General Motors Chief Resigns After Board Turns Up Pressure

As in many large companies, GM's outside directors have taken a more assertive role

A STRUGGLE for control of General Motors Corporation ended yesterday with the resignation of its chairman, Robert Stempel.

"I made this decision in the best interest of the corporation and its fine, dedicated employees at all levels of the organization," Mr. Stempel said in a statement released by the world's largest automaker. "I could not in good conscience continue to watch the effects of rumors and speculation that have undermined and slowed the efforts of General Motors people to make this a stronger, more efficient, effective organization."

John Smale, chairman of the GM board's executive committee, responded that the board had accepted Stempel's resignation and asked him to continue as chairman until a successor could be named. Mr. Smale led a group of GM's outside board directors pushing for Stempel's departure. When GM's board meets next Monday in New York, it is expected to name Smale, former chairman of Procter & Gamble Company, as interim chairman.

Behind the resignation are major financial troubles at GM. Last year General Motors lost $3.8 billion on worldwide revenues of $109 billion and assets of $104.8 billion. In North America, the company employed 113,000 white-collar and 258,000 blue-collar workers. It sold 4.54 million cars and trucks. Given its multitude of suppliers, GM's economic impact is huge.

On Thursday, the company is expected to report a worldwide, third-quarter loss of $845 million. The deficit will continue through at least the fourth quarter, analysts say, and they caution that it will be hard for GM to get back into the black until the economy improves. That's because problems are centered in GM's core North American operations. For years, GM was the role model of American industry, building half the cars sold in the United States, rolling up billions in profits and paying out handsome

dividends to confident investors. But the recession of the early 1980s and the rise of Japanese carmakers revealed some fundamental weaknesses, including serious quality problems and inefficient and ill-managed factories.

GM's first answer was automation. During the '80s, it invested $40 billion in new factories filled with the latest in robotics. Despite that investment, GM remains "the very- high-cost producer," spending $1,000 more to assemble a car than Ford or Chrysler, according to Detroit manufacturing consultant James Harbour, who recently completed an extensive study of Big Three productivity.

Though Stempel tried to address that problem, his efforts were stymied from the start. A day after becoming chairman in August 1990, Iraqi tanks rolled into Kuwait. That was followed by recession and a weak recovery. Making matters worse, a variety of new GM products, like the Chevrolet Caprice, have failed to catch the public eye. GM's market share in the US has hovered at 31 percent in recent months.

Last December, Stempel announced a cost-cutting plan that would eliminate 21 plants and 74,000 jobs by 1995. But insiders complained he was still moving too slowly. "He's suffering from Gorbachev-itis," complained one ranking GM executive. "He's too close to the entrenched `good-old-boy' network within the company, and can't bring himself to move quickly enough."

In April, GM's outside board directors told Stempel to move faster or to get out of the way. They demoted his hand-picked president, Lloyd Reuss. Mr. Reuss was replaced by John "Jack" Smith, former chairman of GM's highly successful European operations.

For the last six months, Mr. Smith has put the Stempel cost-cutting plan into overdrive. By the end of the year, nearly 10,000 salaried jobs will be eliminated. White-collar benefits have been slashed. And a streamlined bureaucracy has been put in place to reduce the time it takes to make major decisions.

Last Friday, the automaker announced another reorganization plan - its third since 1984. Its six North American design and engineering groups (for Oldsmobile, Buick, Cadillac, Chevrolet, Pontiac, plus the newer Saturn) will be consolidated into four. Cadillac, for example, will no longer have its own engineering department. The move will slash another 20,000 jobs by the end of 1993.

Stempel, who joined GM in 1958, was the first engineer in company history to serve as chairman. Smale, during his tenure at P&G, showed an uncanny knack for picking up and profiting on consumer trends.

But there's a big difference between selling toothpaste and a 2-ton automobile. So some observers wonder whether another chairman might soon succeed Smale. Speculation has centered on Smith, GM's president.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.