General Motors Fills 2 Posts in Continuing Executive Shake-Up
The aftershocks from General Motors Corp.’s unprecedented management shake-up continued Tuesday as the world’s largest auto maker named a new chief for its highly successful European subsidiary, which has become a model for its ailing U.S. operations.
GM said Louis R. Hughes will fill the hole left by Robert Eaton’s defection to Chrysler Corp. last month. In addition, Robert W. Hendry, managing director of GM de Mexico, was put in charge of financial affairs for GM’s North American operations, a new position. He will report to new President John F. Smith Jr.
Hughes’ appointment takes on special significance as the auto maker’s U.S. arm turns increasingly to its European counterpart for pointers on how to become profitable. While GM lost a staggering $9 billion selling cars in North America last year, GM Europe made $1.8 billion on its Opels and Vauxhalls.
The company hopes that Smith, 54, who is credited with rescuing Europe from its money-losing years in the early 1980s, will work the same magic in North America. In a statement Monday, GM said the upheaval in its executive suite will “promote the adoption of techniques which have proven so successful for GM’s international operations.”
If that does not work, analysts speculated Tuesday, Chairman Robert C. Stempel could lose his job.
GM Europe’s success has not gone unnoticed across the ocean. Stempel, Smith and Eaton, three of the four men to head the company’s European operations over the last decade, are now top auto executives in the United States. Eaton will take over when Chrysler Chairman Lee A. Iacocca retires at the end of this year.
But analysts question whether the strategies that have worked so well for GM overseas will have the same effect in its intensely competitive home market.
“They haven’t had to suffer the massive Japanese inroads into their market share, rendering their capacity underutilized over there,” said Michael Bowyer, auto analyst with Duff & Phelps/MCM Investment Research Co. in Chicago. “To be in the shape in North America that they are in Europe, GM has to be better here.”
GM Europe is smaller and simpler than its North American parent. With 12.2% of the European market, GM sold a record 1.7 million cars and trucks last year--only 40% of the 4.3 million vehicles sold in the United States. And while corporate headquarters in Detroit keeps track of six brands, GM Europe’s headquarters in Zurich handles only one.
Still, analysts agree that there are lessons to be learned from the leaner and more productive operation that has become the market leader in eastern Germany, Belgium, Holland and Switzerland.
While labor agreements in the United States have hampered GM’s ability to close plants and reduce costs, flexible labor arrangements in Europe made GM the first car company on the continent to initiate a three-shift work schedule. As a result, it was able to consolidate its two Belgium plants into one, where it now produces the same number of cars that it used to produce at both together.
And with just 200 people at its Zurich headquarters, GM Europe allows its scattered subsidiaries near-autonomy in day-to-day operations, making for far less bureaucracy and faster decision making than is possible in the encumbered U.S. management system.
“Basically in Europe they acquired a company and then left it alone to run itself,” said William Ouchi, professor of management and strategic studies at UCLA’s Graduate School of Management.
The cost savings from operating assembly plants more efficiently and paring down layers of management have enabled GM Europe to spend more on product development, which has helped the subsidiary sell twice as many cars last year as it did a decade earlier. In North America, GM recently postponed the development of much-needed new products for lack of financing.
GM’s recent creation of a North American strategy board similar to the one that helps streamline decision making in Europe is an attempt to translate Europe’s less centralized management system to the United States. Closing plants and persuading the United Auto Workers to adopt the more efficient three-shift system are also high on its list.
A little boost from the volatile forces of the economy, which has looked kindly on GM’s European operations in recent years, also wouldn’t hurt.
“They have benefited from being domiciled in Germany,” analyst Bowyer said. “That wasn’t any great insight on GM’s part--they just lucked into it.”
Economic recovery or not, GM’s Stempel must manage a fast turnaround at GM if he expects to keep his job much longer, analysts said.
“The board’s actions couldn’t allow this guy to sleep comfortably at night,” Bowyer said. “If I were him, I would not be too secure.”
GM’s board of directors Monday stripped Stempel of his role as head of the board’s executive committee, installing an outside director in his place. The board also replaced Stempel’s hand-picked president, Lloyd Reuss, with Smith, the company’s vice chairman and head of its international operations.
Stempel, who has been criticized for dragging his feet on plant closings and trimming GM’s white-collar ranks, will likely be pushed to do both more quickly.
“Clearly what’s going on here is that the board has said to Stempel, ‘You’ve got to get tougher. You’ve got to get really tough,’ ” said Joseph Phillippi, auto analyst at Shearson Lehman Bros.
Whether GM’s latest shake-up will help transfer to North America the techniques that have worked so well in Europe has yet to be seen. What appears certain is that more shake-ups are on the way.
“If you thought GM was just about done reshaping itself, you’ve got a surprise coming,” Ouchi said. “The baton has just been passed to a new fresh runner, but the race is a very long one.”
