Giving the General new orders

Can a company that acted like an army get a new attitude? GM is trying

Change at GM
GM hit rock bottom with the disastrous UAW strikes in 1998. Now this team is trying to change the company's top-down culture.


Kutner: GM still beats up suppliers for lower prices, despite better overall relations.


Lovejoy: Dealers like him, but winding down Oldsmobile is a huge headache.


Devine: CFO has clout on Wall Street. But GM's profit goals, even during good times, are elusive.


Cowger: He has achieved labor peace -- for now.


Lutz: CEO Rick Wagoner, realizing GM needs outside help, hires proven product czar.

Art Baker, the shop chairman for UAW Local 652 in Lansing, Mich., knows how General Motors once laid out equipment in its plants.

"The old school is, GM just comes in, bolts it to the floor, and says, 'Here it is,' " Baker said.

GM took a different tack when it built its Lansing Grand River plant, which begins production in mid-November, baker said. Engineers asked hourly workers for help in designing workstations - placing equipment, planning work flow and timing, scheduling, even choosing locations for water coolers.

The change at Grand River is just one example in a huge company. But it is a sign of significant change afoot: Prodded by competitive pressures, GM is starting to abandon its self-satisfied, top-down culture.

The new attitude hasn't spread to all corners of the sprawling automaker. But evidence of change is abundant:

  • CEO Rick Wagoner's hiring of CFO John Devine and product czar Robert Lutz is a tacit acknowledgement that his inner circle did not have the know-how to solve GM's problems.

  • GM has struck a rapport with the UAW, whose two local strikes in Flint three years ago cost the company $2.5 billion in profits.

  • Dealers praise Bill Lovejoy, the company's group vice president for vehicle sales, service and marketing, for listening to their beefs.

    "It's as if the company decided to move out on all fronts to improve its relationships because they were getting pretty ragged," said Gerald Meyers, a business professor at Carnegie Mellon University in Pittsburgh and former chairman of American Motors.

    Though GM has been touting the initial positive results from the effort, such as factory productivity gains and improvements in dealer satisfaction, the job is far from complete. Upper-echelon policy changes must contend with the company's "frozen middle" that often resists change.

    Even with its recent progress, GM today is like a former D student now getting C's and a B or two. Factory productivity is improved but still lags Ford Motor Co. and Japanese automakers, for instance.

    And through it all, GM - like other domestic automakers - is seeing Asian competitors gain market share while its profits languish. Wagoner has long targeted profits of 5 percent of sales, but the company fell short last year - a boom year for the auto industry - and Devine said the company won't hit that mark this year.

    Strike was catalyst

    GM's bridge-building effort began when the company was at rock bottom. The UAW virtually shut down the company with two strikes in Flint, Mich., in 1998.

    In response, GM pulled Gary Cowger back from Adam Opel AG, its German subsidiary, to serve as group vice president for manufacturing and labor relations. Cowger had his work cut out for him: One strike started after GM angered the union by moving dies from a Flint stamping plant to another plant over the Memorial Day weekend in 1998.

    As Cowger worked to improve relations with the union, GM executives began seeking ways to repeat the process.

    When Lovejoy was appointed group vice president for vehicle sales, sevice and marketing, his marching orders were to do for dealer relations what Cowger was doing for UAW relations, a GM spokesman said. Suppliers credit Harold Kutner, group vice president for worldwide purchasing and North American production control and logistics, and Bo Andersson, executive in charge of worldwide purchasing, with similar efforts.

    Today, it has executives heading efforts to repair relations with each of its key stakeholder groups: Cowger with labor; Devine with investors; Lovejoy with dealers; Kutner with suppliers; and now, Lutz with the most important stakeholders: GM's customers.

    'Matter of survival'

    GM executives acted after becoming convinced that their combative relationships with key groups threatened the company.

    Ron Zarrella, president of GM North America, says the strategy is "something that evolved over the past few years. It's really a matter of business survival and success."

    "Maybe we didn't pay enough attention to it in the past, but it's pretty simple - all of us have a lot more to gain by working together," said Zarrella, who was brought into the company in its last wave of hiring outsiders to fix the culture. Whatever its genesis, the style represents a major cultural change, said Meyers of Carnegie Mellon.

    Traditionally, working at GM, Meyers said, "was like being in the army." Management employees marched up the ladder by doing what they were told. Hourly workers, suppliers and dealers were expected to do the same.

    "With Wagoner's arrival at the top, there seems to be less of a military attitude toward its employees, its suppliers, its dealers," Meyers said.

    But Meyers said GM also benefits from comparison to its troubled traditional rivals, Ford and the Chrysler group.

    "They're blessed at the moment that they've got two major competitors who are in deep doo-doo," Meyers said. "It isn't usual that your two biggest competitors get in trouble at the same time. I think they're very smart to take advantage of it."

    Getting lean

    Cowger has improved union relations significantly. But the truce will be tested as the company needs fewer workers and fewer plants.

    His diplomacy with union members has gone beyond simply avoiding strikes. The UAW has been gradually accepting the company's global manufacturing system, as epitomized in Lansing Grand River.

    That plant, which will build the new Cadillac CTS, is designed to include numerous supply bays so that suppliers clustered nearby can deliver parts for assembly continually. Though the plant will create 1,500 union jobs, that number is considerably less than in old-style assembly plants. In addition, Cowger has been bringing lean manufacturing principles to existing GM plants. The company has been rewarded by productivity gains, as measured in the annual Harbour Report.

    GM posted a 9.4 percent year-to-year decrease in hours per vehicle to 26.75 this year. The gain was the highest in the industry, although GM still trails Ford at 25.74 hours per vehicle, and major Japanese companies' North American operations.

    The survey leader, Nissan Motor Co., averaged 17.37 hours per vehicle, followed by Honda Motor Co. at 19.91 hours per vehicle and Toyota Motor Corp. at 21.6 hours per vehicle.

    Sensitive issues

    Ron Harbour, president of Harbour and Associates Inc. in Troy, Mich., credits GM with factory-floor changes. GM has improved safety and ergonomics and has fostered the "constant involvement of workers" in setting work procedures.

    "If you keep doing those things, it's going to change the attitudes and morale of people in the plants," Harbour said.

    But productivity and quality increases raise sensitive issues in a system accustomed to what are, by today's standards, high staffing levels. As GM designs products for simpler manufacturing and runs leaner, it decreases production jobs. Efforts to do assembly jobs correctly in station - that is, the first time - reduce the number of union members in repair and rework jobs.

    "The result of that is a smaller workforce relative to the volume compared to what was there before," Harbour said. "Is the union happy about that?

    "No. But the union recognizes that it has a crucial role in assuring that GM remains competitive."

    The relationship likely is to be tested further in the 2003 contract negotiations. Most analysts say GM has excess capacity, but its national contract with the UAW prohibits plant closings.

    "Right now, in the current environment, they can't close plants," Harbour said. "That's an issue they're going to have to deal with."

    GM could avoid the issue by continuing to run plants below capacity and occasionally ordering weeklong furloughs, as it did last September for the Orion Township, Mich., and Wentzville, Mo., plants. But Harbour says that is an expensive alternative, leaving GM at a disadvantage to Japanese transplant factories running at full capacity.

    "The result of that is a lot higher structural cost," Harbour said.

    The overcapacity issue is adding to tensions as several plants nervously await word on whether they will get new-car programs. They include Orion Township and the Lordstown, Ohio, plant, where UAW Local 1112 blocked outsourcing of some work until it hears GM's decision on expanding the plant.

    Competitors' woes

    With suppliers, GM has won points with a suggestion program that rewards money-saving ideas. It also favors suppliers who meet cost and quality goals. Several suppliers say GM now is giving more work to companies that win its supplier of the year awards, for example.

    GM especially benefits from comparison with the Chrysler group, which hammered suppliers for 5 percent price cuts this year. Suppliers hasten to add, though, that GM still is tough on prices.

    "GM went from the least preferred company to now the most preferred on everybody's list," one supplier executive said. "Does that mean the cost-cutting pressures are different at GM? Hell, no."

    A second supplier executive said relations with GM were better a year ago. The company now is using Chrysler's demands as cover to get tougher itself, he said.

    "It's like if I want to speed along the freeway, I'll let one guy go faster so that if anybody gets nailed, it won't be me," the executive said.

    A third supplier executive said Japanese companies such as Toyota and Honda are "tough customers," but meeting their strenuous quality and price standards is seen as worthwhile because there is a genuine long-term partnership. Despite some progress, day-to-day dealings with GM still lack that quality, the executive said.

    'No longer at bottom'

    As with suppliers, GM's dealer relations have been helped by problems at Ford and Chrysler group. In the 2000 National Automobile Dealers Association dealer satisfaction ranking, GM's brands other than Saturn were clustered at the bottom.

    A year later, most had moved ahead of Ford Motor Co. and Chrysler group brands, although they remained below the industry average and continued to trail many import brands.

    In an interview earlier this year, Zarrella said, "We're no longer at the bottom of the NADA dealer survey," adding, "some of that is what Ford and Chrysler have done to themselves, but it feels good not to be at the bottom."

    In the 2001 survey, Oldsmobile dealers remained below Ford and Chrysler brands in satisfaction, pointing to a major challenge. Although the company has helped keep Oldsmobile sales afloat with generous incentives, it still must work out termination settlements with about 40 percent of Oldsmobile's 2,800 dealers before the division closes.

    Meyers said GM faces other problems, notably a car line that is "just a disaster."

    "You can't talk yourselves out of a weak product line," Meyers said.

    GM wants to improve its product line, especially cars, through the Lutz hiring. But, Zarrella said, mending relationships with the UAW, suppliers and dealers had to come first.

    "This is an ultracompetitive business. There is little margin for error," Zarrella said.

    "To succeed, you need all of your people and all facets of your business on the same page and going in the same direction. That means your key partners need to be with you and not against you."

    Such thinking, as Meyers said, at least represents a step in the right direction.

  • You can reach Dave Guilford at dguilford@crain.com

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