Who's in The Driver's Seat?

By WILLIAM MCWHIRTER DETROIT

TALK ABOUT JOB STRESS. WHEN General Motors chairman Robert Stempel, 59, fell ill and was taken to a Washington hospital last week, doctors gave an official diagnosis of "elevated blood pressure." Given the problems he's been having at the office, that was no surprise. The world's largest industrial corporation (1991 revenues: $123 billion) is piling up some of the largest financial losses in corporate history, an estimated $16.5 billion on North < American auto operations (more than half the GNP of Ireland) for the three- year period of 1990-92. To avert disaster, the company is struggling to close 21 of its 120 plants and cut 74,000 of its 360,000 employees in the next two years.

The excruciating process has thrown GM into a management crisis. Stempel, who returned to work by the end of last week, is in a job that was once among the most powerful in U.S. industry and today seems only the most thankless. When he took charge two years ago, employees cheered the elevation of a leader with a strong engineering background and a nice-guy reputation. But GM's directors now seem to think that the automaker's predicament calls for a leader who can get tough with the company's suppliers, managers and unions. Among GM's challenges is the outbreak of guerrilla warfare among United Auto Workers locals, one of which staged a nine-day strike last month at a stamping plant in Lordstown, Ohio, resulting in the shutdown of nine other assembly plants.

Stempel finds himself increasingly remote from the centers of decision making. The process began last spring when GM's outside directors reshuffled top managers, demoting Stempel ally Lloyd Reuss from the president's post and installing John Smith Jr., 54, former head of the automaker's international operations. Smith, who took charge of both North American operations and the company's overall strategic direction, moved the inner circle of financial and marketing executives away from GM's landmark headquarters in Detroit to the technical center 10 miles away. That has left Stempel in a Shakespearean confine, prowling the vacated corridors of the 14th floor.

Indicative of Stempel's reduced role was the almost make-work nature of his one-day trip to Washington, which included a call on Environmental Protection Agency chief William Reilly and a meeting with an official of a business group organizing a conference -- appointments that in busier times a GM chairman could easily delegate to subordinates.

Alarmed by GM's sagging credit rating, the automaker's directors are said to be considering drastic measures. The leader of the outside directors, former Procter & Gamble chairman John Smale, might replace Stempel. In the most radical, if still remote, move of all, GM would seek bankruptcy protection under Chapter 11 as a way to force concessions in wage, pension and benefit contracts.

The main goal is to reduce GM's labor costs, which make it the least economical automaker among the major global competitors. GM spends nearly $800 more in labor costs per car than Ford and $500 more than Chrysler. Both rivals endured harsh restructurings during the 1980s, and now rank among the world's most efficient automakers.

Smith's handpicked group of bureaucracy busters, who work 15-hour days and call themselves "the cowboys," aim to liberate each of GM's brand-name divisions to give them back their long-stifled control over styling, engineering and marketing decisions. Each division, from Cadillac to Chevrolet, will be expected to survive virtually on its own. Already, the layers of approval required for manufacturing decisions have been reduced by half. Individual engineering components that fail to add style or identity to a product have been dramatically reduced: 17 different ignition systems have been refined to three, nine engine families to five.

The most provocative of Smith's lieutenants is J. Ignacio Lopez de Arriortua, the director of worldwide purchasing, who reportedly has been handed the assignment of reducing GM's supplier costs at least 20%, or $100 million a week. Lopez, 51, a veteran of GM Europe, has become known as "the Grand Inquisitor." In only four months, he has rankled many of GM's leading suppliers by reopening existing contracts and dispatching his teams of subordinates through supplier factories to preach productivity in one-week workshops. Lopez says he has already transformed more than 100 of GM's 2,500 suppliers, boosting their productivity an average 63%. He approaches his job with messianic zeal. "I like my wife," he proclaims, "but I love GM. We must love our company if we are going to pull it up. Our mother needs our help."

On that point everyone agrees. Lately, GM's products have earned high marks for quality. But the company desperately needs to make them more cheaply and sell them more effectively. The automaker's U.S. market share dipped to less than 31% last August, down from 45% in the late 1970s. Sales of Chevrolet and Oldsmobile models have sagged most dramatically, slipping 13% and 9% respectively since last year. If the economy remains stuck in low gear during the early 1990s, price competition is likely to remain fierce, and only the low-cost producers will make money. For GM's top managers, getting there is likely to cause a lot more stress.

CHART: NOT AVAILABLE

CREDIT: (First quarter '92) Harbour & Associates Inc.

TIME Graphic by Steve Hart

CAPTION: TOTAL LABOR COST PER VEHICLE

With reporting by Joseph R. Szczesny/Detroit