business

Gm And Isuzu: A Waste Of Synergy

It was the final question of a long December press conference: Would General Motors Corp. be plowing any more money into troubled Japanese carmaker Isuzu Motors Ltd., of which it already owns 37.5%? GM Chairman Robert C. Stempel handed the question off to Vice-Chairman John F. Smith Jr., but not before mispronouncing the name "eye-zoo-zoo." Smith, head of international operations, curt-ly explained that GM planned no capi-tal investment in the company, which he wrongly called "eh-zoo-soo." The correct pronunciation: "eee-soo-zoo."

The scene speaks volumes about GM's 21-year relationship with Isuzu. Isuzu supplies engines and vehicles for the GM and Opel badges. But unlike Ford and Mazda, which jointly develop and produce cars, GM and Isuzu have each largely hugged their own side of the road. Insiders concede that potential synergies have gone to waste. GM passenger chassis could be powered by state-of-the-art Isuzu engines, they note. And GM could aid Isuzu's lackluster passenger-car sales with its worldwide marketing strength. But all too often, the partners duplicate resources rather than make them mesh. Neither company's management has shown a real commitment to working together.

NASTY SHOCK. The partnership's troubles were never more obvious than on Christmas Day, when the No. 6 Japanese vehicle maker posted a $381 million pretax loss on sales of $9.02 billion for the year. Despite its hefty stake, GM was blind-sided by Isuzu's woes. "We found ourselves not very knowledgeable about the problems and how Isuzu got into them," admits Thomas S. McDaniel, GM's vice-president for Asian and Pacific operations.

Now, McDaniel is dispatching Donald T. Sullivan, 48, to take day-to-day line authority over corporate planning, manufacturing, and engineering--a highly unusual post for an American to hold at a Japanese company. Strategic planning director of the Chevrolet-Pontiac-GM of Canada Group since 1989, Sullivan has worked with Isuzu in many positions, dating back to a spell at Chevy in the late 1970s importing Isuzu-built Opels. He replaced Kazuhira Seki as vice-president in late January, when Seki became president. Another GM man, Philip F. Murtaugh, will oversee product planning. Both will join the Isuzu payroll.

GM promises to pay better attention to its partner. For starters, it plans to buy more from Isuzu. GM now purchases more than 20% of Isuzu's output, depending on it for the light, medium, and heavy trucks it markets outside of North America plus 90,000 U. S.-bound Geo Storm subcompacts and 500,000 transmissions. It's doubling the number of diesel engines it buys for Opel, to more than 80,000 per year. But it still has no plans to share the development costs, says McDaniel.

SLOWPOKES. Isuzu, known as a leading truckmaker with superior diesel engines, admits it mismanaged itself into the red. Indecision during a late-1980s' truck boom left it in the dust when competitors quickly expanded production capacity and cranked out products. Just as Isuzu's conservative managers finally tripled capital investment, the market skidded. And it still maintains a money-losing passenger line accounting for only 15% of sales.

Now, Isuzu executives have got Sullivan to help--and they seem upbeat about it. Still, this relationship has a long way to go: GM offered to send Sullivan to a six-month total-immersion course in Japanese, but Seki nixed it, saying Sullivan would only learn enough to get into trouble.

A NOT-SO-HAPPY MARRIAGE
      1971 General Motors buys 34.2% of Isuzu's shares. Six months later, Isuzu ships 
      its first vehicles to GM--the Chevy Luv truck
      1976 The GM-Isuzu alliance's first passenger car, marketed as Buick Opel by 
      Isuzu, arrives in the U.S.
      1982 To finance an Isuzu plant expansion that is to supply GM with 220,000 
      passenger cars, GM buys Isuzu convertible bond issue worth $200 million
      1985 The strategy fizzles when Japan expands voluntary export quotas but still 
      limits Isuzu to 120,000 cars for the U.S. market
      1992 After Isuzu posts pretax loss of $381 million for fiscal 1991, a startled 
      GM sends strategic planning director Donald Sullivan to oversee the alliance
      DATA: BW
      
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