Automaking Major Overhaul

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The Christmastime speech from the chairman of General Motors traditionally sounds like an address from a head of state. Small wonder: the company is so large (1990 revenues: nearly $127 billion) that if it were an independent nation, its economy would rank among the world's Top 20. By closed-circuit TV from GM headquarters in Detroit, this year's 45-minute broadcast reached 395,000 employees who stopped work and put down their tools in 130 factories across the U.S. But the message from chairman Robert Stempel was like no other in the 83-year history of the giant corporation.

As of Jan. 1, Stempel said, the company would embark on a three-year program that would close 25 North American plants and reduce its current work force by 74,000, or about 19%. GM would abandon for the foreseeable future its hopes to regain its lost share of the U.S. market, which has fallen in the past decade from 45% to just over 35%. According to the plan, which did not specify which plants would be closed, GM would emerge by 1995 only half as large as it was a decade earlier and, as Stempel said, "a much different General Motors."

The announcement was a drastic departure from the company's past benevolent assurances of prosperity and well-being. So was the self-effacing and chastened candor. Stempel conceded that this was not the holiday message he had originally intended. But the severe losses in the company's North American automaking operations, estimated at $450 million a month, had prompted a revolt among GM's directors. They rejected Stempel's reorganization plan and humiliatingly ordered up a more drastic revision. The rebuke left Stempel and his senior management staff publicly lurching. The Christmas message was postponed by a week; a preferred-stock offering to raise $1 billion in cash was halted; even GM's annual Christmas party for the automotive press was canceled. Then last week Stempel gave workers the overhauled speech: "We are asking you to help remake the world's largest automobile company. We can't wait."

If not yet a different company, GM is already vastly different from what it was in the free-spending days of Stempel's predecessor, Roger Smith. Money seemed to be no object for Smith, who spent $5 billion to acquire Hughes Aircraft, $3 billion to build the experimental Saturn division and $700 million to buy out his boardroom rival H. Ross Perot.

But Smith's vision hasn't been fulfilled fast enough to endure the recession and customer apathy. Because of its cash drain, GM has had to float $3.2 billion in premium-interest stocks and bonds (current rate: 9 1/8%), mainly to meet operational expenses. GM's outside directors have become so concerned in recent months that they have begun to meet privately, without the company's officers. They have reportedly put Stempel on notice that his own 16-month tenure, as well as those of GM president Lloyd Ruess and chief financial officer Robert O'Connell, are under close scrutiny. Says a board source: "They are down to a real cash-flow problem now. All the money is out of the mattress."