GM's $795 Disadvantage

November 09, 1992

General Motors' outside directors, at last facing up to their responsibilities, have installed a younger, brasher team to save (literally save) their company. It won't be easy. Years of clubby bureaucracy have turned the world's largest industrial firm into a pitiful, helpless giant with declining market share and a monumental cash-flow problem.

If change at the top is at least part of the answer, it has come to GM's executive suite. The old pattern of assigning the posts of chairman of the board and chief executive officer to the top banana in management is out the window. Too often it has turned boards of directors into rubber-stamp operations that failed to hold management accountable for poor performance.

Under the new setup at General Motors, these jobs will be split. John G. Smale, former chairman of Procter & Gamble and chief instigator of the GM upheaval, is to be head of the more independent board of directors. John F. Smith, who made his mark turning GM's European operations from red to black, is not only president but CEO. To assist him, he has dumped older corporate climbers in favor of younger men with financial backgrounds.

Mr. Smith's first job is to stop the hemorrhaging. GM's North American operations lost a staggering $7 billion last year and will drop another $4 billion this year. The company will save more than $500 million by halving its dividend. But the major savings will have to come in cutting manufacturing costs. Analysts figure GM operates at a $795 per vehicle disadvantage to chief rival Ford -- a sum equivalent to the $4 billion loss cited above.

How much of this disadvantage is due to unproductive labor rather than sloppy management is an issue that will vitally affect GM's contract negotiations with the United Automobile Workers union next year. Both sides will have to cooperate -- and not just with costly buyouts -- if the company is to rebound and jobs are to be protected.

Mr. Smith made it clear in taking over as CEO that he would retain all the famous GM nameplates, at least for the present. But if Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac are going to gain a clear image in the public's mind, he will have to reinstill the market discipline associated with the great GM days of Alfred P. Sloan.

That means reducing the number of models produced under each nameplate and aiming them at carefully differentiated groups of buyers. Why have Chevy dealerships offering $11,000 Cavaliers to female first-buyers and $35,000 Corvettes to middle-aged men, plus a lot of other vehicles in between? This multiplicity of appeal is as great a problem as the blurring between Olds and Buick.

What happens in Detroit is of real importance to Baltimore, where the Broening Highway assembly plant currently has a lucrative monopoly on GM mid-sized vans. These vehicles will be up for review at mid-decade. It will take not only good performance locally but the overall revitalization of General Motors to protect this Baltimore industry.

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