Who'll Run GM In the New Millennium?

If Jack Smith retires next spring as rumor has it, he'll be the first General Motors Corp. chairman in modern history to voluntarily exit before age 65. He'll be 62.

Conventional wisdom goes like this: John F. Smith Jr. has done his job. During the seven years he has served as president or chairman, both as CEO, he has taken the world's largest automaker from the brink of financial disaster to the threshold of a potential renaissance.

Giving rise to speculation that Mr. Smith will bow out early is the fact that outside GM director John G. Smale, who led a management coup in 1992, took over as as nonexecutive chairman and engineered Mr. Smith's rise to CEO, is leaving the board at age 72 next May. Why not make it a doubleheader?

After all, GM has nearly $17 billion in the bank; a new four-year labor contract guaranteeing relative peace well into the next century, a phalanx of new and purportedly more exciting vehicles in the pipeline, lower costs that are still being attacked, a strong position in overseas markets, a head start on Internet opportunities, and a management succession plan that outwardly lacks only one thing: A strong product champion - that nebulous personality called "a car guy."

No quick fix here, but someone in GM's talented stable could emerge or, like they say in the sports world, GM could buy up someone's contract.

Mr. Smith has been blessed, of course, by the strongest sustained U.S. market ever: eight years and counting, with 1999 expected to hit a record-breaking 17 million cars and trucks.

That can't last forever, so why not exit when most of the arrows are pointing up? For the record, Mr. Smith says he expects to be on the job for at least another year, confirming in a WAW interview that he has no plans to retire. "I'm working hard every day, hopefully I'm adding value, but only time will tell," he says.

The key word is "time." WAW sources suggest he'll remain through 2000, then likely turn the reins over to President G. Richard (Rick) Wagoner.

Contrary to some reports, he looks very much like he could go a few more rounds.

Despite a tough schedule that in recent weeks has included trips to China, Japan, Germany and elsewhere, he looks chipper and relaxed as he affably jousts with his interviewers on a wide-ranging list of subjects.

Like everyone else, Mr. Smith is amazed by the market's strength this year. Twelve months ago GM and everyone else expected sales to reach 15-million-plus.

"Look at your old notes," he quips. "This has been a blockbuster. Consumer confidence is strong and people are spending money. We're projecting that 2000 will be another good year. We don't have an official forecast year (when) we expect it to slow somewhat from the very huge number this year."

Looking further out, Mr. Smith was asked to visualize what the industry will be like in 2020. "Obviously technology - I think - is going to be a huge driver in the future," he says. "We are certainly focused on communications in the vehicle, and I think it will be a great growth opportunity for us. We see growth in developing countries - the potential is huge. Look at China, Indonesia and so forth. Those markets haven't really been tapped. The market in China (where GM is building cars and, soon, minivans in Shanghai) could be larger than the U.S. market at some point."

Powertrains also will change, he says, but only gradually. "The gasoline engine isn't exactly going away tomorrow. On the other hand, there's a huge focus on other fuels, hydrogen in particular." Fuel cells also are coming but "at a slow rate" because of infrastructure and other challenges. "A lot of money is being spent by all manufacturers, so what you're seeing is huge breakthroughs coming."

Big changes also are coming on the dealer and distribution front. GM triggered a backlash among some dealers and their trade group, the National Automobile Dealers Assn. (NADA), in September when it announced it would purchase up to 10% of its existing 7,700 dealers. The idea was to gain some control over how its cars are sold to offset inroads on its dealerships by large retail groups such as AutoNation.

>From GM's viewpoint, the idea has some merit: Buy up franchises from >"willing dealers" and inject "best practices" in the GM-owned stores that >would benefit the entire dealer body. GM, for example, would take the lead >in adapting the Internet to the equation and developing ways to reduce >costly dealer inventories and delivering cars to customers faster.

GM apparently didn't grasp how the plan would go down with dealers, and since has backed off. Or has it? Mr. Smith refuses to comment, saying he's sticking with a prepared official comment on the subject. And what that says is GM is refining its plans and has no intention of actually running company-owned dealerships (presumably the principals or other professional retailers would do so).

"Still, initally we may need to purchase dealerships outright until we have solidified our partnerships and business plans. However, our goal is to be a minority partner," says GM. You figure it out.

Mr. Smith is more forthright when it comes to other issues GM faces as it enters the first year of the new century. Perhaps GM's No.1 goal for 2000 is to stanch U.S. market-share erosion and regain lost ground. "The whole company is focused on that." he says. During the 1999 model year, GM's market share dropped to 28% from 29.8% a year earlier. But in the first 10 months of calendar-year '99, its share was running at 29.6%.

What about 2000? "This isn't a numbers game, but it's north of 30%," he says.

GM has been striving to get back to the low-30% range for several years, but this time is fortified by a product surge that includes 20 new passenger-car models and 40 light-truck derivatives between now and 2003, with many coming over the next 12 months.

Mr. Smith candidly admits that GM hasn't kept pace on the product side. "We had to struggle to get there (competitive models) because of the tough times we had in the early '90s where we stopped all of the programs," he says. "It gets stale, and you have to freshen it up. That takes time, it costs money - you've wasted a lot of money - and you're forced to just replace the old crop."

He adds: "We had to restart, and we spent a few years just replacing the existing product line. But over the last two years, I'd say the product plan has been 50% focused on innovation." Now, he adds, "it all has to roll out and we have to execute on it. But we feel very comfortable where we are with the product line."

The public gets a glimpse at what GM has in store next month at the North American International Auto Show in Detroit where it is grouping all of its current models and concept vehicles in one gigantic exhibit, the largest by far in the show's history. It reportedly cost between $10 million and $100 million, but Mr. Smith won't elaborate.

Featured prominently at the show: A batch of so-called "hybrid," or as GM prefers "crossover" vehicles, combining features of station wagons, minivans and sport/utilities and other light trucks.

Unlike the early '90s financial crunch, GM now has $16.7 billion in cash and marketable securities (see graph, p.30), which is enough to preserve product plans even during a downturn and to finance some acquistions if necessary, says Mr. Smith.

His observations on other topics:

* Labor: "You don't do a couple of things and say you've got lasting peace (but) both sides are working very hard, and we're pleased with the progress we've made." Can GM afford the new 4-year contract recently negotiated with the United Auto Workers union? Allowing that the pact will be expensive, Mr. Smith nonetheless suggests that GM is still in better shape to weather a downturn, and that the contract provides for productivity improvements to offset higher costs.

* Acquisitions and/or equity investments in other automakers: Korea's Daewoo Motor Corp. is high on GM's list, but it's heavily in debt and an extremely complex proposition. Daewoo would add a million vehicles to GM's global sales and a major foothold in Korea. Mr. Smith confirms that GM also is talking with Japan's Fuji Heavy Industries Ltd. (Subaru), about sharing technology and perhaps a broader link-up.

And it is pursuing talks with Italy's Fiat SpA, as are several other automakers, including Ford Motor Co. and DaimlerChrysler AG.

* Product cycle time: GM is has cut its product development cycle time in half to 24 months in recent years and is targeting an 18-month cycle. In fact, he says, "We have one in the pipeline that's under 18 months."

* The Internet: GM has formed two e-commerce groups to lead it into the cyber era in everything from in-vehicle systems and distribution to manufacturing and supplier ordering and delivery. "The Net has been with us five years and it's changing the way we're doing business," he says.

Whether he'll be at the helm to see some of these fast-changing developments reach fruition may be debatable. But when he does leave GM, what will be his legacy?

"I don't know if it's my legacy, but I think it's the legacy of GM employees; they've changed every aspect of General Motors as we head into the 21st century."

Will John F. (Jack) Smith Jr. stick around during the early years of the 21st century, or will GM's chairman since January 1996 drive off into the sunset six months from now? "I have no plans to retire," he bluntly tells WAW Editor-at-Large Dave Smith and Ward's Dealer Business Editor Steve Finlay during a lengthy November interview. "Anything you read in the papers is pure speculation."

That speculation has Mr. Smith bowing out next spring when John G. Smale, his predecessor in the chairman's slot, retires at age 72. Mr. Smith is 61. "I'm working hard every day and, hopefully, I'm adding value; only time will tell." Other highlights:

* GM has a shot at recapturing market share in 2000 because its new-model push is getting into high gear. GM's U.S. market-share goal for next year is "north of 30%," he says. It was 29.6% through October.

* Car and truck sales in 2000 will remain strong, although probably not match the torrid, record 17-million rate expected when final '99 results are tallied.

* The biggest change in the industry in the next 20 years will be in vehicle communications and by exploding markets in Asia.

* The recent United Auto Workers union settlement will be expensive, but Mr. Smith thinks that will be offset partially by higher productivity. While it's too soon to conclude that GM and the UAW have developed a formula for "lasting peace," Mr. Smith allows that "both sides are working very hard" and "we're pleased with the progress we've made."