Gm's Day Of Reckoning

Remember when the opening of a new General Motors plant symbolized nothing but hope and prosperity? That's what it meant for the townsfolk of Arlington, Texas, when GM decided to locate a facility there in the earl 1950s. "It caused the first extras of our little weekly Arlington newspapers to be printed and sold on the streets," recalls Tom Vandergriff, then president of the Arlington Chamber of Commerce. Those were the days when GM's only worry was that it was too successful: it sold one out of every two cars in America, and competitors and federal regulators were beginning to whisper the word "monopoly."

Today the Arlington plant is the latest symbol of GM's decline, and the talk is no longer about how to slow down the car giant but how to staunch its massive financial wounds. Faced with a devastating $7 billion loss in North America this year, chairman Robert Stempel had little choice but to take the drastic step of closing 21 plants, possibly including Arlington, and eliminating 74,000 jobs over the next three years. The dramatic move amounted to a concession that GM will never regain a 50 percent market share, and might not even be able to sustain its current domestic share of about 35 percent. In the long run, the cuts should make GM a more nimble company. But coming weeks after fellow giant announced drastic cutbacks, it was another painful reminder of the trouble U.S. business is having adjusting to global competition and a domestic slump in the '90s.

How did it come to this? GM's troubles were certainly aggravated by the recession, but its decline has roots that go back for decades. Its reponse to the arrival of Japanese cars in the 1970s was late, confused and inept. Paralyzed by an entrenched and arrogant bureaucracy, GM jeopardized decades of consumer good will by building cars of shoddy quality and stodgy style. It also raised prices when the Japanese were limiting exports to the United States. Thinking automation was the answer, it spent billions on high-tech hardware like robotics in the 1980s, yet GM still takes longer to make a car than any other automaker. Says Laurel Cutler, a former Chrysler executive: "The most profound difference is that American makers have said, 'If it's broke, we'll fix it.' Japan says it won't break."

Of course, GM was never competing on a level playing field. Saddled by huge pension costs and aging plants, it confronted Japanese competitors that benefited from government backing and cushy long-term financing. In recent years GM, as well as Ford and Chrysler, has significantly improved its cars' quality and looks with such models as the new Cadillac Seville. But, then, so have the Japanese, and GM has found that winning back consumers' hearts and minds isn't so easy.

GM once had a reputation for agility and responsiveness to consumers. Under its legendary chairman Alfred Sloan Jr., GM's divisions were autonomous. But by the 1960s it had grown into a committee-driven and insular behemoth, dominated by financial executives known in Detroit as the bean counters. When the oil shortages hit in 1973 and 1979, GM was ill prepared--and at first glibly dismissive of efforts to switch to more fuel-efficient cars. Says analyst Ronald Glantz, "I can remember top managers at GM as recently as a decade ago saying true Americans won't buy foreign products." Cutler says GM executives, refusing to believe they were threatened, "went through the most massive case of denial I have ever seen."

Meanwhile, the Japanese were already making small cars for their home market and moving aggressively into the United States. GM responded by downsizing its cars, but early models were rife with transmission and engine problems. Recall the Chevrolet Vega, GM's 1971 small-car offering that turned out to be costlier and more troublesome than its rivals. "Consumers have had a decade of getting ripped off," says economist Clifford Winston, who has studied brand loyalty. "The moral is, history matters."

In the mid-1980s the nation's economy improved and GM's profits swelled again. Then chairman Roger Smith embarked on a diversification strategy, buying Electronic Data Systems from entrepreneur H. Ross Perot and Hughes Aircraft Corp. Those acquisitions still produce profits, but GM's cash might have been better used improving its cars. And adding Perot to GM's board was a costly public-relations fiasco. Perot's derision of GM didn't sit well with Smith. "The first EDSer to see a snake kills it," went one typical Perot remark. "At GM the first thing you do is organize a committee on snakes." GM eventually bought out Perot for $700 million.

Smith retired last year, as GM's image got a new working over with the satiric movie "Roger & Me," a scathing look at GM's plant-closing policies. But it was the deep and lingering recession that finally convinced GM it couldn't face business as usual. The plant closings have been expected internally for some time, but Stempel went public because of pressure from Wall Street credit agencies, which were threatening to lower GM's credit ratings, thereby raising its borrowing costs.

Shutting down 21 plants will address the immediate problem facing all automakers: too much production capacity. The Big Three's North American plants can make about 11.5 million cars and trucks a year, but this year only about 65 percent of that capacity will be used. By cutting back, Stempel reckons GM will be running at full capacity by 1993. At that level, he said, the company could operate profitably with a market share in the low 30 percent range. The United Auto Workers union denounced the closings, even though its contract gives laid-off workers most of their pay until the end of 1993. GM, the UAW said, was reacting to "the insatiable demands of the Ebenezer Scrooge types who run Wall Street."

Can GM recover? Financial analysts generally applaud the cuts as a good first step but insist the company will need to do more just to stay in place. They say it should cut its white-collar work force, including some top executives, by far more than the 9,000 jobs scheduled to disappear next year. It should also modernize a sometimes archaic production system and reinvent the way it produces cars, as it is trying to do with its new Saturn plant in Tennessee. Says Eugene Jennings, a business professor at Michigan State University, "They're making the mistake of reducing head count, rather than instilling new thinking in their heads."

But even Perot concedes GM can't turn itself around with the economy in the dumps. "It's like the farmer hit by a drought," Perot says. "You can do everything right, but it had still better rain." Some argue that the government will have to help the Big Three by imposing a stiffer quota on Japanese sales. Stempel isn't asking for that yet, only promising that "GM will become a much different corporation." If it's still true that what's good for GM is good for the country, that's welcome news.

The birth of GM. Founder William Durant begins a buying binge that brings the likes of Buick and Cadillac into the automaker's stable.

Alfred Sloan Jr. is making GM an industrial power, but violent strikes occur. The result: the UAW becomes GM workers' representative.

The big fin is born on GM's Cadillac and becomes all the rage in the 1950s, the golden age of the auto in the United States.

Charles "Engine Charlie" Wilson, GM's chief, becomes defense secretary. A conflict? "I thought what was good for our country was good for GM and vice versa."

GM controls more than 50 percent of the U.S. auto market. Company officials worry the government will move to break it up.

The Corvair comes under attack from Nader. Undercover snooping by GM to dig up dirt on the consumer activist backfires.

The notorious Chevy Vega is unveiled. The small car, GM's answer to its overseas rivals, flops because it's too costly and has quality problems.

GM and Toyota team up, the Saturn line is announced and the company buys EDS from Ross Perot. GM pays him to leave the board two years later.

GM chairman Roger Smith is relentlessly pursued by Michael Moore in "Roger & Me," a biting documentary about the automaker's layoff policies.

In the face of intense competition, a projected loss of $7 billion for 1991 and pressure from Wall Street credit agencies, GM chairman Robert Stempel announces massive layoffs and plant closings.