GM Creaks Under Weight
of Its Old Ways
By Greg Schneider
Friday, May 13, 2005
BALTIMORE -- Robert Fitch, a 60-year-old sanitation worker for General Motors, will lose his job today when the company closes its van factory near the city's industrial port. But under his United Auto Workers contract, Fitch will get his full pay and benefits for two more years, which will cover medical bills for his seriously ill wife.
"I always felt safe there," Fitch said this week as he neared the end of 39 years on the job.
The cost of supporting workers like Fitch is one reason GM's finances are a wreck and its bonds have sunk to junk status. The company also has too many old products and too many old factories, the legacy of its long run as the world's biggest automaker. As overseas rivals such as Toyota and Honda grow stronger in the United States, GM's plight only gets worse.
With only 1,100 workers remaining from a peak of nearly 7,000, closing the Baltimore factory is a small step toward fixing the vast company. But "in many ways, it is a microcosm of what ails General Motors", auto manufacturing expert Ronald E. Harbour said.
The sprawling powder-blue plant began producing Chevrolets in 1935. It had a prime location, within sight of Baltimore's busy marine terminals and access to rail and major roadways. When Fitch went to work at the factory in 1966, GM accounted for half of all new vehicle sales in the United States -- its share is roughly 25 percent today -- and Baltimore was one of its top regional plants.
"We were always number one back in the '60s and '70s, in quality and everything else," said John J. Hollis Sr., 60, who has worked at the plant since he was 18. The assembly line was tough work -- Hollis called it being on "the iron horse" -- but employees loved the steady pay and good benefits.
"I was a bodybuilder back in those days, but when I got home my eyes were bloodshot and I was tired as hell," Hollis said this week, enjoying an after-work cigar at home a mile from the factory. "But what the hell. I did a good day's work . . . and it felt good."
By modern standards, that assembly work was harder than it had to be. The Baltimore plant is built on two levels, an archaic design that requires extra effort. "When you bring in material and parts, you want to bring it right in the door and be as close to the point of use as possible," said Harbour, the manufacturing expert. "If you have to . . . somehow crate it upstairs to the second floor, it's a lot of non-value-added activity."
As Honda, Mercedes-Benz, Toyota and other foreign-owned competitors began building plants in the United States, they used one-level designs that were far more efficient. New factories also can build more than one type of product to quickly respond to market whims. Most of GM's 20 factories nationwide can't do that, and they're suffering because of it.
Baltimore workers felt helpless as that shift took place. "Our government let the imports come in and do that to us," Hollis said, standing on his porch by a crisp American flag and wearing a T-shirt proclaiming, "If you don't like my attitude, dial 1-800-EAT-[expletive]." He's never owned an imported vehicle, only GM products, and believes U.S. workers can match quality with anyone in the world.
But GM simply has too many factories. They are running at an average of 80 percent of capacity -- not good enough to be profitable, Harbour said. Some individual plants are over capacity, but they can't shift work to underused factories because the assembly lines do not have the technology to switch products.
GM put more modern, automated equipment into Baltimore in 1984 when it awarded the plant the job of building a new type of vehicle. Rival Chrysler had set off a market phenomenon with its newly created minivans, and GM responded by designing the Chevy Astro and the GMC Safari -- slightly smaller versions of its rear-wheel-drive full-size vans.
Baltimore has been building those products, virtually unchanged, ever since.
"It's still a damn good, dependable van," said Dennis Hellmig, 54, who has worked on the assembly line since 1972. "The people who've got 'em love 'em."
There just aren't many people who want them anymore; fewer than 50,000 of the two models combined were sold last year. Twenty years without a redesign is many lifetimes in the fast-changing auto market. Toyota, Honda and other foreign-based competitors have all but destroyed GM's dominance in North America in that time by rejuvenating products every three or four years. The Safari and Astro vans are truck-based, body-on-frame dinosaurs that safety groups have routinely called unsafe.
Such product loyalty on behalf of a dwindling customer base is another fundamental problem that plagues GM, which has spread itself thin across eight North American brands, said Sean P. McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich. "They have so many products they can't keep them all shiny and new, and some can get incredibly old," he said. The Chevrolet Cavalier was essentially 15 years old when it was replaced this year by the Cobalt, he said. "Can you think of a Japanese or foreign company that would wait that long?"
McAlinden, like other analysts, is convinced that GM has to get smaller to survive. That means shedding some of those brands and closing more factories so it can concentrate on stronger products that earn more.
"They've got to get down to 18 to 20 percent of the market and dream about bigger days," McAlinden said. That won't be easy. Killing the Oldsmobile brand over the past few years cost about $1 billion and set off a firestorm among dealers, some of whom sued GM. This year, GM Vice Chairman Robert A. Lutz provoked outrage from dealers by suggesting in comments after a speech that the Buick and Pontiac brands might be in trouble. The company has spent weeks promising that the brands are safe.
Closing factories is all but impossible under the UAW contract. Baltimore's shutdown, approved by the union in negotiations in 2003, shows why: The company has orchestrated the closing so carefully that insiders call it "The Immaculate Shutdown." GM built an Allison transmission plant near Baltimore in 2001 to absorb some jobs from the van factory. The company has spent years reducing the workforce by attrition, has bought out some older workers and is keeping the rest on the payroll as required by the union contract.
Even if the UAW agreed to further closings, GM has a structural problem. It needs to generate cash from vehicle sales to keep funding pension and health care plans -- which is why the company has persisted in offering discounts of $4,000 and more on new vehicles, a practice that eats profit but keeps products moving.
As GM's market share continues to go down, though, it burns cash more quickly. Now that Standard & Poor's has cut the company's bond rating below investment grade, GM will have a hard time borrowing more money. Ultimately that predicament could lead to bankruptcy, although the company points out that it has significant cash on hand.
One solution could be to follow the example of the U.S. steel industry, which cut health benefits for retirees and jettisoned pensions to the government's Pension Benefit Guaranty Corp. Many Baltimore workers know that is possible but refuse to believe it could happen to them.
"I don't think they're really in financial trouble," said Hollis, the 42-year plant veteran. "General Motors will do okay."
Others are less sure. "I can't say in five years my pension won't get cut off," Hellmig said. "I don't know. You can only hope it will last."
Fitch, whose wife is awaiting a lung transplant, has extra reason to worry because of enormous medical bills. But he hit it rich just over a year ago, winning $500,000 from the Maryland lottery. He bought a Chevy truck, a small boat and some jewelry for his wife and invested the rest in case he needs it to pay doctors.
"If we don't need it, then we'll have some fun," he said. In the meantime, Fitch declined a buyout from GM and will stay on the payroll. It's possible he'll get called in to do odd jobs for GM dealers in the Baltimore area, such as washing cars or cleaning up. That's fine by him. "I don't mind working. I like going to work," he said. "I'm just used to doing it."