PERSPECTIVE ON GENERAL MOTORS : Protecting Bloat at the Top : Fault for the horrendous GM cutbacks lies with its overpaid executives, but ordinary workers are paying the price.
General Motors produced its biggest lemon ever last week. The giant automaker announced the closing of 21 plants in North America and the loss of more than 70,000 jobs by the mid-1990s. The number of GM workers left will be half of those laboring in 1985.
This shrinkage occurred after a decade in which GM executives identified four scapegoats and obtained what they wanted: lower government taxation, government deregulation, quotas on Japanese imports and concessions from the United Auto Workers.
Nonetheless, GM’s North American operations are now losing $500 million a month. Since Japanese companies are making good profits in their U.S.-built factories, employing American auto workers, the search for the cause of GM’s troubles must focus on GM’s top management, led by Roger Smith, the company’s strong-willed, sharp-tempered boss during the 1980s.
Smith, who retired in 1990, started the decade with a boast. He was going to invest $40 billion by 1984 to modernize GM factories and capture 70% of the market for domestically made motor vehicles. In 1980, GM sold 62.6% of all U.S.-manufactured cars and held 45.9% of the combined domestic and import market.
Smith did spend the $40 billion to automate the machinery; but he spent little and unwisely to improve the quality of GM cars. He also spent freely for ads and lobbyists against any attempt by the government to modestly advance safety, fuel efficiency, pollution control or bumper standards--all of which meshed with polls showing that motorists want to protect the environment and their safety, along with lower operating and insurance costs.
Smith also turned Adam Smith upside down by regularly raising auto prices while his auto sales declined.
When he retired in August, 1990, Roger Smith presided over a troubled corporation with just 36% of the total U.S. car market. He lost market share not just to the Japanese but also to Ford and Chrysler. GM lagged behind both companies in installation of air bags, a life-saving device that Smith opposed strenuously for 10 years, and even fell behind in car styling.
For such performance, Roger Smith was rewarded with an increase in his retirement pension from $700,000 a year to $1.2 million a year. Every 16 days, in retirement, Smith makes what an auto assembly-line worker, if he has a job, makes in a year.
The corporate go-go years of the ‘80s brought enormous financial rewards for massive management failures. Smith exemplified this perverse, reverse incentive. He made more than four times what the heads of Nissan and Toyota made in those years.
In the meantime, GM workers’ wages were essentially flat, when adjusted for inflation. Indeed, GM management demanded concessions from workers, intimating that anything else would close down the plant, and demanded property tax concessions from towns and cities where their plants were located, thereby placing school, fire, police and other budgets under tighter pressure. In 1985, GM’s new Poletown plant in east Detroit extracted $350 million in local, state and federal taxpayer subsidies and then employed only half the workers the company had promised to hire.
The big GM cutbacks announced this month did not include the jobs of any top executives or any cuts in their fat salaries. To top off the bungling and connivance, GM’s present bosses did not, for the most part, name the plants they will close. It only gave the workers and public the number of plants that will be shut down. The final decision on which plants are to be shuttered will come around February.
Why did GM foment such tension and agony for tens of thousands of families during and after the Christmas holidays? Because GM’s current CEO, Robert Stempel, and his associates knew that what was going to happen was what the Wall Street Journal described as an “economic free-for-all, pitting worker against worker, community against community and the United States against Canada.” More property tax abatements, relaxation of rules in Canada on pension-fund payments, and worker concessions at various plants are being proposed by worried workers and municipalities.
Of course, GM’s Stempel denies that that is what GM had in mind. “We aren’t in the process of whip-sawing.” Sure. And when you floor the accelerator of your 1992 Cadillac, Mr. Stempel, you don’t expect it to lurch forward, either.
Given GM’s chronically stubborn and imperious management, it isn’t a surprise that the company is in trouble and needs to be reduced in size. But the way the company’s executives did it shows than nothing has really changed the deviousness and double standards at the top of GM.
Donald Frey, the former chief executive of Bell & Howell, put it best in reacting to the announced cutbacks: “Stempel’s got bureaucrats in all places and all levels doing the same damned piece of business in their office (that they’ve done) for 30 years.”
