FIERO : CAR TROUBLE AT GM : Death of Sporty Car Highlights Old Weaknesses

Five years ago, the Pontiac Fiero was born of General Motors’ high aspirations for new technologies, new ways of working and a new commitment to beat back the imports.

Five years later, it has died.

Lauded by GM engineers as a revolutionary advance in the technology of car building, the Fiero died after GM decided not to spend enough money to make changes as basic as adding power steering.

An initial sales success that helped give Pontiac a new reason to call itself GM’s “Excitement Division,” the sporty two-seater was dropped by upper management because of a sales decline that some GM officials felt could have been reversed by design and engineering modifications that were already in the works.

An inexpensive program by GM standards, the Fiero was a low-volume model that nonetheless filled a void for GM in the increasingly specialized car market. Yet in some ways, it was an orphan in a giant company more comfortable with car lines that sell a half-million or more units apiece each year.

Virtually lost in the bureaucracy from the start, the Fiero was thus starved for resources and attention.

“We didn’t have a lot of legs to stand on” in asking for extra funds for the Fiero from GM’s top management, recalls Karl Krapek, manager of car assembly operations for Pontiac during the Fiero’s planning stages. “We didn’t have 600,000 units. So it was ‘OK, do the car, but don’t ask for anything more.’ ”

The Fiero had a $300-million budget and that was it, he recalled. “We weren’t able to get the extra $40 million to $60 million we needed to finish it off exquisitely.”

“There were too many committees,” added Krapek, now president of North American operations at Otis Elevator, “and the general manager (at Pontiac) didn’t have the chance to spend $50 million and take the risk because everything had to be filtered through too many corporate staff people.”

To many, the life and death of the Fiero is a case study in the struggles of General Motors in the 1980s.

Abruptly last month, it was over.

“Unfortunately, market demand is not sufficient to continue production of the Fiero and we therefore must idle the plant,” GM Vice President David Campbell said simply in a March 1 statement. “We regret having to make this decision.”

GM was killing off the Pontiac Fiero at the end of the 1988 model year, shutting down the Pontiac assembly plant where the sporty two-seaters were built and eliminating the jobs of about 2,000 people.

The move came despite the fact that the plant had consistently received the highest quality ratings of any GM assembly operation, and its work force had worked closely with management to create a team approach to car building that both GM and the United Auto Workers agree was one of the most innovative in the American auto industry.

The news stunned nearly every close observer of the auto industry, including many well-placed managers inside GM.

Granted, the Fiero had been in trouble--its sales were plunging--but it had been such a visible program for the company in so many ways that most thought GM was committed to turning it around.

Just a few months earlier, Pontiac had issued a glowing press release singing the Fiero’s praises. “We think the improvements to the 1988 Fiero are dramatic and in sync with our well-earned reputation as the ‘Excitement Division’ of General Motors. Fiero (is) the complete road car that Pontiac driving enthusiasts have come to expect.”

“It caught everybody by surprise,” conceded Ernie Schaefer, the original Fiero plant manager and now manager of GM’s Van Nuys assembly plant. “I had heard it was being studied, but I had no idea this was going to happen.”

The local managers at the Fiero operation were clearly caught off guard as well; the day before the announcement, they recalled 12 skilled tradesmen from layoff to begin work on new equipment for a redesigned 1990 Fiero.

Still, the company’s leadership didn’t want to make a big deal out of it. GM’s chairman, president and the head of the company’s North American automotive operations now all decline to discuss it further. A spokesman said they don’t want the story to “linger in the press.” It was a cut-and-dried move, GM said. The car just wasn’t selling.

But the Fiero is a story that did not die with the company’s March obituary announcement.

“That Fiero, maybe it’s good in a sense that they stopped production of it,” said laid-off Fiero worker Henry Baldwin bitterly, sipping his coffee at a Dawn Donuts not far from the plant in this rickety factory town. “Cause, even though I’m out of a job, maybe a lot of the people around here understand what GM is doing now.”

But what is GM doing? The Fiero experience may provide some clues. The company that once was able to define what an automobile was for the American people now seems to be settling for a shrinking share of a market increasingly dominated by its foreign and domestic competition. The attention of GM’s top managers now seems directed more at the company’s financial statements.

‘Gut Bottom Line’

The company has promised GM shareholders a 15% return on equity by 1990--up from the current 11%, a move taken to placate institutional investors angered by the Ross Perot buyout. GM officials also said that if its efforts to make GM stock more alluring to Wall Street mean some erosion of its market share, so be it.

“There is no question that the gut bottom line on the Fiero was financial,” said David Cole, director of the Center for the Study of Automotive Transportation at the University of Michigan, who defends GM’s Fiero decision. “This was based on top corporate people saying, ‘We cannot justify keeping this in place.’ A couple of years ago, I think they would have rode it longer--and lost a lot of money.”

And it shows a company that seems to be sending mixed signals to its workers on its commitment to innovative labor relations. “For the workers and the union involved, the Fiero was a high-risk, innovative venture; they accepted a lot of new approaches,” said Harley Shaiken, an expert on labor relations in the auto industry at the University of California-San Diego. “But this decision to close the plant is simply business as usual, and it undercuts all the effort that went into that plant. The bottom line was that the company showed little commitment.”

GM executives admit that they are disappointed to lose what was perhaps their best American work force. “The guys did everything we asked them to, building a very high-quality car,” observes Campbell, GM’s group director of operations for the Chevrolet, Pontiac and GM of Canada group, and now one of the company’s chief spokesmen on the Fiero.

“But we can’t build cars if we can’t sell them.”

Niche Products

But most of all, the Fiero story shows how a specialty car such as the Fiero, a product that requires a lot of engineering time and money despite its low sales volume, is vulnerable inside GM.

Campbell disagrees, saying low-volume products do have a place in GM. “We like to sell a million of them, but we’re not opposed to selling 30,000 or 40,000,” he said in an interview. “Over the years, we’ve had a tremendous number of niche products. But we’re going to be committed to markets where we can sell cars and make money. We’re not in business to lose money.”

But critics said GM is still acting like it can dominate with a bland family of mass-produced sedans.

“What’s happened to the Fiero shows how tough it is to get a new kind of product into the system at GM,” said Martin Anderson, an auto industry consultant. “It wasn’t a core product for GM. I don’t think the Fiero was ever mainstream GM, and it certainly was viewed as a renegade product that was made sort of outside the bureaucracy.”

Adds auto analyst John Hammond: “The Fiero story satisfies virtually every criticism offered by GM’s critics.”

The Fiero began life five years ago at the Pontiac Motor Division with much greater promise--but also with nagging problems that were never fully addressed by GM.

Despite upper-management misgivings about the profitability of such a low- volume product, Pontiac officials--first under general manager Robert Stempel, now GM’s president, and later under William Hoglund, now group vice president for GM’s Buick, Oldsmobile and Cadillac group--pushed hard and finally won the right to build a two-seater after the program was rejected several times in the late 1970s. Conceived during the last gas crunch, the Fiero was initially sold to top management as a high-mileage commuter car.

But even after it was reluctantly approved, tight financial constraints were placed on the program, in part because of the car’s low sales projections. Those restrictions forced engineers to make sacrifices and cut corners, insiders complain. GM imposed a $300-million spending limit on the Fiero project--an abnormally small figure in an era when Big Three passenger car programs typically cost $1 billion or more.

Sports Car Styling

“We were making compromise decisions,” recalls Krapek. “They kept taking things (costly options and other equipment) out of the car. Neat little things like a lever to open your gas tank from inside your car were taken off. I just remember the meetings where it was always cost target, cost target.”

To cut costs, the Fiero was forced to borrow a small, four-cylinder engine from GM’s family of X-car subcompacts.

That was fine, as long as the Fiero was targeted as a commuter. But by the time the car was ready for production in the summer of 1983, the energy crisis was over, and performance cars were making a comeback. With its snappy exterior styling, an all-plastic body and a novel mid-engine configuration, the Fiero looked like a sports car.

So GM went ahead and marketed it as one, even though it still didn’t have the horsepower.

Initially, the packaging worked; by 1984, Pontiac was selling nearly 100,000 Fieros a year, far exceeding GM’s expectations.

For Pontiac, the Fiero was a sorely needed, if not long-playing, hit. Pontiac, John DeLorean’s muscle car division of the 1960s, had lost its youthful focus in the late 1970s. For a time, sales got so bad at Pontiac that rumors flew in Detroit that GM was on the verge of merging the troubled division into Chevrolet.

Instead, GM brought in Hoglund.

Hoglund, Pontiac’s general manager when the the Fiero won its final approval and a strong backer of the project, often told reporters that his task was to win back young buyers for Pontiac who were deserting for the imports.

And Fiero was an important part of that drive, Hoglund believed. It would provide a “halo” effect for Pontiac.

At first, it seemed Hoglund had guessed right. “The car served its purpose. . . . Pontiac needed some exciting products,” Campbell said. “It brought a lot of first-time buyers to Pontiac.”

Career Boost

And Hoglund was quickly rewarded. The car’s early success, and the concurrent revival of Pontiac’s sales and image, helped propel Hoglund’s career.

Since being promoted from Pontiac, before Fiero’s troubles became apparent, he has moved up so quickly that he is now rumored to be a contender for the company’s presidency or even chairmanship. Hoglund, currently group vice president in charge of GM’s Buick, Oldsmobile and Cadillac group, refuses to discuss the Fiero today. A spokesman said “he was not part of the decision,” to kill the car, but adds that he “agrees with it.”

Meanwhile, the Fiero manufacturing operation was providing an optimistic sign of change inside the mammoth company. As the first GM plant to introduce a Japanese-style “team” approach to labor relations, the Fiero plant provided hourly workers with an unprecedented level of input in shop-floor decision-making. The local union’s ruling shop committee became the top team, meeting constantly with local management on all aspects of the business.

Assembly-line workers, working in small teams, were allowed to design their own jobs, and were even granted the power to confront suppliers who were shipping shoddy parts. To eliminate class distinctions, managers were not allowed to wear ties, the executive dining room was closed, and management-only parking areas were eliminated.

The result: high morale and quality work. “The team concept made this plant . . . we’ve won every quality award GM has put out,” said Bob Farley, Fiero shop chairman for UAW Local 653. GM executives confirm that the Fiero plant received, on the average, the highest quality ratings of any GM assembly plant over its five-year life.

Easy Changes Predicted

The Fiero, the first mass-produced, all-plastic car with the engine positioned in the middle, also gave GM a rare opportunity to experiment with new technology. The plastic outer panels were easy to attach onto the unique steel frame chassis underneath, and GM engineers predicted that the Fiero would provide the domestic auto industry with a major breakthrough in the competition with the imports to improve exterior “fit and finish.”

GM officials also predicted that the space-frame design would make it possible to quickly and cheaply redesign the Fiero in case of slow sales. “It looks to us like we can change the exterior . . . for 25% of the tooling costs of changing the design of the Firebird,” Hoglund said in a 1983 interview.

Unfortunately, the exterior design was not the real problem. The Fiero’s most serious troubles were on the inside.

One of the secrets to creating a new model that will make it at General Motors is to use components that are already in use on existing car lines. Development costs are then drastically reduced, and profits can be won at lower sales levels. Thus, the Fiero was given its small X-car engine.

But in the insular world of GM engineering, the Fiero’s unique structure was still a major obstacle to profitable component-sharing, especially when design changes were needed on the car.

Soon, it became apparent that modifications were sorely needed, but GM was not willing to spend the money to develop major new systems just for the little Fiero.

After the initial sales burst, it became clear that few real sports-car enthusiasts were being fooled by the Fiero’s subcompact engine. Instead, young women buyers were flocking to the car, apparently attracted by its looks and unconcerned by its lack of power.

Yet the Fiero had still another problem with these buyers--it had no power steering, and women customers quickly began to complain that it was hard to handle.

Workers at the Fiero plant, emboldened by their new influence in plant-level decision making, also started complaining to plant management in team meetings that the car needed power steering. “We kept yelling and screaming for it,” said Farley.

Newness Tarnished Fast

GM engineers knew the car had handling problems even before it hit the market, according to Krapek. “There were some test results that said it was difficult to park,” said Krapek.

But existing GM power-steering systems wouldn’t work on the mid-engine Fiero, and GM decided it would be too expensive to develop one whose cost could only be spread over the Fiero’s relatively small sales volume. Thus underpowered and hard to handle, the Fiero’s novelty wore off quickly.

“The uniqueness of the car helped lead to its demise,” notes GM’s Schaefer. “GM has to allocate resources, and when you could apply the cost of power steering to 40,000 units on a Fiero or 1 million units in another car line, which one would you choose?”

Campbell argues, however, that long engineering lead times, not a lack of commitment, made it difficult for GM to react quickly to the Fiero’s problems. “In hindsight, you can always say we didn’t move fast enough, but if we had brought out something bad quickly, people would have said we had moved too fast,” Campbell said. “But the Fiero over its lifetime has had an inordinate amount of resources devoted to it.”

Campbell adds that GM moved rapidly to provide an optional V-6 engine in time for the 1985 model year. Still, he admits that power steering was never approved.

Soon, other engineering flaws, which eventually led to a recall for engine fires last year, blanketed the Fiero in negative publicity. High repair costs and the car’s poor crash worthiness brought soaring insurance rates, which now plague the entire two-seater market. Sales began to decline in 1985 and then went into a free-fall, plunging to 47,000 last year.

According to a recent story in the Detroit Free Press, a concerted effort by some high-ranking GM officials was made earlier this year to save the Fiero. Their plan to upgrade the car, “re-skinning” its exterior while equipping it with GM’s powerful new “Quad Four” Cadillac engine and power steering, and offering subsidized insurance rates to buyers, seemed close to approval, the newspaper reported.

Face Lift Canceled

But the financial staff won out, convincing GM Chairman Roger B. Smith and other top executives, including Stempel, that it would be too costly to let the Fiero live. Even a plan to cut costs by jointly producing the Fiero and the Chevrolet Corvette, which is also suffering from slumping sales, in a single plant was dismissed.

“We had a 1990 major face lift on the car that got canceled,” confirms Campbell. “We were very close to getting (power steering) for 1989. And there was a discussion about putting the Quad Four in.”

GM’s pull-out also leaves more room in the two-seater market for the Japanese, who now dominate the segment, primarily with the Toyota MR2.

“I’m not sure how long the MR2 is going to be around, either,” because of a sales slump in the two-seater market, admits Campbell, “but we just gave them a chunk of the market back, so maybe it will be.”

Now, as the shutdown date closes in, union officials hold out hope that GM will reward the quality record at the Fiero plant by finding another product for the work force. Campbell said the company is considering some new specialty products that could be produced here sometime in the next few years, but warns that nothing will happen soon.

In the meantime, the Fiero shutdown has sent a new message to GM workers about GM’s commitment to quality and to improved labor-management relations. “That plant has done everything right, it’s been using an innovative team concept from Day One,” said Local 653 Vice President Dick Long. “It had the highest quality in the corporation, and they still pulled the plug. It’s hard for us as a union to keep going back to the membership, saying we’ve got to do better, and then when we do better, we keep losing jobs. It’s frustrating for us right now.”