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Mr. Smith Shakes Up Detroit

6 minute read
Alexander L. Taylor III

A new-style GM chairman is restyling the largest automaker

Chairmen of the board at General Motors tend to be bland organization types. Though they command a vast $60 billion industrial empire that controls more than 60% of the U.S. automobile market, none in recent decades has had the public impact of Henry Ford II or Lee lacocca. Three years ago, when Roger B. Smith, a 5-ft. 9-in., red-haired man with a squeaky voice, moved into the walnut-veneered chairman’s office on the 14th floor of the General Motors building in Detroit, he was expected to blend into the woodwork. Smith had joined GM as an accounting clerk in 1949, spent his entire career with the company and was unknown outside the automobile industry.

Now 58, Smith would still be a pretty good choice for an American Express “Do you know me?” television commercial. Only last month, an NBC news broadcast referred to “General Motors Chairman Roger Miller.” But inside GM, Smith is proving to be the most forceful chairman in a quarter-century. In the year before he took over, the company lost $762 million. Smith dramatically cut costs and raised cash by closing four plants and arranging for the future sale of the GM building in New York City for at least $500 million. He has kept costs low by consolidating and modernizing operations, laying off thousands of workers and winning wage concessions from hundreds of thousands of others. As a result of those measures and a better auto market, GM expects to show record profits of perhaps $3.8 billion for 1983, on sales of 4.1 million cars. Previous high for profits: $3.5 billion in 1978, the same year that GM set its record for car sales of 5.3 million.

Smith is surprising auto industry leaders even more by tinkering with the long-sacrosanct GM system. Says David Lewis, an aide in the president’s office at GM from 1959 to 1966 and now a professor of business history at the University of Michigan: “He was all work and no play, but I underestimated the guy. He intends to make his mark on GM, and he will.”

This week GM’s 24-member board of directors will meet in New York City to vote on Smith’s latest proposal: a reorganization that would consolidate the company’s five car divisions (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac) into two groups, one selling small cars and the other larger models.

Revamping the car lines could solve a major problem facing GM. When the company began building smaller models—the X-, J-and A-cars—in the late 1970s, it ordered its divisions to use the same basic models to save money. The most egregious instance was the J-car, which was forced into service for all five divisions. Recently a Cadillac engineer was asked to explain the principal difference between the Cadillac Cimarron and the Chevrolet Cavalier, two J-cars. His reply: “Oh, about $5,000.”

Buyers were quick to catch on to the manufacturing sleight of hand. Chevrolet sales slumped partly because drivers could slide into the seat of a comparable Oldsmobile or Buick for only a few hundred dollars more. Quality also suffered, since individual divisions did not have to take responsibility for the corporate clones. The X-cars have suffered an embarrassing number of recalls and face a Justice Department lawsuit.

By blurring the distinction between competing car lines, GM was violating a cardinal rule of Alfred P. Sloan Jr., the management genius who rescued the company from near bankruptcy in the early 1920s and ran it until 1956. In 1921, Sloan recommended that GM rationalize its products by manufacturing “a line of cars in each price area, from the lowest price up to one for a strictly high-grade quantity production car.” After eliminating moribund models like the Scripps-Booth, and phasing out another, the Oakland, Sloan created the five-division lineup that has survived for nearly 60 years.

Under Smith’s plan, Chevrolet and Pontiac would be combined into a small-car group, which would sell nothing larger than intermediate-size models such the Chevrolet Celebrity and Pontiac A6000. Production of big cars would be restricted to Buick, Oldsmobile and Cadillac. GM would continue to market cars under the present five names. Each part of the bifurcated company would still be larger than either Ford or Chrysler. Word around Detroit last week was that Chevrolet General Manager Robert Stempel, 50, will take over the small-car group, while Buick Boss Lloyd Reuss, 47, will head the large-car group.

Other changes at GM pushed through by Smith are no less revolutionary. His small-car strategy is the most diversified of any U.S. automaker’s. He has launched the company’s Saturn Project to develop a 45-m.p.g. model by 1987. In addition, GM has created alliances with four Japanese automakers. It has made large investments in both Isuzu and Suzuki, and expects to import 300,000 of their cars. Its agreement with Toyota to produce 250,000 cars annually in Fremont, Calif., was approved last month by the Federal Trade Commission. And GM has also quietly arranged for Nissan, Toyota’s archrival, to build cars for its Australian subsidiary.

This last linkup boosted Smith’s already high standing in Japan. “Many, many Japanese auto tycoons are trying to emulate Smith-san,” says Nobuyoshi Yoshida, Japan’s leading automotive journalist, who praises Smith for his flexibility, his keen accountant’s eye and his pragmatic deal-making ability. Adds Yoshida: “Japanese businessmen would feel guilty doing business with such rivals as Nissan and Toyota at the same time.”

Sure-handed in business dealings, Smith sometimes seems all thumbs when it comes to dealing with the public. He has antagonized shareholders by trying to limit their questions to management at annual meetings. He infuriated the United Auto Workers in 1982 when he became involved in pay negotiations. After Smith repeatedly complained that workers were overpaid and cost cutting was needed to regain a competitive position, GM announced a richer bonus plan for top executives on the very day that the union signed a contract accepting wage concessions. Admitted Smith afterward: “I’d rather it hadn’t happened.”

Still, Smith has plenty of time to smooth out his public personality. If, as expected, he stays on the job until the company’s usual retirement age of 65, he will have put in 9½ years as chairman.

That would give him the longest tenure as GM boss since the legendary Alfred Sloan. — By Alexander L. Taylor III. Reported by Paul A. Witteman/ Detroit

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