GM Has Future if It Embraces Age of Information

The big question about General Motors is will its current program of closing plants and cutting jobs--11 plants and 16,300 workers in the latest announcement on Monday--return the company to profitability and give it a confident future? Or is it one more rearrangement of deck chairs on the Titanic?

The reference to a sinking ship is not merely rhetorical. The world’s largest automobile company announced a $4.5-billion loss for 1991--following a $2-billion loss in 1990. The company lost an average of $1,600 on each car and truck it sold in North America last year, and no organization can go on doing that. Chairman Robert C. Stempel has declared publicly that GM’s situation is critical.

So it’s good news, not only for Detroit but for a lot of U.S. industry, that GM’s return to profitability looks fairly predictable. Its continuing program of capacity cutbacks, which will close 10 more plants and cut a further 58,000 in staff by 1995, should help dry up a glut of cars in the North American market.

And the likelihood of price increases by Toyota, Honda and others, because they need to increase profits and because, politically, they may want to ease the pressure on U.S. car makers, should allow GM to reduce the heavy rebates it now gives to move its merchandise. GM could be in the black by the second quarter.

But the more important question is whether GM can stop reeling from one crisis to another and have a confident future.

Here, the experts are guardedly optimistic. “They’re starting to make the right moves,” says Maryann Keller, analyst with the investment firm Furman Selz Mager Dietz & Birney and author of “Rude Awakening,” a book about GM.

“I was glad to hear Stempel say they’re going to reconfigure the product line,” says Keller, noting that GM has 19 separate car styles, more than any company could produce profitably.

Analyst Joseph Phillippi of Shearson Lehman Bros. approves of Stempel’s plan to simplify GM’s structure, from one in which designers, engineers and production people were grouped in brand-name divisions--Buick-Oldsmobile-Cadillac and Chevrolet-Pontiac-Canada--to one bringing them together to work on cars of similar size or price. “That’s how the Japanese do it, and how Chrysler does it,” says Phillippi.

Why is that important? Because GM’s present organizational maze has prevented it from delivering cars to market in a timely fashion, the way Toyota and Honda seem to do so effortlessly.

Organizational details may sound boring, but they’re not. At GM they reveal the costs of human folly, and the implications of the information age--so the car company stands as an example for all business people struggling to cope with a changing world.

GM first reorganized its five brand names into two divisions in 1983, in an attempt to increase efficiency and meet insurgent competition from Japan. Also, in the early ‘80s, GM invested $40 billion in robots and other high-tech tools.

But the reorganization became a game of musical chairs as executives fought for turf. GM has 14 layers of management between the worker on the line and its heavily carpeted top offices, and as a consequence very little useful information gets through but a lot of operations get gummed up. GM’s factories never did achieve the efficiencies promised for its high-tech equipment.

So it has fallen behind. Japanese companies, and Chrysler too, have developed the ability to go from initial design to production of a new model in 3.6 years. They have done it by paring down their organizations, using fewer people and a lot of computer software to cut time and costs out of the process. Meanwhile, GM takes 5.2 years to go from design to finished product, so it has higher costs than any other car manufacturer, Japanese or American.

Equally important, GM’s competitors can get closer to the customer with changing styles and features. Toyota and Honda are updating their entire product lines in the next three years; GM can’t do that.

And that could be a big problem as car makers compete for aging baby boomer customers who are ready now to buy larger, more comfortable and expensive cars. GM once ruled that segment of the market, but does so no longer.

Meanwhile, the competition may soon move up to warp speed. In Japan, Toyota is trying to bring the power of information to automobile distribution and marketing. Using rapid communications and computers on production lines, it can now make small changes in standard cars for 32% of its customers and deliver within seven days. And for 4% of its customers it can customize a car at no additional cost and deliver within three weeks.

The experiment is at an early stage, but the implications are awesome for meeting individual customer needs and for reducing the expense of dealer inventory.

Yet Toyota may not have been first to have the idea. GM’s retired chairman, Roger B. Smith, said years ago that car selling would go computerized one day. But it’s hard for ideas to get anywhere in an organization with 14 layers of management. That’s why GM has to change.