Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/102692/1026201.000

Text File | 1993-04-08 | 6KB | 120 lines

                                                                                BUSINESS, Page 55

Who's in the Driver's Seat?


Spooked by GM's losses, the directors are taking charge and
considering emergency measures

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


    Talk about job stress. When General Motors chairman
Robert Stempel, 59, fell ill and was taken to a Washington
hospital last week, doctors gave an official diagnosis of
"elevated blood pressure." Given the problems he's been having
at the office, that was no surprise. The world's largest
industrial corporation (1991 revenues: $123 billion) is piling
up some of the largest financial losses in corporate history,
an estimated $16.5 billion on North American auto operations
(more than half the GNP of Ireland) for the three-year period
of 1990-92. To avert disaster, the company is struggling to
close 21 of its 120 plants and cut 74,000 of its 360,000
employees in the next two years.

    The excruciating process has thrown GM into a management
crisis. Stempel, who returned to work by the end of last week,
is in a job that was once among the most powerful in U.S.
industry and today seems only the most thankless. When he took
charge two years ago, employees cheered the elevation of a
leader with a strong engineering background and a nice-guy
reputation. But GM's directors now seem to think that the
automaker's predicament calls for a leader who can get tough
with the company's suppliers, managers and unions. Among GM's
challenges is the outbreak of guerrilla warfare among United
Auto Workers locals, one of which staged a nine-day strike last
month at a stamping plant in Lordstown, Ohio, resulting in the
shutdown of nine other assembly plants.

    Stempel finds himself increasingly remote from the centers
of decision making. The process began last spring when GM's
outside directors reshuffled top managers, demoting Stempel ally
Lloyd Reuss from the president's post and installing John Smith
Jr., 54, former head of the automaker's international
operations. Smith, who took charge of both North American
operations and the company's overall strategic direction, moved
the inner circle of financial and marketing executives away from
GM's landmark headquarters in Detroit to the technical center
10 miles away. That has left Stempel in a Shakespearean confine,
prowling the vacated corridors of the 14th floor.

    Indicative of Stempel's reduced role was the almost
make-work nature of his one-day trip to Washington, which
included a call on Environmental Protection Agency chief William
Reilly and a meeting with an official of a business group
organizing a conference -- appointments that in busier times a
GM chairman could easily delegate to subordinates.

    Alarmed by GM's sagging credit rating, the automaker's
directors are said to be considering drastic measures. The
leader of the outside directors, former Procter & Gamble
chairman John Smale, might replace Stempel. In the most radical,
if still remote, move of all, GM would seek bankruptcy
protection under Chapter 11 as a way to force concessions in
wage, pension and benefit contracts.

    The main goal is to reduce GM's labor costs, which make it
the least economical automaker among the major global
competitors. GM spends nearly $800 more in labor costs per car
than Ford and $500 more than Chrysler. Both rivals endured harsh
restructurings during the 1980s, and now rank among the world's
most efficient automakers.

    Smith's handpicked group of bureauc racy busters, who work
15-hour days and call themselves "the cowboys," aim to liberate
each of GM's brand-name divisions to give them back their
long-stifled control over styling, engineering and marketing
decisions. Each division, from Cadillac to Chevrolet, will be
expected to survive virtually on its own. Already, the layers
of approval required for manufacturing decisions have been
reduced by half. Individual engineering components that fail to
add style or identity to a product have been dramatically
reduced: 17 different ignition systems have been refined to
three, nine engine families to five.

    The most provocative of Smith's lieutenants is J. Ignacio
Lopez de Arriortua, the director of worldwide purchasing, who
reportedly has been handed the assignment of reducing GM's
supplier costs at least 20%, or $100 million a week. Lopez, 51,
a veteran of GM Europe, has become known as "the Grand
Inquisitor." In only four months, he has rankled many of GM's
leading suppliers by reopening existing contracts and
dispatching his teams of subordinates through supplier factories
to preach productivity in one-week workshops. Lopez says he has
already transformed more than 100 of GM's 2,500 suppliers,
boosting their productivity an average 63%. He approaches his
job with messianic zeal. "I like my wife," he proclaims, "but
I love GM. We must love our company if we are going to pull it
up. Our mother needs our help."

    On that point everyone agrees. Lately, GM's products have
earned high marks for quality. But the company desperately needs
to make them more cheaply and sell them more effectively. The
automaker's U.S. market share dipped to less than 31% last
August, down from 45% in the late 1970s. Sales of Chevrolet and
Oldsmobile models have sagged most dramatically, slipping 13%
and 9% respectively since last year. If the economy remains
stuck in low gear during the early 1990s, price competition is
likely to remain fierce, and only the low-cost producers will
make money. For GM's top managers, getting there is likely to
cause a lot more stress.