And GM Makes Three . . . Why the No.1 automaker is consolidating globally

And GM makes three.

First: Ford Motor Co. launches Ford 2000, its all-encompassing globalization plan in 1994, claims some spectacular results under Chairman Alex Trotman, prompting him to retire earlier than planned at year's end and paving the way for William C. Ford Jr. to take over as nonexecutive chairman and Jacques Nasser to move up to president and chief operating officer.

Second: Chrysler Corp. and Daimler-Benz AG merge in September, creating a global giant with strengths ranging from tiny city cars to 18-wheelers - and everything in between.

Third: GM takes the final step in a global plan under way since 1992, meshing its separate North American Operations (NAO) and International Operations (IO) into a single global organization called GM Automotive Operations that aims at shaking up its stodgy decision-making process, eliminating duplicate efforts and getting to market faster.

GM chooses G. Richard (Rick) Wagoner Jr. to lead the charge as president and chief operating officer. Chairman John F. (Jack) Smith Jr. relinquishes the president's slot he'd held simultaneously since November 1992.

And let's not forget the other big guys out there such as Toyota Motor Corp., Volkswagen AG and Honda Motor Co. Ltd., each with centralized global management and each moving to expand its clout.

To put this in perspective, GM's move to focus all of its eggs in one basket could be judged a no-brainer. It will, however, retain four regional presidents heading North America, Europe, Latin America and Asia reporting to Mr. Wagoner. Three remain where they are while Ronald L. Zarrella, 49, is named president of GM North America (see Auto Talk and Scuttlebutt, p.17). The former president of Bausch & Lomb, Mr. Zarrella joined GM only four years ago, and moves up from group vice president in charge of North American sales, service and marketing, where he has led GM's brand management initiatives.

Personable, bright and young - he's only 45 - Rick Wagoner faces formidable challenges, not the least of which is solving GM's chronic U.S. North American labor problems. The 54-day strike last summer cost GM $2 billion, and work stoppages in 1997 nipped $238 million from the bottom line. Looking ahead to 1999 United Auto Workers union negotiations, he simply says that "I need to be into it." As one sign GM is attempting to smooth relations with the UAW, Jack Smith informed the union in advance of the NAO/IO merger.

Mr. Wagoner's selection positions him to one day assume GM's top spot. Although rumors heat up that Mr. Smith, 60, may retire early, he denies such plans. And his immediate successor still could be Vice Chairman Harry Pearce, 55, who's currently recovering from leukemia treatment and is tentatively scheduled to return to work late this year.

The new top management alignment ends an unofficial race between Mr. Wagoner, who had headed NAO since 1994, and Louis R. Hughes, IO chief, for the presidency. Mr. Hughes, 49, is named to head New Business Strategies, a new catch-all position that will, for example, explore GM's opportunities in growing areas such as information technology. He'll report to Mr. Smith. His overseas experience naturally will be utilized: He has spent the last 14 years outside the U.S.

While Mr. Wagoner is credited with turning around NAO, a perennial money-loser, Mr. Hughes' IO - which literally carried the corporation for years - has been beset by myriad problems. IO profits in 1997 sank to $481 million from $1.5 billion the year before; NAO profits meanwhile climbed from $730 million in 1996 to $2.3 billion last year.

That's not the only reason why Mr. Wagoner got the job. Both men, like their mentor Jack Smith, come from the financial ranks. But NAO was a $100-billion-per-year operation, three times the size of IO and arguably the "home office" leader in GM's global push for commonality that began six years ago.

Such huge groups as purchasing, powertrain and truck operations already operate on a global basis, with the passenger-car side poised to do the same as GM rolls out new platforms over the next few years.

After 15 years of unsettling reorganizations, will GM get it right this time?

There are some nagging questions:

n The financial folks continue to dominate, which may please Wall Street, but that begs the question of who has a passion for products that competitors such as Ford, DaimlerChrysler and Toyota have in abundance? Everyone from Mr. Smith on down say exciting stuff is coming soon, but that's not a new promise. Mr. Wagoner says the move will speed product development, and that next year GM will launch a model on an 18-month cycle (half of what it normally takes) for the first time. "We can do one," he says, "but can we do more (of them) efficiently?."

n Who will be the new players as the reorganization trickles down? Some who get new titles at the outset are in their early 60s, suggesting they won't be around long. Who'll be on Mr. Wagoner's team as his regime takes hold over the next few years?

What's the impact of the consolidation? What it will do immediately is eliminate seven management boards, councils and alliances, combining them into a single GM Automotive Strategy Board comprised of 15 executives representing each major sector of the corporation.

"As NAO turned around, we knew we had to get more common processes (worldwide)," says Mr. Smith. "We couldn't have a duplicate NAO and IO. We began to converge, but it soaked up a lot of manpower resources. We also had to make new structures. This slowed us down."

Threading through this maze could take months to reach a decision. Now, says Mr. Wagoner, those will come within two weeks. "This is more a revenue issue than a savings issue. If we're faster to market, it won't hurt our drive to save cash," he says.

Now he has to make it work.