Business

A giant's struggle

Lumbering General Motors still lags behind the pack

JENNIFER WELLS October 21 1996
Business

A giant's struggle

Lumbering General Motors still lags behind the pack

JENNIFER WELLS October 21 1996

A giant's struggle

Lumbering General Motors still lags behind the pack

Business

JENNIFER WELLS

Roger Smith, the elusive quarry of Michael Moore's documentary Roger and Me, was once asked why business had gone so terribly bad at General Motors Corp. Smith was the übercorporation's chief executive officer from 1981 to 1990 and should have had a clear answer. Instead he of-

fered this: “I don’t know. It’s a mysterious thing.”

This was not what shareholders wanted to hear from the big boss. GM, once the mightiest of all American corporations, was headed for disaster. The GM-10 project, which overhauled the company’s entire line of midsize cars, was dubbed the biggest catastrophe in industrialized America. Market share had plummeted from 46 per cent to the mid-30s and was still falling. Massive losses were just around the corner. Shareholders called for Smith’s head, which they got.

Then they got more than $10 billion in auto losses in 1991. GM was in such dire straits that it delayed new car programs to preserve cash, what one writer called “eating your own seed corn.” Shareholders called for the head of Smith’s replacement, Robert Stempel. They got that, too, in 1992. In Rude Awakening, her 1989 landmark book on GM, New York City auto analyst Maryann Keller captured the twisted corporate ethos when she described the crowd of “mostly Midwestern white males” on the 14th floor of Detroit headquarters, so smug in the arrogance of their power

they never dreamed that GM would fall. It did. And while it did not die, it has been a long struggle for recovery.

And that, says Keller now, is what observers of the fight between the Canadian Auto Workers union and General Motors of Canada Ltd. are missing. “If GM makes $1,000 less per car than Chrysler, and it does, and it costs the same for both companies to invest in new models, which it does, then over time how can GM prosper? It can’t. This is a company that has lost 15-per-cent market share over the past decade. It was not cost competitive and it is not cost competitive today. You can’t continue to do that and expect to remain in the auto business and create jobs for anyone.”

Further, Keller thinks that the Canadian Auto Workers’ strike strategy may extract a very high price one day. ‘You’re probably in for no future investment from GM,” she says, contemplating the thought of a long strike. “This is the worst thing that can happen in terms of investment appeal.” And, she says, do not expect GM to budge. The company cannot, she says, “negotiate preferentially” to protect the 10 per cent of its workforce that is employed in Canada, thereby pushing job cutting south of the border.

Keller’s is not a lone voice. While the CAW trumpets GM profits of $1.39 billion in Canada last year—more than $5 billion in auto profits worldwide—the crowd on Wall Street takes the longer view that GM, under the current leadership of CEO Jack Smith, must not veer from its current restructuring path. “GM is not making enough

money per vehicle,” says Eric Goldstein, auto analyst with BT Securities in New York. “It’s a mature, cyclical, competitive industry. Ya gotta stay competitive, that’s the bottom line.”

Fifteen years ago, the objective for the Big Three was to get competitive. In the 1980s, all three seemed headed for the scrap heap. Chrysler very nearly went out of business—twice. If any of the three had seen the Japanese carmakers coming in the 70s, they didn’t seem to care, viewing the arrival of those boxy little Honda Civics as a short-term aberration that would disappear once gasoline prices fell. They could not have been more wrong. The foreign imports crisis hit Ford and Chrysler, smaller and more vulnerable than GM, first. Forced with shaping up or going under, both companies sought cost reductions, moving to “outsourcing” as part of that effort. Chrysler went from 7,000 auto parts employees to under 1,000. The corporations instead refocused on product innovation. Each scored a huge win: Ford with the Taurus; and Chrysler with the minivan. And while Chrysler, under the leadership of Lee Iacocca, toyed with the idea of not being a car

company at all, it retrenched to autos in a big way, becoming the most profitable car company on the continent. Number-crunching analysts look to the automakers’ net income as a percentage of revenues as a key performance indicator. Five per cent is the industry benchmark. Chrysler is there. GM is way behind at 1.7.

A major piece of Jack Smith’s restructuring has been to refashion GM’s automotive parts group into a wholly owned subsidiary, Delphi Automotive Systems, based in Pontiac, Mich. With $35.6 billion in sales, Delphi is the largest auto parts supplier in the world—“the size of a small country,” says Keller. Delphi has a simple corporate vision: to be a ruthless competitor, setting its sites on draw-

ing 50 per cent of sales from outside GM by the end of the decade.

Four years ago, Delphi was a money-losing, negative-cash-flow mess. And its sales were declining. This is key for the CAW. The focal points for the strike are the trim plant in Windsor, Ont., and the fabrication plant in Oshawa, Ont., employing more than 3,500 workers. While they fall under the banner of GM Canada, in GM’s organization chart both are clearly part of Delphi. Stew Low, spokesman for GM Canada, will not say whether the two plants are unprofitable. ‘The products are considered non-core,” he says. Their future, given their “non-competitive cost structure,” is “bleak at best.”

In the United States, Delphi has identified 12 manufacturing facilities that it has put on the “troubled” list: each must be fixed, jointventured, sold or closed. Windsor and Oshawa are on track to be sold by year’s end, a decision made by Delphi, not by GM Canada. Keller and Goldstein have similar assessments of what is happening at those plants. They will be sold because they exemplify the low-tech, easy-entry end of the auto parts trade, which GM is eager to cede to others who can manage those businesses more cheaply. Nor would it come as a surprise if GM were to include incentives, such as fixed-term supply contracts, to grease the sale. This is not to say that the two plants, under new ownership, will not be unionized. Last April, the United Auto Workers certified two plants at Johnson Controls Inc. of Milwaukee, Wis., which supply seats to Ford. And the CAW has had some success in unionizing parts suppliers in Canada. But, says Goldstein, the wages and benefits packages at the unionized suppliers are usually half what they are within the Big Three.

That evolution may be unstoppable. “GM is a global company, fighting in a global business,” says Keller. “Canadian and American consumers don’t care who makes the parts, where the parts are made. That’s what you’re fighting. Not some grand social issue. How many buyers look at content labels? It’s just a piece of paper you have to scrape off the window.”

Of course, GM’s position is that to halt this evolutionary process, to accede to this concept of work ownership as the CAW would have it, would have a crippling effect on the company. “The principles being talked about here are very, very scary,” says Low. Keller is more blunt. CAW president Buzz Hargrove is, she says, “ridiculous.”

He is not, of course, to the 54,000 Canadian autoworkers who have fought so hard to be more competitive, more productive, only to have some of their numbers labeled “non-core.” But Keller looks at it another way: that Hargrove’s negotiations so far have only enhanced the competitive advantage of Chrysler. That, she says, could jeopardize more GM jobs in the long run. □

Rocked by the ripple effect

O Oct. 2: 13,500 CAW members walk off the job at four GM plants in Oshawa, Ont., and another plant in Ste. Thérèse, Que.

© Oct. 3: Lear Corp., which makes seats for GM’s Oshawa plants, lays off 1,000 workers in Whitby and Ajax, Ont.

© Oct. 3: Two Oshawa-based trucking firms that haul parts for GM, Mackie Transport

Ltd. and Verspeetan Cartage Ltd., lay off a total of 500 workers.

© Oct. 3: Fifty workers are sent home from Woodbridge Bertrand Faure Technologies Inc. in St-Jérôme, Que. The company makes seats for GM’s Ste-Thérèse plant.

© Oct. 7: Some 1,050 employees are sent home

from a GM factory near Buffalo, N.Y., that produces six-cylinder engines for GM’s Oshawa operations. Simultaneously, GM scales back or cancels overtime at most of its U.S. assembly plants.

© Oct. 7: Eight hundred workers at a GM transmission plant in Ypsilanti, Mich., were told not to report to work.

Q Oct. 7: Nearly 5,000 workers at two GM plants in St. Catharines, Ont., that manufacture axles, transmission components, brake systems and engines join the strike.

© Oct. 9: The CAW’s remaining 6,000 GM workers walk out, shutting down a diesel locomotive plant in London, Ont., trim and transmission plants in Windsor, Ont., and a parts-distribution facility in Woodstock, Ont.

This week: If the strike drags on, the first U.S. assembly plant to shut down will likely be a Cadillac factory in Detroit that de-

pends on parts from GM’s Windsor trim plant. Also vulnerable are two small-car plants in Lordstown, Ohio, and Lansing, Mich., and a pickup factory in Pontiac, Mich, that uses doors made by GM in Oshawa. By late October, almost all of GM’s North American assembly plants would have to shut down, affecting as many as 266,000 workers.