Despite Record Profits, GM Has Long Way to Go
TORONTO — WITH pomp and flourish rivaling Hollywood, General Motors Corporation handed out ''Oscars'' of its own over the weekend to its top 154 worldwide suppliers.
The awards recognize the contribution parts-and-component manufacturers have made in recent years to help turn the ailing automaker around. Suppliers have significantly improved quality, reliability, and especially cost.
Since 1992, partsmakers have passed on several billion dollars a year in savings to GM. And GM's bottom line has gone from red to black.
Last week, the world's largest automaker posted record profits of $2.2 billion for the first quarter of 1995, nearly triple its $854 million in earnings in the same period last year. Revenues surged more than 15 percent, to $43.3 billion.
GM's suppliers ''have proven themselves on a global stage. They deserve our praise. But even more, they deserve our thanks,'' says GM's parts purchasing chief, Harold Kutner.
But suppliers make up only part of the picture. GM's financial fortunes reflect the effects of a massive restructuring and cost-cutting program that has, since the late 1980s, resulted in the loss of 70,000 jobs and the closing of a score of assembly, engine, and component plants.
''Overall, we are pleased with the first-quarter results,'' said GM president John ''Jack'' Smith. But Mr. Smith quickly added: ''We know that we're not finished. We have aggressive goals for the future in all of our business sectors, and we remain sharply focused on achieving them.''
The latest earnings reached record levels despite slowing sales, a declining market share, factory snafus, and continuing labor unrest.
Nowhere are those problems more apparent than at GM's Lordstown, Ohio assembly plant. A decade ago, former chairman Roger Smith launched a $60 billion program to automate the automaker. It didn't work, and GM's factories remain the least efficient in North America.
Last summer at Lordstown, GM shut down for what was supposed to be a six-week changeover to launch production of a new Chevrolet Cavalier. But since the supposedly more-flexible line started running again, it has faced one snag after another, and it's not expected to get up to full speed until the fall. Auto consultant William Pochiluk, of Autofacts Inc., estimates GM has already lost production of about 100,000 vehicles at Lordstown.
''You can accuse us of biting off too much,'' Smith acknowledges. ''That's a fair assessment.''
Lordstown also is paying the price for GM's parts purchasing strategy. The staid world of GM suppliers was turned upside down in May 1992, when a quirky Spaniard, Jose Ignacio Lopez de Arriortua, transferred from General Motors Europe to corporate headquarters in Detroit. He abandoned the clubhouse atmosphere that long allowed suppliers to pass on costs with a handshake, and reopened long-standing contracts and demanded sharp price concessions. Mr. Lopez left in a cloud of controversy barely a year after his arrival, but some of GM's new-found, rock-bottom suppliers haven't been able to deliver the quality or the volume they promised, which has helped delay the launch of several critical products, including Cavalier.
Mr. Kutner doesn't deny that the supplier-awards program is designed to improve strained relations, and many of those who attended the weekend session said they're pleased with the changes they're seeing.
But GM is still struggling to improve relations with the United Autoworkers Union. Late last month, 5,500 workers stormed off the job at the automaker's truck plant in Pontiac, Mich. It was the latest in a series of strikes that have crippled the company over the past year, mostly at key parts plants, and costing tens of thousands more units in lost production.
The Pontiac strike was particularly inopportune. Since the early 1980s, millions of Americans have traded in their sedans and station wagons for sport-utility vehicles and minivans. But GM misread this so-called ''crossover boom,'' and failed to expand its light truck capacity enough to keep up. It still has too much capacity to build unpopular car lines, such as the oversized Chevy Caprice. Combined with sluggish car sales, GM ended the quarter with a 90-day supply of unsold cars, compared with an industry norm 60-day inventory.
Making matters worse, the carmaker's market share has continued to fall. It stood at nearly 46 percent of the American motor-vehicle market in 1980. Last month, GM's combined US car- and truck-market share slipped to 32 percent for the quarter, down from 33.5 percent a year ago.
Yet, cost cutting means GM's long-troubled North American Automotive Operations, or NAO, are operating well in the black despite the sales declines. Overseas, GM is a force to be reckoned with. In Europe, in particular, every product it introduces gains share, notes auto analyst Ronald Glantz, of Dean Witter.
Notably, GM's worldwide operating margins tipped 5.5 percent during the first quarter. That's actually above Smith's goal of a 5 percent margin. The key, however, will be to sustain that number during the course of an entire business cycle. Right now, the industry is pumping out more cars than it has since the late-1980s, so the real test is yet to come.
''We've still got a lot of work to do,'' says NAO president Richard Wagoner.