The Grey Chronicles

2009.August.3

Kings of The Road to Roadkill: General Motors



This continues yesterday’s post on the book Comeback (1994), written by two Wall Street Journal’s bureau chiefs, Paul Ingrassia and Joseph B. White.

Roger Smith became the tenth chairman of General Motors on 01 January 1981, but he did not get off to a roaring start. Comeback describes:

“In 1980, the combination of recession and Japanese competition that was bludgeoning Ford and Chrysler brought GM its first full-year loss since 1920s. … GM earned just $333.1 million in 1981, hardly sufficient considering its $9.7 billion in capital spending that year. Smith ordered massive layoffs and cut white-collar benefits. As the country headed into 1982 with no economic upturn in sight, Smith canceled planned cost-of-living raises for white-collar workers, and declared that he too would share in the sacrifice—by giving up $135 a month (about 0.34%) out of his $475,000-a-year salary. The anemic gesture was greeted with derisive hoots from UAW officials and GM salaried employees alike.”

By 1983, Smith laid out his vision in a “mission statement” that talked in grand terms to “promote maximum participation” by employees and declared that GM “will aggressively seek new opportunities to utilize our resources in business ventures that match our skills and capabilities.” This was a prelude to the great thrust of Smith’s strategy: reorganization, diversification and “reindustrialization,” or automation.

The reorganization began in January 1994. GM’s North American business was the first on line. Fisher Body and GM Assembly Division were dynamited out of existence and their pieces were apportioned to Chevrolet-Pontiac-Canada [CPC], focusing on small cars; and Buick-Oldsmobile-Cadillac [BOC] would build large cars. A third group, Truck and Bus, would design and engineer trucks. All three groups would contain engineering, manufacturing and marketing combined; each group accountable to one person, the group vice president. From the start, and ever after, it became clear that the reorganization was illogical, as BOC built many of Chevrolet’s small cars; while CPC built several of the highest-volume Buick and Oldsmobile models.

In June 1984, GM announced that it would buy Ross Perot’s Electronic Data Systems Corp. of Dallas for $2.55 billion. The diversification strategy culminated with GM’s bid on Hughes Aircraft Company, the defense electronics giant founded by reclusive billionaire Howard Hughes, for $2.7 billion in cash and 50 million shares dubbed as GMH. GM faced two rivals: Ford and Boeing Company. On 05 June 1985, Smith announced after winning the bid: “This is a superhistoric day for us, Lulu is home now.”

Between 1980 and 1985, GM spent a staggering $42 billion on new factories, tools, equipment and products, in his quest for factory modernization program. Smith’s fascination with robots knew no bounds. GM declared it would use a “sociotechnical systems approach” to marry people and robots in perfect harmony. Susumu Uchkawa, the production expert from Toyota via New United Motor Manufacturing, Inc. [Nummi], a joint venture of GM and Toyota, however, was not impressed during his visit to GM’s Hamtramck plant puzzling over the “enormous expenditures for robots and computerized inspection systems that the workers clearly didn’t understand.” Roger Smith called Hamtramck “the most modern auto plant in the world today.” But as soon as it opened in the fall of 1985, GM’s industrial showcase turned into a basket case.

GM would dump 30,000 jobs in 1986; 25,000 workers in 1987, and another 15,000 in 1988. Despite the hyped “Teamwork and Technology for Today and Tomorrow” held in January 1988; in the spring, it was clear that the eleven factories Smith had ordered closed sixteen months earlier would not be enough. By 1988, GM had the capacity in North America to build about 7.6 million vehicles per year, but managed to sell about 5.5 million cars and trucks. Mark Sarkady, a young consultant declared that GM’s senior management needed to stop telling underlings to change, and start changing themselves so that others would follow their example.

GM was reorganized, diversified, roboticized, and computerized; but by 1985, GM was dead last in the industry, its backward-looking culture was badly out of step with the reality of the new American auto industry. As 1989 drew to a close, GM’s fortunes turned for the worse again, and GM’s market share was falling.


Apparently, GSPI had not learned any lesson from GM. Although NSC embarked on a more flatter organization dubbed as “1:7 in 1997”, whereby NSC envisaged the ratio of one superior to seven subordinates by 1997, when GSPI took the management of NSC plant in 2004, however it reverted to a more vertical organization. Between 2004 to 2006, even the table of organization was a top secret document that locals have had difficulty in knowing who was reporting to whom, and there were no clear lines demarcating the responsibilities of the various departments. Only with the ISO 9001:2000 certification that a copy of the Table of Organization was published, after several attempts by the certification consultant that such document was as essential as the documentation of the Quality Management Systems [QMS] itself.

Furthermore, with its mind set of synergy, particularly bringing in the Ispat Industries type of organization, new departments were created such as the Maintenance Planning Information Cost and Control [MPICC] and Management Initiatives in 2004. Also, the Quality Assurance and Rolls Management became separate divisions. During NSC era, Quality Assurance and Rolls Management were departments of the respective rolling mills divisions, Hot Rolling and Cold Rolling. Department heads of both departments were directly reporting to the respective rolling mills division heads. Many locals raised the conflict of interest with a common Quality Assurance division for the whole of GSPI, whereby complaints from Cold Rolling Mills Division with regard to the quality of hot-rolled coils from Hot Rolling Mills Division, were received then decided by a singular Quality Assurance Division Head, acting as judge and jury!

In terms of investments, GSPI started its global acquisitions as early as 2003. By 2008, however, because of much reliance on leverage, GSHL investments apparently became a dream. In contrast to GM, at least GM had the money to invest and financial backers to boot, for the next five years; GSHL only had spare money to invest for only one fiscal year. It probably ran out of cash during the acquisition of Zimbabwe Iron and Steel Co. [ZISCO], terminating the deal after six months from signing. This was followed by the cancellation of investments in Berane, Magnohrom, and LLamkos, among several others indicating the illiquidity of GSHL.

Regarding automation, oh … there were several plans of GSHL for GSPI, namely, the application of Six Sigma methodology, TPM, Knowledge Management and upgrading of the business computers. Any computer-user knows that all these plans are computer-intensive applications, yet remained to the present day as plans. The Six Sigma, after a year of turbo-implementation, became like a lame duck of promising technological corporate advantage. Even the primary statistical software used for this methodology is not even licensed to GSPI, but only a crack copy from Ispat Industries Ltd. TPM, which is based on a database of monitoring points, standards, fuguais, kaizens, etc., is also a far cry from any Excellence Award-1st Category contemporaries. It failed to transform itself into a philosophy of work-life, as the company would not disburse necessary funds for the much-needed return to basic conditions of equipment. The former TPM head even castigated the locals of not using their own ingenuity and cunning to do the impossible, i.e., not relying on management’s financing the so-called management-initiative. Huh? One suggested that if this was the case, then the program should be renamed peoples’ initiative! Knowledge Management was introduced back in 2005, but cannot fly off the drawing board. Production reporting is still using NSC-vintage 486DX computers ported to a “defective” COBOL-based Management Information Console. Although there are partial Oracle-based modules, but unfortunately older computers cannot run them plus GSPI have yet to pay the license fees.


Notes:

Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. Place: Simon & Schuster, 1994. pp. 70-79, 93. back to text

White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 LicenseDisclaimer: The posts on this site do not necessarily represent any organization’s positions, strategies or opinions; and unless otherwise expressly stated, are licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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