GM may be close to its Holy Grail

@FortuneMagazine August 11, 2011: 11:07 AM ET

FORTUNE -- General Motors' plan to halve the number of its global vehicle platforms and reduce engine configurations is the latest in the automaker's decades-long push to save billions in wasted manufacturing costs -- waste that had a large hand in driving the American icon into a painful bankruptcy.

GM (GM, Fortune 500) has fresh capital, courtesy of U.S. taxpayers, and has achieved profitability. But Dan Akerson, GM's CEO since last year, will need the determination of Attila the Hun to impose the efficiencies which -- though they clearly save time and money -- are sure to be resisted by the automaker's far-flung overseas operating units.

Akerson declared Tuesday, August 9 that the number of global platforms will shrink to 14 by 2018, down from 30 today. That means future vehicles will be built on fewer, shared platforms. To maintain design differences between models, those common platforms will be tweaked without requiring costly duplication of tools and systems.

"This is the wave of the future," said Michael Robinet, an analyst for CSM Worldwide in Northville, Michigan. "GM may finally be able to accomplish what it's been trying to for a long time." He offered GM's Celta small car, one of the most popular in Brazil, as an example of a car now built on a platform that is destined to eventually disappear. When the next version of Celta appears, he said, it will be built on the same basic mechanical structure as the subcompact Chevrolet Sonic, which is about to be introduced in the U.S.

GM's appointment earlier this year of Mary Barra to run worldwide product development now appears to be a management move by Akerson designed, in part, to enable the rationalization of manufacturing cost. Barra came from GM's manufacturing organization rather than product development, which would have been a more conventional promotion.

The difficulties of creating common platforms, tools and supply relationships have stymied successive GM managements since the 1980s. Toyota (TM) and Honda (HMC), with their relatively simple and spare manufacturing practices, profoundly upended the economics of automaking. The Massachusetts Institute of Technology study that led to the 1991 book "The Machine that Changed the World" famously analyzed why the Japanese auto industry was building cars at much lower cost than Detroit. But when GM executives attempted to institute commonality, they often stumbled over resistance from an entrenched status quo. Attempts tha made it out of planning and into factories, meanwhile, failed.

Toyota's Corolla, one of the best-selling cars worldwide, is much the same in most parts of the world with only minor variations. Corolla plants can buy tools from the same suppliers and move skilled managers from one plant to another -- all of which cuts costs dramatically. In contrast, earlier versions of the Chevy Malibu actually differed from European models enough that they duplicated lots of development costs.

This time, Akerson and Barra will be helped by new regulations worldwide that more closely emulate the safety, air quality and efficiency standards in Europe and the U.S. The new Celta, for example, needs an airbag to meet Brazilian requirements, Robinet said, which precludes using the current platform. Not so in future versions.

Dan Ammann, GM's chief financial officer, said in a Tuesday conference call to analysts that more disciplined and efficient manufacturing is key to the automaker's financial stability. "All of the things we need to do are, by and large, in our control," he said. "We're not relying on heroic market-share gains. We're not relying on economic recovery. We think just on canceled product programs we've probably blown a billion dollars a year, just by pushing back on things that already have been started."

Ammann's estimate was probably conservative, based on the criticisms of analysts and others urging GM to match world-class manufacturers like Toyota. If GM is successful this time, the payoff could be profits long-suffering investors never thought possible. To top of page

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