DETROIT — General Motors got rid of the messenger bearing bad tidings last Monday, when it ousted its chief in-house critic, Texas billionaire H. Ross Perot.
But shooting the messenger, so to speak, won't change the fact that the news at the world's largest industrial corporation these days is almost all bad: factories closing, layoffs, weak sales volume, plunging earnings and more.
What is most embarrassing about GM's plight, however, is that it comes not in the midst of an industry-wide slump, but at a time of enormous prosperity for its major domestic rival, Ford Motor Co.
Today, the contrast between Ford's health and GM's malaise couldn't be more stark. Sales of GM luxury cars are depressed, while Ford's are going strong. With its new Taurus line of cars, Ford has become the style leader, while GM is still being bashed for its "cookie cutter" look-alikes. GM is plagued with overcapacity while Ford is selling all the cars that its streamlined manufacturing system can produce.
The proud GM still has about $100 billion in annual sales, and is certainly not in financial trouble, but it is about to be humbled where it hurts most--at the bottom line.
Ford Profits Higher
For the first year since 1924--the Model T era--Ford will post higher annual profits than GM in 1986, industry analysts predict, although Ford, with only a little more than half the revenues of GM, sells far fewer cars and has far less financial muscle.
In Detroit, that's the equivalent of Avis beating Hertz.
"What's Ford doing right that GM isn't?" asks John Hammond, an analyst with Data Resources, an economic forecasting firm.
Indeed, just two years after GM Chairman Roger B. Smith was being hailed as a corporate guru for moving aggressively on all fronts to harness high technology at GM to close the gap with the Japanese car makers, his golden touch seems to have turned to dross.
Many of the same industry observers who in 1984 saw Smith as a modern-day Alfred P. Sloan, a savior of heavy industry, now argue that he has tried to do too many things too fast.
As a result, they insist, GM is in an organizational jumble today, burdened by runaway costs and a bloated management at a time when its sales are slipping.
Such criticism rankles GM executives, who remember being lampooned in the late 1970s for being too stodgy. "It was just a few years ago that GM, and all of U.S. industry, were being bad-mouthed for only looking at short-term profits," says Lloyd Reuss, GM's executive vice president in charge of North American automotive operations. "We've never had more of a long-term focus than we do now on a strategy that is going to pay off in the long haul," he adds. "Our approach has been that, in the long run, technology is going to be important in determining success or failure."
Still, GM's problems do seem to stem from massive overspending on new plants, automated equipment, high-tech acquisitions, joint ventures and other ambitious projects such as Saturn Corp., GM's $5-billion small-car unit.
Such spending has begun to deplete GM's cash reserves at a time when Ford's pockets are bursting. GM had $3.92 billion in cash and marketable securities on hand at the end of the third quarter, while Ford had $8.1 billion.
Investment in Technology
In fact, GM has tried to spend its way into a good competitive position. It has viewed expensive technology as a magic cure for all of its ills, analysts charge. In the process, GM perhaps forgot that attention to detail in manufacturing, not high technology, is what makes the Japanese so good at building cars.
"GM had unrealistic expectations for a lot of its high-tech projects," said Maryanne Keller, auto industry analyst with the investment firm Furman, Selz, Mager, Dietz & Birney Inc. "GM had this blind belief that if you had enough of this technical stuff that you can't understand installed in your plants and on your cars, then, by God, you were going to be the winner."
Meanwhile, the auto maker's biggest immediate worry is certainly the devastating impact Perot's ouster is expected to have on morale at Electronic Data Systems subsidiary, the Dallas-based computer services company Perot founded and sold to GM two years ago.
The merger of the bureaucratic GM with the energetic, free-wheeling EDS--which was supposed to help GM streamline all of its new technology systems--has been rocky at best. With thousands of employees from both GM and EDS transferring back and forth, GM's computer services unit has been unable to settle down and do its job--coordinate the auto maker's vast computer and communications systems to improve productivity.
Morale Is Concern
Now, with Perot removed from GM's board and fired as chief executive of EDS, defections by key EDS executives, many of whom remain loyal to Perot, are expected to mount. This could devastate morale and reduce the unit's effectiveness.