Survival Strategy

These are difficult times for full-line manufacturers in Western Europe, and no company knows it better than General Motors Corp.'s European operations (GME).

The weakest performer of GM's four automotive regions, it has lost almost $2 billion since 2000, and recently was rocked by the abrupt departure of its president, GM veteran Mike Burns, who left March 1 to become CEO of supplier Dana Corp.

Bob Lutz, GM vice chairman-product development and chairman-GM North America, briefly served as GME's interim chief until a major reorganization was announced in mid-June by GM Chairman and CEO Rick Wagoner.

The recent shakeup puts former GM Asia/Pacific chief Fritz Henderson into the newly created post of GME chairman, and makes Carl-Peter Forster, former Adam Opel AG chairman and managing director, president. Hans Demant succeeds Forster as Opel's managing director while retaining his responsibilities as GME vice president-engineering.

“At General Motors, truly performing as ‘one company’ is key to our future success,” Wagoner says in a statement announcing the restructuring. “We have a distinct advantage because of our size, if we use it properly. Today, we are formalizing a single operating culture in Europe that will pull all the units of GM Europe in the same direction, leveraging the vast resources of the global GM family.”

During a press preview of several new models in Hamburg, Germany, in late June, Forster and Demant revealed in separate interviews a sweeping strategy to commonize vehicle architectures, factories, components and production among GM's diverse brands throughout Europe, Asia and the U.S.

No job cuts or plant closings were announced with the reorganization, but Forster says that GME — like other major Western European companies — will be putting more pressure on its labor unions to become more competitive with Eastern Europe.

In 2001 GME's Opel unit announced its Olympia revitalization plan that aimed to reduce production capacity by 15% and slash 2,500 jobs by 2004 in an effort to cut €2billion ($2.4 billion) from its cost structure and return to profitability in 2003. In November 2002, Saab Automobiles launched its own restructuring plan, called Viggen, to cut about 1,300 jobs.

Despite these cuts, losses at GME have continued to mount because of currency exchange issues, a lack of diesel engines and key new products, a weak European economy and other issues.

“I basically told some of our union representatives that you have to look at it with open eyes. The supply industry is basically closing down their western European plants and opening up in the East,” Forster says.

“(I told them) I would prefer that we become competitive in the West and build any additional capacity that we need in the East. But if we don't achieve that, you know what the next step is. And we have to close here and build in the East. So it's your choice whether you want to maintain employment,” Forster says.

But Forster and Demant spent more time focusing on the term “interbuildability,” (a buzzword apparently coined by Lutz), rather than labor issues.

Both say they aren't planning anything as radical as building Saabs in GM factories in China or alongside Chevy Malibus in the U.S., but hypothetically, that's the type of manufacturing flexibility they hope to eventually achieve.

“We are not flexible in terms of where we produce which car, and this is certainly perhaps one of the biggest issues,” says Forster. “For example, in Europe we definitely want to be able to build Saab and Opel vehicles in the same plant, in order to utilize our capacity much better.”

“As Bob says, the real important thing is this ‘interbuildability,’” says Forster.

“Once you have that, you can decide as time goes by where you want to develop, where the market opportunities are.”

Many were under the impression this flexibility already was engineered into GM's newest vehicle architectures, such as its Epsilon platform, but Demant says no. Those features now are being built into the second-generation Epsilon architecture, known as Epsilon II, which GME is just starting to develop.

“First-generation Epsilon, North American Malibu, European Vectra and European Saab 9-3, all three, take them apart, look at the components, you'll find that those three cars are all very similar, but no part is the same,” says Demant.

“And if I would actually try to build a Vectra in Trollhattan (Saab's main factory in Sweden) it would not even go down the line because the assembly sequences are different. The same is true with a Vectra going down a Malibu line. (With Epsilon II) we are talking about developing, No. 1, a base component set which is identical,” Demant says.

Even though more and more Vauxhalls, Saabs, Opels and many other GM cars and trucks will share common architectures, components and production lines, Forster and Demant are confident they can maintain and even improve the individuality of each vehicle and brand.

Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Corp. already have the ability to build a wide mix of products — such as cars, SUVs and minivans — in the same plant and are implementing this strategy with great success in North America and other key markets.

GM has made gains that have put it ahead of its cross-town rivals in the U.S., but it still can't match the Japanese flexibility. Considering it has far more brands and models than other producers, it is a daunting task.

While it will be two to three years before major benefits of interbuildability are realized, other benefits could start appearing in as soon as six months Forster says, in part because the new strategy will free up resources now being consumed by redundant product-development programs.

Consumers should start seeing improvements shortly because Saab and Opel service and retailing are being consolidated, he says.

“Hopefully after a very short while, service should improve, and area coverage should improve.

“Otherwise I hope we will definitely, with the next-generation Epsilon, work towards creating very differentiated great cars. I'm a product engineer. I'm still a strong believer that even sharing some structural components you still can create very differentiated vehicles.”
— with Brian Corbett