TIME: Almanac 1995

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<text id=90TT0460> <link 90TT2842> <link 90TT0946> <link 89TT3041> <title> Feb. 19, 1990: Two Sides Of A Giant </title> <history> TIME--The Weekly Newsmagazine--1990 Feb. 19, 1990 Starting Over The American Economy </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 68 Two Sides of a Giant </hdr> <body> 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%), Peugeot-Citroen (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. </body> </article> </text>