GM: New and Improved!

BRESCIA, Italy - Against a picturesque backdrop of mountains and lakes, General Motors Corp. tries to bury its past here in Northern Italy and lay out a new vision of its future. Forget about the behemoth that has stumbled through the past two decades making bad decisions and boring cars - losing 20 points of U.S. market share in the process. The new and improved GM is a big, fast-moving giant that

Drew Winter, Contributing Editor

August 1, 2000

10 Min Read
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BRESCIA, Italy - Against a picturesque backdrop of mountains and lakes, General Motors Corp. tries to bury its past here in Northern Italy and lay out a new vision of its future. Forget about the behemoth that has stumbled through the past two decades making bad decisions and boring cars - losing 20 points of U.S. market share in the process. The new and improved GM is a big, fast-moving giant that uses its huge customer base to earn more profits in everything from satellite TV to home mortgages. It is a giant that is advantaged by size, not hindered by it.

In short, GM sees itself coming to market in the next few years with a wide portfolio of innovative new car and truck platforms built off a smaller number of common vehicle "architectures." It's a strategy that will ultimately lower costs while increasing the flexibility of its plants and product lines.

Meanwhile GM has quietly sped up its formerly lethargic product development process. It now has more than 20 new vehicle programs running on 24-month schedules and several more are on 18-month schedules (see WAW - June '00, p.51). With a larger portfolio of products being developed more quickly, GM will be able to take more risks.

And it's shifting a higher percentage of its production capacity from cars to more profitable trucks.

GM brass also predict the automaker's "network" of alliances with other vehicle manufacturers such as Fiat SpA, Suzuki Motor Corp., Isuzu Motors Ltd. and others will begin paying dividends soon in fast-growing emerging markets. And they expect the Internet to become a powerful tool in GM's bid to cut supply and inventory costs and reach out to a new breed of Internet-savvy consumers.

Justin Hyde of the Associated Press wryly describes the so-called "GM Seminar" here as a "GM Infomercial." And that's pretty much what the event is: virtually all of GM's top officers and Strategy Board members pitching happy, upbeat messages to 66 automotive journalists and financial analysts from around the world. For three days GM's top brass outline their plans to expand global market share, re-establish competitiveness in core automotive businesses and expand into new businesses via the Internet. There are no great new revelations, but that doesn't seem to be the point. Instead GM wants to make it clear that it does have a grand strategy for the future, and it's doing everything it can to get the media and Wall Street focused on where it's going, not where it's been. At least, not where it's been the last 20 years.

But wait, there's more. . .

The seminar also is a coming-out party of sorts for G. Richard Wagoner Jr., the 47-year-old GM insider who officially took over as chief executive officer June 1. He's the youngest GM chief executive ever, and many wonder if he's the right executive - given that he is a product of the automaker's hidebound culture - to move GM forward. That said, the 6-ft. 4-in. Mr. Wagoner - a forward on Duke University's 1971-'72 basketball team - moderates the event for all three days with the energy and aplomb of Infomercial king Tony Robbins.

"It's fun to write about a slow, lumbering, bureaucratic giant, and in certain parts of the business there are elements of that," Mr. Wagoner admits in his wrapup. "But I hope you have the impression that there's a hell of a lot going on, and I challenge you to find any company in the world thathas the broad-based capability to do what we do," he says.

The audience is a lot more skeptical than those on late-night TV but still largely impressed with Mr. Wagoner's performance. He's casual, relaxed, but clearly in charge. This is the executive GM insiders have been seeing for years. "This is how Rick runs the strategy board meetings," says GM Chairman John F. (Jack) Smith Jr., who is content to remain out of the limelight for most of the seminar.

Nevertheless, Mr. Smith gives one of the more memorable presentations of the event, outlining not only GM's prodigious innovations over the years (the self-starter, first mass-produced V-8, vehicle "styling," the first automatic transmission), but he also details GM's biggest missteps over the past 30 years with surprising candor. GM's reluctance to move away from the highly successful organizational model created by Alfred E. Sloan began hurting the organization in the 1960s, he says. Then the automaker added platforms to address new small-car competition but did not change its mass-production paradigm. That caused GM to lose economies of scale and its ability to do annual model changeovers.

Now a proponent of frequent organizational change, he also candidly admits GM's monster reorganization in 1984 was ill-conceived and "one we shouldn't have done." The upshot: GM finally is ready to admit its mistakes and learn from them. No small step for a company whose culture is so steeped in corporate arrogance.

Other highlights:

n Although its market share has shrunk dramatically, GM still has a huge customer base to which it plans to sell a variety of new non-automotive products. It has 8 million new vehicle customers annually and an owner base of 70 million just in the U.S., but it also carries 8 million vehicle loans and 1.7 million mortgages through its GMAC financial subsidiary. Plus it has 10 million GM credit card holders under its umbrella and 8 million DirecTV subscribers. It is only beginning to tap the possible cross-marketing synergies these big customer groups offer.

GM's OnStar telecommunications system is yet another lucrative means of pulling more revenue from its customer base. The roadside service now has 220,000 subscribers, a figure predicted to reach one million by year end and four million by 2003, across several vehicle lines. The automaker is spending $3.2 billion a year on information technology, and $1.6 billion annually just in building up e-commerce initiatives over the past several years, says Ralph J. Szy-genda, vice president and group executive in charge of Information Systems and Services.

n GM has a very rosy view of future global vehicle sales. It predicts demand for new cars and trucks will spike upward dramatically as incomes rise and populations grow in the key emerging markets of Mexico, Brazil, Poland, Russia, China, India and Thailand. It says it is well positioned in these markets, especially when its affiliated companies are included in the mix. GM now refers to aggregate market shares of itself and companies it owns outright or in which it owns an equity share (Saab Cars AB, Fuji Heavy Industries Ltd., Fiat, Suzuki and Isuzu) as the "GM Network." GM's future vision is for the GM Network to have 28% global market share, up from 24% today. GM alone has 16% of the global market, which it would like to expand to 20%.

n In 1998 GM held 8% of the market for cars priced under $10,000 in the world's eight fastest-growing markets, where 60% of industry growth is expected to occur during the next 10 years. Including its affiliates, GM controls 34%.

n Mr. Wagoner wants the automaker to have 6% to 8% annual revenue growth, 5% net income margin overall, 15% return on net assets (RONA) over the business cycle, and top quartile stock-price performance. However, Mr. Wagoner didn't give a timeframe for many of the targets and conceded GM might not reach all of them, especially some of the financial goals. North American operations are expected to fall short of the 5% net income bogey in 2000.

n GM is reducing the number of its global car "architectures" from 17 to 15 by 2004 and the number of truck architectures from 11 to 8. It defines architecture as "a set of common product and manufacturing standards related to a vehicle type (such as fullsize trucks). GM engineers describe a "platform" as "the application of those architectural standards to a related family of vehicles (such as fullsize SUVs).

n GM still is struggling with market share issues. North American share is slumping to 28% or below, but North American President Ronald L. Zar-rella glibly explains that the majority of market share loss has been in entry segments where GM doesn't make any money, while the automaker has enjoyed share gains in the key high-profit light truck segments. GM plans to shift more and more production to trucks.

"We've made some conscious decisions on where we're putting resources to improve the financial position of the business," Mr. Zarrella says. "We lose a lot of money on small cars. Our job is to generate cash to support growth." This year GM's truck sales will likely equal car sales for the first time. (Ford Motor Co. and DaimlerChrysler AG's Chrysler unit have been selling more trucks than cars for years.) The projection for next year is 54% trucks, rising to 57% in 2002 and 60% within five years. When asked in particular about Oldsmobile's flagging fortunes, Mr. Zarrella says the automaker has developed competitive new products that appeal to a younger demographic and now "it's up to the dealers to step up" and move the metal.

n While GM is consistently hammered for not having innovative products, it touts the fact that it actually has some bonafide hits and brags it has more coming. GM's launch of its full- size pickups and SUVs has been a success, and the Opel Zafira minivan is a genuine home run in Europe. The recently launch- ed Suzuki-based Agila microvan looks like it could do well. The Pontiac Aztek features a daring design and is attracting attention. Other promising new cars coming in Europe are the all-new Corsa due to launch in October and the upcoming Opel Speedster. Other potentially strong new vehicles coming in the next 12 months are the GMC C-Series full-size pickup, the Opel/Vauxhall Astra Cabrio, the restyled Cadillac Escalade SUV, the Buick Rendezvous, a restyled family of compact SUVs including the Oldsmobile Bravada and the much talked about Chevrolet Avalanche fullsize pickup.

n Manufacturing productivity. GM was the most-improved manufacturer in the U.S. and Canada in the influential Harbour and Associates annual study of assembly, engine and transmission productivity. It also has a family of extremely efficient "common" assembly plants now coming on stream in China, Thailand, Poland and Brazil.

n GM's strategy of aligning itself with numerous global automakers is giving it technical expertise in a variety of areas, including diesels (Fiat, Isuzu), all-wheel-drive (Fuji Heavy Industries), continuously variable transmissions (Fuji) and minicars.

n 80% of GM's engines will be new or significantly upgraded by 2003.

Despite the best efforts of GM's top management, few left the Italian seminar convinced that radical change was imminent at the world's largest industrial corporation. And since then, Wall Street has been even less kind. Even though GM made $5.58 billion in profit on a record $177 billion in revenue last year and had profits of $1.78 billion in the first quarter of 2000, net income after taxes sputtered in at 3.2%, compared with Ford's 4.2%, and far below Mr. Wagoner's future goal of 5%. The story wasn't much better for first-quarter 2000: 3.8% vs. Ford's 4.3%. GM's stock hasn't been faring well lately, either. In mid-July it was down 34% from record highs in the spring.

The biggest beneficiary of the whole event is probably Mr. Wagoner himself, whose grasp of the issues and confident, easy-going manner convinced at least a few cynical attendees that despite his company's myriad, ongoing problems, he may indeed be the right guy to lead it out of the woods. Singer/Actor Cher often is quoted as saying that doing an infomercial just about ruined her career. That won't be the case for Rick Wagoner.

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2000

About the Author

Drew Winter

Contributing Editor, WardsAuto

Drew Winter is a former longtime editor and analyst for Wards. He writes about a wide range of topics including emerging cockpit technology, new materials and supply chain business strategies. He also serves as a judge in both the Wards 10 Best Engines and Propulsion Systems awards and the Wards 10 Best Interiors & UX awards and as a juror for the North American Car, Utility and Truck of the Year awards.

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