Fixing Gm: Pages From A Radical Repair Manual

General Motors Corp. employees must feel as if they have been careening through a test-track slalom course with race-car driver Al Unser Jr. at the wheel. In the past few weeks, under pressure from GM's outside board of directors, Chairman Robert C. Stempel resigned. So did three of his top aides. On Nov. 2, outside director John G. Smale took on the title of chairman of the board, while President John F. Smith Jr. took the reins as chief executive officer.

Nor is the wild ride over yet. The reshuffling of General Motors' top management may have shocked the stodgy company, but it hasn't even begun to get at the root of GM's massive problems. If anything, the company may have created a new set of issues for itself by naming Smale chairman.

SURGERY. One question is how firmly Smith is in charge. Smith insists that he has the board's--and Smale's--full mandate to run the company. But Smale, retired chairman of Procter & Gamble Co., has also been given the power, formally ratified by the board, to call meetings of independent directors. That sends a message that he will step in quickly if Smith seems to falter. Another issue: Will Smith simply have too much to do? Smale's discomfort in communicating with outsiders means that he won't play the key role of public spokesman. GM may not need a Lee Iacocca, but it needs someone to act in that role, and Smith can't do it well while working to turn GM around.

But the Smale-Smith relationship may be the least of GM's problems. The company still needs desperately to slash costs and reduce overcapacity by padlocking plants and laying off white- and blue-collar workers. It must pare its product lineup and simplify organization charts. And while he's performing this radical surgery, Smith must force a fundamental change in GM's culture by holding managers accountable for their performance while encouraging them to take risks. That means pushing power to make decisions down into the ranks.

All that will take time. Meanwhile, Smith must shock hidebound GM into getting things started. That means thinking in more radical terms. How radical? Some ideas:

-- Ditch Electronic Data Systems Corp. and GM Hughes Electronics Corp. Although they are healthy operations, they have become nothing but sorry distractions to the company's core carmaking business. GM could use the $12 billion or so in cash it might raise from the sales for new-product development and to expand aggressively the capacity of the Saturn Corp. division, to take advantage of its market success.

-- Sell a stake to the public in both Saturn and GM's European operations, not just to raise cash, but to make them independently accountable.

-- Get rid of much of GM's parts-making operations, where many inefficiencies are hidden. GM should sell off everything that fails to provide a key competitive advantage to its carmaking business. That would free Smith's team to deal with reinventing a new and less vertically integrated company. The sale of those units, of course, needs to be done in consultation with the unions, perhaps even exploring such options as employee-led buyouts. Abrupt, unilateral action by management would only trigger a costly union confrontation.

-- Urge the board to find a way to force Roger Smith, the GM ex-chairman who is largely responsible for the company's troubles, off the board. It's a disgrace that with Stempel forced out, Smith still retains his seat.

-- Replace Smith with a representative of the United Auto Workers. This would be a wonderfully symbolic move and a good start toward creating an atmosphere of trust between the new management of GM and the union. And when UAW chief Douglas Fraser sat on Chrysler Corp.'s board in the early 1980s, he and Iacocca were able to forge a personal bond that helped the company deal with its problems. Smith, wisely, affirmed his conciliatory tone toward labor when he said, upon taking over as chief executive: "One of my most important objectives is to find, cultivate, and maintain common ground with our union leaders."

Whatever he does, GM's new CEO must act decisively before things get worse. "We have an opportunity here that we can't let slip by," Smith exhorted GMers the day he took his new job. The question is whether he is willing and able to seize this opportunity to remake GM radically.