Insisting the problems plaguing the U.S. auto industry were ”more acute than we thought” and the plunge in consumer confidence ”more persistent than we expected,” General Motors Corp. Chairman Robert Stempel Monday said the automaker lost a record $4.45 billion in 1991.
News of the loss was eclipsed somewhat by the simultaneous announcement of coming GM plant closings and layoffs, but the figures were staggering nonetheless.
Not only did the loss etch a new chapter in GM`s record book by exceeding the $1.99 billion lost in 1990, it eclipsed the $4.41 billion lost by Texaco Inc. in 1987 after its settlement with Pennzoil Co., until now the largest loss in U.S corporate history.
GM`s record loss was magnified by the fact that the only facet of the automaker`s business to lose money in 1991 was its North American automotive operations.
Stempel cited the by-now-familiar litany of factors, ranging from the recession, unemployment, Persian Gulf war, Japanese competition and the high cost of incentives (estimated at more than $1,000 a car) to the luxury tax on vehicles and the reluctance of banks to make loans.
He said nearly all those factors helped create a lack of consumer confidence in the economy that resulted in buyers holding back on new-vehicle purchases.
With the previously announced loss of $2.26 billion at Ford Motor Co. and the $795 million loss at Chrysler Corp., the domestic automakers lost a combined $7.51 billion in 1991, easily surpassing the previous record combined loss of $4.5 billion in 1980.
Stempel vowed GM will undertake a massive cost-cutting that includes the previously announced closing of 21 plants and shedding of 74,000 workers by 1995. The first 14 plant closings, involving 16,000 workers, were announced Monday.
Stempel also announced a reorganization of GM`s money-losing North American automotive operations, designed, like the plant closings, to restore the automaker to profitability.
He announced formation of a North American Strategy Board that not only will oversee the reorganization, but be responsible for reducing duplication. The board will be in charge of integrating all vehicle and marketing decisions among the divisions. GM President Lloyd Reuss will be in charge of the strategy board.
The exact approach the board will take and just how the reorganization will unfold wasn`t addressed by Stempel. As one source said, ”GM released 160 pages of information Monday that brought up as many questions as were answered.”
Stempel`s reorganization plan was seen by some as a reversal of one launched by former GM Chairman Roger Smith in 1984. That shakeup divided the automaker into separate Buick-Olds-Cadillac and Chevrolet-Pontiac-Canada groups with their own manufacturing, engineering and marketing operations. Rather than streamline operations, say industry analysts, it created more problems.
”That reorganization made us very strong,” Stempel argued, though it also created ”lots of overhead that we have to get out now. We have to get leaner. There`s no finish line in this race.”
Joseph Phillippi, analyst with Shearson Lehman Brothers in New York, agreed. ”Cost-cutting is no longer a response, it`s now a way of life. You do this every day; you never stop. If you don`t do that, then costs creep back in,” he said.
”Basically there still are too many layers of redundancy at GM in the decision-making process,” said Phil Fricke, analyst with Prudential Securities Corp. of New York. ”There`s still too many people trying to make decisions at GM. It needs a monumental streamlining.”
Independent Detroit analyst Arvid Jouppi noted that Smith`s reorganization plan ”created even more levels of management and even more and larger staffs,” inasmuch as Buick-Olds-Cadillac and Chevrolet-Pontiac-Canada each have their own separate planning groups.
”I think what we`re going to see is the death of (Buick-Olds-Cadillac and Chevrolet-Pontiac-Canada) as intermediaries. In many cases they simply generated paperwork,” said David Cole, head of the Office for the Study of Automotive Transportation at the University of Michigan.
”What GM is trying to do is eliminate lots of its bureaucratic quagmire and centralize its staffs as much as possible,” he said.
”As an example, GM has central purchasing and (Buick-Olds-Cadillac)
purchasing and (Chevrolet-Pontiac-Canada) purchasing and Truck Group purchasing and Saturn purchasing. This all will be centralized under one group,” Cole said.
”There`ll be more commonality of parts, too, things that you don`t see, such as nine engine families being combined into five, and 17 ignition systems being shrunk down to three.”
There also will be more focus on North American automotive operations, GM`s main business.
”When you lose as much money as they have in North America and carry a lead sinker around your neck, you`re going to see lots of attention paid to North America,” Cole said.
In the fourth quarter, GM lost $2.46 billion on revenue of $30.4 billion. However, Stempel said, the loss included a one-time charge of $1.8 billion to cover the restructuring, bringing the loss excluding the charge to $520 million, versus a year-earlier deficit of $1.61 billion on revenue of $26.4 billion.
For the year, the $4.45 billion loss on revenue of $123.1 billion compared with the previous record loss of $1.99 billion on revenue of $124.7 billion in 1990.
