ZURICH - General Motors is in a dangerous skid outside North America, and GM's top international executive is under fire for it.
In Europe, profits are falling. Market share last year slipped to its lowest level since 1988. Meanwhile, archrival Volkswagen has staged a comeback.
In Asia and Latin America, severe economic problems have undermined GM's aggressive expansion into new markets. Profits at GM International Operations fell 35 percent in 1997, when special items are excluded.
The problems have led to bitter feelings at GM Europe. Lou Hughes, GM International Operations president, is at the center of the storm.
His critics complain that Hughes has steered global strategy away from GM's Adam Opel subsidiary in Europe as he races into emerging markets. They say German engineers are overworked and demoralized and that Hughes isn't spending enough at Opel to meet a resurgent VW in Europe.
Hughes says the problems are the normal growing pains of going international.
But criticism of Hughes has become intensely personal. Interviews with eight top Opel and GM Europe executives - some of those interviews at the request of the executives - paint a picture of a harried Hughes, traveling too much, but insisting on managing even mundane details.
'It's getting to be pretty personal,' said Donald Sullivan, head of GM's Asia-Pacific Operations in Singapore. 'There are some mean-spirited people who are pretty unhappy when we said, 1/8We are going global and we are taking you with us.' But those are Jack's words (GM Chairman Jack Smith), not Lou's. Lou's job is to execute it.'
In Germany, the rebellion is out in the open. Opel's German union leaders have vowed to block Hughes' plan to transfer Opel Chairman David Herman this spring. The German press attacked Hughes through most of January.
The 48-year-old Hughes is a candidate to succeed Jack Smith as GM chairman, along with rivals like Vice Chairman Harry Pearce and North American Operations President Richard Wagoner.
His critics among top GM executives in Europe say he is autocratic and out of touch, a micro-manager who has paralyzed the organization with meddling and reckless cost-cutting.
His supporters admit he has weaknesses.
'Lou has got some style problems, some things he needs to do better,' said a GM executive who supports and likes him. 'Things aren't going too well now, and there are a lot of people trying to undermine what we are doing at GM International.'
Hughes says he doesn't understand what the critics are talking about. He says he doesn't know why people say what they do. He says he is not aware of factions at GM, and he is not worried by the critics.
'I enjoy the full confidence of Jack (Smith) and the board,' he says. 'I sleep very well at night.'
Divisions within GM's multi-layered European operations are deep. McKinsey and Co., a management consultant firm hired by Hughes, says it found confusion in the ranks. McKinsey interviewed 60 senior GM Europe and GM International executives last autumn. Automotive News Europe has obtained a summary of the report.
The McKinsey consultants concluded that:
'Roles and responsibilities aren't clear.'
'The organizational structure is confusing.'
'Goals are conflicting, and management performance tools are poor.'
'Executives lack the skills to manage GME's complex matrix organization.'
Hughes said he hasn't yet seen the McKinsey report, but he said that issues it raises are being dealt with.
The rift deepens
The big division is between Opel managers in Ruesselsheim and Hughes at GM's International headquarters in Zurich.
Opel executives say Opel is losing market share and profit because Hughes has diverted too many Opel engineers and resources to emerging markets. They want the resources for European cars.
For some executives, the rift changed from a philosophic difference to personal resentment at GM's global management conference in Orlando, Florida, last April.
Hughes made a presentation explaining Europe's difficulties. Executives said he attacked Herman, Juergen Stockmar, former head of Opel's Technical Development Center and a 'Deutschland ueber alles' mentality at Opel.
'He never blamed himself at all,' said an Opel executive who was there. 'People resented that.' Like most others interviewed, he spoke on condition his name not be used.
Hughes said he is not aware of factions.
'Rising unemployment in Germany makes everyone nervous, but I honestly don't understand why people say these things,' said Hughes.
'Opel is the heart of our company. The overwhelming share of our physical assets and the bulk of our intellectual assets are there. We're spending money in Germany like there is no tomorrow.
'Forget the words, look at the deeds.'
But at Opel, some executives see it differently.
'People around him fear him,' said an Opel executive. 'And the fear, combined with a central bureaucracy, led to factions.
'There is a group that portrays the Germans as 1/8they.' We knocked down the national competitive barriers, but because of centralization and a nasty atmosphere, they are creeping back up.'
GM faces major problems in Europe. Profits fell 69 percent to $31 million in the fourth quarter. Opel/Vauxhall market share in Europe last year slipped from 12 percent in 1996 to 11.6 percent, the lowest level since 1988.
Opel insiders said new products are being delayed. Opel acknowledges that the new Astra, arriving this spring, is six months late. The Zafira minivan, once expected later this year, won't arrive until sometime in 1999. Insiders say a new small car being developed with Suzuki is two years behind schedule.
Indeed, one knowledgeable Opel manager says that every new model scheduled to debut before 2002 is six or more months behind.
If model programs are behind schedule, Hughes said, 'I haven't been apprised.'
The product decline upsets Opel especially because it has occurred while rival Volkswagen added hot new products and improved earnings.
'We were at VW's level and now they have surpassed us,' said an executive. 'We are cutting too many corners and are not inspired by the need to be leaders in new technologies in any area.'
Stockmar was forced to resign last summer.
GM insiders say Hughes blamed him for problems at the Technical Development Center. During the Florida presentation to about 400 managers last April, Hughes accused the center of working in 'chaos.'
Stockmar said the global expansion plan was too great a burden.
In a letter to Peter Hanenberger, GM International Operations product development chief, Stockmar complained: 'Neither you nor Mr. Hughes have seriously reacted to my requests and proposals about necessary changes within GM Europe to return to more efficient working conditions.'
Other Opel executives are under pressure.
Opel Chairman Herman is expected to be sent to Moscow this spring. According to insiders, Herman is willing to go to Russia, but he asked that the change be delayed until 1 July to smooth the transition. The insiders say Hughes rejected his request.
Richard Donnelly, president of GM Europe since 1 December 1994, is under threat of being pushed out. Insiders say Hughes began complaining openly about Donnelly not long after Donnelly arrived.
Opel executives say Donnelly has operated in Hughes' shadow but has occasionally voiced concerns.
For example, last March he wrote a memo to Hughes to support Opel's need for resources to fight Volkswagen.
'We need to keep this in mind when we set budget targets and when we put workload and expense on GME for non-GME priorities,' he wrote. 'We must win in Europe and that means beating VW.'
Through a spokesman, Donnelly said he is not aware of any plans to replace him.
Hughes sidesteps all the personnel issues.
'I'm not going to feed any of the speculation,' said Hughes. 'Both Dick and Dave have worked their hearts out for this company.'
One GM International executive said Hughes and Donnelly seem to get along fine. Donnelly, he said, 'has had a tough job with the factionalism and the fact that he has a very strong boss sitting 20 feet away. But Lou knows all the people in Europe and wants to get involved.'
Hughes arrived at GM Europe in 1987 as vice president of finance. Two years later, he was running Opel.
GM did well when he was in Ruesselsheim, although his critics credit products already in the pipeline and the sales boom that followed German reunification.
Hughes moved up quickly. He replaced GM Europe President Robert Eaton when Eaton moved to Chrysler in 1992. He took over the top international job after GM's board ousted Chairman Robert Stempel.
Hughes moved the international headquarters from Detroit to Zurich, and he quickly set an aggressive strategy for new markets. GM has or is building new plants in China, Poland, India, Argentina, Thailand, Brazil and Ukraine. It is negotiating a deal in Russia.
Frequent shuttling between continents leaves Hughes less time for Europe. Executives who work with him describe an executive who is overextended, yet can't resist becoming involved in details.
'The organization doesn't function because he can't be reached and personally say what he thinks,' said a top executive. 'Meetings stop because he wants to go to the bathroom.'
Hughes denies being a micro-manager.
'There is a difference between a competent person and a micro-manager,' he said. 'Sometimes if you ask a question about something you are are interested in, you are accused of micro-managing. I go out of my way to get other opinions.'
Hughes acknowledges being a frequent flier, but he says he is not out of touch.
'I don't feel overextended,' he said. 'I have very low blood pressure and very low cholesterol. I've worked 12-14 hours since I was 12 years old, mowing lawns. But I make a point of not working on weekends. I've skied every weekend since Christmas.'
Hughes is clearly a candidate for the top job at GM, as is the other major operations boss, Richard Wagoner in North America. In 1997, GM's North American profits were $2.3 billion, up from $333 million. International Operations earned $981 million, down from $1.5 billion in 1996, excluding special items. But Europe was a big earner during most of the 1990s while US profits slumped.
'We've been brand leader in sales for six straight years with Opel/Vauxhall and we've out-earned our competition,' said Hughes. 'The same team that did that is now taking the criticism. Everyone has their ups and downs.'
Sullivan, the GM executive for Asia, says Hughes' harshest critics are those who can't separate business from personality.
'When I have a problem with Lou, I sit at the table, put my nose about three inches from his, and get it resolved,' he said. 'I'm definitely OK with Lou Hughes.'
Hughes can inspire strong personal loyalty. He once called a mid-level European executive to ask about his health. The executive recalls:
'Lou said, 1/8This isn't just business talk, I really want to know how you feel.' He said, 1/8My father had the same thing.''
Jack Smith's personal loyalty to Hughes will pull Hughes through the current crisis, say some GM executives. The two men began working together on the GM treasurer's office in New York in the 1970s. They worked side-by-side in Canada, and at NUMMI, the GM-Toyota joint venture in Canada. The bond between them is tight.
Said Sullivan, who knows the men well, 'Lou and Jack are very close.'