COVER

THE FUTURE OF THE CAR

THE WORLD’S BIGGEST COMPANY IS TRYING TO REGAIN LOST GROUND

ROSS LAVER April 15 1991
COVER

THE FUTURE OF THE CAR

THE WORLD’S BIGGEST COMPANY IS TRYING TO REGAIN LOST GROUND

ROSS LAVER April 15 1991

THE FUTURE OF THE CAR

COVER

THE WORLD’S BIGGEST COMPANY IS TRYING TO REGAIN LOST GROUND

Neil De Koker was 19 when he got his first job as an engineering trainee at General Motors Corp.’s Chevrolet head office in Detroit. It was 1962, and De Koker, a brash young high-school graduate, was eager to make his mark at the world’s No. 1 automaker. Before long, he earned a reputation as a “Hi-Pot”—GM jargon for a high-potential employee. He rose quickly up the corporate ladder, earning nine promotions in 23 years. De Koker retired from GM in 1985 after serving as director of business systems for the fledgling Saturn project, a $4billion effort to challenge Japan’s supremacy in the small-car market. But six years later, he still likes to reminisce about his years at GM— even though, at times, his observations are unflattering. “Our manufacturing methods were, basically, to throw the stuff together and allow tremendous margins of error,” says De Koker, 47, now a Markham, Ont.-based communications consultant. “We were building cars that couldn’t compete on quality, and yet the top management refused to believe it— they were cut off from reality.”

De Koker’s harsh assessment of GM’s past failures is widely shared. For years, car buyers and even many of its employees have claimed that General Motors, the world’s largest industrial corporation in terms of sales, had become a victim of its own size and wealth, falling behind its rivals in the key areas of quality and customer satisfaction. Critics said that its factories were inefficient, its vehicle designs unimaginative and its management badly out of step with the times. But now, the giant automaker appears to be making a comeback. In the past nine months, it has overhauled its senior management and unveiled an array of sleek, aerodynamic new models. Moreover, industry observers say that GM is rapidly making progress on quality and productivity, in part by introducing a people-oriented management style that has

raised morale among its 761,400 employees. Says Maryann Keller, a New York City-based investment analyst and author of the 1989 book Rude Awakening, a highly critical account of GM’s recent history: “For the first time in years, there is almost a sense of liberation at GM—a real sense of the marketplace and a passion towards fulfilling the company’s vision.”

Whether those changes—and the Saturn project (page 46)—will be enough to reverse

GM’s slide is still far from clear. For the moment, the Detroit-based company still bears the burden of years of highly bureaucratic management and low productivity. Its worldwide operations produced sales in 1990 of $143 billion, far ahead of its nearest rivals,

Ford Motor Co. and Chrysler Corp., at $112 billion and $35 billion, respectively. But in spite of its commanding lead, GM lost $2.25 billion in 1990, compared with an overall profit of $4.85 billion in 1989.

At the same time, GM has been unable to regain the ground it lost to Japan’s automakers during the 1980s (page 48). In 1980, 44 per cent of the new cars and trucks sold in North America were GM vehicles. Ten years later, GM’s market share had fallen to 35 per cent. In the same period,

Ford’s share rose four percentage points, to 23, while Chrysler’s rose one point, to 12.

Fat: But the real winners in the past decade were the Japanese automakers, whose combined share of the North American market jumped to 23 per cent from 15.7 per cent. “At the beginning of the 1980s, the North American auto industry was fat, dumb and happy,” says Detroit automobile consultant James Harbour. “The industry figured it was so big and powerful that nobody could beat it in the marketplace. Instead, consumers said, ‘Screw you, we’re going to go for the best car for the best price— even if it means buying Japanese.’ ” For years, GM executives seemed reluctant to address their customers’ growing concerns about quality. When sales of a particular model slumped, the company tried to draw consumers into its dealers’ showrooms with factory rebates or cosmetic face-lifts of existing designs.

At the same time, GM officials publicly played down the threat posed by Japanese competition. They argued that North Americans would soon tire of small, Japanese-made economy cars, and that Japan’s automakers were copycats whose products lacked originality in engineering and design. “What did the Japanese invent in cars?” former GM chairman Roger Smith, who retired last Aug. 1, once said. “The only thing that I can think of is the little coin holder they put in.”

These days, however, GM’s top brass is sounding a lot more humble. The company's

new president, Lloyd Reuss, and its chairman, Robert Stempel, both of whom assumed their positions on Aug. 1, have both publicly acknowledged that GM needs to become more responsive to consumers. “We’ve spent a lot of time analysing why we lost market share,” Reuss, 54, told Maclean ’s during an interview in his 14th-floor office at GM’s Detroit headquarters. Reuss, an engineer who joined GM in 1957, added that many of the company’s problems resulted from reducing the size of its cars in an attempt to make them more fuel-efficient and switching from rear-wheel drive to front-

wheel drive. “As we went through that tremendous changeover,” he recalled, “we had some look-alike products—cars that were not distinctive enough. We also disappointed our customers with the quality and reliability of our products. We lost some owner loyalty.”

Gap: To regain lost ground, GM has been working hard to reduce the number of defects in its vehicles. Those efforts are paying off. Last year, two of the company’s divisions—Cadillac and Buick—ranked fourth and seventh respectively in a Top 10 list of the world’s automakers in terms of customer satisfaction. The list was prepared by the California-based automotive research firm J. D. Power «fe Associates Inc., based on reports submitted by about 27,000 U.S. consumers. GM executives acknowledge that Japanese companies like Toyota and Honda still lead the way in quality and reliability—Honda’s luxury division, Acura, ranked No. 1 in the survey, while Toyota placed third—but they say that GM is closing the gap. Added Reuss: “There’s a much greater emphasis now on the product and on the customer.”

Nowhere is the push to improve quality and efficiency more evident than at GM’s new Saturn assembly plant, a state-of-the-art facility nestled in the gently rolling hills of rural Tennessee. Saturn is GM’s first new car division since the company’s founder, William Durant, purchased the Pontiac Body Co. of Pontiac, Mich., in 1916. At the time of Saturn’s incorporation six years ago, former chairman Smith called it “the key to GM’s long-term competitiveness, survival and success”—an attempt to challenge the Japanese using the latest manufacturing technology and a revolutionary new approach to labor relations.

Nimble: The first Saturn vehicles— a sporty two-door model and a fourdoor sedan available in both standard and high-performance versions— went on sale in the United States last October, at a basic cost of between $9,200 and $13,130. General Motors of Canada Ltd., the automaker’s Osha-

wa, Ont.-based subsidiary, plans to

begin selling the Saturn lineup through its 70 Passport dealerships next fall, at prices roughly comparable to those in the United States. Although the Saturn has suffered several embarrassing start-up problems, including a faulty seat-adjustment mechanism that forced the recall of 1,480 vehicles, most U.S. reviewers have praised the car for its peppy, four-cylinder aluminum engine, nimble handling and uncluttered, Japanese-style interior design.

For all that, the Saturn is unlikely to help GM’s short-term profitability. Analyst Keller, for one, calls the Saturn “the best small car GM

GM SAYS THAT ITS FUTURE RELIES ON NEW MFS OF MANAGING

has ever built.” But she adds that the market for subcompact vehicles is so competitive that no manufacturer, foreign or domestic, currently makes a profit on small cars. Reuss, however, says that he expects Saturn to tum a profit within eight years. “With an investment like that, you aren’t going to be profitable selling 100,000 units a year,” he adds. “But the facility down there can build 350,000 units— and we’re confident that it will be profitable.”

Fighting for a larger piece of the small-car market is only one of many challenges now facing GM. Even more pressing is the need to improve productivity at the company’s 27 other North American carand truck-assembly plants, including facilities in Oshawa, Scarborough, Ont., and Ste-Thérèse, Que. According to a five-year, $5.8-million study of the automotive industry published last fall by researchers at the Massachusetts Institute of Technology (MIT) in Cambridge, Mass., all three North American automakers require significantly more man-hours of labor than their Japanese competitors to assemble a similar-sized automobile. The study found that GM, Ford and Chrysler each took an average of 24.9 hours of labor to produce a car. By contrast, Japanese carmakers needed only 20.9 hours per vehicle at one of their North American plants, and 16.8 hours at one of their factories in Japan.

Lean: The main reason for the difference, the study found, is that companies like Toyota and Honda have abandoned the traditional mass-production system and switched to a more efficient method, which the MIT researchers call “lean production.” Its primary features include low levels of parts inventories, a flexible, highly skilled workforce and an unyielding commitment to continual improvement, both in product quality and ease of assembly.

Most analysts say that Ford is currently the most efficient North American producer, with Chrysler second. But they add that GM officials deserve credit for making a major effort to

improve productivity. “It has always been the great hope of General Motors that everybody else would become as mediocre as they are,” says James Womack, an MIT researcher who helped to supervise the study. “Finally, there are some smart people on the manufacturing side at GM who realize that the mass-production

Sources: Autofact, Desrosiers Automotive Consultants Inc., U.S. Motor Vehicle Manufacturers Association, Ward's Automotive Reports

era is over. For my money, their hearts are in the right place.”

The fruits of some of those efforts can be seen at GM’s Oshawa assembly plant, which manufactures the midsize Chevrolet Lumina and Buick Regal and full-size GMC pickup trucks. During the late 1980s, GM poured $8 billion into modernizing its Canadian operations—part of a $58-billion, continent-wide effort by Smith to expand and upgrade the company’s manufacturing capacity. As a result,

GM’s Oshawa facility is now one of the most automated car-assembly plants in the world. Robots do most of the welding that was previously done by humans, while the old drag-chain assembly line has been replaced by an overhead monorail and dozens of automated guided vehicles that silently transport partially assembled car bodies, engines and chassis among different areas of the plant according to instructions fed to them by computer.

Although the Oshawa plant is a high-technology showcase, GM officials say that they are uncertain whether such high levels of automation justify the huge investment. Said Gary

McCullough, manager of the Oshawa facility: “I think GM learned some hard lessons in the 1980s. There used to be a mind-set that automation was the only way to be competitive— I’ll probably get my wrists slapped for saying this, but we now know that wasn’t true.” Moreover, McCullough says that the quality of cars and trucks built in Oshawa between 1987 and 1989 was not as high as it should have been, because so much attention was focused on learning how to use and manage the new

WHAT'S NEW FROM GM

equipment. “I wouldn’t say that quality actually slipped,” he added, “but we plateaued. We weren’t getting better, compared with the competition.”

GM officials now say that better management, rather than more expensive technology, is the real key to raising productivity and ensuring higher quality. In some cases, that means tearing down the walls that used to separate GM’s designers and engineers—the people who decide what a particular car model should look like and how it should function—from those responsible for actually putting it together. At the Oshawa plant, a team of seven production-line workers and engineers now works fulltime on product development, searching for ways to redesign components in order to simplify the assembly process. If the problem is relatively minor, it is sometimes possible to introduce the change immediately. Other ideas are referred to GM’s technical centre in Detroit, for use in future generations of vehicles. “Right now, it takes us seven pairs of dies to stamp a car door,” said John Urbanic, director of carand truck-assembly operations for GM of Canada. “Why not find a way to do it with three or four? That way, we can build cars more efficiently and at less cost.”

Fit: Clearly, GM will have to make many other improvements in order to ensure that its products are as efficient to manufacture as those of its major competitors. The company performed a study in 1989 that found that 41 per cent of the unfavorable productivity gap between one of its plants and a comparable Ford facility could be traced to differences in vehicle engineering and design. For one thing, the study found that the front bumper of GM’s Pontiac Grand Prix, a sister vehicle to the Chevrolet Lumina, had 100 separate components—10 times the number in the bumper of

a Ford Taurus. Moreover, GM’s researchers concluded that the Ford parts fit together more easily than those of the Pontiac.

GM is taking steps to correct those problems. According to company president Reuss, the soon-to-be-introduced 1992 Cadillac Seville has 50 per cent fewer parts in its front and rear bumper systems than its predecessor had. Other upcoming models will incorporate similarly cost-efficient features, he says. But Reuss conceded: “Our productivity is not yet where we have to be. Part of the problem is that we used to be highly compartmentalized. It’s only since the competition has become keener that

we’ve realized that we have to start operating more like a small company.” As he sees it, the contrast between the General Motors of the past and the current company is analogous to the difference between a football team and a basketball team. Declared Reuss: “In football, every player is specialized. You have a quarterback, linebackers and so on. You go out, execute a play and then you come back and there’s time out. We have to function more like a basketball team—you have a few key plays, but

you’re working the game continuously.”

For that strategy to succeed, however, Reuss and his fellow executive team members will have to accomplish a reorganization that has eluded all other senior GM officials in recent memory: simplifying the chain of command and eliminating some of the company’s notoriously ingrown bureaucracy. In the past, cost cutting by GM’s senior executives, combined with the corporation’s unwieldy management structure, has contributed to long delays in launching new vehicles. The Lumina, for one, was originally intended to roll off the assembly lines in 1985, but successive delays prevented it from appearing in showrooms until 1989. By then, its conservative, rounded styling had already begun to look dated. Said Charles Jordan, GM’s vice-president for design: “The Lumina that hit the street in 1989 was first designed in 1981. Now, I say that’s not fair to the designers.” In the same period, Honda twice enlarged and restyled its best-selling Accord model, which now competes against the Lumina in the market for mid-priced family cars.

Time: Stung by recent setbacks, GM is now searching hard for ways to shorten the time between deciding to launch a new car and producing it. The new approach also involves getting designers, engineers and manufacturing managers to meet at the beginning of the process, rather than working separately as they have in the past. Said Jordan: “We used to design a car here and throw it over the fence to the engineers. After a while, they would toss it back and say they couldn’t do this or that. Then, after a few more rounds, we would both throw it over the fence to the manufacturing guys, who would raise a whole new series of objections.” One result, Jordan says, was that car designs frequently had to be altered two or three times before they went into production. He adds: “Now, we’re working a lot closer. It’s not exactly a love-in, but it does save time.”

Still, even those who say that they sense a refreshing change in GM’s corporate culture add that the turnaround in its fortunes will likely be slow and painful. For her part, analyst Keller says that she expects it will take five or six years before GM starts to earn steady profits again from its North American car and truck sales. Added MIT’s Womack: “The real problem with GM is, and always has been, its vastness. The trend is towards improvement, but in any massive organization the change has got to be gradual. Shock therapy and massive reorganizations just aren’t going to work.”

At GM headquarters, Reuss declined to speculate about how much time the recovery process will require. But he made little effort to conceal his impatience. Declared the president: “One thing about a big organization like GM is that once everybody knows you’re serious, you’re consistent and you’re going to stick with it, you can move a heck of a lot faster.” Already, the colossus of the automobile industry is showing signs of rousing from a long and costly slumber.

ROSS LAVER