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JAMES FLANIGAN

At GM, Silver Linings Mask Black Clouds

February 14, 1988|JAMES FLANIGAN

General Motors has been attracting compliments lately--for its show of technologically advanced cars at New York's Waldorf Astoria in January and for a new harmony in its labor-management relations. Even a barrage of criticism from old nemesis and former GM director Ross Perot failed to dim the stock market's pleased reaction to the company's report last week of higher profits for 1987--GM's stock price rose a few points.

But that could be the calm before the storm. A big shake-up is coming to GM, probably in the next few months as disappointing earnings force the company to deal publicly with the fact that sales of cars and trucks in the North American market--source of 75% of GM's business--are not growing, and profit there may be disappearing.

Last year, out of $3.6 billion in worldwide profits (on $102 billion in sales) GM earned less than $100 million from North American car and truck sales. "They made less than $17 each on products that sell for thousands," notes analyst Charles Brady of Oppenheimer & Co. incredulously.

Reform is coming. "We'll see meaningful action," says Brady, meaning that GM will close more plants and cut more managers from its payroll to accompany the 36,000 white-collar staff it let go last year.

Some top executives may be cut, but whatever restructuring GM undergoes will confirm the ascendancy of Robert Stempel, now president of GM, toward the job of succeeding Chairman Roger Smith when he retires in 1990.

A lot of people in the automobile business, from dealers and suppliers to labor leaders and investment managers, hope that Stempel, who, in 29 years at GM, has built a reputation for understanding cars and customers, can restore some of GM's former eminence.

That's not a minor concern. What happens to GM matters not only to those directly affected but to all of U.S. industry. Once the symbol of industrial achievement, GM has become a symbol of ineptitude. It costs GM $800 more than Ford or Chrysler, not to mention foreign competitors, to produce a car--partly because of quality problems that add to warranty work and scrappage. The company once sold one of every two cars in America, but now sells one in four. "If GM were to continue declining," says Kenneth Stork, head of the Assn. for Manufacturing Excellence, "it would hurt all of American industry."

'Mandarins' at the Top

What happened to GM? It got big and bureaucratic--a word that means, just as Ross Perot says, that it takes a long time to get a decision from headquarters.

Stempel, a 54-year-old engineer who picked up an MBA from Michigan State when he was 37, understands how that hobbles a business. He has often recalled the frustration of being in charge of the Pontiac division in the late 1970s but still having to argue for approval to do anything with "the mandarins at the top"--an allusion to the Imperial Chinese civil servants who became synonymous with pomposity and autocracy.

The opposite of bureaucracy is personal initiative, as exemplified by the story that analyst Ronald Glantz of Montgomery Securities tells about the U.S. manager of Nissan when the "Z" cars came to America. Headquarters in Japan had named the models "Fairlady," but the manager foresaw the difficulty of marketing Fairladys as peppy cars for young drivers. So did he cable Tokyo? No, he removed the Fairlady nameplates and substituted the car's numerical designation--240Z, the first of a line of Nissan winners in America.

So for GM the way to go is clear: cut out layers of management and restore initiative to the local level. Ironically, that's what GM's founders did 60 years ago when they set up five divisions to make five different cars and "reconciled mass production in automobiles with variety in product," as then-Chairman Alfred P. Sloan Jr. put it.

Interestingly, after a period when the company abandoned variety in favor of similar-looking cars, GM insiders say the old ways are returning. Within the last two years, the Cadillac division has regained its own engineers and product designers.

But more needs to be done, which is why GM's sales are lagging and why the company will get a shaking up this year.

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