Once-mighty GM in desperate battle to cut costs Ford, Chrysler succeed in reducing workers, avert expensive strikes

August 01, 1998|By Ted Shelsby | Ted Shelsby,SUN STAFF

In the summer of 1968, one of every two cars sold in the United States was a General Motors brand. The automaker was so big and such a dominant force in the economy that some in Congress were calling for its breakup.

"We can't worry about what Congress might do," GM's Chairman James M. Roche quipped to reporters at the time as he strolled along K Street in Northwest Washington to a luncheon. "We're going to 60 percent of the market."

No one talks about breaking up the company anymore. And no one at GM is talking about 60 percent market share. Or even 50, or 40.

The numbers tell the story of GM's struggle. Today, it is fighting to hold onto 30 percent of the market.

Indeed, only one of the company's models is among the top 10 best sellers in the United States, while Ford Motor Co., the No. 2 automaker, has four on the list.

In recent years, GM has flooded the market with new models in an effort to recapture market share, only to receive a lukewarm response from consumers and to have its profits per automobile slip behind its chief competitors, Ford and No. 3 Chrysler.

The crippling two-month strikes in Flint, Mich., that ended this week highlighted the nation's No. 1 automaker's problems as an inefficient, high-cost producer of cars and trucks.

It isn't that GM executives don't know what to do. In the past several years the company has tried numerous tactics to bring down its production costs, but with only partial success.

Potential cuts

According to analysts in the industry, cost-cutting may involve: Eliminating at least 50,000 jobs.

Halting costly strikes, such the recent ones that shut down the company's North American operations and cost $2.2 billion in profits.

Reducing the number of assembly plants. GM has 29 assembly plants in North America and dozens of facilities that make parts for its cars and trucks.

Increasing its purchase of lower-cost parts from outside suppliers.

"They have too many models, too many plants, too many divisions, too many white collar workers and too many blue collar workers for their current amount of business and market share," said David Healy, an analyst with Burnham Securities Inc.

The roots of the company's troubles can be traced to corporate policy decisions made more than 50 years ago, according to auto analysts and historians.

When it resumed auto production at the end of World War II, the automaker noted that nearly every part was made by GM. In 1946, it was to GM's advantage to produce the bulk of its parts in-house -- it could make them more cheaply and retain control over the operations, and more importantly, its profits.

Today, it's cheaper to buy parts from outside suppliers, often nonunion shops that pay workers 25-30 percent less than comparable GM employees.

General Motors, however, still makes about 70 percent of its parts in-house, according to Michael Flynn, associate director of the University of Michigan's Office for the Study of Automotive Transportation.

By comparison, 60 percent to 70 percent of Chrysler and Ford parts are made by outside suppliers.

Lag in productivity

GM also lags behind its competitors in productivity, as measured by the number of workers needed to a assemble vehicle, according to James E. Harbour, chairman of Harbour and Associates Inc., a manufacturing consultant and automotive research company in Troy, Mich.

Harbour said GM used 3.37 workers for each car and truck it built last year. That compared to 3.17 workers per vehicle at Chrysler and 2.97 for Ford.

Sam Fiorani, an automotive analyst with Standard & Poor's DRI, said that GM may have missed out on its best chance to reduce the size of its work force.

Ford and Chrysler, he noted, downsized during periods of financial crises in the 1980s, which made it easier to win job concessions from the United Auto Workers.

Instead of following that pattern, Fiorani said, GM tried to take advantage of the situation by keeping on more people and producing more cars.

"The strategy backfired," he said. "The downsizing by Chrysler and Ford didn't cut the number of cars they made, it just reduced the number of people needed to build them."

GM now says it needs to eliminate 50,000 jobs in the U.S. Not surprisingly, the UAW is balking, having lost half its members in the past 30 years.

Changing marketplace

The company also had difficulty in switching to a rapidly changing marketplace.

In its heyday, GM thrived on big profits from big cars. It was slow to adjust to the dramatic changes in the auto market and the American lifestyle brought on by two crippling energy crises and government pressure for more fuel efficient and less polluting cars.

GM sputtered through the 1970s and 1980s as its market share plummeted to a third of U.S. sales, and then nearly crashed in the early '90s, when it posted huge losses and was on the verge of bankruptcy.

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