TIME: Almanac 1993/TIME Almanac 1993.iso/time/021990/0219209.000

Text File | 1992-08-28 | 10.9 KB | 225 lines

                ╓≈ò                                                          BUSINESS, Page 68

Two Sides of a Giant


GM can learn a few lessons from its dynamic European offshoot

By S.C. GWYNNE


    Question: What giant multinational company has managed to
lose one-fourth of its U.S. market share in the past decade and
become a paradigm of America's failure to compete with the
Japanese?

    Answer: General Motors.

    Tougher question: What is the fastest-rising car company in
Europe, a manufacturer whose product line is so sophisticated,
so sensitive to shifts in market demand, that it has
outperformed all its rivals in the past year?

    Answer: General Motors.

    More specifically, the Cinderella company is GM Europe, a
Zurich-based subsidiary that makes and sells 1.5 million West
German-designed cars a year bearing the nameplates Vauxhall in
the United Kingdom and Opel on the Continent. Last year GM
Europe built fewer than half as many passenger cars as the
North American division's 3.4 million. Yet the European side
accounted for half of GM's $4 billion in worldwide earnings and
almost all the company's total profits from auto manufacturing.

    The souped-up performance of GM's European branch offers a
jarring contrast to the declining horsepower of the parent
company in the U.S. While the European side has been earning
a profit of $1,200 a car, the North American automaking
operations are now losing money, analysts say. And while GM
Europe boosted its market share from 8.4% in 1980 to 11% last
year, the domestic company's portion of the U.S. car market
fell from 46% to 35% during the same period. Why the sharp
disparity in performance? A close look reveals that the two
sides of GM are organized differently, are pursuing divergent
strategies and are characterized by utterly dissimilar
cultures. GM Europe's success, in fact, speaks volumes about
the ills of the domestic company and may suggest ways to halt
its alarming slide.

    At a time when GM's domestic products are drawing mixed
reviews, GM Europe's new cars and engines have garnered glowing
write-ups in the auto-savoring European press. The
manufacturer's success is owing in large part to the successful
redesign of its market-leading subcompact, a car class in which
the parent company has produced notable failures like the
Chevrolet Chevette. The GM Europe subcompact, which goes by the
names Opel Kadett and Vauxhall Astra, is now selling at the
rate of 630,000 cars a year, making it the best-selling GM car
in the world.

    The European company is no one-hit wonder. The company has
another best seller in its J-class car, sold as a Vauxhall
Cavalier in the United Kingdom and as an Opel Vectra in other
countries. Rolled out in 1988 to rave reviews for its advanced
engines and styling, the Vectra also offers the best fuel
efficiency in its class, split-folding rear seats and
height-adjustable seat belts. The car can be equipped with an
optional 16-valve, four-cylinder engine that even Mercedes
engineers have hailed as the best multivalve motor in the world.
GM Europe sold 364,000 of the cars last year, up 60% from
1988.

    GM Europe now ranks fifth in its share of the highly
competitive European market, behind Volkswagen (15.1%), Fiat
(14.4%), PeugeotCitroen  (12.7%) and Ford (11.6%). But at its
current rate, GM Europe may soon move up a notch or two. The
company, which makes cars in West Germany, England, Spain and
Belgium, is considered the most nimble pan-European competitor
at the moment. "If I were the rest of the Europeans, I'd be
scared to death of GM," says James Harbour, an automotive
consultant in Troy, Mich.

    The two sides of GM do have their similarities. Both
companies are run by American managers raised in the GM system.
Both manufacturers suffered large financial losses earlier in
the decade and then underwent massive reorganizations. The fork
in the road goes back to those restructurings in the mid-1980s,
which had an impact that can be seen clearly in the fate of two
high-volume products: GM Europe's VectraCavalier and the
domestic company's Oldsmobile Cutlass Supreme. The Olds, which
posted sales of 334,000 in 1984, plummeted to 99,898 by last
year.

    What happened to the domestic cars? In the view of a GM
executive now on the European side, Opel chairman Louis Hughes,
the rapid pace of change at the U.S. company came at a price.
Says he: "We changed all of our cars. We downsized them twice,
changed from rear-wheel drive to front-wheel drive, changed all
the systems of the company, changed all the factories, then
told almost every employee in North America, `You've got a new
job.'"

    The most damaging change in GM's 1984 reorganization was
probably the dismantling of its two huge, parochial divisions,
Fisher Body and GM Assembly. GM created in their place two
integrated divisions, now called Buick-Oldsmobile-Cadillac
(BOC) and Chevrolet-Pontiac-GM  of Canada (CPC). The move may
have made financial sense, but it diminished what automakers
call brand character by centralizing design and engineering
operations.

    In GM's classic structure, Oldsmobile designed, built and
marketed autos that were distinct from the other car divisions'
products. Now Oldsmobile no longer builds its own cars and
contributes little to the design and engineering. For all
practical purposes, Oldsmobile is only a marketing division
whose purpose is to sell cars made by BOC. "The responsibility
for manufacturing a car is about as far from the people who
sell it as you can possibly get," says Manhattan auto analyst
Maryann Keller. "One of the most poignant things lost in the
reorganization was the loyalty of individuals to brands. People
missed being part of Olds and Buick, and it shows."

    Under the reorganization, the Cutlass Supreme was subsumed
into the $5 billion GM-10 project, which also developed
versions of the Buick Regal and the Pontiac Grand Prix, all of
which shared components with one another. In spite of GM's huge
investment in retooling and reorganization, the result was a
car line that has failed to excite consumers. Further weakened
by a slumping U.S. auto market, the Olds Cutlass has turned
into a money loser.

    The VectraCavalier, meanwhile, was the result of a vastly
different reorganization. GM Europe entered the 1980s as a
patchwork of competing and often uncooperative concerns
stretching from the company's new small-car plant near
Zaragoza, Spain, to its aging Vauxhall factories in Luton and
Ellesmere Port, England. Before the reorganization, GM Europe
was very much a West German-led company. The first goal of the
restructuring was to broaden its character, so in 1986 the
company moved its headquarters to neutral Zurich. There an
amazingly lean head-office staff proceeded to coax the diverse
GM Europe factions into cooperating with one another by sharing
parts and services. Engineering and design staff were centered
in Russelsheim, West Germany.

    The company decentralized its marketing divisions, which
allowed sales people in different countries to stay close to
their customers. "They did it brilliantly," says analyst
Keller. "The reorganization of GM Europe was done very
gradually, and they were extremely sensitive to nationalities.
In GM Europe there is no great central organization."

    Because the parent corporation was stingy in investing in
GM Europe, the company learned to make every cent count.
"Basically these guys had to fight for everything they got,"
says Opel chairman Hughes. "But the fact is on the other side
you've got this gigantic company with gigantic investments to
retool all those products. It was too much. If there's a lesson
here, it's that smaller is better. It's easier to control."

    GM Europe's 200-employee corporate staff in Zurich is known
for moving with great speed, notably in its agreement last
December to acquire 50% control of Swedish carmaker Saab for
$600 million. GM whisked  Saab from under the nose of Fiat,
which until the last minute thought it would be the successful
suitor. GM Europe was also quick to set up a joint
manufacturing agreement with Hungarian producer RABA, the first
West European company to sign such an accord.

    GM Europe's restructuring will give the company a strategic
edge as European trade barriers fall. Compared with such
competitors as Fiat and Peugeot, which are focused on their
home markets, GM's manufacturing and marketing operations are
now spread over many markets. "In twelve of 17 countries in
which we sell, GM is among the top three producers," says GM
Europe president Robert Eaton.

    In many respects, GM Europe is a worthy rival to the
manufacturers who have become domestic GM's biggest challenge:
the Japanese. GM Europe builds small cars and engines that
generally match their Japanese counterparts in quality,
performance and fuel efficiency. (Only in one area,
productivity, is the company seriously lagging behind its Asian
rivals.) Why, then, has North American GM failed to import more
of Opel's technology and know-how? GM executives in Europe tend
to shrug at the question and point to the occasional instance
of cooperation. Most notable: the Pontiac LeMans, which is in
effect an Opel Kadett built in South Korea by Daewoo and
shipped to the U.S. "I wouldn't rule out the use of Opel
strategically, let's say if we needed a small car in the U.S.,"
says John Smith Jr., who as president of GM Europe was largely
responsible for its turnaround and now serves as GM's executive
vice president for international operations.

    GM Europe may not always have it so good. The company's
managers express serious concern about growing competition from
Japanese car companies, which are now gearing up major
"transplant" factories as they did in the U.S. during the past
decade. Auto analysts say the Japanese market share on the
Continent is likely to rise from its current 11% level to 25%
by 1994. "The battleground here will be every bit as bloody as
in the U.S. in 1981-82," says Angel Perversi, managing director
of General Motors Espana. "The Japanese are going to add excess
capacity. The only question is who is going to lose."

    The influence of GM's European experience is likely to
become stronger in Detroit when Chairman Roger Smith, 64,
departs later this year. The leading contender for the job is
President Robert Stempel, 56, who as managing director of Opel
from 1980 to 1982 gave the green light for the redesign of the
successful Kadett. And a likely candidate for the president's
job is John Smith, 51, who from 1986 until his repatriation in
1988 was president of GM Europe. The two executives would be
likely to push GM toward faster, less centralized decision
making. Domestic GM has a long way to go, but if it takes a cue
from its European sibling, the company could become a much
sportier machine.