Doing Business : Car Salesman’s Nightmare: The Day the Buying Stopped : How do you stay in business when hyperinflation puts your product out of reach? Ask GM’s man in Brazil.
What options does a man have when he has to stay in business, but can’t do any?
Robert Stone will tell you it’s a tough question--tougher, certainly, than learning how to cope with hyperinflation of 70% a month, a skill at which he has become a master.
Stone, 59, is president of General Motors do Brasil, one of this country’s biggest manufacturing concerns and a major subsidiary of the American car-making company. And he can tell you to the day when it was that his major challenge shifted from hyperinflation to simply keeping the doors open. He’s still working on the latter.
The change occurred March 16. Brazilian President Fernando Collor de Mello had celebrated his inauguration the day before by imposing anti-inflation measures that included an 18-month freeze on most deposits in savings accounts and short-term “overnight” financial markets.
In effect, he locked up much of the country’s supply of money and hid the key. And Robert Stone’s sales reacted accordingly.
“It absolutely stopped sales,” he recalled. “We didn’t sell a vehicle (for) two weeks. . . . Not one vehicle. Anywhere in the country.”
The measures didn’t affect the meager means of most Brazilians, but it tied up the deposits of the wealthier people who buy most of the cars. “The middle to upper class are the only ones who had savings, the only ones who have money anyway to buy cars. Those are the demographics of this country--that’s just the way it is. About 7% to 8% of the people buy all the cars.
“Their money was locked up, frozen, in all forms, whether it was overnight or regular savings. However they had it, it was locked up. And we have a discretionary product. You can put off purchasing that.”
It did not take Stone long to decide what had to be done.
“You can’t just keep building inventories and put them out in yards, you know, big fields. One week after, we just shut the plants down.” It was the most complete shutdown ever of General Motors’ two factories in Brazil. About 15,000 of the subsidiary’s 23,000 employees were on furlough for 35 days.
“We wanted to keep our work force together if we could, not knowing what to do, other than knowing you can’t keep building cars. So we just sent them out on a paid leave.”
With no sales, the Brazilian subsidiary is being forced to borrow operating funds in order to scrape by. Interest rates have dropped since March, but they are still high by American standards, so it is a painful decision.
“You’re looking at your projected sales for the next few months, and it is a definitely depressed, lower level than where you were before. It is not enough to take care of all our product programs and everything we have coming, so how much do you borrow, how deep can you go in?
“Can you just keep borrowing money, keep the business going, without maybe the chance that you can pay off those borrowed funds?”
The answer is an obvious no. So Stone is now putting some employees on early, collective vacations while others resume production at a reduced rate.
“We will use collective vacation for one shift. We’ll try that, maybe alternate the shifts. Maybe work the first shift for two weeks, then work the second shift for two weeks. And while they’re off they will be taking their collective vacation.
“So that will allow us a little more time at about a 50% level to analyze and see which way the market is going to go before we probably will have to make some major readjustments in our work force.”
That means unpaid layoffs aimed at reducing costs in proportion to the expected reduction in sales. Future supply orders as well as payroll will have to be adjusted to the level of expected sales.
“Our supply chain is very long, it’s very complicated, and you just can’t turn it on one day and off the next. . . . So you’ve got to have some plans.”
The problem is that no one is sure how economic conditions will unfold.
“In this last few weeks I’ve had a few sleepless nights. You just think of the consequences sometimes that could happen and that you’re going through. Your revenue stream is dried up. Then you have to get into--well, are we going to be at a 30% level of original revenue or are we going to be at a 50% level?”
Despite his problems, Stone did not criticize Collor’s anti-inflation plan.
“If you can detach yourself, which is very difficult for me right now to do, but I mean strictly academically, theoretically. You look at this plan, and I applaud it, I just absolutely think it was super the way it was conceived and put into effect.
“But then you get back to where we are today. It’s really taking some terrible deep gouges into our business, as it’s doing with everybody.”
Before the Collor plan, when inflation had reached more than 70% a month, General Motors and other automotive companies were selling cars at a rapid rate. Inflation was actually an incentive to buy.
“It really worked,” said Stone. “Buy it now, because you know it’s going to be more expensive in one more month. So it’s kind of a psychology that actually worked in our favor.”
The inflation played havoc with accounting, however. To receive government authorization for price increases, companies had to verify costs, but those were rising so fast that it was almost impossible to keep track of them accurately, Stone said. “It was very scary. It’s like when we used to think when planes would hit the sound barrier, what would happen, would they blow up?”
Stone, who previously was president of GM’s Mexican subsidiary and vice president for materials management in Detroit, has held his current position for three years. He and his wife, Carley, live in Chacara Flora, a luxury suburb of Sao Paulo. He also has a farm about 75 minutes from the city. “So I head there for the weekends when I don’t play golf with some of my compatriots.”
Stone said he sometimes misses the more stable business conditions of the United States--and even the days in Brazil when hyperinflation was the worst he had to cope with.
“I’d give anything to be back where we were two months ago.”
Brazilian Automobile Sales
Factory sales of passenger cars. Total 1988: 557,729 Total 1989: 566,966
Source: Ward’s Communications, Inc.
