Chairman Jack Smith believes General Motors is turning the corner. The company achieved labor peace this year and soon will have the innovative products it needs to regain market share, he says. Reacting to a shrinking world, the company is beefing up overseas partnerships and pursuing e-commerce. Smith talked about GM's prospects with Staff Reporter Joe Miller and Editor Peter Brown on Oct. 26 in Detroit. The following are edited excerpts:
Dealers see GM with its own e-commerce strategy and are worried the factory could bypass them. What is the proper way for GM to exploit this powerful new medium?
We need to work very fast on that. It is moving very fast. It is our intention to have what we do in e-commerce tied to the franchise system. There is no intent to bypass the franchise system.
Do you want to own the electronic relationship with the customer?
Eventually any lead that comes to us through any portal, to the extent we're involved in it, will be turned over to a dealer.
That's in North America. This month, with Vauxhall Motors Ltd. in England, you will begin offering some models directly on the Internet.
That's true, and also in Taiwan. There are other places where that won't be the system. But here and in Europe primarily we'll be using the franchise system. It's because we believe the franchise system works and to use anything other than that would be a mistake.
The Yellowstone project. The idea of smaller, leaner, modular assembly plants - is that still the proper way to go?
No it's not. We are reworking how we develop car programs, basically small car programs, in North America.
This year was the first time in a long time that the UAW got significant annual raises. Do you see that as a big change?
It was different from past negotiations where they mainly focused on job security as a prime motivator. They certainly haven't moved away from that. But they also recognize that this has been a long period of good times where the job security items they bargained for didn't really come into play. So they changed their focus somewhat.
European profits for GM continue to be disappointing?
They are better than the competition, but not what we used to earn there. We set the benchmark for the world in Europe. We have a lot of pressure on European operations to reduce their structural cost so they can earn higher margins. Their market share is up, but profitability is tough. It's a difficult pricing environment in Europe today.
Your partnerships with Suzuki Motor Corp. and Isuzu Motors Ltd. have become more strategic in the past couple of years. Have they become a bigger part of what you're going to do in the rest of the world?
That certainly is true, and I think it's the focus of both sides to want to do that. Our relationship with Suzuki is as strong as I've ever seen it. Frankly, I think it goes back to the DaimlerChrysler merger-acquisition. (Suzuki President) Osamu Suzuki happened to be here visiting us at the time it broke. He certainly was stunned by it and felt he needed to be more involved with a major global player. Since that time we've done a tremendous amount of joint work. And as a result we've increased our shareholder equity in Suzuki.
With Isuzu, will your model be for Isuzu to be GM's brand in some markets?
No. In some markets we would go to market as Isuzu and some we would go as GM. That isn't so much the issue. The big effort with Isuzu is diesel engines. They are our center of expertise for diesel engines. That is a huge program that's running globally.
Are you going to push Isuzus and Suzukis in Japan?
We came to the conclusion that to import our way there would be very difficult. It makes a lot of sense to have both an engineering and a manufacturing association in Japan.
Do you expect to get the other half of Saab Automobile AB?
That is under negotiation as we speak, and I have nothing to add to that.
Are you close to anything on your talks with Fuji Heavy Industries, which owns Subaru, and Daewoo Motor?
With Daewoo, we're in the process of gathering data, financial information. As you can imagine, that's a very complex transaction.
Do you need the banks to eat some of that debt to make it a doable deal?
Well, we haven't concluded exactly where that stands. But by and large, Daewoo has a huge debt load. The debt issue and the credit problems will certainly be part of the equation.
What would be appealing to GM about Subaru?
Really there is nothing I can comment on Fuji. It's premature. Subaru is an excellent brand and has a sweet spot they're doing well with.
The South Korean press has mentioned Samsung Motors Inc. as a possible GM acquisition. Is there anything to that?
The government would love the Samsung facilities to be taken over. At the moment, we are focused on Daewoo.
Is a U.S. market share under 30 percent now normal for GM?
No. It isn't where we want to be. We want a stronger market share than that, and we are working hard on that. For the last couple of years we've been focused on innovation to the product line. I certainly feel pretty good about the way it's coming. It's yet to really play out, but it is coming, it is in the pipeline.
People commonly say GM is not making enough exciting, interesting vehicles that people really want to buy. Do you agree?
Well, it has been a problem for us, and it comes out of us having financial difficulties in the early '90s and being forced to stop our forward programs and restart them when we finally got the North American operation turned around. But then we needed to replace old products in the marketplace, and we spent a few years doing that. It's only been the past couple of years we've been able to really focus on innovation of the product line. We have a huge amount of product in the pipeline. It's new, it's innovative, and I think it takes that problem off the table.
A couple of months ago, some analysts were predicting that GM stock would hit $90 per share by the end of the year. It's still in the 60s. Is that a major disappointment?
The market is sensing rising interest rates, and that hurts all of the cyclical stocks.
GM is a stable company in mature markets. Why would I want to invest in GM?
Because there is plenty of opportunity for growth. In the mature markets, I think we're going to see a lot of growth in features coming to the vehicle that aren't there today, from phone service to Internet service, satellite radio to navigation. It's going to be a great opportunity for the automakers. We intend to take advantage of it. In developing markets, there are great opportunities. China hasn't opened up yet. When it does, it's a huge market.
There is a lot of growth left in the automotive industry.
Where do you think the U.S. market will be in 2000?
We don't have an official number yet. We think it's going to be less than this year. Set that aside. We probably say that every year. But everything still looks terrific in terms of incomes, affordability, people working. If that stays in place, and we expect it will, it's going to be a good year.
Ford is out there looking for other profit sources, going into the aftermarket and recycling. Is GM's move into e-commerce enough, or are there other opportunities out there?
We're heavy into it now, the downstream revenue opportunity, and it's large and we've been focused on it for a long time. At the moment we're primarily focused through GMAC and the aftermarket parts arena, but it can be much broader than that. How do we participate in life after the car is built?
But to come back to the main point: If we're not starting out with great cars and trucks, we'll never get down that road. You need both.