Remarks by
John F. Smith, Jr.
Chairman, Chief Executive Officer, and President
General Motors Corporation
to the
University of Michigan Management Briefing Seminar
Traverse City, Michigan
August 5, 1998

Thank you. . .

It looks like a sell-out crowd, Dave [Cole]. Why am I not surprised?

In keeping with the conference theme, I had planned to talk about innovation at the boundaries as all automakers focus on reducing cost and time in the consumer equation. . . speed-to-market, globalization, and the changing relationship with suppliers at the front end of the process and changes in the distribution system at the other end.

That's what I had planned on talking about. . . but events have a way of changing your focus. I want to step back from the conference theme and talk about what is really happening at General Motors and where we are headed.

Just six weeks from today, General Motors will mark its ninetieth anniversary. Few companies or institutions have such a long and rich history. Even fewer have contributed so much to society -- creating jobs, offering the broadest range of vehicle choices to customers, and generating even more growth for suppliers and communities as the company itself grew over the years.

However, no company survives ninety years without changing as the times themselves change. And, as everyone in this audience knows only too well, the pace of change in our business continues to accelerate. Most of it is driven by the need to be competitive, and competitiveness itself is a journey, not a destination.

At General Motors, we have made many unprecedented and controversial changes since 1992, when we stared financial Armageddon in the eye. However, despite the financial turnaround and all the other progress, we are still not where we need to be on the journey: Not when you benchmark us against the toughest competitors on the key measures of productivity and profitability.

This morning, I want to put everything we have done and everything we plan to do -- including the labor settlement, the announcements of yesterday and Monday, and more changes that are on the horizon -- in the context of our vision for the General Motors of tomorrow.

With all due respect to my fellow speakers, our vision is nothing less than to be the world leader in transportation products and related services. This means the leader in all respects -- customer enthusiasm, innovation, and employee enthusiasm as well as sales and profits. It requires focusing and leveraging our unique strengths and talents in ways we never have before. It also requires moving faster and more effectively than the competition. Finally, it requires new ways of looking at the world in terms of consumer needs to create new opportunities for growth.

This is a vision built on deeds, not words. Back in the dark days of 1992, we actually started with a lot more words than deeds. Today, the team's deeds have exceeded the promises of those words.

Looking ahead, many strategic decisions already made will yield even more dramatic deeds, and we will be an even more different company: A company that is constantly on the offensive in the market place: A company that is constantly looking ahead with each foot of ground that is gained: A company that will not surrender one inch of that hard-fought ground. Count on it!

Let me start with some of the deeds that have made us a leaner, faster, and more clearly focused team.

The list includes:

And that is only part of the list. The important thing is, all of these deeds were effective. Our North American Operations moved from a net loss of $5 billion in 1992 to a net profit of $2.3 billion in 1997.

The changes did not stop with North American automotive operations. We also spun off EDS and the Hughes defense business. These divestitures allowed us to add more value to stockholders and focus more on the core automotive business. We paid $2.5 billion for EDS in 1984. Its market capitalization when we sold it two years ago was $20 billion. We paid $5.3 billion for all of Hughes. When we spun off only the defense operations last year, their market capitalization was $10 billion. We still own about 75 percent of Hughes Electronics, the remaining entity, and we calculate its value at more than $15 billion based on recent Class H stock prices.

We have also brought the North American Operations and International Operations teams together to develop global platforms and powertrains -- and we did it without re-doing the organization chart.

That's still only part of the list, but I think you get the picture: We knew we needed to make unprecedented changes. We knew it would not be easy, but we stuck to it. The results so far show that it worked, but we are far from finished.

Today, we are at a critical junction on the journey. Despite all the progress, we are still the high-cost vehicle producer in North America. And yet, we have suffered strikes that caused three major nation-wide production stoppages along the journey.

Let me offer just a few observations on this summer's strikes and last week's agreement. We did not reach a quick agreement because the initial demands would have impeded our ability to re-structure and remove cost from operations. We cannot allow that to happen.

Clearly, something has to change, and communication is the beginning of the process. Perhaps the most significant long-term aspect of last week's settlement is that GM and the UAW committed to an on-going high-level dialogue to work through our differences over competitiveness and productivity issues without resorting to costly work stoppages.

This is a major step forward. I know both sides are determined to make this work, but there is obviously no guarantee of success. Nonetheless, it is a good start. I personally will be spending more of my time trying to make this dialogue with the UAW cooperative and constructive. We have to try to make it work in a way that allows us to close our productivity gap without strikes.

We know where we need to be in terms of productivity. More important, we know exactly what we need to do to get there. And, we can do this without anyone in our current work force losing his or her job through lay-offs. Actually, we have been doing this all along. Since the end of 1990, we have reduced the US hourly work force by more than 125,000 people, and we have virtually no one on lay-off today. We did this through attrition, and attrition will be a major tool in getting where we need to be.

The need to change is always hard to accept. However, the leadership of General Motors has come to appreciate the wisdom displayed by the philosopher Aristotle when he said, "He whom the gods would destroy, they first give forty years of success."

We were often complacent, stubborn, and even arrogant in our so-called glory years. Worse, those traits made it easy to blind ourselves to the change that was sweeping through the industry in the 1970s and 1980s.

Let me share with you a story that I have shared within General Motors.

In the early 1980s, I was leading the team charged with developing the NUMMI partnership with Toyota. We had the opportunity to benchmark our stamping and assembly manpower requirements against Toyota's. Believe it or not, that had never been done before by General Motors.

We had all the data in detail. I still recall the numbers -- it took us more than twice as many people as Toyota to build a small car in a two-shift, sixty-job-per-hour operation. When I presented the findings to the top GM management. . . let me tell you. . . never in my life have I been so quickly and unceremoniously blown out of the water.

I guess you could say we were in the denial phase.

Ladies and gentlemen, we are not in denial any more. That is why we are determined to continue to change what we do and how we do it as the world itself continues to change. We will not be side-tracked on the competitiveness journey.

We want General Motors to be a company that is guided by facts rather than wishes, where stories like the one I just told never happen again: A company where General Motors' own core values of customer enthusiasm, integrity, teamwork, innovation, and continuous improvement are basic standards for behavior, not just words on a banner or in a pamphlet.

I also want to take this opportunity to thank all of our salaried employees and our dealers and suppliers for their confidence and support during the past two months. The strikes were especially difficult for our suppliers and dealers and all their employees, who had no say in what happened but who have suffered greatly.

You suppliers are vital members of the team. You will play an even greater role in building our future. Your creativity, loyalty, and sacrifice have been critical. A few years ago, no one would have predicted the results of the recent Ward's Auto World poll, in which suppliers ranked General Motors number one among original-equipment-manufacturer customers they most prefer to work with. Obviously, there is still room for improvement, and we will keep working at it, but these results are most encouraging. I thank you again, and I want to stress that you are more important than ever to our future success.

The good news is that we are already re-building momentum. Production at the idled plants resumed only last Friday. I am happy to report that today, we are back at normal production. The dealers' pipeline is filling fast, and we expect to be going full tilt through the end of the year and beyond.

Now, the separation of Delphi from General Motors as an independent company and the rationalization of our Vehicle Sales organization will build even more momentum.

The Delphi team has transformed our component operations from a sluggish internally-focused group of in-house suppliers into an integrated and fast-moving team capable of competing head-on with the toughest competitors in this very tough business. Thirty-five percent of Delphi's current business is with non-GM-NAO customers, and the potential for even more business is tremendous, given Delphi's unmatched technological resources.

Delphi plans to have more than fifty percent of its business with non-GM-NAO customers by the year 2002. However, Delphi could never reach its full potential with other customers as long as it remained tied to General Motors. That is the real story of the Delphi separation. It unleashes Delphi's potential. It is good for Delphi employees and all of Delphi's customers, including General Motors. For General Motors, it represents a major shift away from vertical integration, which is part of our long and proud history of total self-sufficiency that began with Billy Durant in 1908. It will improve the focus on our business of building great cars and trucks as organizational and reporting structures are simplified and decision-making is speeded up. It is a clear win for both Delphi and General Motors.

The changes in our sales and marketing organization are also unprecedented and fundamental. The era of the virtually independent car division, dating back to our creation in 1908, has come to an end. The brands are still there, and this new structure will allow us to better support the brands, the products and our dealers by integrating and leveraging all the talents and resources that had previously been spread among six different sales and marketing units. The strength of our brands and our broad product range give us a unique ability to better satisfy specific customer requirements than any other company.

We will be moving faster than ever in the market place. For example, we will introduce 23 new cars and trucks in the next 3 years. On top of that, we will have an average of one new product every 28 days between now and the middle of the next decade. All of them have been designed and engineered to score with customers, the people whose voice really counts. And nearly half will be innovative concepts aimed at redefining existing product segments and creating new segments.

At the same time we introduce these major new products, we will also continue to reduce the total number of offerings in our portfolio. However, thanks to the innovative nature of the new products, we will actually expand our market coverage. We have already cut the North American product portfolio from 105 models in 1992 to 77 today. In fact, we took out ten models in just the past two years.

I want to be perfectly clear about this: We are not in a race to shrink the company or shrink our market coverage. Rather, we are in a race to grow our business and increase our profits. Yes, we will need to make more changes, but we have shown that we are willing and determined to get where we need to be, whatever it takes. As we accelerate the process, all of our stakeholders -- including suppliers, employees, and investors as well as customers -- will benefit.

We are also proceeding with plans to rationalize our powertrains. We will be eliminating ten major powertrain products between now and the year 2005 and replacing them with five new global product lines that have greater flexibility and broader applications. This will allow us to reduce structural cost and at the same time expand our market presence. Again, it will help us grow, not shrink.

Finally, we will continue re-configuring the manufacturing network. We will strive for even higher capacity utilization than the current level of 94 percent. This is essential in our capital-intensive industry. At the same time, we will make the total production system leaner, faster, and more flexible. This is necessary to anticipate and respond to an ever-changing market and fast-moving competition. We are planning on building some new assembly plants to replace and consolidate older plants. The new plants will be lean and agile in every respect, operating twenty-four hours a day. They will also all have contiguous stamping plants -- this has been our strategic direction in recent years.

The bottom line is that we are moving even faster now than we did in the previous six years to transform General Motors into a different company. The deeds speak for themselves -- and will continue to do so.

Speed and agility will be the hallmarks of this new General Motors. Let me give you just two examples:

In Brazil, we are building a manufacturing complex where vehicles will be assembled from modules rather than thousands of separate components. It makes assembly more efficient. More important, it adds flexibility to anticipate and respond quickly to a broader array of customer requirements. The modules are assembled by suppliers whose operations are close to the assembly facility. Suppliers are far more involved in every aspect of the product development and manufacturing cycle than ever.

We believe that vehicle manufacturing will evolve in this direction here in North America. As the evolution proceeds, we will also involve our unions in every phase of the process required to adapt our US manufacturing network.

Another example of this new speed and agility is the process begun with our OnStar system. The OnStar satellite and the basic equipment built into the vehicle make it possible for each customer to tailor the equipment and the system to his or her specific needs. They open the possibility of economical electronic navigation, entertainment, and computer applications including access to the InterNet.

We are only beginning. OnStar represents a quantum leap beyond the cellular phone service most people think of today. As new technology is introduced, the automobile itself will be transformed from a transportation system to an information system. And, with the huge potential subscriber base created by the annual turnover of our national vehicle pool, it represents a major new source of potential downstream revenue and income.

In his classic book, My Years with General Motors, Alfred Sloan offered the following observation:

This is also the challenge we have faced at General Motors. We emerged from the crisis of 1992 with a firm determination to never allow past success to blur current challenges and future requirements. We have shown that the organization has the fortitude required to change, and we are even more determined to keep the process of change moving. We will not be derailed on that journey called competitiveness.

Both sides are learning many lessons from this summer's strikes. Those lessons will be the foundation for progress. We have emerged more resolved than ever to make our vision a reality: To work together in making General Motors the industry leader in all respects.

That is our common objective. We will achieve it. We will achieve it through deeds, not words.

Thank you.


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