TRAVERSE CITY, MICH. — RECORD profits don't mean it's time to relax.
Despite an unprecedented $2.3 billion second-quarter profit, General Motors Corp. is shaking up its bloated product-development system. GM hopes this will help get cars from concept to customer in record time, trim costs by billions of dollars, and shore up its steadily declining market share. But in the process, it's likely to cost 5,000 jobs, on top of the 74,000 the automaker has eliminated since 1992.
"This is a big change for General Motors," said vice president and group executive Arv Mueller, as he provided the first glimpse of the latest, long-rumored shake-up, at the University of Michigan's annual Automotive Management Seminar, in Traverse City.
GM has faced a series of shake-ups since 1984, when an ill-conceived reorganization virtually paralyzed the company for two years.
Analysts also fault GM for investing some $60 billion on robots and other high-tech systems that failed to improve productivity. Instead, the automaker's profits slipped, and its market share plunged from around 46 percent in the early 1980s to just 32.2 percent for the first six months of 1995.
The newest reorganization focuses on getting the most from employees, not machinery, by cutting through GM's entrenched bureaucracy. Currently, it takes an average 46 months to get a design off the drawing boards and into production. By comparison, Chrysler Corp.'s lead time is around 30 months, on a par with the best of the Japanese automakers.
New product-development plan
The problem is that under the current GM system, product development is divided among a variety of different departments, such as styling, powertrain and suspension engineering. Turf wars cause compromises and delays. Making matters worse, GM hasn't paced the product-development process. In some years, it may roll out dozens of new models, while the next year there may be nothing new.
That leaves engineers either scrambling to cover all the bases, or standing around with little to do.
GM recently acknowledged it will delay a score of new products, including such critical models as its next-generation minivans, because they won't be ready on schedule.
To overcome these problems, GM plans to appoint 16 to 18 Vehicle Line Executives, or VLEs. These "product czars" will have ultimate authority over specific vehicle programs - with the power to end turf battles and get cars to market on time. One VLE, for example, will be responsible for sporty coupes, such as the Pontiac Firebird, while another will control development of such small cars as the Chevrolet Cavalier.
If the new plan works, GM hopes to reduce lead time to around 38 months by 1997 and keep getting faster and leaner, Mueller says, stressing, "We expect to blow through that [goal]."
The impact on the bottom line could be equally dramatic. By some estimates, a carmaker saves a million dollars or more for every day it shaves off the product development cycle. GM expects the new system to cut design and engineering costs by at least 25 percent.
But there is a human price, as well. Mueller says he expects GM will need 5,000 fewer engineers by January 1997. Some of those cuts will come from inside the company, but the bulk will affect outside consulting firms hired to temporarily handle GM's endemic engineering overload.
Other changes also are on the way. GM plans to appoint about 30 new "brand managers." Inspired by Chairman John Smale, the former head of Proctor & Gamble Co., GM hopes to reinvigorate the muddled images of its seven North American car and truck divisions.
The brand managers will have two prime tasks. First, they will listen to "the voice of the customer," to pick up on the features that potential buyers want in their cars and trucks. Once a new product is on the market, they'll be responsible for designing brand-focused marketing campaigns, much the way P&G sells soap or shampoo.
GM is confident that the strategy will help it turn around a decade-long slide in market share. The goal is to climb back to 35 percent, though Rick Wagoner, president of GM's North American automotive operations, is reluctant to say by when.
"I'm not falling on my sword over market share," Mr. Wagoner says, acknowledging that GM executives have repeatedly promised to regain lost ground over the years - only to see share slip even further.
While industry analysts agree big changes are needed at GM, they remain skeptical that this will be the reorganization that finally works.
"The big question is how they actually pull it off," cautions David Cole, one of the sponsors of the University of Michigan seminar.