GM Chairman Stempel Resigns Under Pressure
The curtain fell on an era at General Motors Corp. on Monday when Robert C. Stempel, 59, saying he hoped to end the “chaos” engulfing the world’s largest company, resigned as chairman and chief executive under intense pressure from the board of directors.
But the disarray promises to continue as dazed employees look over their shoulders and the board, trying to undo decades’ worth of mistakes that have driven GM into deep financial trouble, scramble to line up a new management team for the $123-billion-a-year company.
It was the bloodiest episode in Detroit’s auto boardrooms since Henry Ford II fired Lee A. Iacocca from the presidency of Ford Motor Co. in 1978. But the Stempel move carries a historic industrial significance that the bitter Ford-Iacocca feud lacked.
The first such beheading at GM since founder William C. Durant was fired twice, in 1910 and 1920, Stempel’s departure marks a passage of sorts for a once-dominant company struggling to reinvent itself in the new global economy.
Stempel said he was resigning both posts immediately, but the board asked him to stay until his successor is named. That is expected within days, perhaps at next Monday’s regular board meeting in New York.
The most likely scenario has GM’s president and chief operating officer, John F. Smith Jr., assuming the CEO’s title and John G. Smale, retired Procter & Gamble chairman and leader of a group of GM directors aligned against Stempel, becoming chairman.
Another strong possibility for the chief executive’s post is William Hoglund, former head of GM’s Saturn Corp. That would leave Smith free to continue focusing on the North American car and truck business, the source of virtually all of GM’s woes.
Stempel’s departure has seemed a foregone conclusion since Thursday, when Smale, rather than denying rumors in the news media, all but confirmed the board’s intention to replace him.
Many expect additional changes in the second tier of management, but analysts expect no drastic change of direction at GM. They predict instead an acceleration of efforts already under way to hack away at the company’s bloated middle-management ranks, to change attitudes, close plants, slash costs and develop new cars and trucks more quickly and efficiently.
But they will also face the task of leading a shellshocked work force of nearly 400,000 North American employees now being subjected to their second reorganization in seven months, capping nearly a decade of tumultuous but ineffective attempts to change GM at its core.
On Monday, Stempel said he was resigning because “I cannot in good conscience continue to watch the effects of rumors and speculation that have undermined and slowed the efforts of General Motors people to make this a stronger, more efficient, effective organization.”
“I went to a GM-UAW meeting the other day and came away so disheartened, because all these people are on tenterhooks,” said Douglas Fraser, retired president of the United Auto Workers.
A manager in one of GM’s car divisions said Monday that “this whole company is paralyzed.”
Stempel’s authority has been diluted since a board uprising in April, when the faction led by Smale forced the demotion of Stempel’s handpicked president, Lloyd E. Reuss, and installed Smale in place of Stempel as head of the board’s key executive committee. Hoglund was elevated to chief financial officer.
Smith, the new president, has since been running GM’s day-to-day operations. Stempel has been all but paralyzed in his post two weeks after unchallenged news accounts that the board wanted him out. He was briefly hospitalized with high blood pressure on the day of the first such report.
The biggest and once the best of Detroit’s Big Three auto firms, GM now brings up the rear in both financial and strategic competitiveness. The company lost a staggering $4.45 billion last year and is expected later this week to report an $850-million loss for the third quarter.
More ominous is the fact that GM is losing market share this year despite a falloff by Japanese auto firms, serving up extra business to domestic competitors Ford and Chrysler Corp.
Though many observers argue that Stempel was changing GM in fundamental ways for the better, “he was a symbol of what GM had been historically,” said David Cole, head of an auto industry think tank at the University of Michigan.
The son of a New Jersey banker, Stempel, who played football at Worcester, Mass., Polytechnic Institute, is a career GM executive who was the first engineer to hold GM’s top post. All the others have been financial executives.
An affable but publicity-shy man whose emphasis on teamwork brought complaints that he wasn’t enough of a leader, Stempel headed GM’s Pontiac and Chevrolet divisions, its European operations and one of two mega-divisions created in an ill-fated 1984 restructuring before being tapped as chairman in 1990.
It was the confusion and inefficiency caused by such restructurings in the 1980s under then-Chairman Roger B. Smith that drove Stempel to approach GM’s problems more methodically--a strategy now repudiated by a board that expected a return to profitability this year.
The day after Stempel took over, Iraq invaded Kuwait, unleashing economic events that triggered the second industrywide crisis in Detroit in a decade. But while Ford and Chrysler responded nimbly, forging fundamental change in operations, Stempel seemed unable to drive home a sense of urgency to mid-level employees, say analysts and some GM workers.
This lack of urgency was reinforced by the company’s failure, a year after announcing it would close 21 plants and eliminate 74,000 jobs, to decide which plants to close. A similar message has been heard by the technical staff.
“I recommend manufacturing changes, and the mid-level manufacturing people ignore me,” an engineer assigned to a GM assembly plant said Monday. “The people at the top say: ‘Do it,’ but the people in the middle don’t get it.”
Despite scattered successes, such as Saturn Corp. and its Cadillac division, GM remains so inefficient that a study by manufacturing consultants Harbour & Associates this month concluded that it costs the No. 1 auto maker $795 more to build a car than Ford.
But Stempel remains remarkably popular and well-respected for an executive who has overseen the worst fiscal losses in U.S. corporate history and ordered the elimination of so many jobs. GM’s problems will take many years to fix, most agree, and he was moving in the right direction.
He was seen as the scapegoat for the unrealistic demands of a faceless board of directors, themselves guilty of inaction for many years, who used “management by rumor, news leak and innuendo” to cut Stempel off at the knees, in the words of UAW President Owen Bieber.
Everyone from the UAW to presidential candidate Ross Perot, a controversial former GM director who was at odds with the rest of the board in the mid-1980s, praised Stempel on Monday and decried the prospect of the board running the company.
“Bob Stempel is a wonderful man and a great engineer, but he stepped in when most of the damage was done,” Perot said Monday in Dallas. “The one thing that is not acceptable is for the board to try to run the company. I know the board.”
The Detroit Free Press blasted the board’s outside directors in its editorial page over the weekend for having left Stempel “twisting in the wind” ever since the Washington Post reported that his days were numbered.
“Stempel did the manly, responsible thing,” said Prof. David Lewis, an auto industry historian at the University of Michigan. “My criticism would be of the board for not issuing a straightforward explanation of what was going on. It symbolizes the confusion at General Motors.”
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