Big man, big hurry: Rick Wagoner is making headway in revitalizing General Motors' manufacturing prowess. That could change the automotive world.

When design czar Robert Lutz worked at Chrysler, he used to tweak crosstown rivals at General Motors by predicting that smaller, faster auto companies would always beat the big and the slow--meaning GM.

But these days the blunt-talking Lutz is at GM, where he works for an imposing 6-foot-4 former Duke University basketball player named Rick Wagoner. "Fair point, Bob," Wagoner says of Lutz's previous comment. "But the big and the fast beat the small and the fast. If you check out the NBA today they're big and fast."

Getting big and fast is precisely what Wagoner, chief executive officer and now chairman as of May 1, is trying to accomplish at the world's largest automaker. There's no question GM is already big--it's the world's largest manufacturing company, with $187 billion in 2002 sales as well as some 349,000 employees.

But it's been pathetically slow. The company that once claimed fully half of the American market--and whose CEO proclaimed in 1955, "What's good for GM is good for America"--now clings to 28 percent of U.S. sales. GM has seen the Japanese and Koreans assault its once-dominant position in the market for small- and medium-sized cars, while the Germans in particular command the heights of luxury and performance. "GM is a giant that's sick in bed," one Toyota Motor executive aptly commented in 1985.

It was right about that time, however, that lightbulbs started going off inside GM'S collective head. Its executives suspected the Japanese had a secret kind of production technology that allowed them to make cars faster, better and cheaper. So GM entered a joint venture with Toyota in Fremont, Calif. It discovered there were no secret machines; the Japanese simply had a different--and better--manufacturing philosophy and style, which they had perfected thanks in part to quality experts such as W. Edwards Deming. At an almost glacial pace, GM began experimenting with these lean-manufacturing techniques in their facilities abroad.

Having since proven them effective, the company is now upgrading its North American manufacturing base. GM has imitated Japanese techniques on a wholesale basis at its showcase Lansing Grand River factory in Michigan, where workers talk about pulling their widen cords. That's the Japanese word for "lantern," and it's the word Toyota workers use to describe how they can halt their production lines to correct a problem.

On top of the Japanese system, known as kanban, GM has overlaid computer and wireless communications technologies that supercharge the process. At Lansing Grand River, the power trains for new Cadillac CTS models appear on the line just in time in computer-guided trolleys that lift the components into the frame of the car. Complete dashboards and seat assemblies also arrive automatically at precisely the moment they're needed.

Auto industry experts such as Prudential's Michael Bruynesteyn say GM is "years ahead" of Ford Motor and the Chrysler unit of DaimlerChrysler in revamping its manufacturing. It is this largely unheralded tale of how GM learned new moves that has allowed the company to become the lowest-cost producer among the traditional Big Three. It's a story that explains how GM chief financial officer John Devine can offer zero-percent financing while still eking out a profit, and how on the manufacturing side Lutz can design new cars and get them produced faster.

Finally, it is the story that explains GM's improved quality. "There are people who think GM can't get out from its own shadow," says Ronald E. Harbour, president of Harbour and Associates, the key auto consultancy for measuring efficiency. "But they've been a lot more aggressive in this journey of taking costs out and 'leaning' their organization" than Ford or Chrysler.

As for Wagoner, who just turned 50, "he's a competitor," says Harbour. "He has no intention of finishing second."

Shedding a culture of waste

In the 1980s, GM's manufacturing was characterized by waste and inefficiency. There was little commonality in how warring divisions did things, but one consistent practice was to project what the market would buy, then making parts in large batches. If projections called for 100,000 units of a certain model, a stamping plant would stamp out 100,000 bodies and other plants would make enough engines and other parts to go along. This resulted in large overruns as well as huge transportation and storage costs.

To understand how the Japanese were winning, John I Smith Jr., then global product planning director, negotiated a 1984 joint venture with Toyota, called United New Motor Manufacturing Inc. (NUMMI), on the site of a shuttered GM plant in California.

When GM's executives landed at NUMMI, they were flabbergasted to find that Toyota had built its production system around the needs of workers. Toyota managers were using former GM workers--card-carrying members of the United Auto Workers--to make cars better than GM could.

Waste was squeezed out. Parts arrived just in time. Workers could halt production to fix a problem rather than allowing a defective vehicle to move on. Toyota had "profound knowledge" about making cars, says Gary Cowger, who paid frequent visits to NUMMI and who is today president of GM North America.

NUMMI alumni came back to GM preaching the gospel of change, but few top honchos were listening. "We had a hard time getting traction," recalls Mark Hogan, who was GM's lead executive at NUMMI from 1986 to 1988. "We needed more numbers [of NUMMI graduates] to start changing the company.

Joseph S. Phillippi, a veteran auto analyst, puts it more bluntly: "The expatriates from NUMMI would be in meetings and they'd pipe up and say, 'When we were at NUMMI, we did it this way,"' says Phillippi now a principal at Autotrends Consulting. "Immediately, they would be shot down by the GM establishment, which said: 'This is what we do here. Go sit in the corner and shut up.'"

But there were just enough people at GM who understood lean techniques--particularly Smith--that they used the principles to build a new GM plant in Eisenach, Germany. (See timeline, right.) Wagoner was at GM Europe then and was on the continent when MIT came out with its influential lean manufacturing book, The Machine that Changed the World. "We used that quite a bit in GM Europe to embrace the early stages of the lean concept," says Wagoner.

Then it was off to Brazil, where Wagoner became managing director. "I remember very clearly at the first budget review having a pretty direct conversation with the head of manufacturing and saying, 'Hey, we are going to drive this lean stuff,"' Wagoner recalls. "We began to get huge improvements in productivity and responsiveness. I got a chance to see that firsthand."

GM was able to experiment with lean manufacturing in Brazil partly because it had only three plants there, making it much smaller than GM North America. The North American plants were older brownfield sites, and relations with the UAW were rarely positive. "In other parts of the world, we moved faster," Wagoner says. "They were either smaller units or newer units, so you could set up lean."

Smith took over as CEO in 1992 and moved Wagoner into a series of increasingly important positions in Detroit. This was the moment, most GM watchers say, when the company got serious about healing itself. "For many years," says Wagoner, "we didn't have one person in charge of manufacturing. We had seven or eight operating units with seven or eight heads of manufacturing, where some ideas were the same, but a lot of stuff was done very differently between Car and Truck, between Saturn and Lansing."

In terms of efficiency as measured by Harbour, we were just doggy," Wagoner admits ruefully.

Then the company started "running common," or merging its manufacturing and engineering units into organizations that would use the same techniques. GM codified what it had learned into the Global Manufacturing System. Cowger was tapped to run the unified manufacturing organization. Wagoner didn't start this process, says Cowger, but "he's the one who really picked it up and accelerated it."

Wagoner, typically, likens the process of getting GM fiefdoms to cooperate to that of getting a basketball team to play together. "We don't always agree on stuff," he says. "But when it's time to blow the whistle and start the game, we're not still debating whether we should play 'zone' or 'man.'"

While Wagoner was knocking heads together, Hogan, who is today group vice president for advanced vehicle development, oversaw the design of the ultimate expression of lean in Brazil. This plant, code-named Blue Macaw, was considered GM'S finest because suppliers were co-located at the plant and delivered entire subassemblies, not lust individual parts, into the T-shaped assembly area. Parts could come m from both directions and then move down the line.

Part of GM's continued ability to improve North American manufacturing will depend on relations with the UAW. Wagoner says he believes the union is along for the ride. "A lot of times, people will get down on the situation with the unions and with the UAW," he says. "But this wouldn't have worked without good engagement at the local level with the UAW. They understand that improving quality and productivity is important for their long-term success as well It's been a real team sport."

As GM has pushed new techniques into its U.S. manufacturing base, it has driven down the amount of time each car takes to assemble (see chart, page 28) and greatly improved quality. It's also able to make model changeovers much faster. "There's been a consistency of approach and a consistency of execution," Wagoner says. "Moving to a common system and common metrics has really helped us."

The way the team has played the sport in Lansing is a case in point. GM let it be known that it was considering shutting down its Lansing facilities, some of which were nearly a century old. That triggered a community campaign to "Keep GM." UAW Local 652 negotiated a deal that would give GM the flexibility to build a new-style plant, which would cut some jobs.

The company knocked down 18 buildings and put up a new factory at a total cost of $585 million. The facility opened in January 2002 and is making the Cadillac OTS sedan. Later this year, it will begin making the SRX crossover sport utility as well as another Cadillac, most likely the new Seville STS. Different vehicles will move down the same assembly line, just as they would in Japan.

Lansing Grand River is shaped in a T, like Blue Macaw. Because subassemblies arrive at just the right moment, there are none of the huge inventory trays that can stand 20 feet high in older GM factories. Managing these stacks requires forklifts, which are dangerous. And the big piles prevent managers from having a clean line of vision into what is happening throughout the factory. Getting rid of clutter is the heart of kanlan, a term meaning "visual record" in Japanese.

While totally embracing the Japanese philosophy, GM has also deployed massive amounts of computerization and wireless communications to rev up the system to an even higher speed. In the traditional Toyota system, for example, cards are placed in bins of parts. When a worker starts running out of parts, he hands a card to a materials person who goes to get the right components, then returns.

But in Lansing, that information is communicated wirelessly to small vehicles called "tuggers." Drivers of these tuggers see the information flashed on computer screens. They get material and simply arrive at the line with the needed parts at precisely the right time. "Wireless is starting to reinvent the factory floor," says North American chief Cowger.

Scanners, meanwhile, make sure workers put the right parts into the right models. Managers can track the entire assembly process by glancing up at electronic displays. "We think in some ways we have improved on what we originally saw at Toyota," says Hogan.

Of course, Toyota and Honda haven't relented on improving their own manufacturing, but GM is closing in on them, according to the Harbour numbers. "It's just a matter of time before we pass those guys," Wagoner predicts. "I think we'll probably pass Toyota in the U.S. on the workers-per-vehicle metric." GM intends to push the new techniques into all 30 of its North American stamping, power train and assembly plants.

Could the sick giant be up and ready to shoot some serious hoop? "We no longer take it for granted that we can't be the most productive manufacturer," says Wagoner. "That's the way it used to be in the 1950s and l960s. We need to get back to that, as one element of a strong position in this excess capacity world that we're going to be in."

Because of that excess capacity, Wagoner says GM has experienced six years of falling net prices. Rivals blame him for helping create a price war through zero-percent incentives. But in Wagoner's view, falling prices are simply the reality. He argues that GM can gain in that brutal environment.

It's too early to say that revived manufacturing prowess will return GM to glory. The company will have to overcome decades of mismanagement and decay. It also faces big unfunded pension and health care costs--so-called legacy costs. Moreover, GM has yet to reignite passion for its cars, as opposed to its trucks. There are early signs that Cadillac is finding a groove, and Corvette remains an aspirational buy, but it could take GM years to reposition its Buicks and Pontiacs and Chevrolets.

Wagoner does appear to have time on his side. That's why his age is so important. If he can sustain GM'S momentum over the next 15 years, "the General" might be able to reverse decades of losses and humiliation.

Wagoner vows GM won't return to complacency. "All this improvement is great, but all that does is get us in the game to play for improvements that we need in the future, so that we can be aggressive in the marketplace," he says.

It appears the Japanese concept of continuous improvement is deeply embedded in the new GM mindset. "This is a game that's going to play as long as you're playing it," says Wagoner. "It's never going to end. It'll go until I retire, and when the next person has the job, they'll be on it too."

Spoken like a true samurai.

History of Total Hours per Vehicle

Hours Per Unit (Assembly, Stamping, Power Train)


DC      48.50  39.34
GM      47.12  44.28
Ford    36.68  40.88
Honda   34.01  31.18
Toyota  30.53  31.63
Nissan  28.23  29.00

Source: The Harbour Report N.A. 2002.

Note: Table made from line graph

Please send comments to [e-mail].

RELATED ARTICLE: Trail of Innovation

GM'S top management has had many years of exposure to Japanese-style lean manufacturing and is using that experience to upgrade its American plants. Here's how it happened:

1983 Jack Smith announces NUMMI joint venture with Toyota in California. Three years later, GM starts another joint venture with Suzuki.

1986-88 Mark Hogan is GM's lead executive at NUMMI; key manufacturing executive Gary Cowger visits frequently.

1990 GM builds its first plant using lean manufacturing techniques in Eisenach, Germany.

1991 Rick Wagoner transfers to Brazil and pushes lean techniques.

1992 Jack Smith becomes CEO and starts smashing together rival GM manufacturing and engineering functions.

1992-97 Hogan oversees the planning of a superlean plant in Brazil. Other lean plants are built in Argentina, China and Thailand.

1994 Wagoner becomes president of GM North America and pushes lean techniques. Gary Cowger goes to GM de Mexico and builds a lean plant; later transfers to Europe.

1998 Cowger returns from Europe to manage labor relations in North America.

6/00 Wagoner becomes president and chief executive officer of GM.

11/01 Cowger becomes president, GM North America.

1/02 GM opens completely retooled Lansing Grand River plant, the first in North America to fully embrace lean techniques.

A Bull on Vehicles, SUVs in Particular

Here are edited excerpts from Rick Wagoner's interview with Chief Executive, conducted high atop the Renaissance Center in Detroit:

How deep a hole are you in in terms of the market's demand for your cars as opposed to your SUVs? Is it a five-year comeback?

You look at our investment dollars and it's just a question of timing. When full-sized truck platforms come through the system, they eat up a huge amount of resources because they're such big programs. That's where a lot of the muscle had been. I think where we are weakest right now is the high-volume segments, small-car and mid-car. That's where we have the most distance to come.

Why do you think the United States can keep sustaining 17 million units a year?

First, the demographics are good. There are more people in the United States and they are wealthier. Secondly, the underlying economics of the U.S. are good. This phenomenon of strong productivity growth has been very impressive.

The other interesting thing is the cost of vehicles in real terms. It's cheaper than it's been in 30 years, so people can afford to buy more. Remember that we've gone from one car per family to two; that seemed like an impossible hurdle. We're just blowing right through that now. People are saying, "Hey, I'll buy a Corvette, but I don't have to drive it every day. I want an SUV, too."

Can you as a representative of the US. auto industry gain market share hack from the Germans and Japanese?

Well, we [at GM] could; we've done it the last two years in a row. The answer is, you can do it but it's hard as hell. It basically involves: Do you have the products that get people excited? Can you build the image of your brands and can you offer them the financial attractiveness? It's a dogfight every day. I suspect that is not going to change.

What do you see happening with SUVs?

The last couple of months have been a little weaker for large SUVs. We've seen this sort of thing happen before regionally in the U.S. when we've had gas shortages and higher gas prices. I was pleased to read that the biggest problem facing the oil market now is the coming glut.

What we've seen for sure is big-time growth in the large utility business. We're going to see some fragmentation of that business as we get more luxury entries. Hummers and Escalades are continuing to sell quite strongly, even if more mainline vehicles have leveled off a little. We're also seeing a lot of growth in SUVs at the small end of the market.

So the market is bifurcating into a high end and a low end?

I would say "filling in," actually. There haven't been many small SUVs or many large and luxury. There have been a ton of mediums. There are now more large and more large luxuries, as well as more small SUVs, so the market is proliferating. The whole range of the SUV market is filling in.

So SUV sales are going to keep growing?

I think that trend will continue. Actually, I had a back-and-forth this morning on the Blackberry with the guy who runs our research. He does a regular survey on consumer attitudes toward SUVs. The net-net is that sedan-buyers are going into SUVs.

What do you make of the voices of opposition to SUV's?

Keep in mind, on social causes in the U.S., you get people who are vocally in favor and vocally against. The vast majority of the people go about their business. As far as the negative attention around SUVs, people in the U.S. tend to react more on the basis of economic factors. If gas prices hit $3 a gallon, that's going to impact SUVs more than some of these other issues.

What about fuel economy?

Some people want to mandate fuel economy increases to SUVs. There are going to be some improvements and that will continue. But can a large SUV on average have the same fuel economy as a small car? Of course not. Physics says it's impossible. And it gets into a deeper political debate: Do you want to drive what you want to drive, or do you want to drive what somebody else wants you to drive? If gas continues to be $1.50 or $1.75 a gallon, why would you as an American consumer buy anything other than the vehicle you want?

You're bullish on China, hut now that their market is opening up, won that drive down the prices you can charge for the Buicks you're making in Shanghai?

The most important factor is supply versus demand. In China, we have demand in excess of supply. The Chinese industry sales last year grew something like 38 percent. We had thought they would be off a little--we missed by a mile. The first two months this year were up 60 percent verus last year's first two months. That is not a sustainable growth pattern, but we continue to underestimate the growth in demand. As long as that demand curve keeps going up, there will be opportunity for fair return on investment.

So you're making money in China?

We are. Just look at our results in Asia-Pacific over the last two quarters. One reason it's moving in the right direction is that we're going from investment, and therefore losses in China, to becoming profitable. We're also seeing better results from our Japanese alliance partners (Izusu, Suzuki and Subaru).

How are you going to use the Daewoo deal? For the Korean market, the Asian market or the U.S. market?

Yes, yes, yes. Basically, the first interest was the Korean market-a million-and-half-unit market. Second of all, we need capacity and product development capability for Asia. And third, there's a market in alot of the rest of the world for more entry-level price points in the smaller to mid-sized vehicles. The gold mine within the Daewoo transaction is the future product portfolio, which looks very competitive. And we can export products from there around the world. We announced here recently the plan to take the small car, the Aveo, into the Chevy lineup in the U.S. And we are already distributing Daewoo products in Europe. It's a nice entry into GM'S overall portfolio.

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