further reduce its legacy costs.

jamend@wardsauto.com