A Polish Opel for the masses in Eastern Europe? That`s just one of the ambitious projects on Jack Smith`s slate at General Motors Corp. As the 53-year-old executive wraps up his first year as vice chairman in charge of GM`s vast international operations, his agenda includes:
– The launch of GM assembly plants in eastern Germany and Hungary.
– An overhaul of Saab, the Swedish automaker in which GM is a 50 percent partner.
– A restructuring of the automaker`s struggling Latin American operations.
– Rebuilding GM`s shattered distribution and sales network in the Mideast.
For the time being, though, Europe is occupying a good deal of his attention. ”It`s actually been a quiet year, compared to last year, because of the Gulf war,” says Smith, who has made two European tours since the war`s end. This year, he visited GM operations in England, Germany, Denmark, Sweden, Finland and Switzerland. A second trip took him to Czechoslovakia and Poland. In the meantime, GM has capitalized on an unprecedented sales explosion in unified Germany, climbing past Ford and Peugeot for third place overall in the European sales race (behind VW and Fiat).
”We`re on a roll in Europe,” notes Smith, a 30-year GM veteran who has become intimately acquainted with the automaker`s overseas business since being assigned to Europe in 1986. Since then, he has been president of GM Europe, then executive vice president of GM`s international operations before assuming the vice chairman`s post last August. A native of Worcester, Mass., with an MBA from Boston University, Smith is widely regarded as one of the chief architects of GM`s European strategy, including the acquisition of British specialty-car builder Lotus, the partnership with Saab and, more recently, the aggressive push into Eastern Europe. Last year, European operations accounted for nearly $25 billion in sales-one-fifth of GM`s total revenues of $125 billion in 1990. More importantly, Europe contributed $1.9 billion in profits, only partially offsetting a staggering $4.5 billion loss in the U.S.
In a recent interview at GM headquarters in Detroit, Smith talked with Anita Pyzik Lienert and Paul Lienert about the automaker`s prospects in Europe, as well as its growing presence overseas:
– – –
Q-General Motors has often been described as a ”global corporation.”
What is a global corporation?
A-We certainly are trying to operate globally, in terms of product and component manufacturing. We`re also moving our people around on a global basis. At the same time, you have to recognize that you sell locally. That`s really important. You sell country by country, city by city. ”Global,” in the broad sense, just gives us the ability to have competitive products and good people available in every market. But we have to sell (our products) one by one everywhere in the world. So we`re regional and we`re global. It`s a combination we can`t lose sight of.
Q-Where does GM stand on proposed limits on Japan`s market share in Europe?
A-We know the Japanese are going to come to Europe. We need to make sure we can be competitive against the Japanese. Our total thrust is on making our operation competitive. We believe that the (proposed) window of restraint on the Japanese is reasonable, because we look at the U.S. situation, and that was a disaster. There were no restraints, and every single Japanese company built plants there. Now they`ve got way too much capacity and have done a tremendous amount of damage there. It doesn`t bother us if there`s a restraint period (in Europe). We think that`s reasonable, in terms of bringing that capacity on more slowly. But we also recognize that, over time, the Japanese are going to be in Europe and that we need to be competitive.
Q-Does Europe keep you awake at night?
A-No, it keeps me asleep at night. We`re on a roll in Europe, and we`re very fortunate in the rest of the world. But Europe is our largest piece of business overseas.
Q-How would you explain GM`s great fortune in Europe?
A-There`s not one thing that does it, but good product is a strong base. And we`re working very hard on lowering our costs.
Q-You`re in third place in sales now, just behind Fiat. Will you overtake them in the coming year?
A-I don`t think we`ve got the volume. We don`t have the capacity to do that. If we were to beat Fiat, it might be a one-year event because obviously they`ve been hurting this year. Germany`s been strong for us, but we`ll start to slow down there soon.
Q-Let`s talk about Saab for a moment. Your biggest disappointment?
A-Well, I don`t know if you categorize it as a disappointment, but their markets fell apart on them, so we haven`t seen the volume at Saab, and, frankly, they were not very competitive. So we spent a lot of time trying to improve their competitiveness, from a cost point of view. I`d have to say we`re fairly pleased with the way Saab is going right now. They`ve done a lot of good work on lowering their cost structure. And we`ve basically reduced from about four assembly plants when we started there to one.
Q-Where do you see the Saab range fitting in with Opel in Europe?
A-Opel is the equivalent of Chevrolet in this country, and we see Saab being the premium brand.
Q-Has GM had to pour a great deal of money into Saab?
A-No. There`s some recapitalization going on, and it`s not quite settled yet, but when we get that behind us, hopefully we`ll be running in the black. Opel seems well-positioned to take advantage of new opportunities in Eastern Europe. Eastern Germany in particular. We`re No. 1 there, running ahead of VW. Q-Are you reviving negotiations in Czechoslovakia with BAZ?
A-No, that`s really done. That`s gone to Volkswagen. It would be fair to say that we were disappointed that we weren`t able to get it together. We were under some time pressure because we needed to have transmissions available to go with the engine we were building in Hungary. We ran out of time, though, and I think the government has a different approach than we were trying to take.
Q-What are the prospects now in Czechoslovakia?
A-We have a distribution network there-probably our best dealer network
(in Eastern Europe). We`d like to have a manufacturing presence there, but we haven`t found anything yet.
Q-You were in Warsaw recently . . .
A-We`re negotiating with two companies in Poland on building cars and light commercial vehicles.
Q-Why Poland?
A-It`s a large market. They have a couple of companies there that are in trouble and need help-FSO and FSR. It`s a struggle for them; they`ve lost a lot of trade with Russia.
Q-What`s the status of your talks there?
A-It`s going to be another four or five months. That`s a big facility
(FSO) in Warsaw. We don`t need the whole thing. We`re talking about a two-phase program. At the back end of the operation, we`ll put in an assembly plant for Opel cars, and then we`d give the FSO management technical help to update the Polonez on an Opel platform-a specific car for FSO. Now, there`s obviously a lot of effort to put that together.
Q-Which models would you assemble there?
A-It would probably be (Opel) Astras or a combination of Astra and Vectra.
Q-Would FSR assemble Isuzu-based trucks?
A-It could be trucks, either North American or Isuzu-based.
Q-How much additional capacity will you get from eastern Germany, Hungary and Poland?
A-We`re looking at 150,000 units in Eisenach (Germany), only 20,000 in Hungary. That`s mainly an engine plant. The FSM deal is mostly for local consumption. We`re talking about production of 30,000 to 40,000 Opels. In addition, that plant has the potential for the Polish vehicle of some 100,000 units.
Q-What about opportunities in the Soviet Union?
A-We haven`t done too much in the Soviet Union. There is one large transaction. . . . We`re doing an engine-management system (for VAZ), but we haven`t done any car or truck programs. Things need to settle down a bit there before we see a major opportunity to move. Is Russia going to be a federal republic? Are all of the current pieces of Russia going to be included or go their separate ways? Do we see meaningful changes in the economic system? All big questions, and not many answers to them. Right now, nothing seems to be functioning very well. Trade has practically stopped between Russia and the Eastern Bloc. So it`s premature to say we`re ready to build cars there.
Q-Where is GM having problems?
A-One of our major markets is Kuwait, and we lost it with the invasion by Iraq. We`re trying to get it back running again. We have to put a lot of people out there to help the dealers and to re-establish operations. Everything in the dealerships was taken-cars, wrenches, screwdrivers. We lost about 7,500 cars and trucks. In terms of potential sales, we may have lost 30,000 units. The Mideast is a great market (for GM). They like our big cars over there. The Buick Roadmaster is a hot car, and so are the Caprice and the Suburban. They like big rear-wheel-drive cars.
Q-Where else are you having difficulty?
A-Brazil has been a difficult place to operate the last two years. They`re trying to come to grips with runaway inflation. I`m talking a couple of thousand percent a year. They`ve imposed wage and price controls, which leaves big rhubarbs all over the country-strikes and supplier shortages. The Asia-Pacific region is going to require more manpower because we`re trying to establish ourselves in a number of countries. There`s a lot of upfront effort to work out transactions and put distribution networks together.
Q-If you could relocate GM headquarters anywhere in the world, where would you put it?
A-It would be awful hard to say that it shouldn`t be in Zurich. I think we picked the right spot for Europe. I can`t speak for the rest of the world yet.
Q-What do you think of GM in terms of a global corporation gearing up for the 21st century?
A-If you look at it that way, you need to be regionally located. You need something in the Asia-Pacific region, you need something in the United States, you need something in Europe. It`s awful hard to pick the right spot and then talk about where the global headquarters would be. General Motors has its roots so deeply here, I`d have a difficult time suggesting it should be other than the United States.
Q-Considering the interaction between GM`s global operations, what can the GM do to ease tensions between trading regions?
A-What we try to do is keep the product common so we can move it. That`s more important than anything else. For example, Daewoo (GM`s Korean affiliate) makes engines for Europe. You don`t hear much about that. How can we do that? Well, it`s a German-designed engine, the same engine that we use in Europe, so we can take it from Korea and move it to Europe. We also move engines from Brazil and from Australia to Europe. Brazil moves some to the United States. And many of our transmissions come from Isuzu (in Japan). So, globally, we can move powertrains. What drives us is the fact that we try to keep our products as common as possible, as a policy. So we`re in a position that, if we need something, we can make it somewhere else.
Q-How much do government trade policies influence your decision on where to source engines and other components?
A-It lurks in the background, in terms of your initial decisions. For example, if you wanted to enter a number of countries, it requires that you balance your imports and exports. If you were going to India, for example, you couldn`t get in there if you didn`t balance your trade. You really don`t want to build cars in some of the smaller countries for export because they won`t be competitive. The infrastructure isn`t in place. So what you want to do is take some components out, and that`s what we work very hard on. The whole thing is predicated on a free-trade philosophy that you are able to move goods back and forth.
Q-Where is it most difficult to do business?
A-We`re not doing business in India. It`s tough to get in there. There are a lot of local rules. One is you have to build the whole car there and balance your import-export position. That`s the way the Indian government wanted to operate. They took a model that said, `We`re going to be self-sufficient.` And then there`s another model called the free-trade model;
South Korea and Taiwan would be good examples of that, where they exported like the devil. They didn`t import a lot, but they exported. The free-trade model has won out over the protectionist or self-sufficiency model.
Q-As head of GM`s international operations, do you wind up being something of an economic diplomat?
A-In many smaller, developing countries, you do have an opportunity to work with them. I`m not carrying the main spear on Poland, but when I was there, we met with the prime minister and minister of industry, as well as people from the car company. So you have an opportunity to relate your views and understand what their problems are.
