The new breed that went global

How a band of hungry young sharpshooters sparked GM's rise in Europe, China and other markets

Nearly all of the bright young financial executives who wrested control of General Motors in 1992 had spent time in the company's elite training ground, the New York Treasurer's Office. But they got their operating experience — and their nerve — working abroad.

It was an elite band of brothers that included Rick Wagoner. They were the corporation's rising stars, the best and the brightest — international managers (though mostly Americans) in their 30s who viewed overseas assignments much differently than their predecessors at GM.

The leader of this select bunch was a rumpled, slow-talking, finance man by the name of Jack Smith. Before Smith led the GM turnaround in North America in the 1990s, he led one in Europe in the 1980s. And as head of international operations he set a course for the company's dramatic rise in China and several other overseas markets.

Smith's point man in that great global push of the late 1980s and 1990s was Lou Hughes, a thin, balding, high-strung Harvard M.B.A. from Cleveland.

A decade earlier, Hughes had been Smith's close associate in the negotiations that formed New United Motor Manufacturing Inc., a joint venture with Toyota in Fremont, Calif. He would become Smith's CFO at GM Europe and later run Opel and GM Europe, succeeding Bob Eaton as GM Europe president after Eaton was lured to Chrysler in early 1992.

When Bob Stempel was swept out as GM's CEO in the fall of that year, Smith succeeded him, and Hughes took over international operations in Zurich, Switzerland.

GM's globalization drive went through hard times, to be sure. When the world's emerging markets collapsed in the late 1990s, GM was hardest hit among the automakers. It had invested the most time and energy and resources into the effort and had the most at risk.

But in the years that followed, the company's risk-taking began to pay big dividends — and may yet prove to be GM's salvation. As the situation deteriorated in North America in the mid-2000s, the corporation was propped up by its growing business overseas, particularly in China.

The roots of success

The roots of that success went back 20 years, the result of the speed with which GM's international managers took advantage of historic geopolitical changes occurring throughout the world. When the Iron Curtain came down in 1989, the young GM guys moved faster than anyone. And GM was ahead of its U.S. and Japanese rivals when it came to recognizing new opportunities in China.

Rather than looking to GM's Detroit headquarters as their guide, the overseas executives mimicked the more entrepreneurial international companies that had always acted globally — namely, Volkswagen and Toyota.

Smith had run GM Canada before going to Opel's headquarters in Ruesselsheim, Germany, in 1986 to be an understudy to Opel boss Ferdinand Beickler, who was nearing retirement. GM was losing scads of money in Europe. By late 1987 Smith had cut costs, increased productivity and sharpened the product line. He had done in Europe what he would do five years later in the United States: He had stopped the bleeding. When the Berlin Wall came down in October 1989, GM was ready.

Hughes, who by then was running Opel, recalls thinking: "Good grief, all these people are going to want an entirely new car for themselves."

Archrival Volkswagen already had made a deal with the DDR Kombinat, the state-owned East German auto company that built the Trabant, a stinky, decades-old small car with a two-cycle engine that East Germans signed up for as teenagers and waited until almost middle age to get.

Now Opel wanted a deal with the other East German carmaker, which built a similarly outmoded vehicle, called the Wartburg. In January 1990, Hughes met with Wolfram Liedtke, the managing director of the Wartburg works in Eisenach.

"We were impressed," Hughes said. "Liedtke and his management team seemed very receptive to change."

Volkswagen CEO Carl Hahn was not pleased. VW wanted both the Trabant and Wartburg works under the VW umbrella. They even promised the Eisenach work force that all 10,000 employees could keep their jobs.

Hughes met with the shop stewards at Eisenach. "We said, 'We can't promise you all that you can keep your jobs. The world doesn't work that way. What we do promise to do is make this plant the most efficient in Europe. Only superior productivity can ensure job security." The stewards agreed, and Liedtke was authorized to negotiate a partnership with Opel.

Quick start with kits

His product lieutenants, German executives Peter Hanenberger and Fritz Loehr, flew into action, and in nine months Opel was assembling Vectra knockdown kits in Eisenach, starting one day after the official reunification of Germany.

That turned a lot of heads, and Opel became the market leader in eastern Germany, upsetting VW.

Hughes became a celebrity in Germany.

"We had teams from Opel sales working day and night to interview promising candidates for Opel dealerships," Hughes said. "In just a matter of months, we had a network of hundreds of dealers across this new territory."

John Smith worked in Zurich from 1989 through 1993 — down the hall from Wagoner, who was the CFO at GM Europe from 1989 through 1991, before leaving to head GM Brazil.

"That was a great time to be in Europe," Smith said. "It was very exciting for all of us. What a great bit of history to watch — a constrained population in central and eastern Europe having the chance to enjoy all the same freedoms we do. That was just great to behold."

Learning from Toyota

With the Vectra kit operation up and running, Hughes and his team turned their attention to building a full-scale manufacturing facility in Eisenach. They saw an opportunity to use what GM had learned from Toyota at NUMMI.

"Jack and I believed in lean manufacturing because we had negotiated the NUMMI deal with Toyota in the '80s," Hughes said.

That had been an enlightening time for young GM execs involved in the talks — especially for Smith and Hughes. During discussions one day about the labor requirements for the joint venture, the GM guys were shocked to learn Toyota's advantage in productivity.

The engineers from GM Assembly Division and Fisher Body asked the Toyota engineers how many people GM would need to run the joint venture plant. The chief Toyota manufacturing engineer replied: "2,000 hourly workers." Confused, one of the GM men said: "Oh, you mean for just one shift, right?" The Toyota counterpart said, "No, TWO shifts, TWO shifts."

"It suddenly dawned on us," said Hughes, "that they could produce the same number of cars we could at comparable or superior quality with half the manpower." When GM built its new plant in Eisenach, it decided to make it a lean one.

Jack Smith put Hughes in touch with a young production specialist named Tom LaSorda who had set up GM's CAMI Automotive Inc. joint venture with Suzuki in Ingersoll, Ontario. As head of GM Canada, Smith had conceived CAMI on the NUMMI model.

"We brought in all the key guys working for Tom at CAMI," Hughes said. "With this core of people who really understood lean manufacturing, Eisenach became the most productive plant in the European auto industry."

"Tom became the first leader there," said Mark Hogan, a former GM executive who ran GM Brazil after Wagoner. "Lou plucked him over and said, 'We're going to take a bold move and try to do this in East Germany,' which at the time was unbelievable."

Said Hughes: "It became our living laboratory for lean manufacturing and a model for all subsequent plants."

Next: China

After the Berlin Wall came down, it was becoming apparent that China also was opening up. Hughes recalls his first visit to the country with his wife in 1984.

"At that time, everyone was wearing Mao suits and not a single skyscraper had been built in Shanghai for almost 50 years," he said. "What a difference a decade would make."

Hughes and Smith had been impressed by Chinese company Shanghai Automotive's joint venture with Volkswagen. "In 1993, Jack and I decided to court them," Hughes said. "They were looking for other partners, not just VW."

But the odds seem stacked against GM. Ford Chairman Alex Trotman was spending a great deal of time in China, also vying for a partnership with Shanghai Automotive.

Ford seemed to have the upper hand. In early 1994, as Hughes toured the Forbidden City in Beijing, an underling remarked to him: "We're not going to get this deal because we don't have enough firepower. Ford's got more."

Hughes went back to Detroit and told fellow members of GM's President's Council that the company needed a vice president for China. That was unusual because at the time GM had fewer than 20 employees in China. Normally, a GM VP would have responsibility for tens of thousands of employees.

J.T. Battenberg, then head of the company's components operation, recommended one of his divisional general managers, Rudy Schlais. "Once we got Rudy to Shanghai as president of GM China, he made tremendous progress in bringing all the various entities of GM together," Hughes said.

"We knew there would be growth in China, but not as rapidly as it turned out to be," Hughes said. "Rick and I worked together like brothers. But Jack set the tone. In contrast to the traditional GM car division culture, competition between the business units was discouraged. He was a tremendous leader."

Both Smith and Hughes wanted to bring a new kind of executive into the international operations: younger, more energetic and more committed to living and working and developing the company's overseas business.

For the Shanghai Auto joint venture, Hughes said: "We carefully went to our most promising young executives, our 'A' players, and said, 'If you want to get ahead in GM, China is the place.' "

In addition to eastern Germany and China, GM built assembly plants in Thailand and Poland in the early 1990s. It set up manufacturing facilities in Hungary and later Russia and substantially increased capacity in Brazil and Argentina — all on the Eisenach high-efficiency model.

Hughes, who left GM in 1998, remains a globalist to the core. These days he is a member of six corporate boards in four countries and is involved in two startup enterprises. In 2004 and 2005, he headed the U.S. government's reconstruction effort in Afghanistan.

"I am very proud that GM's international operations are doing well now," he said, "particularly in Asia and Latin America. Becoming global was the only solution."

You can reach Richard Johnson at rjohnson@crain.com.