Can Stempel Get GM Back on Right Road? : Automobiles: As the company finishes up its worst year, doubts surface about the man many had hoped would save the company.
When the unpopular autocrat Roger B. Smith handed over his keys after a tumultuous 10-year reign as chairman of General Motors last year, there were tremors from the cultural bedrock of a corporation that is arguably the most important barometer of American competitiveness.
The man who took the wheel was Robert C. Stempel, Smith’s polar opposite in personality and a respected figure among GM’s 750,000 troops. The earnest engineer and advocate of “teamwork” management, supporters said, had the credibility it takes to drive change deep and far.
Stempel, 58, could thus exploit the beginnings of a quality gospel, a liberated corps of engineers and designers, improving manufacturing skills, a new labor-management “jointness” and other developments that had cropped up even as GM’s competitive position collapsed under Smith.
Unfortunately, the timing was awful and the company’s bottom-line direction has been straight downhill. The Stempel team is leading GM to the worst financial showing in its storied 83-year history. And now, the teamwork mantra that won Stempel praise is being interpreted by some as a lack of leadership.
In an action criticized as long overdue, Stempel last week signaled that the company on Wednesday will announce major cutbacks--an expected round of plant closings and wholesale job reductions that will remake GM into the smaller entity that its shrunken market role suggests.
But GM’s unusual action--announcing that it would do something, without saying what--underscored Wall Street’s perception of GM as drifting in the face of its deteriorating condition.
Whatever GM announces this week, it comes too late to avert the year’s record losses, one downgrading of the company’s credit rating and threat of another, and disruptive rumors--now denied--of imminent executive bloodlettings.
Moreover, the perceived delay in confronting its financial hemorrhaging badly complicates any hopes GM had of getting labor-cost relief from the United Auto Workers, whose officers face reelection next June and might see any concessions to GM as political suicide.
“Stempel lost the opportunity do it on his own terms,” says Maryann Keller, analyst at Furman, Selz Inc. in New York and author of “Rude Awakening,” a 1990 book on the company. “GM needs a Pied Piper up there who can send a clear simple message.”
Says a consultant with a close-up view of GM over the past decade: “Roger had his warts, but Roger was the boss. I see the first signs of disappointment that Stempel hasn’t been a strong leader.”
Such ruminations perhaps say less about Stempel’s approach than about the depth of the predicament he is trying to fix. Stempel took over the unwieldy enterprise one day before Iraq invaded Kuwait, unleashing the worst set of economic woes that the U.S. auto industry has faced since Iran revolted in 1979.
A lingering recession, brutal price competition, the Japanese onslaught and GM’s own underlying weaknesses have caused a spectacular display of red ink. The nation’s biggest industrial company, with annual sales of $120 billion, is careening toward a loss this year of more than $2.5 billion.
GM was for decades both symbol and proof of American economic supremacy and inventiveness. It came to own more than half the U.S. auto market (and a good chunk of Europe’s), and its enormous needs for everything from steel to technology to advertising created and sustained an inordinate share of the nation’s output.
But in the 1980s, as Japanese quality and efficiency rose to the fore in industry after industry with painful domestic effects, GM became just as emblematic of a nationwide decline in manufacturing expertise and of the struggle to rise once again.
First under Smith, then Stempel, the gargantuan company has been battling to break free from what were diagnosed as inefficiency, complacency and a notoriously insular culture that had combined to turn its hard-won economies of scale into a logistic monster.
The controversial and ironfisted Smith ended a tradition in which the world didn’t know or care who was chairman of GM. The radical amputations and transplants he performed on the company finally led to the wrong sort of immortality for Smith as the involuntary star of the satirical film, “Roger and Me.”
Now the evenhanded, publicity-shy Stempel is trying to change the top-down character of the signals sent from the 14th floor of the GM building in Detroit.
But complaints of lack of leadership range from the substantive--such as the reluctance to close more plants and a perception that Stempel has backed down from hard-liners at the United Auto Workers union--to an almost comical insistence on sharing public platforms with as many fellow executives as he can round up.
Even Stempel’s public relations man believes that this teamwork stuff may have gone a little too far.
“Bob’s sense is that Roger was so leader-focused that he’s deliberately going the other way,” says James B. Fitzpatrick, GM’s vice president for communications and marketing.
“We need teamwork and we need leadership. On a spectrum where leadership is at one end and teamwork is at the other end, the organization would like to see him about in the middle. I’ve talked to him about it . . . I think you’ll see him move that way . . . Bob has every attribute of leadership except the desire” to exhibit it.
Coming in the wake of a decade that saw GM lose 12% of the U.S. auto market and lop off 230,000 jobs, the company’s massive financial losses have stunned observers.
They have occurred despite record car earnings in Europe and strong profits at its multibillion-dollar financial, computer and aerospace subsidiaries. GM’s core business of building and selling cars and trucks in North America is in the pits.
The problem goes deeper than the weak economy, which has driven all U.S. auto makers into the red. There are also spiraling labor and health care costs, relentless Japanese competition and, Detroit’s brass complains, regulatory costs and international trade inequities.
But although GM has the resources to survive, students of the auto industry say it has made less progress in rejuvenating its massive self than either Ford Motor Co. or Chrysler Corp. since Detroit’s collapse of the early 1980s.
GM’s biggest and most readily fixed problem, says Standard & Poor’s Corp., the credit-rating agency poised to downgrade GM’s credit-worthiness for a second time in a year, is that GM still has too many factories. It can build at least 1.3 million more cars and trucks than the 5.1 million it is expected to sell next year.
But decisions on car-building capacity go to the heart of how GM perceives its future. As such, it was the focus of an internal flap last summer after a top executive, J. T. Battenberg III, seemed to suggest publicly that GM was resigned to losing money in North America until it captured 40% of a 15-million-vehicle-a-year market.
As GM now has just 35% of a 12.5-million-vehicle market, the implication that the firm would merely wait around until things got better sent shock waves through the investment community. Stempel complains that news reports mangled Battenberg’s comments.
“That is unequivocally false!” Stempel thunders in an interview. “Obviously, you have to run the operation to be profitable wherever the market is. Obviously, we have to batten down our hatches to get our costs in line.”
Because Stempel holds to his goal of running his plants at 100% of capacity by the end of next year, that means more plants must be closed, he concedes. After that, the trick is to be able to boost production if sales climb, which GM hopes to do by persuading the UAW to agree to implementing third work shifts at some plants.
Yet GM must struggle even to close plants, a testimony to the burdens of an inflexible manufacturing system that typifies GM’s woes.
For example, GM is saddled with the assembly-line legacy of its star-crossed W-body program, a line of mid-sized cars that was so late reaching the market in the 1980s that competition from Ford and the Japanese slashed sales to less than half of what GM expected.
The more than seven-year gestation of the Chevrolet Lumina, Pontiac Grand Prix, Oldsmobile Cutlass Supreme and Buick Regal pointed up so many structural and managerial problems in the GM system that it is now viewed as “a watershed, a symbolic low point,” says David Cole, son of a former GM president and head of an auto industry think tank at the University of Michigan. “Everything since then has gotten dramatically better.”
But they’re still stuck with those W-body plants. And the factory technology is so specific to each similar model that, today, GM is forced to keep four assembly lines running at half capacity to supply dealers with the right nameplates. Two of the four W-body plants are now strong candidates for closure.
Such inflexibility was a way of life at what remains the world’s largest auto producer. Peeking under GM’s skin, as a small army of consultants and internal trouble-shooters has done for a decade, is a little like peeling back the layers of some state-owned steel company in Eastern Europe.
But the company is identifying problems and fixing them.
GM recently calculated, for instance, that it has been using about 2,400 different types of wiring connectors in the hundreds of types of auto products it makes. It is reducing the total to 250. Likewise, it is cutting the types of starter motors it uses from 24 to six, and the number of engine “families” from eight to five.
“They lost their economies of scale by proliferation and a lack of discipline and coordination,” says Cole. “You have to inventory 24 kinds of starter motors, and there is no customer value in that.”
Stempel has already announced the closing of six assembly plants, including GM’s sole remaining California assembly plant in Van Nuys. Since 1986, GM has shuttered 20 plants. But by some estimates, even with the announced closings and a sales recovery next year, GM will produce at only 80% of capacity. That suggests at least four more assembly plants would have to be padlocked.
The deep-voiced, 6-foot-4 Stempel, who played football at Worcester, Mass., Polytechnic Institute, might have been able to restructure GM with his bare hands. But his diminutive predecessor already did the grand strokes, wiping out two huge operating bureaucracies, lumping its five car divisions into two mega-divisions, buying Electronic Data Services, Hughes Aircraft, Lotus and half of Saab, and creating Saturn, GM’s first new car division in 73 years.
Stempel’s ambivalence about the public eye is more than a reaction against Smith’s style. It dates to 1975 when, in a frightening incident he still refuses to discuss, his 13-year-old son was kidnaped. Stempel paid $150,000 ransom, and the boy was released unharmed. Two men were later convicted.
A career GM engineer, he headed Pontiac, GM Europe and Chevrolet before being put in charge of the new Buick-Oldsmobile-Cadillac division created by Smith’s reorganization in 1984. He was made president three years later.
Stempel distinguished himself at the time by rejecting the proposed traditional, centralized structure for the new BOC Division. That he survived such obstinacy was itself evidence of new thinking at GM, company insiders say.
Attracting talent from the old Pontiac Division, an early center of fresh thinking at GM and the first to lure the legendary quality expert W. Edwards Deming to GM in 1981, Stempel built BOC into a team-oriented division of the sort he now seeks to create company-wide.
Stempel’s embrace of such ideas as chairman is, for the first time, turning them into corporate policy, his supporters say. That is some leap from the 1980s, when the theories of other quality consultants competed--and conflicted--with Deming’s around the maze-like GM bureaucracy.
Already, virtually all quality indicators suggest that GM’s cars have improved sharply, especially at Cadillac and Buick. Two models, the Buick LeSabre and Oldsmobile 88, even came to market early this year as GM gives birth to a steady stream of all-new cars. Enthusiast magazines, such as Car and Driver, praise the styling. And the new Saturn subsidiary, though hemorrhaging money, is producing $10,000 cars that rank with luxury imports in customer satisfaction surveys.
“I think GM is making tremendous progress,” says H. Ross Perot, the outspoken Texas billionaire who was kicked off GM’s board in 1986 after tangling repeatedly with Smith. “I just wish they had a better environment in which to do it. It’s like trying to farm without rain.”
Indeed, the economic downturn and massive losses might be working against such progress in GM’s all-important relationship with the UAW. The union’s GM department is headed by Steve Yokich, a hard-liner who has voiced strong doubts about the cooperative ties forged between labor and management in the 1980s and is angry about the plant closings.
Despite a rich labor agreement signed in September, 1990, that significantly broadened the safety net for UAW workers who lose their jobs--and jacked up labor costs by 13%, nearly twice the expectation--GM has seen a string of damaging local strikes and nasty confrontations between Yokich and President Lloyd Reuss.
UAW officials who oppose the militant approach accuse Stempel and Reuss of failing to stand up against Yokich. Says one: “It just shows poor leadership on the corporation’s side of the fence. If a bully slapped you once, and you didn’t slap him back, he’ll keep slapping you all day long.”
But Stempel argues that the extra income security for workers has kept quality from declining as it has in past recessions. He adds:
“You can’t buy happiness. Any time you’re going down in a market like this and you’re having to use euphemisms like consolidate, improve productivity, rationalize, those are words that turn Mr. Yokich off. He’s out to grow the business, build new plants, improve union membership. Nobody said it’s going to be easy, and so Mr. Reuss a couple of times had to go to the table with Mr. Yokich and it has been very tough.”
GM could reap major benefits--and presumably preserve jobs--if the union would agree to a slimmer package of layoff, health care or other payments set out in the 1990 labor pact. But such relief would have been an easier sell months ago, when the pending UAW elections were farther away.
“The company’s timing is very, very bad,” a union official says.