Roger Bonham Smith

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Roger Bonham Smith (born July 12, 1925) was the Chairman and CEO of General Motors from 1981 to 1990. Born in Columbus, Ohio, Smith earned his MBA at the University of Michigan Business School after serving in the United States Navy. He worked his way up the GM financial management team to become corporate treasurer in 1970, vice president of finance in 1971, executive vice president for finance and public relations, and a member of the board of directors in 1974.^[1]

Roger Smith seemed to be the last of the old-line GM Chairmen, a conservative, anonymous bureaucrat, resisting change. However, propelled by industry and market conditions, Smith oversaw some of the most fundamental change in GM's history, although his tenure is commonly viewed as a failure.^[2][3] When Smith took over GM, it was reeling from its first annual loss since the early 1920s. Its reputation had been tarnished by lawsuits, persistent quality problems, bad labor relations, public protests over the installation of Chevrolet engines in Oldsmobiles and by a poorly designed diesel engine. Smith made sweeping changes at GM, which was losing market share to foreign automakers for the first time. He instituted several initiatives that included forming strategic joint ventures with Japanese and Korean automakers, launching the Saturn division, investing heavily in technological automation and robotics, and attempting to rid the company of its risk-averse bureaucracy. Smith's transformation failed to earn consistent profits for GM, while its share of the US market fell from 46% to 35%.^[2]

Contents 1 Reorganizing General Motors 2 The 1984 Reorganization 3 The GM10 Debacle 4 Drive for Modernization 5 Acquisitions 6 Poletown Plant 7 Solar Challenge 8 Roger Smith in popular culture 9 References 10 Further reading

[edit] Reorganizing General Motors

Smith began the reorganization of GM that would define his chairmanship (see below), with the 1981 creation of the worldwide Truck and Bus Group, consolidating the design, manufacture, sales and service of all trucks, buses and vans under one umbrella. 1982 saw the creation of the Truck and Bus Manufacturing Division, which combined all truck manufacturing and assembly operations from their former divisions, but still a separate bureaucracy from that of the Truck and Bus Group.^[4]

In 1982 Smith negotiated contract concessions with the United Auto Workers and cut planned raises for white-collar workers. After unveiling a more generous bonus program for top executives provoked an angry response from the union, Smith was forced to back-pedal. Relations with the UAW, management, and stockholders remained strained. Profits improved in 1983 and Smith began unveiling his vision for reorganization, diversification, and "reindustrialization."^[1]

One of the most controversial decisions made during Smith's tenure was the partial elimination of divisional autonomy in 1984. In the 1920s, Chairman and CEO Alfred Sloan, Jr. had established semi-autonomous divisions within the corporation, each designing and marketing their own vehicles (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac). This was considered a crucial factor propelling GM past market leader Ford in the 1930s. By the 1980s however, that autonomy (also including Fisher Body division producing the car bodies, and GM Assembly division building them) represented a dated business model and had led to needless large scale redundancy, infighting by the divisions, and a bloated internal bureaucracy.^[5]

[edit] The 1984 Reorganization

Smith took on the massive GM bureaucracy with disastrous results. A sea change in how GM would market and build cars in the future, the 1984 reorganization was intended to streamline the process and create greater efficiencies; the reverse actually occurred. Combining the nameplate divisions, Fisher Body, and GM Assembly into two groups C-P-C (Chevrolet, Pontiac, Canada) to build small cars, and B-O-C (Buick, Olds, Cadillac) to build large cars, the effort was subsequently criticized for creating chaos within the company. Longstanding informal relationships that greased the wheels of GM were severed, seemingly overnight, leading to confusion and slipping new product programs. The reorganization virtually stopped GM in its tracks for 18 months, and never really worked as intended, with the CPC division building Cadillacs and BOC building Pontiacs. The reorganization added costs and created more layers of bureaucracy when the new Groups added management, marketing and engineering staff, duplicating existing staff at both the corporate and division levels. Almost ten years elapsed before the 1984 reorganization was unwound and all car groups were combined into one division.^[5]

By the 1990s, GM's program of sharing components across divisions that began in the 70s as a way to cut costs grew into a marketing problem. After the 1984 reorganization forced teamwork by the divisions, parts sharing evolved into wholesale sharing of entire designs and simply re-badging vehicles for each division. Observers suggested that differences between automobiles produced and marketed by the Chevy, Buick, and Oldsmobile divisions were less distinct as a consequence. Automotive commentators cited a lack of a distinct brand identity and demographic changes as crucial factors in the demise of the Oldsmobile division in 2004. Compounding GM's problems was the fact that while entire platforms shared designs, the engineered parts beneath the surface, where customers didn't care or didn't notice were often not shared, which is where money could be saved. Analyst David Cole summed it up: "The engineering was 180 degrees out of phase. GM cars looked alike outside but were all different inside."^[5]

[edit] The GM10 Debacle

Smith's major new car program prior to the 1984 reorganization, GM10, has been called "The biggest catastrophe in American industrial history"^[5]. Beginning in 1982, and costing $7 billion, the plan was to replace all midsize cars produced by Chevrolet, Pontiac, Oldsmobile, and Buick. The plan was huge in scope, calling for seven plants that would each assemble 250,000 of the cars, or 21% of the total U.S. car market. It was badly executed from the start, but the 1984 reorganization wrought havoc on the program and it never recovered. By 1989, the year before the last of the GM10s were launched, GM was losing $2000 on every one of the cars it produced.^[3] When asked by Fortune why GM10 was such a catastrophe, Roger Smith replied, “I don't know. It's a mysterious thing. I've said I'll take my share of the blame on all those things. I was part of the team.”^[5]

[edit] Drive for Modernization

A defining theme of Smith's tenure was his vision to modernize GM using advanced technology. Some have suggested he was ahead of his time in attempting to create a 21st century organization in a company not ready for the technology. "Lights out" factories were envisioned, where the only employees were those supervising the robots and computers. This was obviously viewed negatively by the unions, and further strained relations. Over the decade of the 1980s, GM spent upwards of $90 billion attempting to remake itself^[6], including a 1981 joint venture with the Japanese robot manufacturer, Fujitsu-Fanuc. With the resulting venture, GMF Robotics, GM became the largest manufacturer of robots in the world. Unfortunately, the experience failed to meet the vision, with the new robots famously painting each other instead of the cars. The astonishing sums expended were widely viewed as money wasted.^[3] Responding to a 1986 report on 3 year capital expenditures projected at almost $35 billion, VP of finance F. Alan Smith (no relation) opined that the sum could be spent on purchasing both Toyota and Nissan resulting in a bump in market share overnight and openly questioned whether the proposed capital expenditures would pay the same dividends; they did not. By the time Smith retired, GM had evolved from the low cost producer in Detroit to its highest cost producer, due in part to the drive to acquire advanced technology that never paid dividends in efficiency.

[edit] Acquisitions

In 1984 Smith oversaw General Motors's acquisition of Electronic Data Systems from its founder Ross Perot for $2.55 billion, an effort to broaden out of its manufacturing base and into technology and services. As a result of the EDS acquisition, Perot became GM's largest single shareholder, joined its board of directors, and immediately became a vocal and public critic of Smith and GM's management. In 1986 Smith and the board orchestrated a $743 million purchase of Perot's GM stock at a substantial premium over the market value of the shares. Perot accepted the buyout, but publicly denounced the expenditure as outrageous at a time GM was closing plants. He announced that he would put the money in escrow to give the automaker a chance to reconsider, but never actually sequestered the funds.

A second large acquisition outside of the automobile industry followed in 1985, when Smith announced the purchase of Hughes Aircraft for more than $5 billion. The company was merged with GM's Delco Electronics to form Hughes Electronics.

Smith's purchases of EDS and Hughes were criticized as unwise diversions of resources at a time when GM could have invested more in its core automotive divisions. GM spun EDS off as an independent company in 1996. After some major acquisions in the mid-1990s by Hughes Electronics (Magnavox Electronic Systems and PanAmSat), GM divested most of Hughes assets from 1997-2003, including sale of defense operations to Raytheon in 1997, the spinoff of Delphi Automotive Systems in 1999, the purchase of Hughes Space and Communications by Boeing in 2000, and acquisition of the remaining communications and satellite by NewsCorp in 2003.

[edit] Poletown Plant

In 1981, Mayor Coleman Young and the City of Detroit won a notorious landmark decision in the Michigan Supreme Court, Poletown Neighborhood Council v. City of Detroit that allowed the city to use its eminent domain power to raze an existing immigrant neighborhood in neighboring Hamtramck, MI. It resulted in the condemnation of the homes of over 4,200 residents, along with numerous businesses, churches and schools so that the land could be transferred to GM for the construction of a new factory. Although the deal predated Smith's tenure as Chairman, he subsequently used the construction of the new Poletown factory, along with plants on a greenfield site in Lake Orion Michigan, and one in Wentzville, MO (an identical twin to Orion) to showcase the technology he felt would lead GM into a new era^[3]. Unfortunately, the factories failed to live up to their promised employment goals or their status as a technology showcase, and since they were duplicates of existing GM factories, were ultimately panned by critics as obsolete on the day they opened.

[edit] Solar Challenge

In 1987, Smith chose to have GM enter in the first World Solar Challenge race and he hired AeroVironment to build a winning solar-electric vehicle. The resulting car, the Sunraycer easily won the race at a cost of just under 2 million dollars. The success of the Sunraycer led directly to the AeroVironment designed GM Impact prototype which in turn led to the EV-1.^[7]

[edit] Roger Smith in popular culture

• Smith is widely known as the main subject of Michael Moore's 1989 documentary film Roger & Me, which was highly critical of General Motors and the effects of plant closures in Flint, Michigan. At each screening of the film, theaters were required to reserve a seat for Roger Smith.

• Roger Smith plays an important role in the 1985 NFB documentary film Final Offer by Sturla Gunnarsson & Robert Collision. It shows GM's 1984 contract negotiations with the Canadian section of the UAW, which became the Canadian Auto Workers shortly after.

[edit] References

[edit] Further reading

• Doron P. Levin, Irreconcilable Differences: Ross Perot Versus General Motors (New York: Plume, 1990)
• Paul A. Witteman, Roger's Painful Legacy, Time, November 9, 1992
• Jon Lowell, David C. Smith GM10; history's biggest car program, findarticles.com, from: Ward's Auto World, March, 1986; For a contemporaneous optimistic view of GM10
• Janice Castro, Peace for a Price at GM Time, January 15, 1987 (Misdated 1/26/07 in web archive); Regarding the Perot buyout

Preceded by Thomas A. Murphy	Chairman General Motors 1981 – 1990	Succeeded by Robert C. Stempel
Preceded by Thomas A. Murphy	CEO General Motors 1981 – 1990	Succeeded by Robert C. Stempel