Joseph C. Gandolfo had more reasons than most to flinch when America’s television pioneer was sold last month to a foreign competitor.
Newcomer though Gandolfo is to the RCA family, as manager of RCA’s flagship color TV plant in this southern Indiana college town he is well-versed in America’s losing battle for survival in a business it created.
He has heard the lore countless times: RCA invents color television. RCA gambles big and subsidizes color programming to win acceptance for a technology no one wants. RCA fights a determined but losing sales battle against dozens of foreign TV makers in the saturated U.S. market for color televisions.
And he has spent the past eight months streamlining the oldest and largest color TV factory in the world in hopes of keeping foreign competitors at bay while dissuading RCA’s boss for a year, General Electric, from casting off the troubled $3.2-billion-a-year consumer electronics business.
Though shocked and angry when he first heard that French electronics giant Thomson S. A. had acquired the GE-RCA consumer electronics division, the veteran of 21 years at GE now seems mostly relieved that the GE experiment is over.
“It was a real shock, but at least now we have someone who really wants us,” he said. Besides, “we’ve always been fighting the Japanese and I feel better that we’re still fighting them.”
His view is prevalent in Indiana.
“You have to remember we all knew we were not a full-fledged member of the ‘John Electric’ family. We were on trial,” said the division’s chief executive, Richard W. Miller, in a reference to General Electric’s tough taskmaster, Chairman John F. Welch Jr.
Even the 2,200 assembly line workers at the plant here seem to be taking in stride a second ownership change in a year.
“We’re glad to be back fighting off them Koreans and Japanese instead of worrying about whether that Mr. Welch was happy with us,” said one woman who spends her days plugging wires into TV tuners.
When GE acquired RCA last year, Welch gave the consumer electronics division three more years to prove itself. But he never retreated from his oft-stated view that consumer electronics, one of the most competitive businesses in the world, didn’t have a place in GE’s future.
Together, GE and RCA sell 23% of all the color TV sets in America--by far the largest share of the U.S. market. But their market share is declining, according to a recent survey by Television Digest, and the division was barely profitable last year.
For Thomson, on the other hand, consumer electronics is one of just two primary businesses--the other being defense electronics. And with the GE-RCA business, Thomson becomes one of the top three players in the $35-billion worldwide consumer electronics industry. Matsushita of Japan and N. V. Philips of the Netherlands are the others.
“We don’t have to spend all our time trying to get into the inner circle any more,” Gandolfo said. “Now, we are the circle.”
The cool reaction in Bloomington might seem surprising. Just four months earlier, the plant made national news when it won back some big business from the Japanese--production of 500,000 more TV sets a year. And many Americans wondered after hearing news of the buyout whether the new French owners would yank the business and give it to a low-cost maker in Korea or Mexico.
Miller, chief executive of the combined GE-RCA consumer electronics division in nearby Indianapolis, considers the concern misguided. “TV production will stay here,” he said, “as long as we’re competitive.”
This is not to say that Gandolfo, Miller & Co. are oblivious to the flip side. Thomson arrives armed with a reputation for ruthless slashing of costs and workers.
After Thomson acquired the consumer electronics business of West Germany’s AEG in 1983, its radical cost-cutting moves returned the business to profitability but won Thomson the wrath of an entire nation.
Miller isn’t fazed. “If somebody can take costs out of this business faster than we’re doing it, it would surprise me,” he said.
Since agreeing 12 months ago to tackle what many regarded as the toughest job at GE--retaining the consumer electronics division’s No. 1 market-share position while increasing earnings from barely in the black to at least $150 million a year--Miller has feverishly closed six of the division’s 23 factories, slashed management layers by a third, overhauled employee job classifications and work habits and shaved the number of salaried workers by almost a fourth.
By the end of the year, the division expects to employ 5,600 salaried workers, down from 8,000 at the beginning of 1986. By then, Miller also hopes to have closed another four factories.
His cost cutters have also teamed with GE and RCA engineers to overhaul the company’s outdated TV chassis--the television’s electronic innards. When the overhaul is complete in 1989, all of the TV’s brains will be packed onto a single circuit board weighing only 3 3/4 pounds--a far cry from the old 45-pound board on display in a plant engineer’s office here or even from the 10-pound boards that still roll off the assembly line.
When Miller finishes what he extols as the industry’s “most dramatic” electronics overhaul in decades, GE and RCA televisions will offer consumers many more features than they do now, at a saving to the company of about $40 per TV set.
Overall, the savings to date have exceeded Miller’s projections, causing a stir in an industry that has come to regard as noteworthy even a $1 cost cut on a standard 19-inch TV.
After just 12 months, Miller says costs are down a remarkable 20%. GE doesn’t break out profits by division. But some analysts figure that Miller already is close to reaching Welch’s required earnings standard for all GE divisions of at least 15% of assets.
Whether Thomson will be content with that level of performance remains to be seen. Zenith Chief Executive Jerry K. Pearlman predicts that Thomson will be even more demanding about profits than Welch was.
Miller says he has been assured by Thomson Chief Executive Alain Gomez that the GE-RCA business will remain a separate subsidiary with Miller in command. But he otherwise pleads ignorance about Thomson’s strategy or performance measurements for its newest charge.
Gomez hasn’t made his plans public, except to say “there won’t be layoffs and restructuring in America because GE-RCA is now part of a European-U.S. group.” Nor, he said, is Thomson “going to make a landing in Indianapolis and teach everybody what they should do.”
His stated delight for Miller’s cost-cutting moves seems genuine. “What they have done is so much, I forgot it was only 12 months,” he said at a press conference in New York the day after the buyout announcement.
Such praise comes as a second wind to the workers here. The average worker here is 45 years old and had been making TVs for RCA basically the same old way for 20 years when General Electric came along.
Since then, they have been riding an emotional roller coaster. Up went their spirits when GE bowed to requests by the local International Brotherhood of Electrical Workers and brought home some TV production from Japan last winter. Down they fell when workers realized that the price for winning the business--and the extra 250 jobs it created--were strict new work rules.
There were no pay cuts here. But no longer can no-shows record their missed time as vacation days. And no longer are employee job classifications narrowly defined. Now, employees work in teams, guided by only six job classifications, compared to 30 previously.
Gandolfo, a big fan of the team approach to manufacturing, says “we can’t survive in this business” without it.
While the streamlining continues, Miller’s efforts are getting some support from an unlikely crowd: consumers.
After years of flocking to the small televisions that low-cost manufacturers in Japan--and more recently, Korea--specialize in, “we’re seeing a shift among consumers toward a preference for the bigger screens and higher-end TVs,” Miller said. The bigger TVs, padded with more plastic and wood than the bare-bones 13-inchers, are the specialty of such manufacturers as RCA, GE and Zenith.
If this trend continues, “we might finally see the end of price erosion,” Miller said, and the return to profitability that securities analysts have also started to predict.