Economy limits GM's options Stempel successor locked into layoffs, more downsizing

October 27, 1992|By New York Times News Service

No matter who takes over at General Motors as Robert C.

Stempel's replacement, or how good he is, the new chairman will locked into a corporate strategy even before he takes command -- a strategy dictated by the nation's weak economy.

Simply stated, GM waited too long for ballooning sales to save the day. Sales are running at an annual rate of barely 13 million a year, far from the 15 million American car and truck sales that in the late 1980s had created enough demand to mask GM's numerous inefficiencies. And sales are likely to remain weak for months to come.

The alternative turnaround strategy would have been to rapidly develop new models popular enough to win away sales in the important middle market -- now dominated by the Ford Taurus and the Honda Accord.

"There is no longer enough time for General Motors to turn its situation around without layoffs and downsizing," said Robert L. Crandall, a senior fellow and auto industry expert at the Brookings Institution.

All that's really left as a priority, then, is to cut costs, to create a leaner, smaller company.

New model cars or a smaller company -- or a combination of the two -- are, of course, strategic alternatives open to any new management team.

"The two are inextricably intertwined and should be carried out together," said David Healy, auto analyst at S. G. Warburg & Co.

But since Mr. Stempel failed to make headway on either count after he became chairman in 1990, downsizing has now become inevitable.

"The priority is to stop the financial bleeding," said Harley Shaiken, a labor economist and auto industry expert at the University of California at San Diego. "The second task is to rebuild the corporation. The problem is that measures that stop the financial bleeding, like confrontations with the United Auto Workers over layoffs, could also destroy the corporation."

GM will probably have to lay off 85,000 blue- and white-collar workers, or 23 percent of its 370,000 employees in North America, and shut four more of its 40 assembly plants, along with 15 or more parts operations, Mr. Healy estimated. Mr. Stempel's failure to move quickly toward these goals was decisive in bringing about his resignation.

The odds are that John G. Smale, the GM director who led the revolt against Mr. Stempel, is likely to be the first to undertake this task, replacing Mr. Stempel as chairman for two years or so, analysts said.

John F. Smith Jr., who became GM president after turning around the company's troubled European operations, appears likely to become the chief executive under Mr. Smale -- bringing to the task the necessary experience at cutting costs and introducing other efficiencies.

Rarely has an outsider moved into the top slot at an American auto manufacturing company, following the example of a Stanley Gault, who retired as chairman of Rubbermaid Inc. and then became chairman of Goodyear Tire and Rubber Co., where he engineered a turnaround.

"There is a line of thought that says it is very hard for an insider at GM to effect change because he has too many loyalties and is himself a captive of the company's traditions and bureaucracy," Malcolm Salter, a Harvard Business School professor and auto industry specialist, said. "But GM has tried to bring in outsiders as top executives in recent years, and they have failed. And to some extent, Jack Smith plays the role of an outsider, arriving from Europe, bent on efficiency and standing apart from the people in Detroit."

Whoever the next leader, the obstacles at GM are enormous.

"The root cause of the problem is lack of product," said Donald F. Ephlin, now retired after years as vice president of the United Auto Workers in charge of negotiations with GM. "They have done a good job with Cadillac, but their midsized products are their bread and butter. And the Pontiac Grand Prix, the Chevrolet Lumina and the Oldsmobile Cutlass are failing. General Motors is paying a penalty for failing to compete hard with other companies more used to scratching for a living."

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