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GM's Roger Smith Was A Financial Genius With Faulty Vision For Future

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By DORON LEVIN, Bloomberg News

Published: December 7, 2007

Roger B. Smith, the former General Motors Corp. chief executive officer who died last week at age 82, was a genius in financial matters.

When it came to the business of making and selling cars, he was practically clueless.

In the 1980s at a GM exhibition of automotive innovations such as personal settings for seats and electronics, he was asked how GM intended to compete with low-cost Asian and European imports. "Why, our answer to that is a two-year-old Buick," he said.

Though he was speaking seriously, Smith's quip today sounds boneheaded and quite funny. He had a knack for unintended irony, which might be why filmmaker Michael Moore chose him as his foil in "Roger and Me," the 1989 movie that touched on Buick's hometown of Flint, Mich.

Buick meantime has deteriorated into what one top GM executive calls a "damaged" brand, its sales flattened in part by competition with those low-priced cars.

Roger, as he invited reporters to call him, was too bright not to realize that a new age of automaking had dawned on his watch. He also realized that GM was too bureaucratic and resistant to change. So he hired Elmer Johnson, a senior partner at the law firm Kirkland & Ellis and gave him a broad mandate to shake things up. Within a few years, the newcomer had resigned, frustrated by gridlock and Smith's own myopia about the enormity of GM's troubles.

Upstarts Take Over Market

During Smith's tenure from 1981 to 1990, GM lost its unrivaled dominance of the U.S. car market, as well as its status as the world's pre-eminent manufacturer.

Month by month GM's U.S. sales dwindled while those of upstarts such as Toyota, Honda and BMW grew. GM's U.S. share fell to roughly 36 percent when he left office from about 44 percent in 1981. His answer? He bought Electronic Data Systems in 1984 for $2.5 billion, then he acquired Hughes Aircraft in 1985 for more than $5 billion. In the case of the data company, he hoped that Ross Perot, its founder, and others in the company might kindle an entrepreneurial spirit inside GM.

Instead, he quarreled with Perot and eventually sent him packing. GM has since spun the company off, and done the same with Hughes, piece by piece.

On Roger's say-so, GM initiated Saturn, a new car division meant to redesign automaking from a "clean sheet of paper," as he put it. Saturn infuriated other GM executives, especially at Chevrolet, who thought it siphoned capital from them.

A self-styled visionary, Smith tried to rethink manufacturing and fix poor labor relations, hiring droves of robotics engineers and computer whizzes to create what some GM executives sneeringly would call the "lights out" factory. GM plants would be so thoroughly automated they hardly needed workers (read: United Auto Workers union members).

Needless to say, robotic car factories remain a fantasy. Union-management relations, meanwhile, are as dysfunctional as ever.

To satisfy his curiosity about competition from Japan, Smith agreed in 1984 to a joint manufacturing venture with Toyota Motor Corp. at a mothballed GM plant in Fremont, Calif. But the key lessons about Toyota quality that his executives learned weren't what he wanted to hear.

"He thought Toyota possessed some kind of magic," said Maryann Keller, a former auto industry analyst and author of "Rude Awakening," a book about the automaker published in 1990. "The Toyota joint venture taught that GM management was the problem."

The trick to cost savings wasn't simply getting rid of people. GM had to motivate workers in factories and yes-men in executive suites to take more responsibility and improve output. GM quality and productivity were second-rate.

I tried and failed to find out whether Smith ever read "The Machine that Changed the World," a book written in 1990 by Massachusetts Institute of Technology researchers, who analyzed and explained how Toyota management solved manufacturing puzzles.

Smith Sat In Unlikely Spot

If Smith had possessed engineering skills, or had been a car buff, he might have been forced to concede that vehicles from Toyota and other Japanese automakers attracted U.S. customers because they were better designed and made than those from GM.

But as an accountant with a Master of Business Administration from the University of Michigan, Smith was a financial man who earned his spurs in GM's treasury headquarters in New York. Many top GM leaders were groomed there, including Rick Wagoner, the current CEO, as well as his predecessor, Jack Smith - and a few non-GM leaders, such as Stan O'Neal, the recently deposed CEO of Merrill Lynch & Co.

The seat of financial control was an unlikely spot for an executive to reinvent a manufacturing empire so vast and freighted with glory as GM's. But it was a great place to learn accounting ploys. Smith could and did make earnings look stronger or weaker, depending on the circumstances. All by the rules, of course; that was Roger's way.

Perhaps no executive from inside GM could have prevented the company's decline. A company's culture determines its leaders.

Roger Smith ably represented GM's devotion to financial control above all, which endures to this day and makes him symbolic of GM's problems rather than its solutions.

Doron Levin is a Bloomberg News columnist.

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