GM Launches Upbeat Image Campaign
In what appeared to be part of a new and aggressive public relations campaign to improve General Motors’ tattered image in the wake of a disastrous 1986, GM Chairman Roger B. Smith on Wednesday sent a letter to shareholders asserting that GM has now put many of its most serious problems in the past.
Smith’s four-page letter comes on the heels of a series of meetings he and other GM executives have held in recent weeks with large institutional investors--an effort to diffuse shareholder anger over GM’s decision last December to pay in-house critic H. Ross Perot more than $700 million to buy out his stake in the company.
GM has apparently become increasingly concerned about its reputation after struggling through a bruising 1986. Besides enduring the Perot affair, GM last year announced a massive wave of plant closings and layoffs, suffered a rapid erosion in its market share and watched as its newest luxury cars, produced at its most technically-advanced plants, bombed in the market.
As a result, GM sought maximum exposure for its new, upbeat message to shareholders. The company coordinated the timing of the letter’s release with a series of interviews Smith held on Wednesday with a number of major news organizations, including the Los Angeles Times.
But Smith denied that the letter, which never mentions Perot, was issued in response to a firestorm of protest that has engulfed GM since Perot was ousted from the GM board and paid roughly twice the market price of stock he received when GM bought Electronic Data Systems. Perot founded the Dallas-based computer services firm and sold it to GM in 1984.
In fact, Smith said in an interview that he believes the Perot buyback is no longer an issue among major shareholders.
“When we did start out talking to investors (over the last few weeks), a lot of that did start out talking about the Perot buyback,” said Smith. “But most of the investors, when we got out there, said hey, we don’t want to hear about it. Tell us about what’s going on at General Motors. And then they say, we see you do have an organized plan and you are working on it.”
Smith said GM decided to put out the letter after a number of institutional investors told Smith that they were impressed with his presentation. “The institutional investors said, hey, you’ve got a great story, you ought to tell it to the stockholders. We said, well, gee, we are doing it, and they said, well, you’re not doing it very effectively, and you should do it better.”
Some leading critics of GM and the Perot buyback in the investment community seemed to agree that Smith has done a good job in recent weeks of improving relations with shareholders. “I think we’ve moved beyond who did what to whom regarding the Perot buyout,” said Steve Matthews, an aide to Harrison Goldin, comptroller of New York City, who is a co-chair of the Council of Institutional Investors, a Washington-based coalition of money managers who have met with both Perot and Smith to discuss the buyout.
“GM has now begun a communications process with shareholders that it would have been well advised to begin a long time ago,” Matthews added.
In the letter to GM’s 1,050,000 shareholders, Smith said: “At GM, we have been deeply immersed in doing everything necessary to ensure our strong competitive position for the years ahead. . . . I can report to you that, at General Motors today, better trained employees are using the most advanced and sophisticated technology to build lower cost, higher quality automobiles.”
The letter offers little new information about GM, and instead provides an upbeat summary of the company’s cost-cutting efforts, new product programs and its increasing use of advanced technology in its manufacturing system.
It does say, however, that GM cut costs by $2 billion in 1986, and plans to slash another $3 billion from its cost structure in 1987. The company expects its cost-cutting efforts to add up to savings of $10 billion by 1990. The letter added that the cost reductions are designed to insure that GM can maintain an after-tax return on equity of 15% by 1990.
Industry analysts, who have been urging GM to make drastic cost-cutting moves in order to improve its weak profit margins, were pleased that GM had finally placed precise targets on its cost-reduction program.
“I’m happy to hear there’s a plan to cut costs, and it seems there is a more thoughtful and well laid-out plan than I’ve heard from GM in the past,” said Maryanne Keller, an analyst with the New York investment firm of Furman, Selz, Mager, Dietz & Birney Inc.
“But on the other side, it looks like they are just cutting costs enough to offset declining production, because their cars aren’t selling,” Keller added. “So I think GM will stay in a period of treading water.”
In fact, Smith acknowledged that GM in 1987 will be less concerned about maintaining high production levels--and a relatively large share of the car market--than it was in 1986. Last year, GM offered extensive low-cost financing packages and other incentives to buttress its sagging market share and to reduce its bulging inventories of unsold cars.
He also indicated that if GM’s sales continue to be as weak as they have been so far this year, GM will cut production--and lay off more workers--before introducing widespread incentive programs to lure buyers into showrooms.
“The game in 1987 isn’t going to be market share for market share’s sake,” said Smith. “It’s going to be profit, and how you balance market share, incentives, inventories at the dealer level and smooth production flows.
“So that’s what we are trying to do, maximize profits, by controlling inventories, by not letting them get out of hand where you have to run into a big sales campaign.” GM In 1986 Layoffs, Weak Earnings and a Feud With H. Ross Perot
Share of U.S. auto market drops to 39.6% from 41.7% in 1985.
Net profit declines 26.4% from 1985.
For the first time since 1924, GM profits are expected to drop below Ford’s.
GM says it will pull out of South Africa.
New car financing is slashed to 2.9% as car makers try to improve lackluster sales.
Texas billionaire H. Ross Perot is ousted from GM’s board and receives more than $700 million for his shares.
GM announces that 11 auto plants will be closed over three years with more than 29,000 layoffs. In 1987 6-Year Warranties Come With New Cars and Big New Hopes
GM announces that new cars will have six-year, 60,000-mile warranties.
Five years in the making, the 1988 Corsica, Berretta models of Chevrolets are to be introduced in March. GM says the quality will be better than Japanese cars.
GM Chairman Roger Smith tells shareholders that GM’s cost-cutting and streamlining will pay off and “enable us to end 1987 on a positive earnings note.”
