John F. (Jack) Smith Jr. never dreamed as a 22-year-old newcomer atCorp. that one day he'd wind up at the top and win wide praise for leading the company through one of the biggest turnarounds in U.S. industrial history.
Affable and self-effacing, Smith retired as GM's chairman May 1, after turning 65 on April 6. He leaves the board of directors, but says he'll remain in an advisory role, especially as it relates to the Asia/Pacific region, where he foresees major growth.
He makes these observations during an April interview:
“It's incumbent upon us to make sure that our global share is increasing — that we're playing hard in growth markets. But it's also important as hell to defend our home market.” Smith is especially bullish about China, where 3,450,000 vehicles were sold last year, a 40% overall gain from 2001 propelled by a 63% boost in passenger-car sales. “That's a million more than the so-called analysts, including our own, projected,” he says. GM currently claims a 10% share of the Chinese market.
Now that the Daewoo deal is complete, Smith sees the Korean auto maker becoming the launching pad for exports to North America, China and Europe. GM owns 42% of Daewoo Automotive & Technology Ltd.
He concedes GM faces challenges in Europe, where it lost $549 million last year and took a $1.4 billion after-tax writedown on its 20% investment inAuto SpA. But he says GM is gaining from “synergies” with Fiat in powertrain and purchasing joint ventures, though he declines to comment on the future of GM's involvement with the Italian auto maker. There's work to be done at Saab Automobile, too, which also is losing money. GM's partnerships with Suzuki Motor Corp. and Heavy Industries Ltd. are working well, and financially plagued Motors Ltd. recently launched a restructuring program, he says.
GM can afford to play the incentive game because of the company's efficiency gains. “What's important is to get your cost basis (adjusted) with the incentives you keep putting in the market. So that's what we focus on — making sure our cost position is strong enough to run incentives and still be reasonably profitable.”
Smith concedes GM has been late with competitive products. “We had to put our house in order. During the crisis of 1990-'91 those programs were stopped, so they got a little older. Then our internal structure was screwed up. Every division would fight to continue to keep what they had.” Eventually the Strategy Board took control and set objectives. That, combined with the new organizational structure being implemented, swung GM's new product into gear.
Smith joined GM at its Framingham, MA, plant not far from his home town of Worchester, as a cost accountant.
He was spotted early as a fast-tracker but, thinking he was charted for a career on the operating side, he at first turned down a chance to move to GM's all-powerful treasury office in New York in 1965.
Instead he soon wound up on the humdrum audit staff in Detroit, “auditing plants in Timbuktu” and by 1966 was ready to make the move to New York. That was the first of numerous major turning points in his career. Rising through a series of financial posts, he was assigned the key position of corporate comptroller in 1980, only to be tapped two years later as director of worldwide product planning, a lesser position but one that turned out to be a pivotal move.
Motor Corp. had approached GM about creating a joint venture and specifically targeted GM's shuttered and problem-plagued Fremont, CA, assembly plant. Smith made his first visit to Japan and led the team that created the New United Motors Mfg. Inc. 50/50 joint venture — managed by Toyota — to make vehicles for both companies. That began a GM learning curve that continues.
It can be argued that this toe-in-the-water eventually triggered GM's transformation from stodgy, high-cost and inefficient to become, under Smith, the Big Three's lowest-cost, most efficient, highest-quality auto maker.
He became “immersed in the Japanese production system and everything else,” Smith recalls, “but the most important thing I learned was exactly where we were from a competitive position, and boy that was bad news — bringing it back to GM's operations people. They didn't believe me.”
After two years in product planning, Smith moved up to president of GM of Canada and in 1986 began rising through a series of international posts in Europe, arriving by 1990 as vice chairman of International Operations.
It was from this position that he was tapped in April 1992 as president and chief operating officer. He catapulted six months later to CEO in a boardroom coup that forced Chairman Robert B. Stempel into retirement.
GM's jittery directors, led by John G. Smale, who was elected nonexecutive chairman, worried about mounting losses and ordered the shakeup. GM had lost $4.5 billion in 1991 and was still dripping red ink. When the 1992 numbers came in, another $2.6 billion loss was recorded (actually $23.5 billion if an accounting change and pension liabilities are included).
GM hasn't lost money since Smith took charge, earning $1.7 billion in 2002 on record revenues approaching $187 billion, despite heavy costs for year-long incentives. In 2001, it made $601 million. It's now trying to lower expectations for 2003, but GM surprised analysts with better-than-expected first-quarter earnings of $1.48 billion, up from $228 million during the same period last year.
Faced with increasingly stiffer competition, GM's market share during Smith's tenure at the top dropped from 34.3% to 28.6% in 2002, but GM folks cheered that number: It at least was up from 28.3% in 2001.
How did Smith engineer the turnaround? There's no simple answer, but it starts with reshaping GM's organization to eliminate redundancies and become more efficient despite stubborn internal opposition.
“You've got to keep working at it; it's not a fixed thing,” he says. “We've got to continue to drive down to one company (with commonality worldwide) out of a collection of all kinds of companies left over from the Durant-Sloan days (William Durant, GM's founder, and Alfred P. Sloan, its longtime chairman) — divisions that ran pretty much independently.”
Streamlining has become GM's mantra. “We had 27 purchasing groups worldwide and now we have one,” he says. “We had seven engineering centers in North America and now we have one. We have all of the engineering in one place and all of the manufacturing in one place.” And the car and truck groups are now combined, he emphasizes, helping to cut in half the time it takes to move a new product into production.
Asked what he considers his legacy, Smith smiles and replies: “I've spent the bulk of my career downsizing. We were coming from a very noncompetitive position. But we finally got there. It's not an endgame; we've still got a ways to go.”
Smith also has dealt with his share of crises, such as a 54-day strike in Flint, MI, five years ago that cost GM $2.3 billion. “As we were pushing for efficiency, the union was trying to focus on protecting jobs, so there was always conflict there,” he says. “It blew up a few times.”
After the Flint debacle, Smith plucked Gary Cowger, now president of GM-North America, from Opel in Germany to return and handle labor relations. “I think we have great relations now,” says Smith. “Now, that's not to say we won't have trouble, but we've come a long way.” Apparently the United Auto Workers union agrees. In a prepared statement, UAW GM Department Vice President Richard (Dick) Shoemaker describes Smith as “one of the most credible people in the auto industry today — and perhaps in history. It's unlikely he'll ever get the credit he deserves for the contributions he has made to.”
“We got ourselves into a helluva mess,” Smith admits. “It's taken a long time.” Recruiting Bob Lutz as product development chief and vice chairman has sped up the process, he says. “Internally, it has really helped morale in the design staff and engineering. And what's really remarkable is Bob is cost-conscious. You can get one of those so-called car guys who will send you into the poor house.”
With his GM pension, stock and other perks, Smith won't soon head to the poor house. Instead he'll maintain homes in Cape Cod, MA, and Naples, FL, and remain on the board of numerous blue chip companies and community organizations. He also has joined Jay Alix & Associates, a Detroit-area investment firm, in an advisory role.