Martian's Daughter: A Memoir (35 page)

My views about the integration of the global economy didn't shake the complacency of GM's senior executives until I laid out the implications in more detail. In op-ed pieces in the
New York Times
, I hammered home the idea that the trend toward more fuel efficient cars was worldwide, and that the bottom line would almost certainly be a stepped-up pace of innovation and competition in an increasingly global—rather than national—automotive industry.
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Furthermore, I pointed out, the two oil shocks were producing both an uncomfortable transition from cheap to expensive energy and a diffusion of economic power toward newly industrializing countries.
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With these pronouncements, I was striking at the heart of GM management's long-held beliefs. “You're exaggerating,” the vice chairman said testily after he'd read these opinion pieces in the predigested selections of newspaper clippings that were handed to the top executives every morning by their drivers as they got into their cars. “You'll see; these changes won't last, and customers will shift back to GM cars.” My entire career at GM was marked by growing frustration as my economist colleagues and I were unable to persuade our top decision makers that competition from foreign producers was here to stay and would only intensify. As I, along with a few other brave souls, repeatedly tried to bring the fast-changing competitive dynamic to bear on senior management's thinking, I felt like the princess of Greek myth, Cassandra, whose dire warnings about
the true nature of the Trojan horse were fated to be ignored, resulting in the destruction of her father's kingdom. My father's Cassandra-like observations, in the early 1930s, about Europe's coming fate had proved all too accurate; was I fated to be just as prescient, and just as helpless to change the outcome, I wondered?

Ironically, among these would-be changers of the culture was Roger Smith himself, the individual most often blamed for GM's downfall. Although our motives and ways of going about it were very different, we were both among the handful of executives who saw the future and tried to jolt the company into adapting. As I look back on these efforts, I'm reminded of my father's long-running battles with the military bureaucracy as he fought to ensure the United States' military superiority in the Cold War. The big difference was that my father and his allies were successful,
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whereas Smith and I, along with other would-be reformers, failed to break GM's mold of inertia and complacency.

Roger Smith had started trying to change some aspects of this GM culture even before he became CEO. As early as 1974, as executive vice president, he had formed a small group to develop the broad, long-range strategies for the future that the company lacked and enticed a far-thinking, British-born engineer named Mike Naylor away from another GM division to head it. But old habits die hard. The operating people, focused on building and selling cars, strongly resisted what they saw as the pie-in-the-sky abstractions of strategic planning.

Soon after I started at GM, Mike and I invited several group vice presidents to take part in a standard strategic planning exercise. It consisted of showing the audience a matrix of several strategies and scenarios and then asking them how their ranking of the various strategies would change under different scenarios. How, for example, would their ranking of strategies change if the auto companies were to find themselves in a fully regulated industry, like public utilities? Or how would they react if the price of a gallon of gas, which had just risen above a dollar for the first time, were to rise to three dollars?

But these group vice presidents refused to play ball. Rather than thinking seriously about how they would act in such situations, they nodded in agreement with the colleague who said, martini in hand, “Aw, come on, I'm not going to waste my time thinking about that stuff.
That's never going to happen. If it did, oh hell, I'd retire and move to Florida.”
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Naylor and I tried to come up with different approaches. But we never did find a way to unlock their thinking. And by the time those scenarios turned into unimaginable reality—when gasoline prices spiked above three dollars, vehicle demand imploded and, eventually, government intrusion into all major decisions was the quid pro quo for using taxpayer money to rescue GM and Chrysler from financial collapse—all those executives were long gone to Florida or the great beyond.

Once he became CEO, Roger Smith tried other ways to crack open the inflexible GM culture. Traditionally, the route to the company officer ranks was through promotion from within; Smith took an unprecedented tack by recruiting outsiders who had reached high positions in their own fields to join the company at the level of vice president. Eventually, these would include Betsy Ancker-Johnson, a physicist who had been deputy director of Oak Ridge National Laboratory, to head the Environmental Activities staff; Bob Frosch, another physicist, who had run the National Atmospheric and Space Administration (NASA), as chief of the Research staff; Steve Fuller, a highly regarded professor at the Harvard Business School, to head the Personnel staff; Elmer Johnson, a high-profile corporate lawyer and adviser to leading corporations, as executive vice president and general counsel; and myself as chief economist. Roger's effort to bring in fresh thinking was genuine, but every one of us outsiders in the end retired or left the company frustrated by what he or she saw as a failure to break through the old boys' network and make a significant dent in the way the organization thought and operated.

Smith's attempts to bring the outside world into GM didn't stop with recruiting individuals. In the course of his chairmanship, he brought both Electronic Data Systems (EDS), along with its founder, Ross Perot, and the Hughes Aircraft Company into the GM fold. He had various reasons for making these breathtakingly expensive purchases, but among them was the hope that EDS's aggressive culture and the innovative high-tech atmosphere that prevailed at Hughes would have an impact on GM's bureaucratic style. But although both these acquisitions proved to be huge financial successes for GM when they were sold or spun off as separate entities once again, neither was ever functionally integrated into the parent company or stimulated the cultural change Smith had envisioned.

General Motors' hidebound culture was a many-headed Hydra. During one of my weekly trips to Detroit, I discovered a group of about a dozen economists, entirely separate from the Economics staff, called Legal Economics. Its sole function was to produce a book laying out the arguments against breaking up GM, in case a renewed spate of antitrust suits, such as had occurred during the 1960s, were to raise that possibility. Although the US Senate had held hearings in 1968 on whether GM constituted a monopoly and should be broken up, by the time I arrived on the scene a decade later, the rapid buildup of Japanese competition had made such a threat one of the least of GM's problems.

I managed to persuade my boss, who also had Legal Economics under his wing, that it should be dismantled, and that I couldn't imagine any useful role for its director, whose professional skills were hopelessly outdated. Since our common superior, an amiable Canadian, was clearly unwilling to take on the unpleasant and, at GM, almost unheard-of task of firing someone, I said I would deliver the message. But I hadn't counted on his giving the man a raise just before he sent him down the hall to my office to get the bad news. The unhappy ex-director was both confused and infuriated by this mixed message and took out his anger on me, the bad cop in the farce. When I confronted my boss with the situation he had created, his explanation was “I felt sorry for the guy.”

This unnerving episode typified an unwillingness to take individual responsibility that ran throughout the company. I soon discovered that GM headquarters operated through decision making by committees at meetings, which diffused the pinpointing of responsibility, leading me to murmur in exasperation, “Nobody here but us committees.” These committee meetings consumed an inordinate share of the workday, particularly because every attendee demanded that his staff brief him beforehand on the issues on the agenda, to avoid any chance of being blind-sided. And, in the end, after all the presentations and the discussions, the chairman's view was the one that counted.

Two of the most important committees were the ones on pricing and production scheduling. Although the same top executives belonged to both, the two functioned independently. No one seemed to be concerned with the relationship between the expected demand for particular models, which drove production scheduling, and how they were priced. I
had managed to pound the concept of a demand curve into the heads of undergraduates, who knew it would be on the exam, but I had no such success with GM executives. My objection, that the company wouldn't have to lean so heavily on customer incentives to move the merchandise if it made decisions about prices and volumes jointly from the start, fell on deaf ears.

Despite setbacks like this, I was becoming expert in the corporate hand-to-hand combat involved in bringing into my fold several activities key to the goals I had set for myself as chief economist; I hadn't been labeled a pushy broad at Japan's Keidanren for nothing. One was the Corporate Strategic Planning Group; another was GM's European Advisory Council (EAC), another string in my bow aimed at moving GM toward a more global perspective.

The twice-yearly meetings of the EAC were among the highlights of my job. This council, consisting of some of Europe's most prominent citizens from more than half a dozen countries, had been created by Roger Smith to advise on economic and political conditions affecting GM's operations in Europe. My task as chairman was to acquaint them with how things were going there for us, and to lay out the questions on which we especially wanted their wisdom and guidance. Drawing out the views of these leaders on issues affecting GM's business success was stimulating enough. But what I learned from these men—yes, they were all men—at the dinners preceding our meetings ranged far beyond issues germane to GM's European business to encompass almost every aspect of political, economic, and security developments in Europe. It was like once again sitting in on the conversations around the dinner table in Princeton when I was a teenager, except that now I was an engaged and respected participant rather than a sulky and impatient listener.

One of the ways in which I tried to focus GM senior management's attention on the new realities was by sponsoring, in 1982, an intensive analysis by the Economics and Financial staffs of the reasons why the Big Three's production costs averaged fifteen hundred to two thousand dollars more per car than those of the Japanese imports, even after including the costs of transportation across the Pacific. The key message of the study was that the US auto industry was in big trouble and that its problems were long-term structural ones that would not be cured by economic
recovery from the ongoing recession of 1981–82.
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Now that there was a single worldwide auto market, rather than national ones separated by different consumer demands in different countries, we simply had to dramatically reduce the large cost differential. Part of this cost gap was due to external factors like tax systems and exchange rates. But, the study revealed, the vast majority of this disadvantage was attributable to US management and US labor; primarily to the higher per-hour cost of labor and lower labor productivity in the American auto industry.
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This analysis of the relative cost disparity got its authors in trouble with almost everyone. Ford and Chrysler had been insisting loudly that the most important causes of the cost differential were differences in the overall tax systems of the two countries and the “artificially” low value of the yen. Since these were disadvantages created by government policies and beyond the control of the automobile producers, they argued, it was up to our government to eliminate them or, if that proved impossible, protect the domestic industry by placing restrictions on imports.

The United Auto Workers (UAW) had a different but equally vehement objection. As part of GM's labor negotiations, I was sitting across a table from the head of the UAW's GM Department, Don Ephlin, discussing with him one-on-one the GM analysis of the US-Japanese cost differential. Ephlin was normally an even-tempered man, known for promoting a cooperative problem-solving relationship with management. But he blew up at my explanation that about half the cost difference was due to our higher labor costs per hour and the other half to differences in labor productivity. “That makes it sound,” he spluttered, “as if everything was the workers' fault, that management's failings in the design of both the products and the production process, and its long-standing lousy relationship with our union, had nothing to do with it.” Startled and embarrassed, I replied, “But that's not what the study said; it stated clearly that both management and labor bore some responsibility for the cost gap.” It had never occurred to me that what I had regarded as a value-neutral piece of accounting would be seen from his perspective as putting the blame exclusively on his members.

Quite a few analysts, journalists, and legislators reacted by insisting that the Japanese advantage was due almost entirely to better management. I responded whenever I was asked that it was “all of the above—
better motivation and productivity, lower wages, new plants, lower materials costs and, well maybe, better management on the Japanese side.”
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An independent study produced jointly by the University of Michigan and the consulting firm Arthur Anderson came to basically the same conclusion.
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