“GM has finally sent a shock message,” says Maryann Keller, a top auto analyst who warned of crisis at GM in her 1989 book, “Rude Awakening.” “The company has lived in a dream world for years.” Neither GM directors nor executives would comment. But at a conference in Washington last week, director Ann D. McLaughlin signaled that the board might even do some housecleaning in its own ranks. Former GM chairman Roger B. Smith, who is blamed for much of the company’s slide in the 1980s but remains on the board, may be the first to go. McLaughlin, a former U.S. labor secretary, compared corporate board action to the unsavory process of creating legislation-both, she said, are like “sausage making.”
This week’s moves will not be the end of this drama. If Act I was “The Humbling of GM,” Act II is “Where Do We Go From Here?” An audience of millions will be watching for months to come to see if GM can really fix itself. Riding on the new management’s talent and resolve is the fate of a national institution, and, with it, tens of thousands of jobs, the economic health of dozens of towns, and a preeminent symbol of America’s industrial might. Observers look for signs that GM is willing and able to replace fading standards like Oldsmobile, that it can end its cold war with the United Auto Workers and that it can light a fire under employees of all stripes who must embrace a new day.
Change may be hard, but not changing could be fatal. Last week GM reported a third-quarter loss of $752.9 million, and 1992 will mark the third straight year of losses that will total more than $7 billion. GM’s stock bounced around the low 30s last week, down from a year-end high of $51.75 in 1965, which, in today’s dollars, would be $226.15. Behind the numbers is the painful question GM raises for many in the economy: how could an industrial giant stumble so badly?
Founded in 1908, General Motors rose to dominate the car industry in the 1920s by countering Henry Ford’s dictum that customers could have any color Ford they wanted, “as long as it’s black.” GM’s slogan was “a car for every purse and purpose,” and its customers could graduate from Chevy to Caddy, with multiple stops in between. Its innovations ranged from the automatic transmission in 1939 to the perfection of the tail fin in the 1950s, and it spent years worrying that its 50 percent-plus market share would provoke antitrust action. GM pioneered a different kind of relationship with workers, too. After a string of violent strikes in the 1930s, GM became known as “Generous Motors.” High pay and benefits helped lift its employees from working class to middle class and set a standard of living that came to define the American Dream.
GM has had a celebrated chorus of backseat drivers and has been hostile to them all. Warnings came from critics as diverse as Ralph Nader, Ross Perot and documentary filmmaker Michael (“Roger & Me”) Moore. GM tried to silence Nader and ended up paying $425,000 to settle charges of spying on him. It bought out Perot to get him off the board for $700 million. And although board members began to wrestle with Smith, find later Stempel, over top management appointments, its rebel members didn’t get aggressive until the red ink began to gush.
Each wasted year has made the GM turnaround a more expensive-and more painful-proposition. Nationwide, GM’s ripple effect is staggering. Some economists estimate that one in six American employees is affected by GM business, from tire designers at Goodyear to the advertising copywriters on Madison Avenue and stock analysts on Wall Street. The pain may be deepest in company towns like Ypsilanti, Mich., home to GM’s doomed Willow Run plant, with 4,100 workers; one study estimates a ripple effect of 18,000 more lost jobs. Like many GM insiders, local officials are still denying reality. “We just refuse to allow it to happen,” said state Rep. Kirk Profit last week. “We don’t want the divorce.” The county is suing GM, claiming that it is breaching an agreement that involved tax abatements. GM denies it. But no court decision will keep. the plant open.
GM will probably remain the world’s largest industrial company-but only if change is radical. Inspiration may come from the ad slogan of Saturn, GM’s newest and most successful division: “a different kind of company.” Saturn’s relations with workers and the UAW are, for GM, uniquely harmonious, with efficient, brand-new work rules on the floor, employees participating in pricing strategy and a pay scheme that rewards performance. Customers rave about the service and attitude of dealers. Sales seem to prove it all makes sense; Saturn is churning out 1,000 cars a day, but eager customers still have to wait weeks for delivery.
The problem is that all of GM has to become a “different kind of company.” Critics say that the Saturn experiment (which still isn’t profitable) can’t simply be repeated. Saturn started from scratch, with handpicked union employees and executives, in a Tennessee cornfield. GM’s revolution this decade will have to be carried out in old plants with old habits. GM will have to “retool a bunch of workers and retool a bunch of attitudes,” says Pat Choate, a former TRW executive and manufacturing expert.
Some points of strategy are clear:
GM’s market share has declined to about 33 percent in the United States, and the demand for autos worldwide is slowing (page 60). GM’s outdated operations force it to use 4.55 workers per car per day, compared with Ford’s 3.01 ratio, according to a recent study by Harbour and Associates. GM will have to stop making almost every part for every car itself, its competitors stay slim by relying on-and squeezing-a network of allied parts suppliers. “For years, GM has tried to do everything,” said a former Japanese car executive last week. “It can no longer do everything.”
While GM has hacked at its body count for years now, its focus was largely on the plant level. “It was always, ‘Let’s get rid of another 1,000 Joe Lunchpails’,” says Ben Hamper, a former GM line worker who wrote the best seller “Rivethead.” Of course, tens of thousands of Joe Lunchpails are on their way out, but GM must also take a cleaver to the white-collar ranks. It will probably eliminate more than the 20,000 jobs announced last winter-and, for a change, really get rid of them. In the past, many executives who took “early retirement” one week would return as high-paid consultants the next. GM will also join the rest of the progressive business world in trying to pay and promote for performance. The executive suite is full of people “who have huge failures in their pasts,” says one manager. Example No. 1: Lloyd Reuss, Stempel’s handpicked president, who was demoted by the board last spring and may soon resign. Critics blame him for the problems with X-cars, such as the Buick Skylark and Chevrolet Citation, which GM had to recall by the thousands in 1981.
The tension at headquarters is now palpable. “People who have never had to worry about their jobs are seared now,” says one staffer in GM’s huge legal division. For those who stay, GM will no longer be so cushy. Today 10,000 managers still take home a new car every three months as part of an evaluation program. Only recently, GM decided they should pay $100 a month, but they still get free gas. That expensive perk insulates managers from real-life experiences with a car, from negotiating with a dealer to hassling with repairs.
How GM chooses to address its labor situation may be its most critical challenge. One reason for Stempel’s ouster, according to sources inside and out of GM, was his relatively gentle manner toward the union, reciprocated last week when the UAW responded to Stempel’s departure by expressing sympathy for him as a fellow “victim.” But if Jack Smith takes an abrupt and hard line with the UAW, he may be no more successful than Stempel. On its face, the prospect for labor peace at GM has appeared grim. As GM has continued to downsize, the UAW has launched a series of what some call “Apache raids,” such as the strikes at Lordstown and Lansing this summer. The conflicts have led many to assume that management and the UAW are headed for Mutually Assured Destruction during next year’s contract talks.
Reality may be different. Beneath the surface, GM and the UAW seem to be groping toward compromises that might pave the way for an agreement next year. (The pattern contract talks, however, will probably target Ford.) “Neither side can let all these festering wounds remain” until the talks begin, says Sean McAlinden, an economist at the University of Michigan. In fact, he says, each local dispute moves the parties closer to a formula that will let GM downsize in a way the UAW can accept. And secret talks recently have focused on a program of buyouts and early retirement that would reconcile members to the inevitable job losses.
Still, differing sentiments could create major stumbling blocks. Some union leaders believe that management’s crisis is an opportunity to recoup some of labor’s losses. “Our relationship is way too cozy. We should be aggressive toward GM. They haven’t had time to pull their wagons into a circle,” says Dave Yettaw, president of Local 599 in Flint, the largest GM unit with 12,400 members. He objects to what he calls GM’s practice of pitting locals against one another-for example, its decision to keep the Arlington, Texas, plant open because its union has been more conciliatory and to shut Willow Run. On the other side are people like Mike Seiler, the bargaining-committee chairman at Arlington. “Our union cant get the same results it did in the 1950s and 1960s,” he says. “We haven’t got the power, and that’s a fact. But GM doesn’t have the power it did, either. They need us to work with them. If we don’t change with the times we’ll be destroyed.” Many in the union are skeptical about the new guard. When they look at P&G’s Smale, says McAlinden, “they see Wall Street.” They believe GM is “being run by pimply-faced, 29-year-old bond raters and stock analysts demanding that GM do this or that or we’ll lower your stock price and drive up your interest rates.”
As Ross Perot put it in a 1988 “if I ran the circus” essay in Fortune, “Starting today, GM will listen to its customers … From now on, the customer is king!” But GM has long appeared to be almost deaf to its public, especially compared with its rivals. Design and marketing managers were known for telling their staffs that GM knew better than its customers. GM’s broad lines of cars are a problem not only because of expensive duplication in sales and production but also because they confuse the customer. And GM’s long-comfortable relationships with its ad agencies don’t help. “I’d tell the guy who thought up ’the heartbeat of America’ to go eat the tape,” says one analyst of the long-running campaign. In September, Oldsmobile put its ad account up for review for the first time in 25 years.
Although many GM insiders scorn former P&G chairman Smale as a soap-and-toothpaste salesman, his expertise may be critical to the revamping of GM’s public image. Among his moves at P&G, the world’s biggest advertiser, was to replace such outdated staples as Charmin’s Mr. Whipple with ads closer to the MTV esthetic. Smale made P&G’s 800 number an institution and would take home tapes of calls. Does GM have what it takes to do all of this? Despite the recent drama, man are pessimistic. “I think we’re staring at another Chrysler bailout,” says James Rubenstein, a consultant and professor at Miami University in Oxford, Ohio. “I don’t think they’ve made the structural reforms yet.”
Whether GM struggles or thrives, its story bears a lesson for anyone who works in America: about the importance of listening, about estrangement between workers and bosses, even about public policy. Plant closings like Willow Run’s are making towns think twice about offering tax abatements in exchange for jobs, and GM’s overwhelming health costs have nudged forward the debate about a national health-care system. Yet the basic message in the mess at GM is about change. It’s tempting to say that GM’s problems stem from its sheer size and are inevitably shared by other overgrown American companies like Sears and IBM. But size alone is no sin; the key is being able to change. “Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized in the market” wrote Alfred P. Sloan, GM’s chief architect, in his 1964 book, “My Years With General Motors.” Sloan warned that, “No company ever stops changing… For the present management, the work is only beginning.” Last week some who knew Sloan were glad he couldn’t see GM in crisis. One was Alfred Chandler, a business-history professor and friend of Sloan’s. The late chairman, says Chandler, “must be turning over in his grave.” Now if GM can turn around, maybe Sloan can rest in peace.
