GM Stumbles, Fumbles Overseas International Operations take a hit

The road to China, Thailand, Russia and Brazil runs through Detroit.

At least it will for General Motors Corp., which over the next few months is shifting its International Operations (IO) command center out of Zurich back to the Motor City.

The move comes on the heels of some unexpected stumbling at GMIO - part self-inflicted, part global economics - that sent the group's earnings plunging 69% in 1997 and its all important net profit margin sliding to 1.3%, well below GM's 5% bogey.

Suddenly the strong hands that had carried the earnings ball for Chairman John F. Smith Jr. since his ascension to chief executive in 1992 dropped the ball. No longer could he count on international to bring in the cash to offset perennially weak-performing North American Operations (NAO).

But lately - before the June strikes - NAO had begun to walk smartly without the help of IO's cash crutch.

Meanwhile: GM is moving to a single global organization not too dissimilar from Ford Motor Co., which likely will blur the existing distinction between NAO and IO. It could be that GM eventually will drop separate reporting on results of the two giant organizations.

In Europe - plagued the past year by slumping sales, employee unrest and management controversy - GM appears headed for a rebound.

Despite tougher competition from Volkswagen AG's current buying spree and the pending Daimler-Benz AG/Chrysler Corp. merger, GMIO President Louis R. Hughes tells WAW the No.1 automaker doesn't feel threatened. These outfits simply are pushing the global envelope.

"Without question" GM will be back in the black in Europe this year, he says, thanks to strong sales of the all-new Astra and continuing healthy demand for Corsa. GM's Adam Opel AG subsidiary, which had tooled up to supply some 500,000 Astras annually, already is looking to expand capacity another 10%.

Mr. Hughes also forecasts strong demand for the upcoming Zafira, an Astra-based microvan that will bow next year. The Zafira joins the Renault Megane Scenic and upcoming Fiat Multipla in what is expected to become one of Europe's hottest segments.

"Corsa is sold out. Astra is sold out. We expect very high demand for Zafira," Mr. Hughes says, adding that Opel's Bochum, Germany, plant will be tooled for at least 150,000 of the microvans annually.

Once cast as the villain by the rank and file, Mr. Hughes now puts a more positive spin on Opel's labor situation.

"Right now the challenge is not to reduce the workforce," he says, "it is to increase capacity. I would like to keep all the employees we have. It will be very dependent on the overall market demand for our products. And right now that demand is very high."

Moreover, Mr. Hughes also believes he has put to rest controversy over technical staffing; Opel engineers complained loudly about being stretched too thin as part of GMIO's global assault.

"We have hired almost 1,000 additional engineers since 1992, and have significantly increased our expenditures for research and development," he says. "I think (that has) addressed some of the staff's concerns."

Europe's management controversy, viewed by many as a philosophical struggle between former Opel Chairman David J. Hermann and Mr. Hughes, appears resolved, now that Mr. Hermann will move to run GM operations in Russia. He's succeeded at Opel by Gary Cowger, a manufacturing guru and former GM-Mexico president, who was handpicked by Mr. Hughes and who will lead a productivity push in Germany.

"Because Germany's labor costs are among the highest in the world we need to ensure the type of high productivity we've achieved at Eisenach (in eastern Germany) becomes common throughout Germany," says Mr. Hughes. "And Gary brings that manufacturing expertise to the job.

Mr. Hermann last January engineered a new four-year labor contract. The pact provides Opel with flexible working hours, lower wage increases and a headcount-trimming early retirement plan in exchange for job guarantees.

While Europe appears on the mend, Asia/Pacific remains mired in an economic maelstrom. But even with the double-digit market declines comes an opportunity for better footing in the region, he reckons. Chief among them is a potential equity stake in South Korea's Daewoo Motor Co.

Although Daewoo had hoped to resolve the negotiations by mid-year, Mr. Hughes refuses to put a timetable on the talks. "Daewoo is a very complex company, and its automotive business is spread across a number of subsidiaries. Sorting that out and coming to a consensus about what that's worth takes time."

The Asian slump also may have pushed ongoing discussions to develop an emerging-markets car with Suzuki Motor Corp. to fruition. The deal, announced last month, calls for the two to start building the sub-Corsa model at Opel's Gliwice, Poland, plant and Suzuki's Esztergom, Hungary, facility in 2000. GM owns a 3.3% stake in Suzuki.

Although the Asian depression has put GM's $100 million investment in Blazer production in Indonesia in doubt, GM still is viewed as a johnny-come-lately in the region and therefore less at risk.

At least the slump came before the point-of-no-return for GM in Thailand, where Mr. Hughes says investment will be scaled back from $750 million to $500 million. Originally set for start-up this year, the Thai project is on hold until after 2000, with initial volumes cut more than in half to 40,000 units. Mr. Hughes won't say what vehicle will be built, a decision that likely hinges on talks with Daewoo. Besides Daewoo, the buyer's market in Asia has spawned rumors GM could increase its equity in Suzuki or form alliances with Suzuki and Maruti Udyog Ltd. in India, or Proton in Malaysia.

"No one foresaw the Asian financial troubles and, like everybody else, we got caught incredibly short," says Donald T. Sullivan, former president of GM Asian and Pacific Operations. "But now is the time to forge new relationships."

Mr. Sullivan, also is being recalled to Detroit to head up GMIO planning. The move, which will allow IO and GM's North American Operations to work more closely, may be necessary if GM truly wants to become an international player.

"The purpose of the move back to Detroit is to help globalize our company," says Mr. Hughes. "NAO and IO have had for many years very different processes in most every phase of the business: developing cars, manufacturing cars, selling cars and even accounting. As we tried to become global, it became evident we needed to have common processes. And that's very difficult if you're sitting thousands of miles away from each other."

There are certain to be more opportunities for pooling engineering resources. GM's Powertrain Operations already have gone global. And IO last year adopted the NAO product development structure, designating vehicle line executives for each of its platforms.

What about potentially increased international competition expected from the Chrysler and Daimler-Benz merger and Volkswagen's buying spree?

"It is clear that our German competitors are following our lead to become very global companies," Mr. Hughes says. "As Jack Smith has said, we don't feel a threat from any of these moves. The fact is we see them as a validation of our company strategy."

- with Mack Chrysler in Singapore