TIME: Almanac 1993/TIME Almanac 1993.iso/time/123091/1230200.000

Text File | 1992-10-20 | 9.2 KB | 188 lines

                D⌠A>                        Q=                            ╚BUSINESS, Page 56

AUTOMAKING

Major Overhaul


Pounded by the recession and foreign rivals, GM will close 25
plants and lay off 74,000 workers. But will the bloodletting
end there?

By WILLIAM MCWHIRTER/DETROIT -- With reporting by Joseph R.
Szczesny/Detroit


    The Christmastime speech from the chairman of General
Motors traditionally sounds like an address from a head of
state. Small wonder: the company is so large (1990 revenues:
nearly $127 billion) that if it were an independent nation, its
economy would rank among the world's Top 20. By closed-circuit
TV from GM headquarters in Detroit, this year's 45-minute
broadcast reached 395,000 employees who stopped work and put
down their tools in 130 factories across the U.S. But the
message from chairman Robert Stempel was like no other in the
83-year history of the giant corporation.

    As of Jan. 1, Stempel said, the company would embark on a
three-year program that would close 25 North American plants and
reduce its current work force by 74,000, or about 19%. GM would
abandon for the foreseeable future its hopes to regain its lost
share of the U.S. market, which has fallen in the past decade
from 45% to just over 35%. According to the plan, which did not
specify which plants would be closed, GM would emerge by 1995
only half as large as it was a decade earlier and, as Stempel
said, "a much different General Motors."

    The announcement was a drastic departure from the
company's past benevolent assurances of prosperity and
well-being. So was the self-effacing and chastened candor.
Stempel conceded that this was not the holiday message he had
originally intended. But the severe losses in the company's
North American automaking operations, estimated at $450 million
a month, had prompted a revolt among GM's directors. They
rejected Stempel's reorganization plan and humiliatingly ordered
up a more drastic revision. The rebuke left Stempel and his
senior management staff publicly lurching. The Christmas message
was postponed by a week; a preferred-stock offering to raise $1
billion in cash was halted; even GM's annual Christmas party for
the automotive press was canceled. Then last week Stempel gave
workers the overhauled speech: "We are asking you to help remake
the world's largest automobile company. We can't wait."

    If not yet a different company, GM is already vastly
different from what it was in the free-spending days of
Stempel's predecessor, Roger Smith. Money seemed to be no object
for Smith, who spent $5 billion to acquire Hughes Aircraft, $3
billion to build the experimental Saturn division and $700
million to buy out his boardroom rival H. Ross Perot.

    But Smith's vision hasn't been fulfilled fast enough to
endure the recession and customer apathy. Because of its cash
drain, GM has had to float $3.2 billion in premium-interest
stocks and bonds (current rate: 9 1/8%), mainly to meet
operational expenses. GM's outside directors have become so
concerned in recent months that they have begun to meet
privately, without the company's officers. They have reportedly
put Stempel on notice that his own 16-month tenure, as well as
those of GM president Lloyd Ruess and chief financial officer
Robert O'Connell, are under close scrutiny. Says a board source:
"They are down to a real cash-flow problem now. All the money
is out of the mattress."

    Blaming Stempel, say his defenders in the company, seems
unfair given his brief duration at the top and a bit of unlucky
timing -- GM rolled out its best lineup of cars in many years
smack in the midst of a nasty recession. Those close to GM, even
some of Stempel's union adversaries, give him credit for
fostering an improved atmosphere of fairness and openness that
was noticeably missing under Smith's autocratic reign. Stempel,
a 58-year-old engineer who developed the catalytic converter for
GM in the 1970s, is said to be so unassuming that he still takes
his own notes at management meetings. On the other hand, his
methodical and prudent approach can be a drawback when more
radical measures are needed. "These are crisis times, and
Stempel may not be a man for crisis management," says a GM
director. "The rules have changed overnight from the old
collegial culture, and he may be disoriented and in over his
head."

    Yet by his actions, Stempel seems to accept that something
is structurally wrong with GM. As analyst Chris Cedergren puts
it: "The main problem with GM is that there is too much of it."
The automaker's majestic size, assembled from a rickety bunch of
automotive tinkerers and run with an almost military sense of
discipline by its legendary chief Alfred Sloan, once made it an
invincible world leader. But today GM's bulk has fostered a
chronic lack of flexibility and decisiveness. Said Stempel last
week: "We cannot blame our problems totally on the war, the
plunge in consumer confidence or the recession. Rather, we must
make fundamental changes in the way GM does business."

    Just paring things down isn't the only answer. Even before
the new layoffs, GM had cut 130,000 jobs since 1986. As
Chevrolet chief James Perkins points out, his 2,100-employee
sales and marketing division is now smaller than rival Toyota's
equivalent U.S. operation, but with three times the Japanese
company's sales volume. On some days, says Perkins, "we haul out
tons and tons of unused furniture and paperwork." Still missing
at GM is any real sense of what such "lean" operations are
supposed to create and produce. Says a major Detroit supplier
to the auto industry: "The spirit within GM is still not equal
to what it is at either Ford or Chrysler. It's just a huge, huge
enterprise that is trying to evoke individual reaction, and that
is terribly, terribly difficult."

    Even more frustration bubbles up from the lower ranks,
particularly among what GM calls its Hi-Pot (for "high
potential") new engineering recruits, who feel intellectually
cramped. Instead of dealing with an entire product design or
manufacturing process, they find themselves sidetracked into
such specialties as heating and cooling systems. Complains a
28-year-old engineer: "How would you like to develop door
handles all your life?" A young engineer grouses that a pilot
project last year to review GM's entire product-development
process ended up in a form of corporate limbo. "We just found
out we weren't as empowered as we thought we were, and ended up
spending all our time preparing elaborate briefings explaining
the study to senior management rather than actually doing it.
That's why all the engineers want to get out of engineering and
into management." A cynical expression still circulates within
the company: "At GM, we don't build cars, we build careers."

    GM's laboratory of ideas for reinventing itself is its
Saturn plant in Spring Hill, Tenn. But in attempting to do
everything differently, Saturn's craftsmanlike attention to
detail and quality is causing delays in turning out the cars.
A year after the assembly lines began rolling, current
production is less than 100,000 units a year, far from the
estimated break-even point of 250,000, costing the division as
much as $2 billion annually.

    GM's problems have not been felt as severely at the other
two Detroit automakers. Ford and Chrysler went through their
own major retrenchments in the 1980s and have been able to make
stronger commitments to team-production techniques. In terms of
corporate structure, "size guarantees you nothing anymore," says
Chrysler president Robert Lutz. "It's not necessarily the small
buildings that are the most affected by earthquakes.
Skyscrapers are just as vulnerable."

    Japanese automakers, whose success in the U.S. has come
largely at GM's expense, feared that the Detroit automaker's
cutbacks would add fuel to the political backlash against Japan.
Toyota, for one, took the remarkable step of publicly expressing
sympathy for laid-off GM workers. Next month the chiefs of the
Big Three U.S. automakers will accompany President Bush on a
trip to East Asia, where they are expected to urge Japan to buy
more U.S.-made autos to reduce the trade deficit. But more
radical measures are brewing in Congress. House majority leader
Richard Gephardt and Michigan Senator Donald Riegle Jr.
introduced a bill last week to limit U.S. sales of Japanese cars
and trucks to 2.5 million, a cut of more than one-third from
current levels. A few days later Japan suffered another blow
when the Commerce Department indicated it would impose penalty
duties on minivans sold in the U.S. by Toyota, Mazda and other
Japanese automakers after ruling that the companies were
"dumping" the vehicles in the U.S. at artificially low prices.

    GM, even after shedding as many plants and people as there
are in all of Chrysler, will still be the world's largest
automaker -- but no longer the richest. Toyota, Japan's leading
carmaker, has $12.7 billion in cash reserves, vs. GM's $3.5
billion. Toyota shows every indication of reinvesting its huge
sums to improve both product and design. Unless GM can return
to profitability and make similar investments, the current
cutback won't be its last.