In Washington: Foot down at General Motors

MARYANNE Keller's best- selling book Collision heralds the return of the automobile to the centre of American economic and cultural life. As the respected dean of US car industry analysts, her words have real impact when she states unequivocally that General Motors is back. To many Americans, this means that US manufacturing in general has come back from the corporate blood-letting of the 1980s and early 1990s that affected hundreds of companies, large and small, and thousands of US workers.

What gives Ms Keller cause for such optimism, and is she right? From her well-established perch at the Wall Street firm of Furman Selz, she concludes that GM is at last recovering from 'Big Company Disease' and is thus poised to become a dominant global player in the 21st century. This is a remarkable about-turn from the lows of 1990/91, when GM was caving in on itself. Having steadfastly refused to follow the bitter examples of Ford and Chrysler in resorting to massive lay-offs and radical reforms, GM was a bloated giant poised for a big fall that began in 1990 and reached its nadir during the 1990/91 recession.

The recession exposed the worst attributes of an industry colossus that had failed to modernise: plummeting sales, poor-quality products, mounting losses, a management completely out of touch with both consumers and line workers, and a monolithic bureaucratic structure bigger than that of most nation states. Then there was Roger Smith, the veteran chief executive officer and chairman who became the subject of films mocking his 'let them eat cake' attitude as he and his fellow executives played golf at the Detroit country club.

In response to GM's deepening financial crisis, he was replaced by Robert Stempel, a respected engineer who seemed incapable of implementing a hastily planned and massive retrenchment - 21 plant closures and the elimination of 74,000 jobs. Finally, in November 1992, an exasperated GM board stunned management by throwing out the top team and replacing it with reformers from within. As Ms Keller points out, this revolt had a domino effect, leading within months to similar board rebellions at other troubled US companies, notably IBM, American Express, Sears and Westinghouse.

A year later at GM, Jack Smith and John Smale, the new CEO and chairman respectively, had made it clear it was no longer business as usual.

Based on recent evidence, Ms Keller is right to conclude that the US auto industry has made a big recovery. Americans are again buying US- made cars that are lauded as top-quality, compared to dismal ratings a decade earlier. Purchases of US-produced cars and light trucks rose 1.3 per cent in February to an annual rate of 13.4 million, the highest in four years. Manufacturing has picked up sharply and factory wages are rising. President Clinton held his recent G7 'jobs summit' in Detroit to show that there is light after painful restructurings.

A recent story in Business Week also saluted the return of GM by focusing on its new Aurora model as the company's car of the future. The Aurora demonstrates what Ms Keller contends, that GM has finally licked Big Company Disease by learning to co-operate across divisions to produce a cost-effective luxury car that consumers actually want.

To an outsider it seems incredible that GM is only now implementing management and production policies that seem like plain common sense. For example, instead of pouring product development money into competing car divisions, resources were pooled to create the architecture of the Aurora, that will be the basis for a future generation of Oldmobiles, Cadillacs, Pontiacs and Buicks. Instead of delaying or ignoring market research, GM actually interviewed 4,200 potential customers before the launch and included their preferences in the final design. This time, the designers did not hand their plans down from on high and demand that the engineers build the car. Designers, engineers and plant workers worked as a team on the prototypes to iron out the bugs before production. As one plant worker remarked: 'The designers would say 'OK, now you build it' and sometimes we could not.'

While it is clear that US auto makers are finally on the right track, it is not clear that GM is again poised to be the world leader, surpassing such rivals as Toyota and Volkswagen. Ms Keller contends that both these highly successful foreign competitors are succumbing to Big Company Disease. Volkswagen's management has adhered to a glorification of technology over product, bringing out vast numbers of the same kind of car that customers no longer prefer. Toyota, hailed in a 1990 study as 'The Machine that Changed the World', is also beginning to flounder because of a management strategy that has failed to respond to a steep domestic recession, a sharply higher yen, and capped export opportunities.

Ms Keller concludes that the best car company in the world is the one that has most recently overcome great problems - and that, of course, is GM. However, the company still suffers from the internal warfare that plagues all bureaucratic giants, however slimmed down. Along with Ford and Chrysler, it also has much less presence than the Japanese in the fast-growing Asian markets.