DETROIT - General Motors Chairman Jack Smith is putting the heat on GM Europe.
Smith, who left GM Europe 10 years ago after leading a turnaround, plans to spend a lot of time in Europe in 1998. He is determined to reverse a steep decline in profits and market share.
GM Europe will report a 45 percent drop in 1997 earnings later this month. Market share has fallen steadily since 1993. Share in Germany last year hit its lowest level since 1988.
'The company has some more work to do in Germany to improve productivity and profits,' said Smith. 'I am going to Europe in February to assess the situation and I plan to spend a lot of time in the region in 1998.'
Smith plans to replace Adam Opel Chairman David Herman with Gary Cowger, former head of GM's Mexican subsidiary.
Cowger has already moved to Zurich to head GM Europe manufacturing. He is expected to keep that job after moving to Opel this spring. Herman will be reassigned to Moscow, sources say.
Meanwhile, company sources say GM Europe President Richard Donnelly may be transferred back to the USA. Donnelly has led GM Europe since 1 December, 1994. Through a spokesman, Donnelly said he was not aware of any plans to replace him.
Lou Hughes, head of GM's International Operations, is also under pressure.
Hughes said GM Europe will cut 16,000-24,000 workers from its work force of 80,000 over the next five years. Hughes said the reduction will be made through attrition and voluntary retirements, not forced layoffs.
GM is looking for ways to lower manufacturing, materials and distribution costs. It may shift some supply sources out of the UK to reduce the effect of the strong British currency.
Sources say GM Europe will report 1997 net income of $425 million, down from $778 million in 1996 and $796 in 1995.
Problems include quality lapses and shrinking market share. Some internal GM critics blame the aggressive growth strategy in emerging markets that takes resources from Opel.
Hughes, who runs all GM operations outside North America, vowed not to slow the pace of new-market expansion. But he said GM needs to become leaner in Europe.
'We want to grow profitability by cutting out structural costs that occurred in Europe as we grew there in the last 10 years,' he said.
Hughes said GM is reviewing each of its 11 European car and components plants.
'While we already have the leanest factories in Europe, we can make them leaner,' he said.
The plant-by-plant examination is being carried out 'with the full knowledge and consent of our local unions,' he said.
The strength of the British pound also adds to GM's costs, as many suppliers are in the UK.
'By either renegotiating component prices with British suppliers or re-sourcing them from the continent we can save hundreds of dollars per car,' Hughes said.
GM also wants fewer dealers in Europe. Hughes would not say how many would be cut.
He said GM can save on distribution expense by consolidating dealer stocks in central locations. Eventually, warehouses could serve international regions.
GM also plans to centralize operations at national sales companies, including payroll, bookkeeping and other administrative operations. Regional companies may eventually be set up. But for now, Hughes said, national sales companies are practical because of local marketing and cultural requirements.
'Once it becomes possible to have a true pan-European company,' he said, 'that may give rise to further consolidations.'