Shaping up

GM seems to have heeded 1898': warning signs, but it's still a Wing way from being buff.

After the turmoil of 1998, General Motors had nowhere to go but up.

The automaker was smarting from the body blows of a pair of strikes in Flint, Mich., and upheaval in the board mom at Adam Opel AG. And while GM was focused on fixing its own problems, arch-rival Ford Motor Co. was gobbling up Volvo Cars and scouting for more acquisitions, inching ever closer to the top rung of the international automotive ladder.

Although stunned, GM has made significant steps toward recovery It also helped that consumers went on an unprecedented vehicle buying spree in 1999. The result: GM posted automotive operating profits of $7.548 billion in 1999.

GM didn't let the Internet blow past - pushing its gmbuypower.com shopping site to consumers; running neck and neck with Ford in harnessing the Internet to work with suppliers and cut costs; and using OnStar as the cornerstone for delivering the Intemet into vehicles.

But plenty of work remains. "ff GM gets the products right, they can really take off," says Ron Harbour, president of Harbour and Associates in troy, Mich.

The improvements are enough to pull GM's overall grade up to B-.

Quality: Strong performances by Buick and Cadillac pulled the average score of all eight GM divisions, including Saab, up to just under the industry average of 167 in last year's J.D. Power & Associates' Initial Quality Survey 2. The 1999 quality scores can be compared directly to the 1998 numbers, but comparisons to previous years are not valid because J.D. Power changed the way it calculated quality scores.

But the reality is that six of GM's divisions were still below industry average. That argues for maintaining a B grade.

Profit Per Unit: With production of high-margin full-size pickups reaching full levels, GM more than doubled its vehicle profit from strikeaddled 1998, putting it back on par where the company stood in 1997. The dramatic turnaround earns it an A this year.

Market Share: In the United States it maintained its pace from the previous year, but that marked GM's lowest share for a nonstrike year in 70 years. The global picture was better, however, where it gained 0.8 points of market share. Products such as the Opel Zafira minivan making a splash in the European market helped.

Its U.S. performance earns a C, while worldwide market share gains give GM a B.

Return on Sales: Return on sales climbed to 3.496 from 1998's dismal 2.11/a But that's still below GM's goal of 59 Continued consolidation holds more promise for the future. The turnaround earns GM a B.

Productivity: The gains GM is making on the factory floor haven't really started to show up yet on the benchmark Harbour Report, Ron Harbour says. GM continues to use too much unscheduled overtime to meet production schedules, Harbour notes.

Nonetheless, GM's performance last year was impressive. It boosted factory sales more than 600,000 units while dropping automotive employment by more than 12,000 people. The result: GM built 3.4 more vehicles per worker than the year before. That warrants an A.

Management: GM made a number of positive moves, notes analyst John Casesa. It strengthened ties to Isuzu and Suzuki, as well as moving to take a 20% stake in Fuji Heavy Industries, maker of Subaru. Early this year, it took a stake in Fiat Auto in what could be a first step in eventually acquiring all of the Italian automaker.

But GM took a huge step backward in relations with its dealers by floating a plan to buy 1096 of the dealerships to turn them into company stores. Dealers went ballistic, and Chairman Jack Smith was forced to publicly back off the plan. This was on top of problems with a computerized ordering system that starved dealers of popularly equipped models in a hot market.

Management has improved, but has more work to do. So the grade is C+.

Engineering: In a positive move, GM early this year said it would merge its car and truck engineering groups into a single unit in North America. "That's a big step," says Harbour. "Now they'll have more resources to put where the needs are." We give GM a B+.

Design: "GM has started acting like a home-run hitter," says Harbour. "Now when it swings, it's either going to hit it out of the park, or strike out. I give them credit for that, but they're still up against Chrysler, which is batting .600."

But the mid-size Saturn LS landed in showrooms with a resounding thud. Such inconsistency keeps the grade at C+. Manufacturing: Harbour says GM has been making great gains

in the manufacturing arena, albeit quietly. "GM's application of lean manufacturing processes has been stronger than either Ford or DaimlerChrysler's," he says.

GM has been using plants in Europe and South America to introduce laborsaving assembly techniques. Some of these advances are bound to make their way to the new luxury car plant in Lansing, Mich

Yet, GM's ramp up speeds are still painfully slow, notes analyst Scott Upham, and the automaker still takes too long to make decisions. For this GM gets a B+.

Mark '_etm anding: Last year we noted that customers are con fused and that GM has no corporate brand image. That hasn't changed GM gets credit for not shying away from the Internet, partic

ularly in the United Kingdom where Vauxhall launched a Web site that allows consumers to shop, order and buy cars online. GM gets a C.

Labor Relations: GM pulled off a miracle by hashing out a new contract with the UAW without a strike. The credit rests squarely on Gary Cowger, the executive yanked out of Opel AG after only five months on the job in 1998 to head GM's labor relations.

"Gary Cowger is my favorite guy," says Sandy Munro. "He's the unsung hero. The guy shows up, walks in when the world is coming to an end, and it just works out." Cowger's effort gives GM an A

Environmental Stewardship: GM stood along with the rest of the industry in prodding the petroleum industry to provide low-sulfur fuel nationwide. It was also the first to ban the use of hard-torecycle PVC plastics from its interiors. GM earns a B.