DETROIT – Troy Clarke is an early riser.
As a Saturday dawn was breaking in Shanghai, where for two years Clarke oversaw the Asia/Pacific operations for General Motors Corp., Friday’s business day was nearing an end in Detroit.
Clarke recalls periodically heading into GM’s Pan Asia Technical Automotive Center (PATAC) for the 4:30 a.m. virtual conferences, which connected executives such as GM Vice Chairman Bob Lutz in Detroit and counterparts in Europe.
The former head of manufacturing and labor relations for GM North America, Clarke says the global conferences were still a rarity compared with his typical business day. Like his charges in China, Clarke mostly communicated via e-mail and cell phone in a business culture shock that was “unnerving” at times.
“I had come from this environment where we really only make decisions when we’re sitting around a table face to face; where we have a lot of information and a big Power Point presentation,” Clarke tells Ward’s in his first in-depth interview since being tapped as GMNA chief.
“In Asia, we were so lean, and things were moving so fast in a growing market environment, that we learned to do business, or they taught me to do business, in a different way,” he says. “And I would like to introduce that or make people more comfortable with that here.”
Clarke returns to a GM North America that is much leaner than the one he left two years earlier.
In his first five months as president of North American operations, Clarke sees 34,000 U.S. hourly workers accepting buyouts or early retirements and a dozen GM plants preparing to close by 2008.
At the same time, Clarke now manages a product portfolio that is turning away from large SUVs toward cross/utility vehicles, midsize and small cars.
For GM, 2007 could be the true test of whether it has jettisoned enough fixed cost and has the right product mix at the right time to mark a real turnaround.
GM is forecasting 2006 global production of 9.18 million vehicles vs. year-ago’s 9.05 million, with domestic production expected to fall by 300,000 cars and trucks to 4.65 million units this year.
Industry wide, Clarke sees 2007 sales shaping up much like 2006 and “maybe a tad softer.”
“From a General Motors standpoint, we’re talking about (total sales) being a little better,” he says without giving a 2007 forecast. “We have some great products that we’re launching into higher-volume segments.”
GM hopes to ride three major product waves over the next three quarters, including the sales launch of fullsize pickup trucks, both light and heavy duty, which started in November.
That’s followed by the introduction of the Saturn Outlook and GMC Acadia, two of the three all-new offspring of the Midsize Crossover Architecture (Lambda) for the U.S. The third, Buick’s luxury CUV, the Enclave, goes on sale in third-quarter 2007.
GM executives hope the new models will offset faltering deliveries of minivans and midsize SUVs. GM recently nixed plans for a new minivan program based on the Lambda architecture.
“Hopefully, this adds some juice to this long-suffering midsize utility segment,” Clarke says. “It should be a reason for people to come back to looking at these particular products.”
In the third quarter, GM will launch a new Chevrolet Malibu, which gets a significant redesign but stays on its current platform. The Malibu will be the second major car launch in a year’s time, following Saturn’s Aura midsize sedan, which shares the Malibu’s current underpinnings.
“We think (the Malibu) is a great product,” says Clarke. “But it plays into a much larger distribution channel, the Chevrolet distribution channel, where we have a couple thousand dealers, as opposed to our Saturn channel, where we have a couple hundred.”
Clarke is interested in refining the brands even more and flatly says GM must do a better job on its car rollout. He gives praise to Honda Motor Co. Ltd. When Honda launches a new Civic, he says, “the whole world knows.”
“When we bring out a new Corvette, it’s the same kind of thing,” he says. “Everybody recognizes that’s going to be the best product that we can deliver in that segment.”
GM needs to design vehicles starting with the “moment of truth” in the driveway, Clarke says, when family and neighbors gather around to ask the new owner, “Why did you buy it?”
“The answers I don’t want you to give is ‘because it was the cheapest thing I could find; these are the only guys that would give me credit; they had a hell of a rebate going,’” he says. “Those are not the kinds of responses that I think contribute to developing and building the brand over time.”
Closing in on Clarke’s goal may mean fewer product launches but more coordinated and intensified vehicle debuts.
“There’s still a lot of moving parts to this company,” he says. “And as you can imagine, there’s a lot of momentum to the plans and actions you encounter when you start walking through the hallowed halls, so to speak. Refining that focus means we need to continue to tailor and refine what our brands mean and how we deliver on those brands.”
That also means more interaction with dealerships, which have been supportive of “staying the course” on GM’s strategy that discourages widespread sales incentives, Clarke says. But he’s aware of high interest rates and the toll they are taking on dealers.
“(Interest-rate costs), I think, doubled over the course of the last two years,” he says. “So that’s kind of pinching them all. And I think you’ve seen some of that in terms of the dealers saying, ‘This time last year that kind of inventory level felt very comfortable. And the year before, this kind of inventory level would actually be considered a low inventory.’”
At the end of this year’s third quarter, U.S. dealer inventories were up by about 185,000 units compared with prior-year. GM reports that’s typical of inventories for the period, but higher than like-2005, which followed the popular employee discounts for all.
With domestic production cuts taking effect now, GM anticipates dealer inventories will be between 1 million and 1.1 million at the end of the year.
Clarke says he’s encouraging a higher level of consultation between GM and its dealers. Anecdotally, several dealers tell Ward’s GM has been more responsive to their needs than in recent years.
Clarke’s other immediate challenge is ensuring GM North America’s costs are under control to ensure sustained profits. GM expects to reap $6 billion in savings this year, mainly due to its attrition program, and projects a savings of $9 billion in annual structural costs next year.
At the same time, the auto maker consistently has narrowed its losses in the first three quarters. For the third quarter, alone, GM reported a net loss of $91 million compared with a loss of $1.7 billion year-ago.
GM North America has seen some sales improvement, logging revenues of $127.83 billion vs. $115.84 billion during the year’s first nine months. Year-to-date, GM shows a net loss of $3.9 billion vs. $6.1 billion year ago.
But most of the year-to-date losses are tied to restructuring costs, including a $3.7 billion after-tax charge for the worker-attrition program.
Clarke is cautiously optimistic that GMNA can keep the trend going. “I can’t say every quarter will continue to be the same kind of magnitude of a step that we’ve seen this year, because we’ve had some funny things to play through,” he says.
Meanwhile, whether GM’s recent deals with the United Auto Workers union on health-care concessions and attrition will help or hinder contract negotiations in 2007 is an open question.
As GM’s chief negotiator for the 2003 UAW negotiations in North America, Clarke knows the ropes. He says the Jobs Bank, which allows laid-off UAW members to draw full pay and benefits, will be closely scrutinized even though it may not be the dominant issue.
“A lot of people conclude there’s two approaches to that,” Clarke says. “One approach is you have the Jobs Bank as it’s currently configured, and the second is, you have nothing. And there’s probably a hundred possibilities in between. I’ve got to believe somewhere in that spectrum of a hundred we can probably find some common ground.”
Clarke realizes he is known, from his tenure in China and Mexico, for lean plant investments. And he sees opportunities for GM to pinpoint investments in the U.S. to create a more flexible manufacturing operation, potentially around new product launches – a tactic long deployed by rival Toyota Motor Corp.
It all takes place against GM’s overarching goal of bringing multiple fuel-efficient powertrains to market, including a plug-in hybrid-electric vehicle, which is under development.
Whether the world turns toward diesel or HEVs, Clarke is convinced GM is “ready to play” and says the OEM has gone from a learning mode to the creation mode.
“It’s kind of like the beginning of the century, where there were steam cars, electric cars, gas cars, all kinds of different propulsion systems, and a lot of them hung around for quite a while,” he says.
“I suspect we (will) see gas engines and diesel engines hanging around for quite a while. And we’ll see some hybrids hanging around for a little bit. And then we’ll see the emergence of some other technologies, as well.”
If the matter requires an inter-continental teleconference at 4:30 a.m. on a Saturday, Clarke would be game.
