GM to Unveil Dramatic Cutbacks
Plant closings and layoffs should be followed by trimming managerial layers, analysts say
TO its employees, General Motors Corporation used to be known as "Generous Mother."For decades, a job at the automotive giant meant a fat and steady paycheck with a healthy helping of perks. No longer. Tomorrow, GM is expected to drop the ax on two or even three underutilized assembly plants. It will also give walking papers to as many as 15,000 salaried employees. Among industry observers, the move has been expected for months. The need for some sort of action is inarguable. During the first nine months of this year, GM reported worldwide losses of $2.2 billion. But that figure belies the real story. To get a better picture, cross off the money earned in the strong European market, Latin America, the Middle East, and from nonautomotive operations in the United States. What you're left with, says auto analyst Maryann Keller of Furman Selz, "is a company losing $500 million a month" on its core North American automotive operations. Ronald Glantz of Dean Witter Reynolds says the figure may be even more - perhaps $8 billion this year. The recession has taken a heavy toll on the carmaker. Like its competitors - both domestic and foreign - GM has been forced to hand out lucrative rebates and other incentives to bring customers into its showrooms. And with sales down, factories are running at a fraction of capacity. Lower utilization rates mean bigger deficits. But even if the economy were to post a healthy recovery in the months to come, that would not solve GM's underlying problems, industry analysts say. In the 1980s, then-chairman Roger Smith embarked on a bold - but ultimately misguided - series of moves designed to increase GM's productivity. He spent more than $50 billion on new, downsized products and the automation-filled factories to build them. He shook up the corporate structure with the most sweeping reorganization since the corporation's earliest days. Unfortunately for GM, those programs didn't work. Robots clearly weren't the answer, for GM's plants average near the bottom of the productivity list, according to a study by automotive consultant James Harbour. You can get a good example by looking at one of the plants likely to be closed. It takes workers at the Doraville, Ga., assembly line an average of about 40 man-hours to produce each mid-sized model such as the Pontiac Grand Prix and Chevrolet Lumina. Yet just across town, the Ford Motor Company's Atlanta assembly line takes barely 25 man-hours to assemble the mid-sized Taurus. Ford's Atlanta line is the most efficient assembly line in the US, Mr. Harbour finds, even with relatively little automation. Analysts say it's a good first step for GM to get rid of under-utilized factories like Doraville, the Caprice plant in Arlington, Texas, or another line in Oshawa, Ontario. But observers caution those are only the first steps the company must take in order to turn itself around. For one thing, it must slim down its management ranks. Compared to the Japanese, or even Ford and the Chrysler Corporation, its 105,000-man white-collar staff is incredibly bloated. That means more than just billions of dollars in unneeded pay and benefit costs. It creates layers of bureaucracy slowing the process of designing and building cars that meet market demands. And even if the work force is slimmed down, it will need to be more efficiently organized. GM is only now shifting to the team concept where it doesn't matter whether you design engines or marketing campaigns. At companies like Honda, if you work on a particular product platform, you work side-by-side, sitting in on key decisions from start to finish. So far, these changes have shown up only in limited applications, like the bumper on the new Cadillac Seville. Not only is the 1992 bumper better looking, but it uses half as many parts and takes 19 minutes less time to assemble than the old bumper. There are seemingly endless other redundancies. GM has ordered the number of engine families to be cut from nine to five, and electrical components used in different models to be cut drastically. GM is sharply cutting the number of outside suppliers, and asking prime suppliers to help it design new products. While many changes are likely to be modeled after Japanese companies like Honda, GM can also look inward to find some of the keys to success. A decade ago, its European operation was a perennial money-loser. Today it is a leaner, meaner operation - and a beacon of profitability. Indeed, there are indications that vice chairman Jack Smith - the man credited with turning Europe around for GM - may soon be given control of at least part of the troubled North American operations as well.