Facebook is not the only place GM is unfriending.

In the latest in a series of surprise moves, General Motors has decided to boycott next January’s Super Bowl advertising extravaganza in protest over a huge increase in advertiser rates.

The decision follows word that the maker will also pull its ads off Facebook, the social media site that is today on its way to what could be the largest IPO in U.S. history. But insiders say GM is weighing more heavily than ever the perceived payoff for its estimated $4.5 billion ad budget, backing out of purchases that might deliver a halo but relatively little in terms of actual results.

“We continue to understand the value the Super Bowl provides,” said GM marketing spokesman Pat Morrissey, “but with the continued increase in price we just can’t justify it,” he said confirming a report in the Wall Street Journal itself attributed to the maker’s marketing czar Joel Ewanick.

The Super Bowl is considered not only the championship game for American football but the ultimate venue for advertisers – at least when it comes to “counting eyeballs,” in advertising parlance.  The Nielsen Co. reported 111.3 million Americans watched the game in February of this year, making it the third consecutive year it set a record as the most-watched TV program in U.S. history.  It was one of only four broadcasts to top 100 million viewers, a rarified list including the previous two championship games and the 1983 finale of TV series M*A*S*H.

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But advertising rates have been rising faster than the actual viewership of the game, according to industry experts, reportedly reaching between $3.0 million to $3.2 million in February 2012. Sources told TheDetroitBureau.com that the figure is approaching $4 million for the game airing on CBS in 2013.

GM spokesman Morrissey would only say that the maker balked at what he described as a “pretty significant” increase for the planned broadcast of Super Bowl XLVII.

The maker’s boycott comes with a big asterisk, however.  GM is only dropping out of “national advertising specific to the in-game” broadcast.  In February of this year that included three 30-second spots and a longer, 1-minute commercial for the Chevrolet Silverado that was itself quite controversial.

(It aimed to suggest that after the apocalypse purportedly predicted in the Mayan calendar for late 2012 only the Chevy pickup will still be running.  Ford Motor Co. threatened to sue to prevent the commercial’s airing, claiming industry data showed that maker’s F-Series model was more likely to survive the end of life, the universe and everything.)

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But it appears GM might not be totally absent from the football festivities.  It also ran several ads during the Super Bowl pre- and post-game TV coverage.  And Morrissey acknowledged that it has not yet been decided whether to continue or drop those programs, as well.

GM previously pulled out of the 2009 Super Bowl due to the financial crisis that led to it filing for Chapter 11 bankruptcy protection that year.

The maker confirmed, earlier this week, that it will be ending its ad relationship with Facebook over the summer, Chevrolet marketing chief Chris Perry arguing the ads generated “insufficient” results.  But GM has also said it will maintain an unpaid presence on the 900-million-member social media site.

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The decisions to drop Facebook and now walk away from the Super Bowl aren’t coming as a huge surprise to Detroit-watchers who have seen big changes in the way the domestic makers have been operating over the last several years.  Each of the Big Three has been looking for ways to break out as they struggle to reach potential buyers – especially those who have long ignored domestic products.

GM’s Ewanick has been especially aggressive, building a reputation as a game-changer since his arrival at the maker’s riverfront Detroit headquarters in May 2010.  He has fired long-standing agencies, such as Chevy’s nearly eight-decade partner Campbell-Ewald, and more recently approved plans to consolidate a group of agencies to serve the brand on a global scale.

The former head of Hyundai marketing, Ewanick has promised to re-evaluate every aspect of the massive GM ad budget.

Among other things, it has long been a matter of debate just how well sports advertising pays off, but a well-placed media executive at one of Detroit’s largest ad agencies said that the regular run-up in pricing for the Super Bowl spots is simply “all about supply and demand.”  Asking not to be identified by name because they didn’t have permission to talk to the media, the executive said, “The rates won’t come down as long as there’s someone who wants it.”

So, might GM’s decision to back out put downward pressure on CBS deal-makers? Not likely, said the advertising executive.  “Somebody else will want (the ad slots).”

GM (GM) posted a profit of $1 billion in the first quarter, beating Wall Street expectations on strong demand in its key North American market.

GM also said the U.S. economy was improving and it expected its core North American results in the second and third quarters to largely match the first quarter due to scheduled downtime at its large truck plants.

"We're clearly seeing some improvement in the (U.S.) economy," Chief Financial Officer Dan Ammann told reporters. "It's a modest underlying improvement, but it's patchy and it won't necessarily all go in a straight line."

The quarter included the impact of $800 million in higher vehicle pricing and lower consumer incentives, half of which came in North America. Last year, GM offered heavy consumer incentives to drive sales in the U.S. market, something it did not do this year.

GM lost $256 million pretax in Europe, where it took a $590 million charge related to pension costs. Excluding one-time items related to the impairment of goodwill primarily in Europe, the No. 1 U.S. automaker reported a profit of 93 cents per share.

Analysts, on average, expected GM to earn 85 cents per share, according to Thomson Reuters I/B/E/S.

Net income fell to $1 billion, or 60 cents a share, from $3.15 billion, or $1.77 a share, in the same quarter a year earlier. Last year's quarter included a one-time gain of $1.5 billion related to the sale of stakes in Delphi and Ally.

Revenue for the quarter was $37.8 billion, up 4.4 percent from $36.2 billion a year ago.

Reuters and The Associated Press contributed to this report.

Pity poor Dan Akerson.  He’s delivered the sort of financial turnaround seldom seen in the business world, taking once-bankrupt General Motors to multi-billion-dollar profitability.  But that won’t be enough to earn him a pay hike this year, according to the U.S. Treasury Dept., which has the final say on compensation for the maker’s top 25 executives.

Don’t pity Akerson too much.  He’ll still take home about $9 million this year, including $1.7 million in salary and another $7.3 million in various forms of stock compensation.  But that’s significantly less than his crosstown counterparts.  Ford Motor Co. CEO Alan Mulally got a $29.5 million pay package, the maker announced last week, on top of more than $57 million in long-term stock compensation.

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The federal government began overseeing the salaries of GM executives in 2009 along with those at other companies who received bailout funds under the so-called TARP program.  Most of those firms have since paid off their loans and are no longer subject to the review of a federal pay overseer.  But GM — which is still 26.5% owned by the Treasury – is still covered, as are Ally Financial, the former GMAC, and giant AIAG.

 The controls remain in place because they are “necessary to ensure that compensation … satisfies the public interest standard,” according to Patricia Geoghegan, office of the special master for TARP executive compensation.

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GM’s top 23 executives earn, on average, about $1.2 million apiece in total compensation.  While several top execs, such as Vice Chairman Tom Stephens, have recently left the company, 14 who remain will receive 0.5% pay hikes and 8.4% increases in overall compensation when stocks and other benefits are included.

But nine of the company’s top managers – who joined GM in 2011 – will receive, on average, 45.5% less than the executives they replaced.

The ongoing pay limits post problems for GM in an environment where it has to compete against other auto manufacturers – and company’s not in the automotive business – for talent, the Detroit maker complains.

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“There are some people who haven’t worked in the auto industry their whole lives, people that want to try something different that pays,” Mark Reuss, GM’s president of North American operations, told reporters earlier this year.

Akerson did manage to take home more than Sergio Marchionne received from Chrysler – which also received a 2009 bailout but last year’s paid off its remaining government loans. For the second year, Marchionne chose to receive nothing for his work at Chrysler.  However, he did get $22.2 million from Fiat, the Italian automaker that currently owns a 58.5% stake in the U.S. maker.

Handout / Getty Images

Autoworker Maurice Vauss inspects the fit and finish of the 2013 Chevrolet Malibu Eco during final inspection on the assembly line.

The surge in fuel prices has led to a huge shift in buyer demand, according to General Motors, the maker reporting it sold more high-mileage models than ever last month.

Demand for products delivering 30 mpg or better has grown so much GM recently had to up incentives on less efficient V-6 versions of several crossover-utility vehicles because it was running out of higher-mileage four-cylinder models.

“GM’s strategic investments in four-cylinder and turbocharged engines, advanced transmissions and vehicle electrification have been very well timed,” said Mark Reuss, president of GM North America.

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With the industry set to report March sales later today, GM gave a hint of what is happening as the market responds to $4 gas.  Sales of the 12 models it offers in the U.S. getting at least 30 mpg will total more than 100,000 for the month, an all-time record, the company said.

“Three years ago, about 16 percent of the vehicles GM sold achieved at least 30 mpg on the highway. Today, that number is about 40 percent,” noted Reuss, “and we have more new fuel-economy leaders on the way, including the Chevrolet Spark, Cadillac ATS and the Buick Encore.”

The dozen current models include the 2012 Chevrolet Sonic, Chevrolet Cruse, Chevrolet Volt, Chevrolet Malibu, Chevrolet Malibu Eco, Chevrolet Camaro, Chevrolet Impala, Chevrolet Equinox and 2012 Buick Verano, according to the U.S. Environmental Protection Agency’s ratings.

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The automaker offers multiple powertrain offerings on many of those products, such as the Chevrolet Equinox and its near-twin, the GMC Terrain.  Demand for the higher-mileage I-4 models has now exceeded capacity – prompting the maker to recently add another $1,000 in incentives to try to get some potential buyers to opt for the V-6 models.

But the trend appears to be well-entrenched, according to most industry analysts, few expecting to see a significant return to lower-mileage models barring a wholesale collapse in fuel prices.  As a result, manufacturers are expecting to continue adding to their high-mileage offerings.

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In GM’s case, it will add still more all-new or significantly freshened 30 mpg-plus Chevrolet, Buick, GMC and Cadillac cars and crossovers by the end of 2012.  Collectively, they will flesh out  segments that
represent 60% of the U.S. light vehicle industry.

The new models include the all-new 2013 Cadillac ATS 2.5-liter and 2.0-liter turbo I-4s, the all-new Chevrolet Spark and the four-cylinder 2013 Chevrolet Malibu, all of which are expected to achieve EPA estimates of 30 mpg highway or better when the ratings are released later this year, Reuss said.

Frank Augstein / AP

Karl-Friedrich Stracke, CEO of Adam Opel AG, sits inside the new Opel Mokka. He is struggling to restore the GM unit to profitability.

The products were nearly an afterthought when Opel opened its news conference at the Geneva Motor Show last week.

Any other year, a new model like the Mokka crossover or Astra OPC would have garnered the spotlight. But when the German automaker’s new CEO Karl-Friedrich Stracke took the stage the focus was more somber  as declared his goal: “to return our European operations to sustainable profitability.”

He’d better -- and soon.  Opel ran up $700 million in red ink last year, detracting from parent General Motors, which still posted a  record $7.6 billion in profit for 2011.

Turning things around at Opel has proved far more elusive than anyone expected.  Stracke’s predecessor Nick Reilly was summarily “retired” a few months back after failing on his promise of delivering at least a break-even at the European subsidiary.

A frustrated GM has tried one option after another in recent years, hoping to turn the corner on Opel’s problems.  It has cut capacity, rolled out a flood of new products and even considered selling a controlling stake in the unit shortly after emerging from its own 2009 bankruptcy.

Now the automaker has inked an expansive alliance deal with erstwhile rival PSA Peugeot Citroen.  The two new partners insist they can not only reduce costs but also introduce an assortment of new products and powertrains that could give them a competitive edge in the overcrowded European market. But considering the Continent’s worsening economic crisis -- never mind Opel’s recent history -- skeptics abound.

“They’ve got to take out a lot of mass,” said analyst Joe Phillippi of AutoTrends Consulting, referring to Opel’s excess capacity, bloated workforce and out-of-sync cost structure.  “But any savings are likely to take time.”  At best, he cautioned, the fruits of the new alliance won’t be ripe for 18 to 24 months -- if at all.

Two decades ago, Opel was one of Europe's automotive powerhouses.  The brand was locked in a battle with leaders like Volkswagen and Ford but generated reasonable revenues and was considered a likely spearhead for GM as it opened emerging markets from Brazil to Russia and beyond.

But when GM bid to build a new plant in China, regulators there suggested the maker go to market instead with the Buick name -- reviving a brand that was a favorite of China’s last emperor as well as communist leader Zhou Enlai.

Meanwhile, as Opel began running into problems its expansion plans were scaled back, and GM shifted focus to Chevrolet, a brand long dominant in the Americas.  It even brought Chevy into Europe, using the brand to market its lower-priced, Korean made models.

Ironically, while Opel has steadily lost ground, Chevrolet has become one of Europe’s fastest-growing marques, setting one annual record after another.

Some thought Chevrolet might even replace Opel if GM had gone through with a sale of a controlling stake in Opel.

In the end, Opel stayed in the GM family, and the plan is for peaceful coexistence, insists Susan Docherty, president and managing director of Chevrolet Europe. 

“There’s absolutely room for both of us,” she insisted in an interview, noting that despite its fast growth Chevy Europe sold just 206,000 vehicles last year, barely 20 percent of Opel's volume.

Still, there have been plenty of rumors and reports in recent months that GM might again try to find a buyer for Opel. GM CEO Dan Akerson has repeatedly denied a sale is on the table. And the Peugeot alliance reveals an alternative strategy.

The two makers will cooperate on a variety of projects, including joint component and part purchasing that should shave costs by enhancing economies of scale.  Peugeot will provide new and more efficient diesels Opel can use -- critical in the diesel-friendly European market.  And the partners plan to develop new powertrains and product platforms that should reach market sometime after mid-decade.

“It’s very clear we’re looking for synergies,” said Opel chief Stracke in an interview, but he acknowledged it will take time to pull things together.

Stracke cautioned that the alliance won’t solve anything. Notably, “it’s not set up to fix anybody’s capacity problems.  Peugeot needs to fix theirs and we need to fix ours.”

He hinted that Opel is studying its options, with many observers expecting some major announcement in the coming months. That would follow previous steps that have already reduced Opel’s capacity by 400,000 units annually.

New cuts won’t be easy, especially at the maker’s highest-cost plants in Germany, where it is subject to restrictive labor laws -- and where union leaders have significant say in management decisions.  But a recent shake-up in the leadership of union IG Metall could provide an opportunity for change.

Jim Hall of 2953 Analytics is skeptical that the Peugeot alliance -- or even further production cuts -- will solve Opel’s problems.  “The more serious problem,” he says, is the maker’s weak image among European buyers, “and only product can solve that.”

That’s where the Mokka and Astra OPC come in -- along with the new Ampera, the plug-in hybrid sibling of the American Chevrolet Volt (which also is being sold in Europe).

Both Ampera and Volt got a much-needed boost last week when a jury of journalists declared them jointly the European Car of the Year. Stracke said that even before the award Opel had lined up 7,000 advance orders for Ampera, which only went on sale last month.

But it’s going to take a lot more volume than that to fix Opel’s problems. And while the new models and the new alliance will likely help, it’s anyone’s guess when GM’s European arm will finally stanch its bleeding.

PRNewsFoto via AP

Production of Chevrolet Volts is on hold for five weeks.

Facing a significant backlog of unsold inventory, General Motors will shut down production of the Chevrolet Volt for five weeks.

The maker has notified 1,300 workers at the GM plant in Detroit that they will be idled from March 19 through April 23 while assembly operations are idled.  But the maker insists the latest setback is not a sign of long-term problems for the plug-in hybrid, noting that Volt sales in February jumped 70 percent over the prior month.

“We’re going to do what we need to the keep production in line with what the market demands,” said GM spokesperson Michelle Malcho.

She noted that demand has been recovering in the wake of reports, late last year, that several Volt battery packs had caught fire following federal crash tests.  After briefly opening an investigation into the problem, the National Highway Traffic Safety Administration gave the Chevy Volt a clean bill of health when GM announced it would take several steps to further reduce the risk of battery problems. The maker has stressed there have been no such incidents involving Volts in real-world use.

But the controversy escalated last month when California Republican Congressman Darrell Issa held a hearing on the Volt that critics said was primarily aimed at embarrassing the Obama Administration. Issa was a strong critic of the 2008-2009 federal bailout of GM and Chrysler.

In the wake of the original Volt fire news reports sales plunged, dipping to just 603 in January before rising to 1,023 last month.  But while that was a significant upturn, it is still well short of where GM had hoped to be.

The maker originally planned to produce about 10,000 Volts in 2011.  It made that production target but rang up sales of only 7,671 of the battery cars.  By comparison, Nissan sold nearly 10,000 of its Leaf battery-electric vehicles.

GM has promised to ramp up production of both the Volt and the similar Opel Ampera this year, with an initial target of 60,000 units – 75 percent of those vehicles intended for the U.S. market.  Spokesperson Malcho declined to say whether the maker now will miss the 2012 target.

If anything, she said GM is “pleased with the enthusiasm” shown by initial Volt buyers.  Significantly, when the maker offered to buy back the plug-in from owners worried about the safety of the Volt battery pack, only about a dozen took GM up on that offer.

And, if anything, Malcho insisted there has been a surge in demand in the California market since the beginning of this month when GM made modifications to the car’s backup gasoline drivetrain to further reduce emissions and qualify as a so-called P-ZEV vehicle under California law.  That qualifies a buyer for the Golden State’s coveted HOV lane sticker – enabling them to drive in the quicker freeway carpool lanes without having two or more passengers onboard.

Despite that reported surge, however, the production cuts suggest that, on the whole, demand is still not keeping up with the projections GM initially made for 2012.  Whether the pace will pick up later in the year remains to be seen.  

General Motors and PSA Peugeot Citroen have confirmed the creation of a “long-term and broad-scale” strategic alliance they expect to contribute to improved profitability and competitiveness, especially in the weak European market where both makers have been struggling.

As part of their new partnership GM will take a 7 percent equity stake in the French manufacturer, becoming the second-largest shareholder in PSA after the founding Peugeot family, which will continue to hold a one-third stake in the firm.

“This partnership brings tremendous opportunity for our two companies,” said Dan Akerson, GM CEO and Chairman. “The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe.”

There will be two main pillars to the alliance, the makers revealed:

• The sharing of vehicle platforms, components and modules; and
• The creation of a global purchasing joint venture for sourcing of parts and service.

The combined entity will be responsible for about $125 billion in annual purchasing.

Additional opportunities will be pursued by the two partners, GM and Peugeot suggested, including integrated logistics and transportation. 

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The two companies will continue to operate as independent organizations, however, especially when it comes to vehicle marketing and sales.

Along with its decision to enterinto an alliance with GM, PSA Peugeot Citroen plans to raise approximately 1 billion Euros (about $1.35 billion) in additional capital to help fund its global expansion efforts.

“With the strong support of our historical shareholder and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement,” said PSA board chairman Phillippe Varin.

While an official announcement did not specifically address the issue, GM is believed to be accepting a standstill agreement that will prevent it from increasing its stake in PSA beyond 7% without approval of the French maker’s board.

Specific details of the joint platform and component efforts will likely not be detailed for some time but it is believed that GM could assume control of utility vehicle development – what the Europeans refer to as Multi-Purpose Vehicles.  The makers confirm their joint efforts will cover small and midsize passenger cars and crossovers, as well. 

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A joint statement also noted that “The companies will also consider developing a new common platform for low emission vehicles,” adding that, “The first vehicle on a common platform is expected to launch by 2016.

In all, the makers said they expected “total synergies” from their alliance to total about $2 billion within five years, and that “the synergies will be shared about evenly between the two companies.”

Though there could be clear global advantages, it is clear that both makers expect the alliance to be particularly beneficial in Europe, where each has been struggling.  That’s particularly true for GM, whose troubled Opel division failed to achieve a promised turnaround in 2011, instead running about $747 million in red ink and seriously depressing an otherwise dramatic revival for the parent company.

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While some analysts have praised the overall alliance structure, Jim Hall, of 2953 Analytics, insists “this won’t solve Opel’s problems,” since that is largely an issue of a weak brand image, he stressed.

But GM clearly believes that there are better opportunities than the skeptics contend.  And it may have no choice but to give the partnership approach a try.

The U.S. maker nearly sold off a controlling interest in Opel in the months after it emerged from bankruptcy protection in 2011 – ultimately calling off a planned sale to a Russo-Canadian partnership headed by super-supplier Magna International.  But the situation has, if anything worsened, since then for Opel. 

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Despite GM’s upbeat expectations, the maker clearly knows that alliances can go sour – as happened with a brief partnership with Italy’s Fiat.  It cost General Motors $2 billion to exit that deal, a pay-out that only hastened its collapse in 2009.

But industry analysts do agree that alliances appear to be the way of the future in an increasingly competitive auto industry.  Peugeot already has partnerships in place with both BMW and Ford, though another with Mitsubishi failed to materialize.

Other alliances are popping up across the industry, including a fast-expanding partnership between the Renault/Nissan Alliance and Germany’s Daimler AG.

The challenge, analysts caution, is lining up deals that provide similar mutual benefits.

General Motors and PSA Peugeot Citroen have confirmed they have begun discussing “possible cooperations and alliances.”

Both makers cautioned that their talks are still too early to discuss in detail, though industry sources are indicating that the U.S. maker, the world’s largest, and French-based PSA, Europe’s second-largest automaker by sales, are focusing on a manufacturing alliance – though some sort of joint product development could be in the cards, as well, other sources suggested.

Such a move could be critical for GM, which is struggling to staunch ongoing losses at its German-based Opel subsidiary.  Despite hopes that its European operations would be back in the black, GM suffered a $700 million loss in 2011, raising concerns about the company’s prospects despite a record global profit of $7.6 billion for the year.

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Peugeot has its own problems, however, and exactly a week ago announced plans for new cost cuts and the sale of a logistics unit that could help finance its push to expand globally.  

GM issued a statement noting, “We routinely talk to others in the industry,” but not formally confirming the talks. (But GM sources did indicate they're "ongoing.")

For its part, Paris-based PSA stressed that, “There can be no certainty at this stage that these discussions will result in any agreement.”

Their caution should come as no surprise.  Both makers have been burned before.  Talks between PSA and Mitsubishi reached an advanced stage before collapsing in 2010.

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General Motors, meanwhile, failed to reach an agreement several years back, with Peugeot’s French-Japanese rival, the Renault-Nissan Alliance.  The American maker also saw a number of other alliances and partnerships collapse in the years leading up to its 2009 bankruptcy, including those with Japanese makers Fuji – parent of Subaru – Suzuki and Isuzu, as well as a once-promising alliance with Fiat.  It cost GM $2 billion to exit the partnership with the Italian maker.

But both GM and PSA clearly recognize that the auto industry makes for strange bedfellows and alliances have become an increasingly popular way of navigating through the increasingly competitive market.  After failing to negotiate a deal with GM, the Renault-Nissan Alliance announced a partnership with Daimler AG, in 2010. That has since expanded significantly to include both manufacturing and product development efforts.

Word of the talks between GM and PSA surfaced when the French company announced that, “in the framework of its strategy of globalization and performance improvement, PSA Peugeot Citroen is examining cooperation and alliances.”  That was later revealed to involve the U.S. maker.

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“This is likely to involve a cooperative venture, not a share exchange,” said Joe Phillippi, chief analyst with AutoTrends Consulting.  But while limited in scope, it could still yield “tremendous benefits,” he suggested, helping the two potential partners reduce expenditures on modern manufacturing operations.

One area of possible cooperation, Phillippi and others suggested, would involve commercial vehicles, most likely vans – which constitute one of the larger segments of the European market, totaling about 2 million units annually.  Peugeot might need help there after an existing joint venture with Fiat ends in 2017.

GM, meanwhile, has been struggling to cut manufacturing costs, especially in Germany.  But Phillippi cautioned that making any significant changes to the existing Opel production system “won’t be easy” because of union agreements and German laws.

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In a note to investors, Credit Suisse auto analyst Erich Hauser sounded his own note of caution, advising, “We struggle to see how yet another ‘me-too’ cooperation with GM Europe on componentry will help address any of the fundamental issues.”

But while Hauser maintained Credit Suisse’s “Sell” rating on Peugeot stock, the French maker’s stock rose sharply following confirmation of the GM talks.

It remains to be seen how traders on Wall Street will react, but GM stock has been running in the $27 range in recent days, trading at its highest level since last summer.  That is, however, still well below the November 2010 IPO strike price of $33, and its 52-week high of $35.94.

General Motors Thursday became the latest American employer to report that the deepening economic slowdown in Europe has begun to take a toll on corporate profits. And Europe's economy is likely to get worse before it gets better, according to some analysts.

As the United States and China shake off the lingering effects of the worst economic downturn since the Great Depression, the global economy faces the risk that the recovery could be derailed by European problems worsened by political divisions that have divided the Continent for a century or more.

Though American employers recently have begun picking up the pace of hiring at home, the profit slowdown abroad could put a damper on further job creation.

So far, the U.S. economy and financial markets have largely shrugged off the ongoing debt crisis in Europe. The broad Standard & Poor's 500 is up more than 20 percent since last fall, and the widely followed Dow Jones industrial average is within hailing distance of the key 13,000 level.

But some observers believe the European deadlock may be entering a new, and much more dangerous, phase. 

"Just because things were looking OK at the end of last year doesn't mean that they will continue to look OK," said Richard Cookson, chief investment officer of Citi Private Bank. "Our best guess is that conditions will continue to deteriorate. This is going to be unpleasant, to put it mildly."

General Motors reported flat earnings for the fourth quarter despite rising sales, largely because of a $600 million loss from its European operations.  Rival Ford also has reported a slowdown  in European car sales. European officials said Thursday that eurozone auto sales there fell 13 percent in January from a year earlier as jittery consumers postponed buying new cars.

U.S. carmakers aren't the only ones reporting trouble on the European front. General Electric last month warned analysts that while the global conglomerate sees continued growth prospects in emerging markets from China to South America, the company expects its profits in Europe will be hurt by the recession there.  In recent weeks, Tiffany, 3M, Alcoa and Baxter International also reported that the European slowdown has begin to hit the bottom line.

While European imports of goods and services represent less than 3 percent of U.S. gross domestic product, the companies in the S&P 500 count on the eurozone for 14 percent of their profits. U.S. foreign direct investment in Europe totaled nearly $2 trillion at the end of 2009, compared to less than $50 billion that U.S. companies have invested in China, according to the Congressional Research Service.

On Thursday, Treasury Undersecretary Lael Brainard told the Senate Banking Committee that the U.S. economic stake in Europe is "immense" and said that while the U.S. recovery has strengthened recently, it remained vulnerable to a potential worsening of conditions in Europe.

"Our banking system still has material exposure to the core of Europe and to the broader banking system, which could be impacted if financial stress were to broaden in Europe," Brainard said.

After more than a year of political squabbling over how to bail out its debt-laden southern members, the European Union is sliding into recession. Economic data released Wednesday showed the eurozone GDP shrank in the fourth quarter as Germany, the continent's economic flywheel, shifted into reverse. The contraction accelerated in hard-hit Italy, Spain, Portugal and Greece.

Since 2007, the Greek economy has shrunk by 20 percent as repeated government spending cuts have stifled economic growth, further shrinking the country's tax base and fueling a downward spiral.  

Despite a series of repeated promises and announced solutions, European politicians continue to squabble over a plan to head off a default by Greece on its debt. After widespread rioting over the weekend in Athens, German finance officials expressed doubts that Greek officials could hold to their promises to extend deep cuts in spending imposed as a condition of a $171 billion lifeline to head off a March 20 default. A new deadline for an agreement has been set for Monday.

"Even if an agreement on the package can be reached next week, there are plenty of other stumbling blocks that will need to be overcome to prevent a disorderly default in March," said Ben May, senior economist with Capital Economics.

For nearly a year, European banks have been bracing for the prospect of heavy losses stemming from Greece. As bonds issued by Greece, Portugal, Spain and Italy have lost value, bankers have been raising capital to offset the anticipated losses. In December, European Central bankers sought to cushion the blow by flooding the banking system with cheap money and easier loan terms.

But those moves may not have gone far enough. On Thursday, credit rater Moody's warned that it may downgrade 17 banks and 114 European financial institutions as the impact of the debt crisis spreads.

The warning followed the late Monday announcement that Moody's had cut the ratings of Italy, Portugal and Spain. Though France, Britain and Austria retained their top credit scores, Moody's also cut their outlooks to "negative" from "stable." The agency said the downgrades were based on both the uncertainty about outcome of the Greek bailout squabble and the widening eurozone recession.

The Greek government still has a few weeks left to strike a deal before a $19 billion bond payment comes due March 20. But some analysts think the government has already run out of time to renegotiate those payment terms with bondholders, who would need several weeks to review the complex set of agreements.

It's far from clear just how badly a Greek default would rock the European economy and global financial system. With more than a year to prepare for the possible outcome, investors and bankers have had time to hedge those potential losses. But 

even if the direct impact is relatively muted, a default would almost certainly force Greece to exit the European Union and plunge the country deeper into a depression as creditors fled and government spending collapsed.

A Greek default would also reverberate loudly in other southern European countries. If the Athens government is unable to negotiate a lifeline with its European neighbors, those countries could face similar long odds securing financial assistance

"The biggest cost of a Greek bankruptcy will be the emergence of the worm of doubt, our new friend," said Carl Weinberg, Chief Economist, High Frequency Economics. "If Euroland governments cannot get their acts together to save little old Greece, they probably will not be able to bail out other nations."

GM posted its highest annual profit ever in 2011 -- $7.6 billion -- two years after it emerged from bankruptcy protection post a government-led bailout.

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Things are looking up ... mostly. The General Motors headquarters January 10, 2012 in Detroit, Michigan.

Updated at 12:20 p.m. ET

General Motors posted flat fourth-quarter income Thursday but still managed to haul in $7.6 billion worth in profits last year, up 62 percent from the prior year.

It was the highest annual profit ever for the automaker, which emerged from bankruptcy protection in 2009 after a government-led bailout.

The U.S. government still owns 26.5 percent of the company and is waiting for the share price to rise before selling in an effort to recoup the bailout money. GM stock was up 6 percent at $26.43 in midday trading after the earnings announcement.

"We will build on these results as we bring more new cars, crossovers and trucks to market," CEO Daniel Akerson said in a statement.

Full-year revenue rose 11 percent to $105 billion.

North America led the way with a $7.2 billion pretax profit. But problems surfaced that could hurt future earnings. GM lost $700 million before taxes in Europe, and lost $100 million in South America.

"We obviously have work to do still and a long way to get to the objectives we ultimately want to get to," GM Chief Financial Officer Dan Ammann told reporters.

"We clearly have work to do in Europe. We have work to do in the South America business. Frankly, we have work to do all around the company in terms of cost opportunity," he added.

GM'S fourth-quarter profit was flat with 2010. GM earned $500 million, or 28 cents per share. Revenue rose 3 percent to $38 billion. Before one-time items, GM earned 40 cents per share. Analysts expected earnings of 42 cents on revenue of $37.9 billion.

Ammann said GM has not gone far enough in cutting costs in its European operations, but declined to provide a 2012 financial forecast for a unit that the No. 1 U.S. automaker has struggled to return to profitability. Overall, GM expects 2012 sales to top the $150.3 billion it saw in 2011 and its market share to remain flat.

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Last year, GM made the bulk of its income in North America, where its pretax profit totaled $7.2 billion. International Operations, which includes Asia, made $1.9 billion before taxes, but that was down.

During the year, GM's global sales rose 7.6 percent to 9.03 million vehicles to help it reclaim the title of world's largest automaker from Toyota Motor Corp.

This year, GM expects to increase its revenue as global auto sales grow and it charges more for models. However, it will make less money per vehicle as the mix of sales continues to shift to cars from trucks, which have bigger sticker prices. It also expects to invest $8 billion on new products and technology, and says pension expenses will rise. The company wants to keep expenses down by freezing its underfunded U.S. pension plan for salaried workers.

GM said 47,500 blue-collar workers in the U.S. will get $7,000 profit-sharing checks in March. The checks are based on North American performance and are a record for the company.

The company has placed Vice Chairman Steve Girsky in charge of the European management board and is adding executives in preparation for restructuring. Factory closures and layoffs are likely but could provoke a fight with powerful labor unions.

Girsky has said GM intends to fix the European unit, made up of the Opel and Vauxhall brands, and keep it in the company. GM came close to selling the unit in 2009.

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The Associated Press and Reuters contributed to this report.