The untold story about Roger B. Smith
Roger B. Smith was born in Columbus, Ohio on July 12, 1925. He earned a bachelor degree in business administration at the University of Michigan in 1947, and his MBA at the University of Michigan's Ross School of Business in 1953. He served in the US Navy from 1944 to 1946.
Smith began his career at GM (General Motors) in 1949 as an accounting clerk, and had become the company's treasurer by 1970, and vice president the following year. In 1974, Smith was elected executive vice president in charge of the financial, public relations, and government relations staffs. He ascended to chairman of GM in 1981.
When Smith took over GM, it was reeling from its first annual loss since the early 1920s. Its reputation had been tarnished by civil and personal injury lawsuits, persistent quality problems with its manufactured vehicles, bad labor relations, public protests over the installation of Chevrolet engines in Oldsmobiles, and by a poorly designed diesel engine. GM was also losing its market share to foreign automakers for the first time.
Deciding that GM needed to completely change its structure and culture in order to remain competitive into the future, Smith instituted several initiatives that included forming strategic joint ventures with Japanese and South Korean automakers, launching the Saturn division, investing heavily in technological automation and robotics, and attempting to rid the company of its risk-averse bureaucracy. However, Smith's far-reaching goals proved too ambitious and overwhelming to be implemented effectively in the face of the company's resilient corporate culture and bureaucracy. Despite Smith's vision for a new and better GM corporation, he was unable to successfully integrate GM's major acquisitions, several of which also failed to tackle the root causes of GM's fundamental problems.
Smith began the reorganization of GM that would define his chairmanship with the 1981 creation of the worldwide Truck and Bus Group, consolidating the design, manufacture, sales and service of all trucks, buses and vans under one umbrella. The year 1982 saw the creation of the Truck and Bus Manufacturing Division, which combined all truck manufacturing and assembly operations from their former divisions, but still a separate bureaucracy from that of the Truck and Bus Group.
In 1982, Smith negotiated contract concessions with the United Auto Workers and cut planned raises for white-collar workers. After unveiling a more generous bonus program for top executives that provoked an angry response from the union, Smith was forced to back-pedal. Relations with the UAW, management, and stockholders remained strained. Profits improved in 1983 and Smith began unveiling his vision for reorganization, diversification, and "re-industrialization." As as result, many of the auto-making factories in the USA began to close down starting with the Los Angeles South Gate assembly plant that same year. Within the next six years, more and more auto factories across the USA closed down, most of the being in Michigan in the cities of Detroit and Flint.
Smith then took on the massive GM bureaucracy... with disastrous results. A sea change in how GM would market and build cars in the future, the 1984 reorganization was intended to streamline the process and create greater efficiencies; the reverse actually occurred. Combining the nameplate divisions, Fisher Body, and GM Assembly into two groups, C-P-C (Chevrolet, Pontiac, Canada) to build small cars and B-O-C (Buick, Oldsmobile, Cadillac) to build large cars, the effort was subsequently criticized for creating chaos within the company. Longstanding informal relationships that greased the wheels of GM were severed, seemingly overnight, leading to confusion and slipping new product programs. The reorganization virtually stopped GM in its tracks for 18 months, and never really worked as intended, with the CPC division building Cadillacs and BOC building Pontiacs. The reorganization added costs and created more layers of bureaucracy when the new groups added management, marketing and engineering staff, duplicating existing staff at both the corporate and division levels. Almost ten years elapsed before the 1984 reorganization was unwound and all car groups were combined into one division.
Smith's major new car program prior to the 1984 reorganization, GM10 (also known as W-body), has been called "The biggest catastrophe in American industrial history." Beginning in 1982, and costing $7 billion, the plan was to replace all mid-size cars produced by Chevrolet, Pontiac, Oldsmobile, and Buick. The plan was huge in scope, calling for seven plants that would each assemble 250,000 of the cars, or 21% of the total U.S. car market. It was badly executed from the start, but the 1984 reorganization wrought havoc on the program and it never recovered. By 1989, the year before the last of the GM10s were launched, GM was losing $2,000 on every one of the cars it produced.
A defining theme of Smith's tenure was his vision to modernize GM using advanced technology. Some have suggested he was ahead of his time in attempting to create a 21st-century organization in a company not ready for the technology. "Lights out" factories were envisioned, where the only employees were those supervising the robots and computers. This was obviously viewed negatively by the unions, and further strained relations. Over the decade of the 1980s, GM spent upwards of $90 billion attempting to remake itself, including a 1981 joint venture with the Japanese robot manufacturer, Fujitsu-Fanuc. With the resulting venture, GMF Robotics, GM became the largest manufacturer of robots in the world. Unfortunately, the experience failed to meet with Smith's vision, with the new robots famously painting each other instead of the cars, or robots welding doors shut. Ultimately, some robotic systems and automation installed in several plants were removed shortly after their installation. The astonishing sums expended were widely viewed as money wasted.
Responding to a 1986 report on three-year capital expenditures projected at almost $35 billion, VP of finance F. Alan Smith (no relation) opined that the sum could be spent on purchasing both Toyota and Nissan resulting in a bump in market share overnight and openly questioned whether the proposed capital expenditures would pay the same dividends; they did not. By the time Smith retired, GM had evolved from the lowest cost producer in Detroit to its highest cost producer, due in part to the drive to acquire advanced technology that never paid dividends in efficiency.
In 1984, Smith oversaw General Motors' acquisition of Electronic Data Systems from its founder Ross Perot for $2.55 billion, serving two purposes. First was the opportunity to modernize and automate GM to fulfill Smith's goals; second, it was an effort to broaden out of its manufacturing base and into technology and services. As a result of the EDS acquisition, Perot became GM's largest single shareholder, joined its board of directors, and immediately became a source of friction to Smith and a vocal and public critic of Smith and GM's management. In 1986 Smith and the board orchestrated a $743 million buyout of Perot's GM stock at a substantial premium over the market value of the shares. Perot accepted the buyout, but publicly denounced the expenditure as outrageous at a time GM was closing plants and laying off workers. He announced that he would put the money in escrow to give the automaker a chance to reconsider, but never actually sequestered the funds.
The structure of the deal was unusual in that EDS would be owned by GM, but Smith promised it would allow Perot autonomy to run the company. In addition, the stock of EDS became a special 'Class E' GM stock, which was separate from normal GM stock, an arrangement which almost got GM kicked off the NYSE. Perot eventually agreed to the deal, because, as Lee puts it, he was sold on the idea of saving millions of American jobs by helping GM fight off Japanese competition.
The relationship between Smith, Perot, and the EDS executives ruptured openly in September 1985, during a meeting in Dallas that brought the EDS executive compensation issue to a head. Smith was reluctant to accept the EDS plan, substituting a plan of his own. What ensued was one of the most vitriolic corporate battles of the 1980s, with Perot and Smith publicly exchanging barbs using the media, which delightedly splashed the story over every business publication in the U.S. Perot notoriously lashed out at Smith in a 1988 exclusive to Fortune Magazine, saying: "My question is: Why haven't we unleashed their potential? The answer is: the General Motors system. It's like a blanket of fog that keeps these people from doing what they know needs to be done. I come from an environment where, if you see a snake, you kill it. At GM, if you see a snake, the first thing you do is go hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is... nothing. You figure, the snake hasn't bitten anybody yet, so you just let him crawl around on the factory floor. We need to build an environment where the first guy who sees the snake kills it."
Roger B. Smith's nine-year tenure at GM ended one year after the release of the popular underground documentary film Roger & Me (1989) by Michael Moore, where many displaced GM workers called for Smith's retirement. Smith voluntarily resigned as chairman of GM in 1990 and afterwords retired from business altogether. He later toured the new Saturn facility in Tennessee, which he brought to fruition, in 1991.
Smith's tenure at General Motors is viewed as a failure by most people as GM's share in the US stock market fell from 46% to 35%, and it took on considerable debt causing it to lapse close to bankruptcy in the early 1990s. As a result, CNBC has called Smith one of the "Worst American CEOs of All Time", stating: "Smith had the right idea, but lacked the intuition to understand how his rip-up-the-carpet redo would affect the delicate web of informal communication that GM relied upon."
Roger B. Smith died in his sleep at his home on November 29, 2007 after a short illness at age 82. A specific cause of death has never been released.