GM Still Lags Rivals Despite Major Restructuring Effort
General Motors Corp.--brought to a near standstill by two strikes that continued to widen Wednesday--still trails its major industry rivals in nearly every measure of competitiveness, despite six years of painful restructuring.
Worse yet, after several years of making up ground, there is evidence that GM’s progress has stalled, while its competitors are speeding forward with new gains in efficiency and productivity.
“By whatever measure--employees per car, profit per unit, development time and launch starts--GM is a laggard,” said John Casesa, analyst for Wertheim Schroder in New York.
These shortcomings are behind GM’s willingness to weather two strikes by the United Auto Workers that have shut most of its North American operations and threaten huge profit and market-share losses. The high-stakes dispute is shaping up as an epic labor battle, with broad ramifications for both sides.
GM effectively has drawn a line in the sand, announcing that it must press faster and harder to streamline operations, thereby threatening UAW jobs. Otherwise the company may fall further behind Ford, Chrysler, Honda and Toyota.
The auto maker’s stand was certain to cause union enmity. The UAW responded with two strikes at parts plants in Flint, Mich. The dispute enters its 21st day today, with no end in sight.
The walkouts already have prompted GM to close 26 of its 29 assembly plants and more than 100 parts plants in the U.S., Canada and Mexico. About 9,200 workers are on strike and 146,400 have been laid off. GM losses from the strike are approaching $1 billion, analysts said.
While GM frames the strikes as a key confrontation over its push for greater efficiency and global competitiveness, the UAW characterizes the dispute as a crucial fight for high-paying U.S. jobs.
The union alleges that GM is reneging on promised investment in new equipment and technology that would make the Flint plants more efficient. The UAW fears GM wants to move the work to nonunion or Mexican plants.
GM dismisses the union’s accusations. The auto maker said it will not invest in noncompetitive plants, and the UAW has resisted work-rule changes that would bring operations up to speed. As the labor dispute has lingered, GM says it might reconsider its plans to invest $21 billion in U.S. plants over the next five years--more than all its investments elsewhere in the world.
Donald Hackworth, vice president of North American car production, said the company must become more flexible and productive in order to compete globally. “GM didn’t invent globalization,” he said shortly after the strike began. “It is fundamental to our business and a fact of life.”
Since 1992, when John F. Smith Jr. was brought in as chief executive in a boardroom coup, GM has been transformed from a clumsy, money-losing giant to a leaner, more formidable powerhouse. It earned $23.2 billion in the last five years, including $6.7 billion last year.
But profit doesn’t tell the whole story. GM makes $978 less than Ford on each vehicle it produces. It needs more workers and time to make a car than Honda or Toyota. While Chrysler can design and develop a car in a little over two years, it takes GM three or more.
GM has been able to hide these inefficiencies with volume. But its profit margins are a slim 3.2%, well below Smith’s goal of 5%. And despite a $2-billion advertising budget, GM continues to lose market share.
The UAW and analysts say the company failed to recognize the market shift to sport-utility vehicles and other light trucks. Two years after Lincoln introduced the hugely profitable Navigator, Cadillac is still waiting for a competing product.
“GM’s problems are largely self-inflicted,” said Maryann Keller, analyst with Furman Selz. “Its product strategy underestimated the popularity of light trucks.”
What is most worrisome is that Ford and Chrysler, which were restructured in the early 1980s, are again cutting costs and getting leaner at a faster pace than GM.
Chrysler is the most nimble and low cost of the Big Three, quickly bringing to market spiffy cars and trucks that have caught the public’s eye. Its proposed $40-billion merger with Daimler-Benz, parent of German luxury-car maker Mercedes-Benz, creates a global player.
The changes afoot at Ford are even scarier to GM. Ford has gone through its own plodding restructuring in recent years, but it showed little results until it was put in the hands of Ford President Jacques Nasser.
An Australian firebrand, Nasser has killed unprofitable vehicle lines, including the Ford Thunderbird, and squeezed $3 billion out of operations last year. It is clearly ahead of GM in revamping its dealer network. The smaller Ford out-earned GM last year, posting a profit of $6.9 billion.
“Ford has really turned up the heat,” said John Casesa of Wertheim.
Ford also stands out from GM in its chummy relations with the UAW. GM has been hit with 12 UAW strikes since 1996; Ford none.
With GM’s costs higher than its rival, reducing jobs could show some immediate results. Labor accounts for about 20% of the auto maker’s costs. It has about 223,000 hourly workers, down from about 300,000 five years ago.
Analysts estimate that GM needs to lose another 50,000 UAW workers to be competitive with rivals. With 100,000 UAW workers approaching retirement in the next few years, GM could downsize through attrition. But the UAW, which has seen its ranks decimated in the last two decades, is resisting.
Given its competitive situation, GM has gone on the attack, telling inefficient plants to shape up or else.
“At its core, this dispute will determine how GM will compete in the future,” said Harley Shaiken, a labor professor at UC Berkeley.
*
* TURNING UP THE HEAT: GM is seeking arbitration to end the auto workers’ strikes. D9
