Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Businessweek Archives

Smart Step For A Wobbly Giant

Top of the News


General Motors Corp. isn't known for trying far-out ideas. But that could soon change. Next year, component maker Android Industries Inc. is set to begin moving machinery into a GM parts factory near Flint, Mich. Android supervisors will take charge of 20 union workers at GM's Inland Fisher Guide Div. plant to show them how to assemble doors for a 1994 GM model. GM will continue to pay the workers' salaries and benefits, but Android will run its own corner of the factory.

When J. Ignacio Lopez de Arriortua took over as GM's purchasing czar last spring, he promised exactly this kind of creative strategy for repairing GM's inefficient parts business while keeping expensive union workers busy. Now, GM is evaluating about 70 proposals from suppliers, who have suggested everything from taking over idled GM factories and their work forces to sending laid-off GM workers to toil in supplier plants (table). "We plan to be very creative in how we do business," says Gerald L. Elson, general manager of Inland Fisher Guide.

GM has to be. The auto giant is bleeding badly: Analysts figure the company's 1992 free cash flow will run a negative $2.5 billion. That's one reason why Moody's Investors Service Inc. on Nov. 24 downgraded most of GM's debt, including vital short-term borrowing by its financing arm.

GM says it is "taking extensive actions" to address the problems that sparked the downgrade, mostly by reducing costs. Parceling out idle factories and workers would help, if only a bit. But turning such concepts into contracts isn't easy. Few deals have been hammered out yet, and both sides face a myriad of new questions. Will GM offer suppliers the kind of multiyear purchasing contract that some need to justify buying new equipment? Or, if car sales perk up, might GM divert its workers to other jobs, stranding its new partners?

GM is under intense pressure to settle such questions and move ahead with reform. The company buys 57% of its parts, worth some $30 billion, from its own divisions. Many are dragged down by cumbersome work traditions and payroll costs double those of outside suppliers. Chrysler Corp., by contrast, keeps costs down by making just 30% of its own parts.

GM must also make better use of its work force. Under the United Auto Workers contract, after GM employees are laid off for 36 weeks, they receive full wages from a GM-funded Jobs Bank. Since October, 1990, the Jobs Bank has paid idled workers nearly $1.7 billion. The fund will run dry in January, but GM still has to cough up part of workers' unemployment benefits, which are set at 95% of regular pay. GM finally caught on: As long as the workers are being paid, it only makes sense to give them work.

So, Lopez asked suppliers in July if they wanted to use GM's excess plants and workers. Executives at Breed Industries Inc. in Boonton, N.J., may be among those who like the idea. They toured three sites, including the empty Pontiac Fiero plant in Pontiac, Mich., union officials say. Breed, which needs a factory to build crash sensors for airbags, declined to comment. Another major supplier, which asked not to be identified, offered to take over a GM factory to make chassis components and to pay part of workers' salaries. GM has yet to respond, an executive says.

Parceling out partsmaking is a sensible move for GM. Take Lear Seating Corp. in Southfield, Mich., which over the past 18 months bought three seat factories from Volvo and from Saab, whose carmaking division is 50%-owned by GM. Lear promptly boosted productivity 41%, hiked output 81%, and reduced prices by 25%. Lear President Robert E. Rossiter says he would like to do a similar deal with GM in the U.S.

`STRANGLED.' Other suppliers are leery, however. Lopez has angered many by reopening long-term contracts, demanding 20% price cuts, and rebidding components that suppliers had spent millions of dollars developing. "The last thing suppliers want is to get deeper in bed" with GM, growls an executive at an Ohio parts maker. Other nonunion companies don't want UAW workers. GM purchasing officials asked Masco Industries Inc., for instance, to consider using an idle plant. But "the labor issue really got everybody strangled," says L. Gene Stohler, vice-president for automotive marketing.

Still, the sense of impending crisis has spawned new creativity. There's even talk of exploring joint ventures with Japanese suppliers. It's a good sign that GM is looking for new answers--even if it means calling in an Android.David Woodruff in Detroit, with Zachary Schiller in Cleveland

blog comments powered by Disqus