Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: \TITLE Date: Tue, 27 Oct 92 16:00:26 EST Message-ID: <11.1992Oct27.160026@AmeriCast.com> 10/27/92 TITLE #m##m#Stempel Will Step Down As GM Chairman No Replacement Named But Director Smale Has Inside Track Paul A. Eisenstein In Detroit General Motors Corp. Chairman Robert C. Stempel tendered his resignation yesterday, ending a week of rumors that he would soon be fired by the automaker's increasingly frustrated board of directors. The 59-year-old Stempel is the company's first boss forced out in 72 years. Founder and President William C. Durant lost out in a battle with the GM board on Nov. 30, 1920. Stempel's defeat raises more questions than it resolves. Outside board member John Smale, who engineered Stempel's ouster, is considered the likeli- est replacement, though some insiders hint there could be a last-minute surprise. Stempel's tenure has been in jeopardy since April, when an increasingly activist GM board fired his hand-picked see below president, Lloyd Reuss, substituting John F. "Jack" Smith, the architect of GM's profitable European operations. According to insiders, Stempel was stripped of power, leaving Smith to run day-to-day operations. But the power struggle came public last week when word began to leak that Stempel would be replaced, most likely at the Nov. 2 board meeting. While Stempel denied the report, he was left to twist in the wind by Smale, leader of the outside board members. Smale issued a terse statement on Thursday all but confirming that the future of GM's leadership was up in the air. With no clear board support, Stempel delivered his letter of resignation yesterday, saying he would step down as soon as a replacement could be named. "I made the decision in the best interest of the corporation and its fine, dedicated employees at all levels of the organization," Stempel's letter read. "I could not in good conscience continue to watch the effects of rumors and specula- tion that have undermined and slowed the efforts of General Mo- tors people to make this a stronger, more efficient, effective organization.' From the moment he took the helm on July 31, 1990, little has gone right for the 34-year GM veteran. On Aug. 1, Stempel Will Step Down As GM Chairman Iraqi troops invaded Kuwait. Gasoline prices skyrocketed and new-car sales plunged. Even after Kuwait was liberated, the cele- bration was brief on the 14th floor of the GM building, the automaker's executive suites. Almost immediately the nation fell into a deep recession. Since Stempel took command, GM has not shown an annual profit. Last year, the nation's largest automaker lost $4.5 billion - the largest deficit posted by a U.S. corpora- tion. Another Loss Expected GM is expected on Thursday to report a third-quarter loss of $845 million. It's all but certain GM will be in the red for the year. As a result, Moody's Investor Services and several other bond- rating agencies are threatening to downgrade the automaker's credit ratings. Some on Wall Street said they were pleased by Stempel's departure - at least for ending the uncertainty. But others questioned whether the move had any real merit. "GM need- ed to throw someone into the volcano to appease the financial community," said auto analyst and consultant William Pochiluk, director of Autofacts Inc., in Paoli, Pa. Inside GM, the ranks have been split, but there was genuine sympathy for Stempel who is routinely described as a "nice guy," who chafed at the idea of having to eliminate the jobs of thousands of long-time GM employ- ees. The last week has not been an easy one for those watching from the inside of a corporation undergoing a massive downsizing. Last December, Stempel announced plans to close 21 plants, in the process, eliminating 74,000 blue-and white-collar jobs. Since Smith was named president, the pace of the cuts and other cost- cutting efforts has accelerated. Last Friday, the automaker an- nounced it would consolidate its six-car design and engineering groups into four. The move could eliminate as many as 10,000 more jobs than previously announced. "I'm just numb," said a midlevel GM executive. "I'd just like somebody to figure out what's going on so I can get on with my life." The fear can be felt all the way up to the top. Since April, a wave of top- ranking executives have been swept away, and sources suggest a number of others will soon be purged. Among those mentioned: former president Lloyd Reuss, who has been over- seeing operations at GM's Saturn and electric car units since his demotion last April. The spring shake-up thrust the normally re- clusive Smale into the spotlight. The 65-year-old board member now is seen as the most likely candidate to succeed Stempel. A former chairman of Procter & Gamble Co., Smale began building his reputation as a savvy marketer back in 1960, when he convinced the American Dental Association to endorse P&G's new fluoride toothpaste, Crest. "He is the most natural choice" to replace Stempel, said John Casesa, auto analyst with Wertheim & Co. "As an outsider, it will be easier for him to make the tough deci- sions." Not everyone would be pleased by Smale's appointment, in- cluding David Cole, of the University of Michigan's automotive studies unit. There is a big difference between marketing tooth- paste and a 10,000-part automobile, Cole stressed. Noting Smale has been on the GM board for a decade, Cole wondered, "Where was he in the early 1980s, when the real problems occurred?" Sources suggest there could yet be a surprise in the works - as there was when Chrysler reached outside to find a replacement for retiring Chairman Lee Iacocca. A variety of alternate names have begun to surface - including Iacocca, as well as GM Executive Vice President William Hoglund. Whoever takes over will face the im- perative of moving even faster than Stempel. The question is how much deeper the cuts will have to go than those already announced or taken. At the extreme, there has been talk of GM filing for Chapter 11 bankruptcy protection, a highly unlikely move, most observers emphasize. The automaker might choose to consolidate or even eliminate one or more of its passenger car divisions. Oldsmobile General Manager John Rock last week vehemently denied his division would be dropped even though sales have fallen 60% since 1986. More likely, GM will speed up already announced plant closings and possibly add more facilities to the list. The automaker already is putting up a number of its subsidiaries up for sale, such as its electromotive unit, which produces rail- road locomotives. But the big uncertainty is in the automotive components operations. GM produces about 70% of its auto components in-house, about dou- ble the level of Ford Motor Co. and Chrysler. "This is generally a high-cost way of doing business because the General Motors parts and components operations are generally unionized," said David Healy, auto analyst with S.G. Warburg & Co. "That means $30 to $35 per hour labor. It is generally cheaper to buy them on the outside," where labor costs are half as much. Ultimately, by whatever means, the company must shave at least $1,000 of the production costs of a typical new car and light truck, said James Harbour, a Detroit manufacturing consultant, or it will be caught in a "death spiral." According to Harbour, GM is by far the least efficient of the Big Three. One of the biggest challenges for GM's next boss will be negotiating a peace treaty with the United Autoworkers Union. The UAW's current contract gives GM relatively little flexibility to increase productivity or cut jobs. The un- ion staged two costly strikes last month to protest planned job cutbacks. Contract Problems Ahead? The union has said it has no intention of renegotiating the current GM contract, which runs through September 1993. But the normally hardline UAW Vice President Steve Yokich recently con- ceded that "Jack Smith has inherited a tough situation," and in- dicated his willingness to "work together." Working together likely will be the theme taken by GM's next chairman. But it won't be an easy one to sell to GM workers and managers - it's hard for employees nervous about losing their jobs to spend much time focusing on teamwork. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM