Dull at Any Speed

Stuck in neutral: Unsold SUVs, vans and other trucks are reflected in the tailgate of a Chevrolet Suburban at the Guy Schmidt General Motors dealership in Glendale, Calif. on May 4. GM bonds were cut to junk status the next day.
Stuck in neutral: Unsold SUVs, vans and other trucks are reflected in the tailgate of a Chevrolet Suburban at the Guy Schmidt General Motors dealership in Glendale, Calif. on May 4. GM bonds were cut to junk status the next day. (By Reed Saxon -- Associated Press)
By Maryann N. Keller
Sunday, June 12, 2005

In a Detroit suburb in the late 1980s, General Motors established a large technical facility it called the Mona Lisa center, where its engineers disassembled Honda Accords and Toyota Camrys in a desperate search for the secret of their Japanese competitors' success. They analyzed the smallest pieces trying to figure out the best attributes to include in future GM models.

The reasons for GM's decline could have been found there on the floor of the Mona Lisa center, but not among the parts. It was the whole approach. Taking apart existing cars is a backward-looking exercise; it doesn't tell you what's going to sell four or five years down the road. So while GM was staring in its rearview mirror, its competitors were zipping ahead.

What ails GM today is much the same as what ailed it then -- and it's not just a matter of big pension plans, health care costs for workers or undervalued Asian currencies. The problem is that GM has forgotten how to make cars that people want to buy.

That's why the 25,000 layoffs that GM announced on Tuesday were only part of the week's distressing news for the automaker. The company also said that it is hard at work at a concept car called the Buick Centieme, a seven-passenger "crossover" vehicle designed to compete with popular rivals from Honda, Ford and Chrysler. (Crossovers have SUV attributes, but are built on car, not truck, platforms.) GM's lack of a seven-seat crossover wagon to sell in 2005 is a problem now, but the new model car won't arrive until sometime between 2007 and 2009. Will it be substantially better than what I could buy today? GM has never behaved as if it understood that the competition is always moving forward. The car I can buy today is not something I want in four years. The company might as well still be stuck in the Mona Lisa center.

It's hard to pinpoint when GM lost its touch. At the start of my career as an auto industry analyst in 1972, General Motors had a triple-A credit rating and a portfolio of distinctive and powerful brands that suited America's growing affluence and emerging suburban lifestyle. I myself had bought a new Pontiac Tempest just after college in 1966 and I loved it.

But I've owned only one GM car since then. For the past 33 years, I have watched, analyzed and chronicled the decline of GM's market share and leadership among the world's automakers. In the 1970s, the company lost its creative edge, paying more attention to financial calculations than consumer tastes. Since the 1980s GM has been forced into more downsizings and restructuring than I care to document. Each time, it has touted multibillion dollar cost savings and a corporate revival based on new products in the pipeline.

That's what happened, again, last week. At the company's annual shareholder meeting, chief executive G. Richard Wagoner Jr. delivered a statement essentially identical to what we've heard time and again. He announced yet another round of job cuts and factory closings while expressing confidence in the success of future models. GM stock surged, just as it has after every other cost-cutting scheme.

But while Wagoner is trying to exude confidence, GM cars are languishing on dealers' lots. And history tells us that getting rid of people and factories is not going to close gaps in product development and production efficiency with competitors such as Toyota. It is simply aligning the company's assets to a new reality of a permanently lower market share.

This would have been unimaginable to Alfred Sloan, the legendary GM chairman who rebuilt the company after an earlier brush with bankruptcy and who retired in 1956. He had left behind a heritage of engineering innovation and financial controls that supported smart decisions without stifling creativity. The company was so dominant, it could have run on cruise control -- at least for a while.

Sloan's successors lost touch with consumers. People used to speak with awe about the executive offices on the 14th floor of GM headquarters. Visitors had to go through two sets of electronically locked glass doors and file past guards. Inside, it was like a sanctuary -- very, very quiet with beige carpeting and wood paneling. The executives had their own private dining rooms and secretaries sat watch over closed office doors, preventing any opportunity for casual conversation. Cocooned there, GM's executives became smug.

By the 1970s, new forces -- rising gasoline prices and competition from Japan -- were beginning to assault the company and Sloan's world was passing. GM responded to cheap Japanese imports by cutting quality. One Chevy model actually left out the back seat to cut costs. Brand definition, Sloan's genius, was blurred.

In the 1980s, Roger Smith, whose long tenure as CEO was marked by GM's greatest failures, took the company through a disastrous reorganization and then proceeded to spend more than $15 billion on robots and factory automation, none of which helped product quality or cut costs.


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