BUSINESS

A GIANT’S RETREAT

AWASH IN RED INK, THE WORLD’S LARGEST AUTO MANUFACTURER ANNOUNCES A PLAN TO CUT 79,500 JOBS

JOHN DALY December 30 1991
BUSINESS

A GIANT’S RETREAT

AWASH IN RED INK, THE WORLD’S LARGEST AUTO MANUFACTURER ANNOUNCES A PLAN TO CUT 79,500 JOBS

JOHN DALY December 30 1991

A GIANT’S RETREAT

BUSINESS

It was precisely the sort of full-scale retreat that General Motors Corp. chairman Robert Stempel had vowed to avoid. When he assumed the top job at the world’s largest automaker on Aug. 1, 1990, Stempel promised that he was “not going to take GM apart and start over again.” And in marked contrast to the autocratic and aloof management style of his predecessor, Roger Smith, Stempel proclaimed a new era of cooperation with the company’s 761,400 employees around the world. But last week, the bespectacled 58-year-old engineer stood before a packed news conference in Detroit and announced that GM was preparing to close six of its 32 North American car and truck assembly plants and 15 of its parts factories. As well, company executives plan to slash 79,500 employees from GM’s North American payroll over the next four years, reducing it to half the size it was in 1985. But Stempel declined to specify which plants will be shut down, casting

AWASH IN RED INK, THE WORLD’S LARGEST AUTO MANUFACTURER ANNOUNCES A PLAN TO CUT 79,500 JOBS

a dark shadow over the already gloomy economic prospects of GM’s U.S. and Canadian workers. Declared Stempel: “These changes are necessary to meet the competitive challenges of the 1990s.”

Despite his earlier intention to avoid a radical restructuring of the company, Stempel had

simply run out of time and options for dealing with the most severe financial crisis in GM’s 75year history. At current rates, the company will likely lose more than $6 billion this year on its North American car and truck operations, an amount greater than the Manitoba government’s total expenditures in the 1991-1992 fiscal year. Last year, GM lost $2.3 billion worldwide on revenues of $143 billion. On Wall Street, credit analysts were threatening to lower the company’s debt rating—a move that would increase GM’s borrowing costs—unless Stempel acted quickly to stanch the bleeding. The company had hoped that a North American economic turnaround in the second half of 1991, combined with the introduction of 15 new car and truck models this fall, would strengthen its balance sheets. But instead, the economy has remained moribund, and most of GM’s redesigned vehicles have failed to catch fire with consumers. “Business conditions are not improving,” Stempel said bluntly. “And we

do not foresee any change in the near future.”

The GM chairman’s announcement heightened fears of an impending cutback in production at the company’s main Canadian facility, a sprawling 885-acre complex in Oshawa, Ont. Currently, 14,500 men and women work in Oshawa’s four assembly plants: two turn out Chevrolet Lumina and Buick Regal cars while the others produce full-size GMC and Chevrolet pickup trucks. GM announced earlier this year that it planned to shift production from one of the car plants to the United States beginning in late 1993. The plant will be shut down by 1994, and about 3,800 workers laid off, unless GM’s Canadian subsidiary can convince the corporation’s executives within the next few months to award them a contract to build a new car model.

In fact, Stempel made it clear that the future of both of the car assembly plants in Oshawa is in doubt. Company officials say that GM is now able to manufacture up to seven million vehicles a year in North America, but that annual sales, even before the recession began in 1990, were slightly more than five million vehicles. Stempel noted that the Oshawa car plants currently assemble midsize vehicles, a segment of the market in which GM’s problems with excess capacity are especially severe. Said the GM chairman: “Those two plants are certainly in the fray.” And GM spokesman Stewart Low said later that the company expects to eliminate 5,500 Canadian blue-collar jobs by 1995. In addition to the Oshawa plants, the company has a car assembly plant in Ste-

Thérèse, Que., and component plants in St. Catharines and Windsor, Ont. A GM van plant in Scarborough, Ont., is already slated to close in mid-1993.

Hundreds of GM’s non-unionized office workers in Canada also will lose their jobs during the next 12 months. In 1992, the company plans to eliminate 9,000 of its 91,000 white-collar jobs in North America. That would likely result in the loss of about 550 of the 5,700 salaried positions in Canada. The retrenchment will continue into 1993 and 1994, when GM plans to cut another 11,000 white-collar jobs.

The company’s announcement drew a swift rebuke from union leaders on both sides of the border. Declared Bob White, president of the Canadian Auto Workers union: “This creates a terrible uncertainty for workers and their families over the holiday period.” In Detroit, United Auto Workers president Owen Bieber denounced GM for bowing to the “insatiable demands of the Ebenezer Scrooge types who run Wall Street.” He added that the cutbacks “can only have the counterproductive effect of further dragging down confidence in the state of the U.S. economy.”

That was a risk that Stempel was clearly prepared to take. He said that he and his fellow executives had complained repeatedly to officials in President George Bush’s administration over the past nine months that the economy appeared to be getting worse. But each time, he said, they dismissed his concerns by saying, “ ‘It’s OK—you’re too pessimistic.’ ” Declared Stempel: “Well, I think we’ve waited as long as we can.”

Indeed, GM’s announcement was only the latest in a series of setbacks for the troubled North American economy. The list of companies that have announced major staff reductions in the past few weeks includes computer giant IBM, office-machine manufacturer Xerox Corp. and aircraft maker McDonnell Douglas Corp. One analyst, Dan Lacey, editor of the Cleveland-based newsletter Workplace Trends, estimated that U.S.-based corporations have announced job cuts at the rate of 3,900 a day since early October. Meanwhile, White House spokesman Marlin Fitzwater told reporters last week that the United States was still mired “in a recession-like economy,” despite the administration’s earlier claims that a recovery was under way.

Although the GM cutbacks are certain to produce a lot of pain, most people in the automotive industry acknowledge their necessity. For years, critics have accused the company of being too large and bureaucratic for its own good, particularly in the face of increasing competition from Japanese carmakers. Stempel, highly regarded in the industry both for his skills as an engineer and for his down-home manner, has devoted much of his time as chairman to overseeing a comprehensive redesign of GM’s cars and trucks, for which he has won widespread praise. Now, he has taken on an even greater challenge: redesigning General Motors itself.

JOHN DALY in Oshawa