The 20th Anniversary of “Roger and Me”- A Look Back at Roger Smith and Michael Moore by Gregory Hilton–
The fastest thing at General Motors today is the approaching bankruptcy. This morning the company reported revenues during the first quarter dropped by a staggering $20 billion, or 47 percent. The cash burn (it spent $10.2 billion more than it took in) is massive, and it is difficult to imagine how they will avoid a bankruptcy filing in June. It is also difficult to imagine how they could possibly pay back the $16 billion they have received in federal bailout funds.
Many observers are expressing shock at GM’s decline, but stark warnings from the very top of the company were heard 30 years ago. Roger Smith (1925 – 2007) took over as GM’s Chairman and CEO when it was operating at a loss. He ran the world’s largest company from 1981 to 1990, and repeatedly said massive change was necessary. Smith said “I will seek out change instead of having it thrust upon me.”
A number of his major initiatives were failures, but in hindsight the accusations made by his many left wing critics appear to be ridiculous. Smith came out of GM’s accounting department, and more than anyone else he saw the writing on the wall. The company had unsustainable overhead, poor quality, and fierce competition that was rapidly gaining market share.
His efforts to rush modernization, close plants and reduce the work force resulted in his being named the “Worst American CEO of All Time” by CNBC. Self proclaimed consumer advocate Ralph Nader said Smith’s tenure “was one of the darkest in General Motors’ history, for customers, workers and for residents of G.M.’s factory towns.”
Smith also gained national notoriety as the subject of Michael Moore’s powerful and well publicized 1989 documentary, “Roger and Me,” which won 8 prestigious awards. The movie is now 20 years old and Moore describes it as “a compelling indictment of an American Dream gone awry.”
The movie was about the pain of unemployment associated with plant closings in Flint, Michigan. Flint was the birthplace of both GM and the United Auto Workers (UAW), and in 1970 the company work force in the city was 82,000. Over 90% of them were destined to lose their jobs during the next 30 years as Flint’s Buick City and other local plants closed. Production was shifted to more modern and larger plants, primarily in Hamtramck, Michigan. GM now employees about 7,000 people in Flint, and the departing workers were given generous severance packages. However, it is always painful to lose a job.
Moore makes it appear that all of these workers lost their jobs in two years rather than over decades. The movie is filled with well documented factual errors and entire segments are completely false. He said “Roger and Me” was “a quest to discover why GM would want to do such a thing to Flint.” Moore was looking in the wrong place if he wanted to learn the reasons for closing Buick City. The answers would not be found in Flint but in Japan’s Toyota City or in the fully automated assembly lines of Lexus and Audi.
Roger Smith is portrayed in the film as a callous corporate leader who preferred robots over American workers. The GM Chairman is blamed for the rising rates of suicide, spousal abuse, alcoholism and violent crime in Flint. The documentary launched Michael Moore’s career and he closed the film by saying “The rich are just getting richer.” We now know the truth. The “rich” General Motors was struggling to survive.
The official website of “Roger and Me” claims the layoffs in Flint were not necessary: “Since 1983 car sales have steadily risen and GM has posted record profits of nearly $19 billion. So why lay off all of these people?” In another interview Moore says “GM is cutting costs so they can make more money. It’s not that they’re hurting. This isn’t Chrysler. This isn’t U.S. Steel, which lost a billion dollars in one year. This is General Motors.”
What Moore did not realize and Smith knew all too well is that GM was hurting badly. When Moore was asked by “Newsday” if GM should keep open unprofitable factories he responded, “They are profitable! They want to be more profitable! They’re greedy! You will never hear them utter the words “enough is enough.” They’ll close down all the factories in this country if they believe that they’re going to make more money in Mexico and Taiwan.”
A number of scenes in the film depict Flint’s prosperity during GM’s heyday in the 1950’s and ’60’s when Buick’s, Cadillac’s, Chevrolet Impala’s and AC spark plus were all produced in Flint. What the movie omits is that Cadillac had 85% of the American luxury car market in those days and now they are trying to hold on to 15%. Furthermore, GM was losing money on the Buick’s it produced in Flint.
The overseas factories were built to expand GM’s market because Smith knew the business was now on a global scale. Primarily because of Smith, the four year old “voluntary import restraints” on Japanese cars were lifted in March of 1985. The GM profit Moore mentions was the result of the import quotas. Ford and Chrysler wanted the quotas to remain, but Smith gambled that GM could modernize and meet the import challenge. He said “We can meet the discipline of worldwide competition. We can do it through technological innovation and industrial modernization.” Unfortunately for Smith, GM’s progress was disappointing and Toyota and Honda sales skyrocketed when the quotas were lifted. GM could not compete on price or quality in the small car market.
Michael Moore consistently said Smith’s cutbacks were unnecessary because the company “had record profits,” and “greed was the only reason to put people out of work” in Flint. “Roger and Me” failed to include Roger’s response. GM had three options according to the Chairman. They could close factories and reduce staff, ask for continued protectionism to keep foreign cars out of the U.S., or they could request a government bailout. Smith said the obvious decision was to cut back.
Roger Smith was filmed answering Michael Moore’s questions, but this was not shown in the documentary, and the entire premise was that Smith was avoiding Moore. The exact opposite was true. Smith never avoided journalists, even when the questions were painful. Another theme in the movie was that it was wrong of GM to outsource jobs to foreign countries when there was high unemployment in Flint. In recent years the only profitable part of GM has been its foreign sales.
Roger Smith was both a workaholic and a technology visionary. A major part of his legacy was advocating radical change in the GM culture. The company had astronomical overhead costs because of 145 underutilized North American plants and a workforce of over 880,000 employees. As Smith noted, its sheer size was its greatest burden. The legacy costs of the retirees alone meant it was impossible to cut vehicle prices.
Michael Moore was correct in noting Smith’s fondness for robotics, and his desire to transform GM with a high-tech spending splurge. The GM CEO said robots would improve quality because they “eliminate mistakes of human frailty.” Of course, Smith also wanted to chop his work force significantly but the UAW proved to be an insurmountable obstacle.
After GM moved some equipment at factories in Flint against the UAW’s wishes, workers went on strike for 54 days, costing the company over $3 billion. Technological changes were finally allowed in the Lordstown, Ohio plant put only after GM caved in to a UAW demand to pay departing workers with three years of salary and benefits.
Automated guided vehicles were installed at the factory in Hamtramck and they were designed to replace old-fashioned fork lifts. The new machines were rarely used because the programming algorithms were too complicated for the union workers. The spray-painting robots were constantly sabotaged. The bottom line is that the UAW never agreed to Smith’s proposed automated assembly line, but it later proved to be a big success for Lexus and Audi.
Smith must have envied General Electric CEO Jack Welsh. During the early 1980s he was dubbed “Neutron Jack” (in reference to the neutron bomb) for eliminating employees while leaving buildings intact. Welsh fired 112,000 employees (25% of his staff) but he was still named “Manager of the Century” by Fortune magazine.
It was Smith who moved the company into Electronic Data Systems, satellite television, and the acquisition of Hughes Aircraft. All of those investments made major profits for GM. Indeed, it was to offset the capital gain on the satellite TV unit that GM killed Oldsmobile. It was because of GM’s work with EDS and Hughes that we today have the OnStar system. Both EDS and Hughes have now been sold, but they were wise investments for GM.
While Michael Moore and CNBC thought Smith was moving too quickly, but we now know that far more radical change was needed. GM was moving too slowly to close unneeded plants, cut workers and close dealerships in a shrinking market. Smith’s efforts to streamline product design, development and procurement operations largely went unheralded. Quality did improve but the change was too late. The 1989 Buick LeSabre built in Buick City was ranked the top sedan in the world by J.D. Power and Associates, and it was the first American built car to show up on the list. In 1999, the year the Buick City plant was closed, the facility won the Platinum Award. As of 2009, it is the only General Motors plant to be given this award.
GM has now received $16 billion in federal bailout funds and more money is in the pipeline. It is somewhat amusing to reflect on TIME magazine’s 1992 criticism of the former CEO:
“Smith occupies a comfortable $26,000-a-year seat on the GM board. Each time he actually attends a board meeting, he gets an extra $1,000. He earns an additional $12,000 a year for sharing his thoughts with the other members of the finance committee. GM provides him with a company car and an office as well.”
GM did lose 10% of its market share during the Smith era. That was a major disappointment but it was nothing compared to the 98% stock decline and junk bond status of recent years. Smith was always worried about the rise of Toyota and he spent $5 billion to create Saturn as an attempt to compete with the Japanese and German small car manufacturers. Saturn had a unique manufacturing agreement with the UAW as well as a “no-haggle” sales policy. The Saturn brand operated as a separate company within GM to shield it from the automaker’s bureaucracy and politics. The move produced critically acclaimed and popular vehicles, but it was also seen as recognition that GM’s business model was so broken it could be fixed only by starting from scratch. In addition, the Saturn launch meant the other GM divisions were cash starved and had to cut back on development.
It is fair to blame Smith for several bad decisions, but he inherited a culture that was difficult to change. Smith found that any new idea, or component, took so long to get from the drawing board to the factory that it was sometimes obsolete on arrival. It was especially painful for him that it took 7 years to develop the first Saturn.
During the Smith era there was bland styling and cookie cutter cars with shared components. This occurred as a means of cutting costs. The look-alike models blurred the historical marketing distinctions GM had carefully cultivated between Chevrolet at the bottom of the market, Cadillac at the top and Pontiac, Oldsmobile and Buick in between. It was an experiment that ultimately cost the company $7 billion.
Another result was that GM lost younger buyers in droves. The company was also not able to match the popularity of the Ford Taurus which was the world’s best selling car at that time, and Chrysler had great success with the mini-van.
Smith’s biggest public relations mistake came when Honda opened its manufacturing plant in Ohio. When presented with the stark contrast in wages the UAW did agree to a salary cut. The decision was announced on the same day that bonus payments for GM executives were revealed.
Smith left the company in July of 1990, one day after Saturn’s debut. For the next two years customers had to sign up on a waiting list for new Saturn’s. At that point the GM revenues were $123 billion/year, and under Smith the work force had declined to 717,000 employees in 35 countries. Far more cuts would be necessary. Cities such as Flint were devastated by GM’s cutback. A century ago Flint had to reinvent itself and hopefully they will be able to do that again. In 1900 over 100,000 horse drawn carriages were produced in Flint, but the entire industry was lost with the invention of the automobile. Hopefully industrial cities such as Flint will be able to rise again, but the struggle today is more difficult because of corporate taxes and the many regulations on businesses in Michigan.
Roger Smith is now considered GM’s most controversial Chairman. His critics said he was heartless and greedy, and it is never easy to close plants and fire employees. We now know he was fighting a losing battle with global economic forces, and he met huge obstacles in trying to prepare GM for a new era. He was one of the first to recognize that the car market was no longer North America, but survival depended on global sales. He did not create GM’s problems, but he did try to solve them. Many of Roger Smith’s reforms were not successful, but all of his warnings were accurate.