COLUMN ONE : GM Saga a Lesson for America : If the firm can reform and recover some of its luster, it will make a larger statement about how the United States can solve some of its own massive and complex problems.

It was forty years ago when the late Charles E. Wilson, then president of General Motors Corp., told Congress that “what is good for the country is good for General Motors and what is good for General Motors is good for the country.”

Wilson was criticized at the time for making such a brash assertion. But the sentiment, to a large extent, remains true today, even as GM turns another page in its recent sad saga.

GM matters. Its size alone--$123 billion in total revenues and more than half a million employees in the United States (781,000 worldwide)--make it important to the livelihoods of millions of people in dealerships and supplier firms everywhere.

But the company’s symbolic importance goes far beyond money and jobs. Once an example of the best U.S. industry could be, the company in recent decades has become a sorry spectacle of American industry’s difficulties in responding to global change and competition.

There are lessons in the GM saga for all Americans--who looked on in wonder Monday at the forced resignation of Chairman Robert C. Stempel--in the story of how the firm rose, and fell, and still could rejuvenate itself in the years ahead.

Other U.S. companies, from computer giant IBM to machinery maker Caterpillar, are wrestling with similar challenges.

For all its troubles, economists and industry analysts agree that GM can still reform its ways and recover some of the luster it had from the 1920s through the 1950s, when it was not merely the world’s largest industrial organization but also its most respected. If it does so, it will make a larger statement about how the United States can solve deep and complex problems from education to job creation.

But, as General Motors has demonstrated over the last decade, wrenching reform is easy to talk about but tough to accomplish.

A multitude of causes led GM to its current low estate. But significant among them is that it departed from the elegant system its legendary chairman, Alfred P. Sloan Jr., devised for it.

Sloan, who led GM from 1920 until 1956, combatted Henry Ford and his black Model T by offering cars for every taste and pocketbook--from Chevrolet to Pontiac to Oldsmobile, Buick and Cadillac. But he did so economically, using a maximum of interchangeable parts on GM’s efficient production lines to turn out, in effect, five different automobiles at the cost of what competitors would spend to produce only one or two models.

The result was not only a mightily profitable corporation but a masterpiece of industrial organization that Peter F. Drucker, then a young management scholar, cited in his 1946 book, “Concept of the Corporation,” as a stark contrast to industrial organization in the Soviet Union. GM’s skillful management, wrote Drucker, made it a symbol of the success of capitalism itself.

GM’s efficient mass production supplied the tanks and planes that helped win World War II, and after the war, its automobiles dominated the U.S. market. In the early 1950s, GM’s Wilson fostered the growth of the pension fund as a way employees ultimately would own American industry.

Those were heady, and profitable, days for GM. Year in and year out, it earned more than 20% on its shareholders’ investment. Its rivals Ford and Chrysler did well, but GM did better. The company reflected the U.S. economy, success seemed effortless and endless.

But, in a sense, GM was playing tennis without a net. The U.S. auto market, untroubled by foreign competition in the 1950s, became what economists call an oligopoly. Ford and Chrysler dared not make a move that truly troubled GM, lest the giant react and crush them. It was in that decade that a GM executive--declaiming that GM doesn’t make cars, “it makes money”--suggested the company could succeed at anything it attempted.

Weakening Loyalty

In the 1960s, loyalty to GM began to weaken. Volkswagen’s scrappy Bug foreshadowed tougher small-car competition to come. Consumer advocate Ralph Nader challenged the safety of the Chevrolet Corvair, and then discovered that the company had set private detectives to follow him.

Then came the 1970s, and global economic change. Oil prices rose and small, fuel-efficient automobiles became popular. The Japanese car makers--Toyota, Datsun (now Nissan) and Honda--jumped to answer U.S. consumers’ new desires. But faced with enormous global change, GM seemed fuddled and suspicious that the oil price hike was a conspiracy. “What are the oil companies trying to do to us?” GM’s then Chairman Thomas A. Murphy remarked at a cocktail party.

The company tried making smaller versions of big cars; it made engineering and marketing errors. And it violated the principles on which Sloan had built it.

GM began to make many different types of cars within the same brand name. Chevrolet made cars both large and small. Cadillac, the luxury-car division, brought out a small model. Because new tools and machinery were used for each individual model, GM began to lose its cost advantages and to make less money on each car.

But the huge company may not have noticed that things were slipping. It was making three times the profit of Toyota, Nissan and Volkswagen combined.

David Cole, head of the automotive study project at the University of Michigan and son of a GM president, Edward N. Cole, explains how a company can lose its way: “You don’t scrap an old model because you’re still making money on it. But the market demands a new model, so you institute another line. And you lose track of what you’re doing.”

Executive Excesses

According to firsthand accounts, it was easy for GM’s vast executive corps to lose track because they were pampered and shielded within the huge organization. Former GM executive John Z. DeLorean captured the excess in a 1979 book when he told how the public relations staff had a refrigerator lowered through a hotel room window so a traveling GM executive could enjoy a bedtime snack of sandwiches and beer.

But while GM rested, Toyota and other Japanese auto makers were perfecting new, lean production techniques, which allowed them to go from design to production of a new car faster and less expensively. Their innovations began to make GM non-competitive.

And then the downturn of 1980 struck, with losses that nearly killed Chrysler, threatened Ford and bothered General Motors. Change was in the air. GM’s poorer U.S. competitors had to remake their operations from stem to stern in order to survive.

Rich General Motors, however, had ample funds to finance industrial renewal. Incoming Chairman Roger B. Smith pledged in 1981 to spend $40 billion over five years to automate the company’s plants, install robots and regain its global competitive edge.

Not everyone was impressed. “The amount of money they are spending really doesn’t bother me,” Hideo Sigiura, executive vice president of Honda Motor Co., said at the time. “When Detroit changes its management system, we’ll see more powerful American competitors.”

Sigiura’s remarks proved prophetic. GM’s expensive automation programs failed to restore the company’s profitability or its market standing. Tales abounded of robots painting robots and software snafus stopping production altogether at a new GM plant in Hamtramck, Mich. GM learned that technology alone wouldn’t solve its problems.

Meanwhile, GM lurched from one new approach to another--as its directors, some of whom still serve on the board today, approved a total of $76 billion in expenditures.

That spending, in 1986, included $700 million to force gadfly Ross Perot off the board. Perot, who became a director after GM bought his Electronic Data Systems company, pushed for dramatic change. GM’s managers and directors didn’t like to be pushed, so they bought out Perot’s stake in the company.

Perot recalled Monday: “When I look at General Motors today, I think of it in the mid-’80s when there was still time to fix it. They wouldn’t touch it.”

Nonetheless, encouraging developments were occurring in GM, away from center stage in Detroit.

In Europe, GM’s Opel subsidiary in Germany and Vauxhall in Britain had been declining for years. But in the late 1970s, the corporation began to make changes in Europe--consolidation of divisions, an array of new models, new purchasing arrangements with suppliers. As a result, GM’s European cars began to sell, and its operations started to turn in real profits in the 1980s.

Significantly for present-day GM, that European recovery was led by John F. Smith, who is now GM’s president and the man directors appear to be entrusting to save the corporation.

Meanwhile, another operation significant for GM’s future was started in the 1980s--Saturn, an entirely new division, in a new plant in Spring Hill, Tenn. Saturn was to be a small, economical automobile, produced in an atmosphere different from any that GM’s management or the United Auto Workers had ever attempted.

“As union members we are involved in full decision making at all levels of the process here, “ said Mike Bennett, the UAW’s leader at Saturn.

Pay is different too. Saturn workers are paid 80% of the industry average but can earn the other 20% or more through incentives. All workers are on salary.

The Saturn car has been a runaway success. But more important for GM’s future could be the success of the process. Industry experts such as George Peterson, of the AutoPacific consulting group, think GM will benefit when it applies the lessons of Saturn--the combination of human relations and technology--to more of its operations. “They could begin by putting Saturn’s engine in a million or so cars,” says Peterson.

Yet some of Saturn’s innovations are at the heart of arguments tearing up GM today. It was Saturn--adopting a standard practice among Japanese car makers as well as Ford and Chrysler--that started purchasing parts competitively from non-GM suppliers. And now GM is trying to introduce competitive parts purchasing to its North American operations, threatening to displace UAW employees as well as managers.

GM also is trying to close uneconomic plants, and pare its high-priced work force.

Understandably, such ambitious reform plans have aroused contention. The UAW has been threatening repeated strikes and in response GM’s major shareholders have been goading the board of directors to push management to take tough actions.

Argument Goes On

Stempel’s resignation represents a climax of sorts, but not the end of argument. “The plan GM has to restructure the company is working,” said David Cole on Monday, noting that management and labor are working together. “But I don’t see how forcing out Bob Stempel will help.”

And Perot, from the Presidential campaign trail, delivered a shot at GM directors: “In terms of running the company, you better get one of the tigers back in there that knows how to build cars. Go up there on the 25th floor where a whole teak forest died to create this place where they (the board of directors) meet once a month.”

As has been the pattern for decades, there is both frustration about GM and yet certainty among experts that if the giant company could better organize its many strengths it could become a world-beater once again. But then the same is said about other big companies, and about American society in general--if we could all work together, we could renew America’s greatness. As the example of GM shows, renewal is hard work.