The Trouble With GM

When General Motors' Saturn plant was opened amid the cornfields of Spring Hill, Tenn., in 1990, it was billed as a kind of corporate nirvana where a folksy labor force and enlightened managers would happily work to produce some of the best darn American cars on the road. The plant represented a unified front against growing Japanese imports and offered the broader prospect of peace between GM and the United Auto Workers.

But last week the seething revolt that started at two GM parts plants in old-fashioned Flint, Mich., spread to this Southern paradise. The Flint strike shut off critical parts to the company, forcing the closure of 26 assembly plants and 100 component factories across North America and idling 186,000 workers. The strike is weighing on the economy too, contributing to a 0.6% drop in industrial output in June. The Saturn factory is the only GM plant in the U.S. still turning out cars. Leaders at Saturn's Local 1853, angry over a management decision to cut negotiated bonuses from $1,400 to $390, among other issues, planned a vote for Sunday on whether to strike the New Age plant. The angst is spreading, with union locals at GM plants in Dayton, Ohio; Indianapolis, Ind.; and Bowling Green, Ky., talking about their own job actions once the Flint strike is settled. GM insists it is just trying to stay competitive in outmoded plants, but the company's tough stance has rankled labor. Says Richard Shoemaker, the U.A.W. vice president negotiating with GM: "You never have to phony things up with GM to get a strike going. There are always enough legitimate issues around."

Settling the strike--an arbitration hearing is scheduled for Wednesday over GM's claim that the walkouts in Flint are illegal--is to some extent the least of the company's problems. GM faces enormous challenges with its products, its market strategy, its international business and even its leadership. Many of GM's critics believe that the world's largest automaker needs another total makeover. That means dumping factories, jobs--even executives--not to mention junking some of the nameplates no longer needed in GM's shrinking empire.

The last time GM reorganized, in 1992, following a directors' revolt, chairman John F. (Jack) Smith Jr. was handed the wheel. Now the company that Smith heads is reeling. Profits fell 81% in the second quarter, to $389 million from $2.1 billion. Results would have been weak even without the strike.

The Saturn conflict is a case study in GM's mounting woes. Perhaps the company's most notable success in the 1990s, the mid-priced, compact Saturns were sold with a revolutionary no-pressure style of salesmanship. Saturn has won high praise for winning consumers away from the likes of popular Toyota and Honda. Trouble is, corporate infighting over resources has prevented GM from upgrading Saturn's basic design or adding a new model since the station wagon was introduced in 1992. Worse yet, other GM divisions pump out small cars to compete with Saturn.

Saturn's factory-floor democracy turned ornery as Detroit bean counters pushed to cut costs in this eroding market. For example, over the Fourth of July weekend, headquarters called Spring Hill to check on how many people were in the plant working on maintenance chores, accusing them of larding the payroll. "We're working on things, and they're calling down here saying we have too many people," gripes Mike Bennett, bargaining chairman of U.A.W. 1853. "You save a few hundred dollars in overtime, but you could lose millions down the road." If the line goes down, the dollars mount fast.

GM is torn between such scattershot cost cutting and developing a long-term strategy that will put it back on the high road. At its core, GM still has too many models (56), too many North American assembly plants (29) and too many workers (220,000) to support its U.S. market share, which has declined from 35% in the early 1990s to 31.1% in 1997. A buoyant North American economy cushioned the pain of losing share--the company earned $6.7 billion last year--but has masked the severity of the company's strategic woes. Last week a report issued in Detroit by Harbour & Associates, an automotive-consulting group, showed that GM lagged behind its rivals Ford and Chrysler in productivity and profitability. For example, GM takes an estimated 5.46 worker-hours to stamp out such components as fenders, doors and hoods. Ford and Chrysler take 3.42 and 2.96, respectively.

In Flint, GM is trying to boost profit margins by outsourcing, a source of contention. But the company needs to make great leaps, not incremental steps. Analyst Stephen J. Girsky of Morgan Stanley Dean Witter estimates that to get into fighting shape, GM would have to close three assembly plants, eliminating as many as 34,500 blue-collar jobs. Try negotiating that. And the company needs to close about 2,300 dealerships out of 8,500.

Girsky thinks the company needs to junk 27 models to eliminate redundancy and stop competing with itself. Take the Chevrolet Camaro and Pontiac Firebird. In their heyday, the sporty siblings divided up a broad and profitable market of muscle-car enthusiasts. These days, though, muscle mania has waned, and the pair is left slugging it out in a narrowing segment. GM execs may want to keep at least one of the offerings to compete with the popular Ford Mustang, but they are faced with a dilemma: both cars are built in the same plant in Quebec, and killing one would threaten the other by making it prohibitively costly to produce.

GM has plenty more candidates for the boneyard. Who would miss, say, the puny Chevy Metro, the unfashionable Buick Riviera or that boat on wheels the Cadillac Eldorado, outmoded cars that drain marketing resources. The Oldsmobile division, whose eroding customer base has put it on GM's hit list since the 1992 restructuring, still breathes.

Senior GM executives have been criticized for sidestepping hard choices, focusing instead on building the company's business in China and South America despite meager returns. Chairman Smith's disengaged leadership style of leaving most labor and marketing decisions to subordinates doesn't help either.

A few years ago in Flint, GM and the U.A.W. negotiated a deal they pretended was efficient: in exchange for labor peace, GM pays workers for a full day but allows them to leave early if they have finished their daily quota. GM and the U.A.W. also like to pretend that painful strikes are a necessary evil in building a world-class car company. But the pain of this strike will be mild by comparison if the company fails to resolve its deeper problems.