Perot Sounded Alarm but GM Likes Its Sleep
The truth is, you don’t need any high-falutin’ analysis to tell you why General Motors got rid of H. Ross Perot, the feisty Dallas entrepreneur who lately has been poking the giant car company in its ample midriff. Perot, who resigned Monday as a director of GM as well as boss of Electronic Data Systems--the company he sold to the auto maker in 1984--has been criticizing GM so publicly and so pointedly that it appeared nothing would satisfy him but GM Chairman Roger Smith’s job.
And he couldn’t have that--first, because Smith is still in it, and, second, because there are executives at General Motors who would like Smith’s job when he retires--in 1990 or before--and they weren’t about to step aside for a man they consider a Texas loudmouth.
So GM’s board decided to pay off Perot and tell him to go away. You can title the story “Bureaucracy Wins Again,” but there’s no need to weep for Perot. He can walk away with $700 million for his General Motors class E stock, and he was already a billionaire.
On Monday afternoon, in statements issued from Dallas, Perot offered to put the $700 million in escrow for 15 days to give GM directors a chance to reconsider. But let’s face it, he and GM are finished.
Auto Maker Needed Perot
Should you then weep for GM? Sure you should, but not simply because it has lost the services and advice of Ross Perot. Weep for the company because it really is the bloated bureacracy Perot has been saying it is, and even though large, rich and powerful now--its 1986 sales will probably hit $100 billion--it could go into a serious long-term decline unless it can get back to being a responsive consumer products company.
Bringing in Perot was a mistake to begin with. It was done for two reasons: One was that GM was spending so much on computer services that it decided to buy Perot’s EDS, a company that specialized in them. Mistake No. 1. If you contract for a service, you get what you pay for, and you can always buy from someone else. But when you own a company, you have to manage it and you can’t expect to integrate an entrepreneurial organization of a few thousand people into a corporation employing 811,000, especially if you set up separate dividend-paying class E shares to reward the few differently from the many.
But Smith had another agenda. He thought Perot would help shake up GM’s drowsy executive ranks. Instead they appear to have closed ranks against the Texan, who in any event was only a quick fix. For real reform, you must train and encourage fresh-thinking people within the organization. That takes time and dedication.
EDS-Hughes Combination
And GM’s immediate post-Perot action makes you wonder if the company has it. GM announced that it would combine EDS and Hughes Aircraft, the Los Angeles-based aerospace technology company that GM acquired in 1985, under one umbrella with the company’s defense business. How such corporate organization shuffling benefits the GM customer has to be a mystery.
But then GM’s strange neglect of its customer, the car buyer, has been a mystery for years. This is the company that once made Cadillac the standard of excellence the world over but blew that position to a triumph of marketing called Mercedes-Benz. This is the company that for years has produced what appears to be a single, look-alike style of car for four of its once-distinctive divisions; the company that has held its market share by slashing interest rates to lure the customers the cars couldn’t attract on their own.
Until this year, GM had been making fat profits. Now even those are slipping and the car business, entering a period of severe overcapacity in the U.S. market, is going to get worse before it gets better. The company that can cut its costs and still make cars people want to buy will prosper--today’s good example being Ford Motor Co. With its new Taurus and Sable cars, plus trucks and a couple of profitable older models, Ford is projected to make more profit this year than GM--which as yet has little to show in terms of either stylish cars or higher profits from years of heavy investment in plant and equipment.
How does a great company like GM become so bureaucratic that, as Perot pointed out, it takes a year deciding to paint a stripe on a car? Sometimes for reasons we otherwise praise: GM doesn’t fire you; it is a more caring and more forgiving organization than Perot’s hard-driving Dallas outfit. But caring isn’t everything. A flight of eagles goes farther in business than a flock of geese.
Can GM regain the touch? Sure it can. It has the people and the skills. What it needs is demanding leadership--the kind that its builder Alfred P. Sloan Jr. once supplied it, and the kind that a guy like Ross Perot might have supplied it.
