Consider Gary Cowger.
Corp.'s new head of labor relations walks into the debris left from last summer's 54-day, $2 billion strike by the United Auto Workers union at two Flint plants. He points to his track record as a plant manager throughout the 1980's. Former UAW local leaders vouch for his honesty and people skills. He certainly understands how parts come together to make a complete car or truck.
But like many of GM's best and brightest, he has been out of the U.S. for awhile. While Mr. Cowger was turning around GM de Mexico from 1994 through 1997, the UAW and Canadian Auto Workers called 24 local strikes.
Like an ace relief pitcher coming in with the bases loaded, Mr. Cowger must get results fast. GM,Motor Co. and DaimlerChrysler AG must negotiate new national contracts with both of those unions this year.
Talk about a political minefield.
Challenge No. 1 will be to engineer the initial public offering ofAutomotive Systems, GM's $31 billion-a-year auto parts unit. Both Chairman Jack Smith and GM President G. Richard Wagoner say they will insist on a separate labor agreement for Delphi workers. Traditionally, Delphi workers have been paid the same wages and enjoyed the same benefits as their co-workers at GM assembly, powertrain and stamping plants.
"We're not looking for massive takeaways or relocations," says Mr. Wagoner. "It's not like we're spinning off a tiny postage stamp. This () is a massive company. It's going to have a lot of weight and bulk in its own right - a lot of security."
GM must avoid the dilemma it faced in 1996 whenMotor Co. negotiated the first agreement. The No. 2 automaker pledged that its U.S. hourly employment would not fall below 99,750, or about 95% of its UAW head count at the time of the agreement. In exchange, the UAW allowed Ford to buy or partner with independent suppliers that paid less than Ford.
Given GM's goal of spinning off Delphi and its need to reduce its U.S. hourly work force, then about 220,000, by at least 50,000, the 95% pledge was untenable.
"I don't know what the issues are going to be in 1999," Mr. Smith says. "I do know it's important for us to have a good working relationship with the union and we're working very hard at that."
Restoring Opel's Focus
Five years ago, when Mr. Smith was pulling GM's moribund North American business out of the ditch, Opel was the shining example of lean manufacturing and listening to the customer.
Now the roles are almost reversed. There's been a revolving door in Opel's Russelsheim, Germany, headquarters. First, David Herman, who had overseen the comeback, was reassigned to Moscow. He was replaced by Mr. Cowger, who apparently had the support of most Opel engineers and the leaders of Germany's hard-nosed IG Metall union. In the wake of Mr. Cowger's reassignment to Detroit, Hans Wilhelm Gaeb, chairman of Opel's supervisory board, resigned.
Mr. Smith and GM's board of directors responded by dispatching Robert Hendry to replace Mr. Cowger, and naming Wolfgang Strinz deputy chairman of Opel.
The shifts not only confused industry observers but also raised the question of how GM can pursue a strategy of globalization when the top management assignments always go to Americans.
"At certain levels we do have a significant number of international folks," Mr. Smith says. "We need to do more of that."
A slower-than-expected launch of Opel's Astra and the resurgence ofhelp explain why Opel and Vauxhall (GM's nameplate in the U.K) only captured 10.5% of new car sales in Western Europe through the first nine months of this year, down from 11.3% a year earlier.
In the third-quarter GM Europe earned $50 million after taxes in contrast to a $21 million loss a year earlier. But its net profit margin was a disappointing 0.8%. That was barely half of GM's 1.5% margin in North America and far below Mr. Smith's goal of 5%.
The introduction of Opel's Zafira, a European-size minivan, full production of Astra and the general strength of most Western European economies are encouraging signs, if Mr. Hendry can calm the dissension in Germany.
Asia, Latin America drag earnings
GM will keep its long-term commitment to grow in emerging markets. Pilot production of the first Buicks to be built at Shanghai GM, the $1.5 billion joint venture in China's largest city, begins this month (see AutoTalk, p.23). Production of salable cars begins next April.
GM is following through with its Blue Macaw modular assembly project in Gravatai, Brazil. Even the scaled back Thailand project remains on the drawing board.
Just don't expect huge profits in the near-term.
GM lost $64 million in the third-quarter from its Latin America, Africa and Middle East operations, compared with a $165 million profit a year earlier. The company doesn't break out South American results.
It has cut production in Brazil and Argentina in recent weeks. Mr. Smith says he is confident that Brazilian President Fernando Hen-rique Cardoso's economic rehabilitation plan will help cut the government's deficit, which should then encourage banks to reduce interest rates. But in mid-November most banks in Brazil were offering 35%.
Will that be enough?
"Yeah," says Mr. Smith. "Because the combination with all the industrialized nations supporting the plan represents a major stand in Brazil."
Rebuilding Reserves is Crucial
Cash is more important than ever. The automaker that has the most of it and spends it most wisely will prevail when the next recession comes. Cash is the insurance that future vehicles will come to market on time, that better automation and more powerful computers can be bought when they are needed.
Largely because of the strike, GM's cash and marketable securities fell to $8.5 billion at the end of the third quarter, down from $14.5 billion at the end of last year.
By contrast, Ford held $22.9 billion on that date.- has about $9 billion (DM 16.3 billion).
Mr. Smith says GM's reserves will be back up around $13 billion by the end of the year because the company is trying to make up for production lost during the strike. In addition, new products such as the 1999 Chevrolet Silverado and GMC Sierra are generating wider profit margins than the models they replace. Spinning off 15% to 19% of Delphi will generate another $1.5 billion.
The Shape of Things to Come
GM will continue to prune its passenger car portfolio. It stopped producing the Buick Riviera and Oldsmobile 88 in 1997. There are other models on the endangered species list, but Mr. Smith won't say what they are.
But there's plenty of room for GM to introduce new models that merge passenger car and sport/utility design themes. Remember the Buick Signia concept at the 1998 North American International Auto Show? Look for similar exploratory vehicles at the 1999 NAIAS.
In the near-term, GM will continue to shift more of its North American production toward more profitable pickup trucks, minivans and sport/utility vehicles. Through the first 10 months of this year, light trucks accounted for 46% of GM's U.S. sales, up from 42% a year earlier.
Yellowstone: 'It's Still Being Worked On'
Project Yellowstone is the controversial approach GM is studying to turn an unprecedented level of small-car content over to leading suppliers. GM is still not making a profit on its small cars such as Chevrolet Cavalier, Pontiac Sunfire and Saturn.
By encouraging suppliers to produce large modules such as wheels, tires and suspension components; or seats, instrument panels, doors and headliners, GM would reduce tooling and labor costs substantially. Fewer UAW workers would assemble the finished vehicle. That will be a major issue in next summer's contract negotiations.
Last August Chairman Smith said GM might replace one or more older U.S. assembly plants with a new greenfield plant that would allow for modular assembly.
"We're talking about plants that go way back, not those we've opened in the last 20 years," he says. "A newer plant wouldn't cost that much to build. We could run them with three crews. Look at our plant in Zaragoza, (Spain). It runs 24 hours a day, building 2,000 cars a day." That's 83 jobs per hour.
Anything faster than 65 jobs per hour is considered fast by U.S. workers. Project Yellowstone may be stuck in the study stage, at least for another year.