Robert C. Stempel's second day on the job as chairman of General Motors Corp. was a trying one. On Aug. 2, Iraqi tanks rumbled into Kuwait, oil prices skyrocketed, and a 10,000-car order for the Chevrolet Caprice bound for Kuwait was abruptly canceled.
Just one day before, Stempel had ascended to the top seat at the world's largest industrial company amid signs that GM's long-awaited comeback was finally at hand. After all, Stempel was an engineering whiz, a car guy--not a dry, financial type like the departing Roger B. Smith. And GM had marshaled together the first round of a massive wave of new models, including its Saturn line and fully redesigned Buicks, Oldsmobiles, and Cadillacs.
GULF JITTERS. Now, a full-blown war in the gulf, on top of the ongoing U. S. recession, has pretty much iced any hope that 1991 would be a turning point. GM, with sales of about $125 billion last year, saw domestic auto sales plummet a scary 28% during the first 10 days of January. Given the vagaries of war, volatile oil prices, and a deepening recession, few consumers are likely to be in a buying mood anytime soon. Stempel, 57, had hoped GM's North American auto operation, which has lost money three years running, would turn a profit in 1991. Now he's not so sure. "I'm not as buoyant about '91 as I was," says the imposing six-foot, four-inch chairman.
Even so, Stempel remains determined to see that the rest of the 1990s aren't a dreadful replay of last decade. In the 1980s, a wobbly and slow-moving GM watched its share of the U. S. market slide to 35% from a commanding 46%. GM has mapped out a detailed strategy to restore profits in its core North American auto business with aggressive marketing, redesigned products, and more decentralized management.
Most important, Stempel vows not to surrender one more speck of market share to rivals. GM posted some of its most profitable years ever in the late 1980s, but at the expense of shrinking share. Stempel signaled his new focus on recapturing that share when he priced the Saturn with a surprisingly modest $7,995 starting point, undercutting rivals such as the Honda Civic.
Just when these moves will start to pay off for GM will depend in large part on the war. Yet even if the war proves to be short, it isn't getting any easier to turn a buck in the fierce U. S. auto market. Detroit still relies on rebates and other give-backs to move cars. And, of course, Japanese auto makers such as Honda, Toyota, and Mazda have some nifty machines of their own. In fact, the Japanese share of the U. S. car market likely will surpass 27% this year.
Then there's the issue of GM's still hefty waistline. While the company spent roughly $50 billion to retool and modernize its plants in the past decade and has wrung out $13 billion from its cost structure since 1987, GM is still by far the highest-cost player in the industry. Japanese auto makers still turn out cars more cheaply than GM, Ford, and Chrysler--and enjoy dramatically speedier product-development cycles. Says a senior executive at a rival domestic auto maker: "GM is under excellent new management, but I don't think they'll be able to cut costs fast enough."
Worse, while GM has relied on its lucrative European operations--representing 20% of its total auto sales--to offset losses at home, that unit could be hit by the war and slowing world economies. Sure, the company's finance unit, General Motors Acceptance Corp., continues to do well, as do Electronic Data Systems, a computer services company, and the defense firm GM-Hughes Electronics. Yet that isn't enough to salvage 1991.
Even before the war, analysts were frantically reworking their earnings estimates for GM. Chances are that GM will lose as much as $900 million or so in 1991 on sales of $124 billion, figures Dean Witter Reynolds Inc. That's especially painful because GM hoped to post earnings strong enough to make up for the bruising it took in 1990. Any day now, GM is expected to disclose a loss of between $125 million and $300 million last year. Losses from North American cars and trucks alone were more than $3 billion, estimates Donaldson, Lufkin & Jenrette Securities Corp. The tally is far worse if you include the onetime $2.1 billion charge GM took in the third quarter to close at least four plants.
WINNING LOOK. But it isn't all so grim inside GM's 1930s skyscraper in downtown Detroit. GM has come fairly close to bridging the quality gap with the Japanese. While GM drew plenty of scorn during the 1980s for turning out uninspiring, boxy models, its GEO line of Japanese-designed models, along with its Cadillac and Buick cars, were all selling well before the war. GM has also snagged some fancy awards: Cadillac won the 1990 Malcolm Baldrige National Quality Award and the Chevrolet Caprice LTZ picked up car-of-the-year honors from Motor Trend magazine. The Baldrige award dovetailed nicely with GM's new "Putting Quality on the Road" ad campaign, which trumpets quality improvements throughout the company. In fact, Stempel believes the quality campaign will keep GM car-owners coming back for more--and convince import owners to give GM another try.
Yet those marketing efforts won't be worth much if Stempel can't get GM into fighting trim. So, Stempel and GM President Lloyd E. Reuss, who oversees North American auto operations, have mapped out a 26-point strategy to improve efficiency and profitability across the board. One example: GM engineers are examining how to use more common parts across several product lines, without taking away from the uniqueness in each car's styling. That's why GM is now working to reduce the number of parts used to make a platform--a car's basic metal frame--by a third.
Or take GM's effort to reduce the number of engine families from nine groups to five. For years, GM divisions such as Chevrolet, Buick, and Oldsmobile had separate groups building engines exclusively for them. Last year, GM decided to reduce parts complexity and avoid duplication of engineering and manufacturing efforts by consolidating those units.
'HOW TO REORGANIZE.' Then GM went one step further. The new engine division merged with GM's transmission subsidiary. Now, this combined group can better coordinate the design of new engines and transmissions so that these components better mesh together. And it's a good example of Stempel's decentralized management style. A veteran of Smith's massive reorganization efforts last decade, Stempel knows how disruptive poorly planned changes can be. "You're looking at a management committee that knows one thing in spades--that's how to reorganize," he says.
Indeed, if anyone can make a real dent in GM's legendary bureaucracy, it's probably Stempel. An engineer with a prodigious memory, he caught management's eye during the 1970s for successfully managing development of GM's catalytic converter project during a period of rapidly changing environmental regulations. He's also admired by the rank and file as someone who takes pride in turning out a good product. When GM's car divisions previewed their 1991 marketing plans last fall, he tossed out several ads for focusing too much on image instead of craftsmanship.
Indeed, Stempel would prefer that GM's cars do all the talking. And there certainly will be no shortage of new wheels to carry the message. GM will introduce nine redesigned cars and two new trucks in 1991--more than Ford, Chrysler, and Toyota combined.
Among them is the completely made-over Buick LeSabre, currently ranked as the highest-quality American-built car. It's an attractive, full-size family vehicle that carries a $17,000 sticker price. Buick has also brought back the Roadmaster, which was discontinued in 1958. The modern version may lack the four portholes along the side that symbolized the classic Roadmaster. But at $21,445, the new Roadmaster boasts a massive V8 engine and rear-wheel skirts.
At recent auto shows, Cadillac offered an early look at its 1992 Seville, which likely will go for about $ 35,000. The sleek sedan blends European rounded styling with American heft, proving that Cadillac can add a bit of verve to its traditional luxury nameplate. Among compact buyers, the GEO Metro Xfi, now ranked as the highest-mileage car in America, is selling well. Next year, GM will entirely refashion the compact Pontiac Grand Am, and its Impact electric concept car is due out in the late 1990s.
GM is also aggressively marketing its Saturn line, launched with a flurry of hype in September. So far, Saturn has received high marks for its peppy 1.9-liter engine and sophisticated transmission, which makes for smooth shifting from gear to gear. Buyers seem to like the affordable, basic, four-door model, which has been selling at a brisk pace. Yet GM has been slow in getting Saturn's stylish coupe into the showroom.
QUICK SWITCH. With all the new models in production--and 22 new cars and trucks on the way through 1995--executives will face a devil of a time managing GM's vast network of 30 assembly plants. Indeed, some plants will be shuttered for months as GM changes the tools and dies for new models. The risk is that if demand for a particular product suddenly surges, GM could lose sales and market share. Says Reuss: "The whole profitability thing is heavily geared to the volume and the way we can manage the changeovers." If so, GM will have to learn to do it more quickly. Honda Motor Co. can accomplish the task over a weekend, vs. the up to four months it takes GM.
For now, though, Stempel and his management team must figure out how best to navigate GM through this tough period during the war. Yet even when the war ends, it's uncertain just how soon the economy will bounce back. GM dealers aren't too upbeat. "It's not the war that's causing our problems. We were already in a deep recession," says Jeff Barry, sales manager at an Oldsmobile/GMC dealership in suburban Chicago. With disturbing news like that returning from the front, GM's comeback may still be a ways off.