The Right Stuff

By S.C. GWYNNE DETROIT

Is this an American auto plant, or a factory from another planet? The company president walks around in a polo shirt with a pocket logo right out of Star Trek, allows workers to call him "Skip" and describes his position as "team member." He and the union boss (who goes by "Dick") have a strange, collegial relationship. As for the rank and file, they don't punch a time clock and they get to handpick the people they work alongside. During off-hours they run around an outdoor obstacle course and engage in group hugging sessions. If they develop a bad attitude, they are paid to spend a day thinking about what's bothering them. That's not all: a TV commercial for this multibillion-dollar venture features an employee's dog, a small blond mutt named Emmett.

Yes, this is an American auto factory, one as far out as its name: Saturn. Situated 35 miles south of Nashville in the small town of Spring Hill, Tenn., the Saturn plant and its 3,000 team members represent a grand experiment in $ American manufacturing. For General Motors, which has invested eight years and $3.5 billion to launch Saturn, the venture has a specific competitive goal: to build small cars as well as the Japanese do -- and then some. But GM's even more heroic mission for Saturn is to help the world's largest industrial company (1989 sales: $126.9 billion) break loose from rusty traditions that have dogged the company's performance for more than two decades.

Most important, as a working laboratory of labor relations and manufacturing know-how, Saturn will help answer one of the most pressing questions of the 1990s: Can America compete with the Japanese? Automaking may be a relatively old field, at least compared with supercomputer building or gene splicing. But the automobile, with its 10,000 parts and ever increasing complexity, remains one of the most challenging products to manufacture and a telling measure of an industrial society's capabilities. "Saturn will have enormous psychological impact on American business," says Lester Thurow, dean of M.I.T.'s Sloan School of Management. "If Saturn is successful, it will prove that it's possible to junk the old bureaucracies, change the corporate culture, change the adversarial relationship between union and management, and put it all back together right. If they succeed, it will be a big positive for America. If not, it will be a huge downer."

So far, the results offer hope. This week the first Saturn dealers will open their doors, starting in 30 locations in the West and Southeast and gradually growing to 130 by the end of next year. They will be offering what David E. Davis Jr., the dean of auto critics, has judged "a damned nice little car." That is no small feat. No other American company sells or builds any kind of little car without substantial help from foreign partners. Honda, Toyota, Nissan and other Japanese companies have driven away with that segment of the car business, boosting Japan's overall share of the U.S. auto market from 19.6% in 1980 to 27.7% last year, or 2.7 million vehicles. When Chrysler dropped its U.S.-made Dodge Omni and Plymouth Horizon models this year, the company began relying strictly on Japanese-built vehicles to fill out the small-car category of its product line. Ford was able to stay in the market only by basing its new Escort and Mercury Tracer cars on a Mazda prototype and by adopting that company's manufacturing technology.

Yet the most pitiful performer in the small-car field during the past two ) decades has been GM. The bad reputation spread in 1970 with the Chevrolet Vega, a poorly engineered car notorious for rust and breakdowns. That was followed in 1975 by the poor-quality Chevette, a hasty response to the first oil crisis. Then came the much hyped X-cars (Chevrolet Citation, Oldsmobile Omega) in 1979, which suffered from defective clutches and brakes. Two years later, the underpowered and overpriced J-cars (Chevrolet Cavalier, Cadillac Cimarron) rolled off the line, alienating young buyers.

Since the mid-1980s, when both Chrysler and Ford staged impressive comebacks, GM has become a paradigm for America's manufacturing inadequacies. Customers and competitors alike have viewed the company as an overfed, ingrown bureaucracy. The abuse has been humiliating at times. Renegade director H. Ross Perot lacerated the company for its short-term obsession with profits, while the quasi-documentary Roger & Me portrayed chairman Roger Smith as a heartless number cruncher. During the decade, GM's share of the U.S. market slid from 46% to a low of 32%. Says Thurow: "The worst thing to happen to our economy in the past ten years was the fact that GM lost so much of its market share, mostly to foreign companies."

Through it all, GM brass have pointed to Saturn as the company's great hope. Smith, its enthusiastic patron, called it "a project of cosmic dimensions" whose products would someday "shame" the Japanese competition. As Smith promised, everything about Saturn is large scale. It is GM's first new carmaking division since the automaker acquired Chevrolet in 1918, and its huge new plant in Spring Hill is the most self-reliant assembly plant built in the U.S. since Henry Ford put together his Rouge River complex in 1927. Saturn makes its own engines, transmissions, body stampings, instrument panels and seats. Fully 90% of the car's bulk and 65% of its parts are built on the site. Saturn's developers wanted it that way, the better to break away from GM's mold and reputation. Saturn's advertisements contain no mention of GM.

To start with, Saturn is offering three models: the SL sports sedan (base price: $7,995), the SL2 sports touring sedan ($10,295) and the SC sports coupe ($11,775). Saturn gave dealers a happy surprise -- and competitors a call to battle -- by pricing the SL sedan so low, thus undercutting such archrivals as the Honda Civic DX by $1,500 and the Toyota Corolla DLX by $2,000. Even so, most Saturn customers will not be driving $8,000 cars off the lot, since + buyers will be paying a $275 delivery charge, plus $695 if they want an automatic transmission and $775 for air conditioning. Saturn will offer no rebates or other incentives, but its warranty has some sweeteners: a 24-hour roadside assistance program and a money-back guarantee for dissatisfied customers who return the car within 30 days or 1,500 miles.

So far, the car has earned respectful -- but qualified -- reviews from car critics, who praise its crisp handling, handsome interior design and solid workmanship. "A major step forward for General Motors," said Road & Track, while Motor Trend lauded the sports coupe as "a remarkable feat for the home team . . . something to be proud of." Even so, some critics complained about excessive wind noise and the raucous sound of Saturn's engine at high r.p.m., which Car and Driver described as "a chorus of Osterizers." Other critics found Saturn's styling to be too similar to other GM models.

Most experts conclude that Saturn ranks with its Japanese competitors as a noble contender -- if not yet a knockout champion. What cannot be known for sure at this point is probably the most important single factor: Saturn's reliability. In that department, the company is taking no chances. Only 1,000 Saturns will be ready for sale this week, about half the number expected, because the plant has slowed down its production to iron out any initial bugs. "We've had to do some tweaking," a Saturn official explained. Once rolling, Saturn aims to boost production to 250,000 a year by the end of 1991 and 360,000 by 1995.

For the first time in years, GM's timing of a new product seems uncannily accurate. Saturn's debut coincides with rocketing gasoline prices and a looming recession, all of which should be a boon to a small, inexpensive car that gets 27 m.p.g. in city driving and 37 m.p.g. on the highway. In Spring Hill, Saturn executives exude a cocky optimism that their moment has arrived. They are confident enough in Saturn that they chose Southern California, the heart of import country, as one of the first launching points. Saturn's goal is to sell 80% of its cars to import buyers. "We're really out to get the guy who's driving the Civic or the Corolla. That's the niche," says Richard (Skip) LeFauve, a former Navy pilot who runs Saturn with quiet self- assurance.

Why is Saturn so revolutionary for American industry? Primarily because this attempt to reverse GM's industrial decline acknowledges for the first time on ! a large scale the real reason for Japan's manufacturing superiority over the past two decades. The secret is not advanced technology or low wages or some mystical Asian work ethic. Japan's most important advantage is its management system: the way it deals with employees, suppliers, dealers and customers. This month a historic, $5 million M.I.T. study of the world's auto companies concluded that Japan's advantages boil down to a few elements, including teamwork, efficient use of resources and a tireless commitment to improving quality.

The philosophical nature of Japan's automaking edge was proved once and for all with the success of the first Honda plant in Marysville, Ohio, where American workers build Accords whose quality rivals or exceeds the same cars built in Japanese plants. Following the example of Toyota chairman Eiji Toyoda, Japanese companies in the 1960s and 1970s effectively reworked Henry Ford's theories, replacing his intensely hierarchical assembly-line system with a more flexible team-based arrangement. Japan's efforts have been fruitful. In the past decade the Japanese have built 11 plants in the U.S. and Canada with the capacity to make 2.6 million cars a year.

To be sure, automaking has become such a globalized business that the nationality of cars is increasingly blurred. GM owns 38% of Japan's Isuzu, 50% of South Korea's Daewoo Motors, 50% of Sweden's Saab-Scania and 5% of Japan's Suzuki, and shares some manufacturing operations with both Toyota and Suzuki. Those alliances give GM global reach, but the automaker was in danger of evolving into little more than a holding company if it did not relearn how to manufacture competitive cars in its own plants.

Saturn's best hope is that it represents a profound change in the way GM manages its people. But the difference is not technological. Saturn's cavernous, mile-long Tennessee factory is a medium-tech plant, as are many of the most efficient facilities in Japan. The core of Saturn's system is one of the most radical labor-management agreements ever developed in this country, one that involves the United Auto Workers in every aspect of the business. The executive suite in Spring Hill is shared by president LeFauve and U.A.W. coordinator Richard Hoalcraft, who often travel together and conduct much of the company's business in each other's presence. .

Beyond sharing power at top levels, the labor agreement established some 165 work teams, which have been given more power than assembly-line workers anywhere else in GM or at any Japanese plant. They are allowed to interview and approve new hires for their teams (average size: 10 workers). They are given wide responsibility to decide how to run their own areas; when workers see a problem on the assembly line, they can pull on a blue handle and shut down the entire line. They are even given budget responsibility. One team in Saturn's final-assembly area voted to reject some proposed pneumatic car- assembly equipment and went to another supplier to buy electronic gear that its members believed to be safer. Says Hoalcraft: "I don't know of another U.A.W. person who has ever decided on the purchase and installation of equipment."

Not all of Saturn's progressive ideas sprang up in Tennessee. Many were borrowed from around the world by the Group of 99, a team of Saturn workers who traveled 2 million miles in 1984 and looked into some 160 pioneering enterprises, including Hewlett-Packard, McDonald's, Volvo, Kawasaki and Nissan. Their main conclusions: that most successful companies provide employees with a sense of ownership, have few and flexible guidelines and impose virtually no job-defining shop rules.

From that blueprint grew the most radical twist in Saturn's labor agreement, one that is even more democratic than the Japanese model: the provision for consensus decision making. The Saturn philosophy is that all teams must be committed to decisions affecting them before those changes are put into place, from choosing an ad agency to selecting an outside supplier. "That means a lot of yelling sometimes, and everything takes a lot longer," says U.A.W. official Jack O'Toole, who oversees Spring Hill personnel, "but once they come out of that meeting room, they're 100% committed."

Saturn's workers were recruited from U.A.W. locals in 38 states and carefully screened. By accepting a job at Saturn, they gave up their rights ever to work for any other GM division. Instead of hourly pay, they work for a salary (shop-floor average: $34,000), 20% of which is at risk. Whether they get that 20% depends on a complex formula that measures car quality, worker productivity and company profits. In the company's first year, employee salaries will depend largely on car quality. If a team produces fewer defects than the targeted amount, its members will receive 100% of their salary. If they perform even better, they are eligible for a bonus.

The result is that Saturn has attracted a younger, more entrepreneurial crew / than other GM divisions. The average age of a Saturn worker is 38, vs. 43 for the whole company. Saturn's work force is 20% female, slightly higher than the portion at GM as a whole. Many workers say they were drawn by the prospect that Saturn could compete on an equal footing. "The thing that most interested me was the idea that we could beat the Japanese. That's why I came here," says James Archibald, 34, a line worker in body fabrication, who pulled up stakes in Alabama to take his chances at Saturn. Archibald and his fellow workers share an almost religious zeal for their mission and habitually refer to traditional GM methods as "Old World," as if they were talking about the Middle Ages.

But people skills are not Saturn's only strong point. Since they were outfitting a plant from the ground up, Saturn's team members incorporated an array of new equipment and techniques. Their aim was to achieve what the M.I.T. study dubbed "lean production," the Japanese system that uses "half the human effort in the factory, half the manufacturing space, half the investment in tools, half the engineering hours to develop a new product." At Saturn, team members rejected the traditional U.S. form of assembly line, where workers do two things at once -- toil and shuffle -- as they struggle to keep up with car bodies creeping down the line. On the Saturn "skillet" line, workers ride along on a moving wooden conveyor belt as they do their jobs, which enables them to concentrate on their work. Other progressive steps are the use of water-borne paint (rather than oil-based), which reduces pollution, and an aluminum-casting method called the lost-foam process, which produces better-quality engine components with less machining.

The product contains several innovative features as well, including 54 patented inventions. Some are subtle: electronic controls for the automatic transmission that allow smoother shifting. Others are more fundamental: the body of a Saturn is built atop a very rigid space frame, which gives structural integrity and protection for passengers. The space frame is not unique to Saturn, but it supports a special feature: all the vertical body panels (doors, fenders, quarter panels) attached to it are made of plastic polymer, which doesn't rust and resists low-velocity denting. The horizontal panels are still made of steel.

While Saturn's advertising will eventually tout the car's qualities, the early pitch is clearly to patriotism and small-town sentiment. That may be a + canny marketing move. "The Saturn is the beginning of something we have been warning our Japanese friends about," wrote Jean Lindamood, executive editor of Automobile magazine. "Americans are harboring strong anti-Japanese sentiment just below the surface, and when Detroit can make a car that is the equivalent of a Japanese car, Americans will buy it. I believe it will sell like crazy. I also believe that if Saturn has quality problems, Saturn is finished."

For all the pep-rally enthusiasm at Saturn, the venture has given rise to a litany of doubts both inside and outside GM about the wisdom of adding another car line when the automaker's factories are running at only 80% of capacity. GM was forced to close 11 plants in the 1980s and is likely to shut four more plants in the next three years. Says rival automaker Lee Iacocca: "GM needs another car line like they need a hole in the head."

Saturn may also lure customers away from other GM products, especially its highly successful Geo line, which is made with partners Suzuki and Toyota. "They're not going to steal market share from the Japanese," says Paul Lienert, editor of Automotive Industries' Insider, a trade newsletter. "It's more likely that they'll cannibalize other GM products, so for the company it will be a net wash in market share."

One of Saturn's biggest challenges will be to turn a profit, even in the long run. "Nobody makes money on small cars," says Maryann Keller, an analyst for the investment firm Furman Selz Mager Dietz & Birney. "Saturn's no different from anybody else. The Japanese certainly don't make money on small cars." In most cases, those models serve as loss leaders for the larger, more option-loaded vehicles and to boost the average fuel-efficiency of an automaker's total fleet in order to meet U.S. government standards. But GM president Lloyd Reuss contends that Saturn will make a profit within eight years, a respectable performance for an all-new car. "None of us know exactly when we're going into the black on Saturn," says Reuss, "but it has to be a bona fide entity that is profitable, and not profitable at the expense of cannibalization from other GM lines."

Is this exotic experiment in the Tennessee pastureland just a bright spot in a gloomy picture, or does it herald real change for the manufacturer? GM chairman Robert Stempel, who succeeded Roger Smith last August, is likely to operate in ways far different from his predecessor. Smith, an autocratic manager with a purely financial background, made sweeping strategic moves that included launching Saturn and spending billions of dollars on high-tech robotics and such acquisitions as Electronic Data Systems and Hughes Aircraft. Stempel, by contrast, is an authentic "car guy." His most important attribute may be his reputation as a steadfast team player, since almost everyone agrees that GM's challenge now is to better motivate its work force (total employees: 800,000).

GM's drive to promote the Japanese-inspired team concept at its plants has often been greeted with suspicion, if not outright hostility, and many line workers cling resolutely to the Old World: a rigid, adversarial system characterized by strict seniority rules and a crippling multiplicity of job classifications. The result is a patchwork of different systems among GM plants, many of which are light-years behind the highly efficient Buick City factory in Flint, Mich., where the Buick LeSabre is produced. Overall, GM has made virtually no gains in productivity and remains the highest-cost automaker in the U.S. In fact, the company has been losing money on its North American carmaking plants for several years and has had to rely for profits on its successful European operations (auto brands: Opel, Vauxhall), its auto- financing subsidiary and other divisions.

Yet chairman Smith's radical cost cutting, which removed 137,000 workers from the payroll, and his $50 billion investment in retooling will eventually pay off for the company. More important, his huge reorganization of the company in the mid-1980s is finally creating some cooperation between GM's far-flung divisions. One major change has taken place in its Automotive Components Group, a $33 billion operation. Because the companies in the group (examples: Harrison Radiator, Packard Electric, Inland Fisher Guide) were captives, there was traditionally no incentive for them to offer competitive prices. GM now insists that its parts makers stand on their own, which has done wonders. The Delco Maraine division has cut 70% from the cost of manufacturing antilock brake systems.

The company's most dogged problem is its image among consumers. Admits president Reuss, with a candor uncharacteristic of GM's inner sanctum: "In the early and mid-1980s, we let a lot of people down. We disappointed customers with some of our products' quality, reliability and durability. And as we were going through the change from rear-wheel drive to front-wheel drive, we had too many cars that looked alike."

GM cars have improved vastly, but most car shoppers don't perceive it yet. While GM still lags behind most Japanese manufacturers in overall quality, its cars have 53% fewer defects than they had only five years ago, a fact the company is just beginning to tout in its advertisements. Some of GM's car lines actually beat the Japanese. Buick, for example, ranked fifth in the most recent J.D. Power survey of initial quality, placing the GM division ahead of Honda, Nissan, Acura and BMW, among others. The Buick LeSabre model placed ahead of the Acura Legend, Honda Accord and Nissan Maxima on the Power list of the most trouble-free models.

At the heart of the issue is consumer trust, which the Japanese have deservedly won and GM now has an opportunity to win back. Inspired by Saturn, GM may be able to turn the once derogatory epithet "domestic" into a true competitive advantage. "The Japanese have been worried about this for some time. It scares the liver out of them," says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan.

Many car experts see the beginning of a dramatic turnaround at GM. The company's products have features to boast about: multivalve engines, antilock braking systems, traction control, all-wheel drive and other new technologies. GM's new electronic transmissions have won rave reviews from the automotive press. "Let me put it into perspective," says auto consultant James Harbour, whose landmark 1980 study first shed light on Japan's manufacturing advantages. "General Motors is about to kick butt from one end of this country to the other. They're renewing products faster, they're continually reducing the cost of renewing those products, and you're starting to see a real distinctiveness between cars."

Consumers may be starting to notice too. GM's long, steady slide in market share bottomed out at a dismal 32% last October and has climbed back to 36%, even in a soft market. While Ford's sales are off 9% so far this year and Chrysler's are down 17%, GM is running only 5% behind last year's pace. But all of the Big Three have been outraced by the proliferating Japanese-owned plants in the U.S., which have increased sales 41.3% so far this year, selling 840,000 cars by mid-October. Overall Japanese market share in the U.S. has grown only about 1 1/2 percentage points this year, however, because most of the new Japanese production in the U.S. has been offset by reduced imports.

GM's extensive retooling, a drain in the 1980s, will be a boon in the 1990s by enabling the company to shorten its cycle of product development. Between last year and 1994, virtually every car and truck in its product line will have been redesigned, a claim that no other car company can make. In 1990-91 alone, GM will be introducing more new cars than Ford, Chrysler, Honda and Toyota combined. The 1992 model year will see redesigns of the Buick LeSabre, Pontiac Bonneville, Oldsmobile 88, Cadillac Eldorado and Seville, and Chevy's Beretta and Corsica lines, among others.

Most daunting of all for GM's competitors, the company has decided to fight for a bigger piece of the market. "GM is the pivotal company in this country," says analyst Keller. "By not defending market share, it allowed Chrysler to survive and allowed Ford to become this competitive monster. But here's something to think about: What if GM actually decided to defend its market share? I think that's going to be the major change." GM's Reuss confirms it: "At the top of our list is to profitably increase market share. You didn't see that five years ago." Saturn, in particular, throws down a challenge to GM's rivals. Ford hopes to fight back with the new Escort, designed by Mazda and built in Wayne, Mich. Chrysler is lagging behind, with a replacement for its Omni and Horizon cars due in two years.

If Saturn succeeds, then the message to the rest of American industry will be unambiguous. The American work force, often and unfairly maligned as the cause of U.S. competitive woes over the past two decades, can compete with anyone if managed intelligently. GM's smaller U.S. rivals have already adopted some of the progressive techniques employed at Saturn. Ford, which is using Japanese-style team systems at many of its plants, has already improved so much that its efficiency matches that of the average Japanese plant in Japan. Chrysler's best factory, in Sterling Heights, Mich., is nearly as efficient as the newest Japanese plants and matches the average Japanese facility in quality.

The commitment to changes as bold as Saturn's represents a major turnaround in the thinking of corporate America. A report issued last year by the Council on Competitiveness, a group of scholars and industrialists, concluded that U.S. industry had declined in the past two decades because "top U.S. managers , began to focus on marketing and finance at the expense of manufacturing and, as a result, failed to manage the investments in worker skills, plant and equipment necessary for a strong manufacturing capability." The council noted that Japanese manufacturers "spend two-thirds of their R. and D. budgets on process innovations, while U.S. manufacturers spend only one-third."

In other words, corporate America seems to be recognizing that making the product right is as important as dreaming it up and selling it. "People should look at Saturn as a potential watershed," says the University of Michigan's Cole. "This is not just a bunch of guys using some new machinery on the plant floor. It's really an entirely new vision of the system." If the vision is clear and true, the 1990s could bring a vigorous comeback for American industry.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Steve Hart

CAPTION: DETROIT'S BIGGEST FAMILY

With reporting by Joseph Szczesny/Detroit