Heavy Losses Mask GM’s Global Potential
The thing to keep in mind about General Motors’ numbing announcement last week that it would close up to nine plants and write off $2 billion: It is a symbol and a call to arms.
It is a symbol of past failure in the modern global market from which Americans as consumers have received much bounty in reasonably priced products and services.
And it is a call to arms, a declaration that the future won’t be like the past, because Americans have also suffered in the global market as they have watched U.S. industries retreat and cut back.
GM is closing plants that no longer serve a purpose because they were built for a time, 10 to 20 years ago, when the company held over 50% of the U.S. car market. Now it holds 36%, while foreign manufacturers have gained more than a third of U.S. car sales. Japanese manufacturers alone hold 29%; in the last nine years they have built a new, car-producing industry in the United States larger than the auto industries of Britain or Italy.
The picture goes beyond cars. There used to be five U.S. tire makers in Akron, Ohio. Now there is one, Goodyear. Similar patterns can be cited in machine tools, videotape, consumer electronics--U.S. companies sounding retreat, U.S. workers worrying about their jobs.
Yet those patterns may be yesterday’s news. After a decade of global commercial warfare fought almost solely on American soil, the battles are moving elsewhere. The 1990s will see restructurings of European and Japanese companies.
And U.S. companies, after a decade of adapting to global conditions, may have the advantage of seasoning in battle--including small U.S. manufacturers who now get 18% of their business overseas compared to less than 5% a decade ago.
It didn’t make headlines over here, but Philips NV of Holland, one of Europe’s largest companies, recently announced that it was laying off 45,000 people. The French tire maker, Michelin, suffering a severe decline in profits, announced a restructuring that will lay off thousands in France and hundreds in South Carolina, its U.S. base.
Japanese companies are not immune. Auto analysts suggest that at least one of the Japanese car ventures in North America will fail for lack of sales--probably the Subaru-Isuzu joint venture in Lafayette, Ind. The Japanese tire maker Bridgestone is taking heavy losses in Europe, cutting prices to buy its way into a market led by Michelin and Goodyear.
What such layoffs and losses demonstrate is that the global market is a demanding customer. Economic benefit occurs but industries are rearranged in a game of survival of the fittest.
The shakeout in tires, for example, began with a technological improvement, the invention of the longer-lasting radial tire, and competitive survival has depended on companies developing better tires and lower-cost ways to manufacture them. The result for consumers has been better products selling today at lower prices than a decade ago.
Goodyear has retained its leadership in North and South America and solid positions in other markets by increased investment and sheer competitive effort.
Other U.S. companies, including quite small ones, have survived the same way.
“There were 4,000 U.S. auto parts suppliers a decade ago; now there are 2,000,” says Chairman Robert Navarre, of Simpson Industries, a Birmingham, Mich., maker of precision machined parts. “The business is more demanding today,” Navarre explains, because the auto makers have put the burden of innovation on suppliers. And that has meant big investments in equipment and R&D; for his company.
The payoff is that the company’s business is stronger and more diversified. Simpson Industries now supplies GM’s new Saturn venture and several Japanese car makers. Meanwhile the cash payoff is still a “a few years out,” says Navarre, “but it will come.”
Investment and the global market likewise expanded the horizons of Plumley Cos., a Paris, Tenn., auto supplier. Chairman Harold Plumley invested to meet the higher standards of Ford’s quality program in the early 1980s and now his $70 million sales company has won new business in Frankfurt, Germany, supplying Ford of Europe--as well as new business back home from Nissan in Smyrna, Tenn.
More than auto suppliers are alert to global possibilities. Multiplex Co., a St. Louis-based maker of beverage dispensers for restaurants is doing wonderfully in overseas markets. It has been selling abroad for 12 years, explains Chairman J. Walter Kisling, and now has its biggest growth market in the Soviet Union--because it supplies McDonald’s.
Those are small victories. What do they mean? That winning is better than losing. Expanded horizons create opportunities for employees. Investment and profits create wealth throughout the U.S. economy.
But small victories often depend on big customers. And that’s where GM’s call to arms comes in. Can the giant car maker recover and grow?
It is certainly capable of winning in global markets. GM used to lag in Europe but has devoted 20 years to improving operations there. Now it is gaining market share everywhere in Europe, even against Volkswagen in Germany.
And GM is determined. It has invested $3.5 billion to create the new Saturn car, which it will sell at low prices to attract first-time buyers. The investment may not show a cash profit for 10 years.
But if GM never again has to pay $2 billion in benefits to employees losing their jobs, the Saturn will be the company’s most productive investment in years.
