Not your father's Oldsmobile anymore

GM, the world's largest automaker, wants to make itself into a hip Web business. Can the rusting giant pull it off?

By Diane Seo

Published June 6, 2000 7:00PM (EDT)

GM is getting a face-lift.

Sick of being cast as the grumpy corporate grandpa in a beat-up Cadillac, the world's largest automaker is undergoing a major makeover. General Motors wants to be a hip e-enterprise.

That's right. Amid sagging demand for its Buicks, Pontiacs, Oldsmobiles and Chevys, the Detroit titan -- once the epitome of gruff old-economy America -- has officially admitted its skin is wrinkling. To rev up sales and lure fresh-faced talent in this extra-snug labor market, GM is injecting itself with a heavy dose of Yahoo-flavored Web Botox. As with any good Web company, it has already started behaving like the quirky start-ups that define the dot-com community.

In a move that would have once been inconceivable, GM now offers back rubs, flextime, Silicon Valley digs and funky offices -- the whole Net shebang. And GM promises this is just the beginning. The makeover, which has begun at e-GM, the company's Internet division, will eventually reach all 400,000 of GM's blue-collar and navy-suited employees.

Mark Hogan, head of e-GM, says the carmaker has given itself three years to change, a task he likens to breaking down Pentagon bureaucracy. (Remember, this is the place Michael Moore vilified as the corporate antichrist in his documentary "Roger and Me.") "I would be less than straightforward if I said everyone likes the idea," Hogan admits. "But the Internet isn't going away. The new order has to emerge."

Don't expect the auto giant's buttoned-down hierarchy to crumble overnight -- according to one analyst, GM is still an "entrenched bureaucracy." But at e-GM, which was created in August to handle everything from the growing e-commerce operations to the OnStar dashboard communications service, signs are evident that Dad's Buick LeSabre has unfastened at least one button on its starched upholstery.

Consider the evidence: Some 200 young employees at e-GM dine on gourmet meals, courtesy of papa GM. They traipse into work in boot-cut jeans, clunky black shoes, snakeskin pants, whatever. Time punching has gone by the wayside; employees are encouraged to work from wherever is convenient -- at the office, at home, at the local cafe. Flexible schedules are OK. Employees no longer have to endure searches of their backpacks or laptop carriers. This standard security policy "isn't consistent with new employment values," says Sheryl Owens, e-GM's human resources director.

E-GM's Detroit headquarters boasts a comfy "family room" with plush couches and a TV. Lactating mothers can come here to breast-feed without disapproving stares from higher-ups, Owens says. The company is toying with on-site day care so Mom and Dad can bring up baby while plugging away on their iMacs.

E-GM has a bright orange office floor -- a (slightly forced) attempt at architectural irreverence. The aforementioned massages may be a commonplace perk in the Web world, but they could someday lead to the unlikely sight of UAW workers receiving shiatsu on the assembly line.

Then there's the "concierge" service. "They're assistants that essentially serve as wives for hire," Owens says. "They'll do your laundry or wait at your home if a repair person is coming." Employees must pay for the service, but Hogan offers this as proof of GM's new employee-friendly M.O. "If you came to visit us," he says, "you'd have to pinch yourself that you weren't in the Bay Area."

Just in case you're not convinced, e-GM plans to open a San Francisco office to tap into Silicon Valley's technological talent. With Detroit's reputation as yesterday's city, GM believes it will better attract young candidates with a West Coast face. The company has actually benefited from recent struggles in the start-up sector. Hogan's quick to brag about his latest coup: six MIT MBAs.

It's an exciting time, Hogan insists. He describes the new-and-improved GM as "a company that will know no barriers -- a company that's fast, bold and a risk taker."

Sounds like a good ad campaign. GM's financial state, however, suggests a far grimmer tale.

A cursory glance gives the impression that GM is financially in tune. Last year, it reported income of $5.58 billion on $177 billion in revenue, compared with $3.05 billion in profits in strike-impacted 1998. (Its first-quarter profits this year reached $1.78 billion.) Fine numbers, but keep in mind that -- thanks to the strong economy -- 1999 was a record year for the auto industry.

A good chunk of GM's profits comes from Hughes Electronics, its successful satellite TV business. In its core auto business, GM has lower profit margins than its primary competitors and has steadily lost market share in the United States. (Last year, GM controlled 29 percent of the U.S. market -- the first nonstrike year since the 1920s that it has fallen below 30 percent.)

Last week, GM also reported that its U.S. auto sales fell 5.8 percent in May; Buick sales sank 18 percent and Cadillacs were down 16 percent. The Federal Reserve's interest rate hikes have put pressure on the entire auto sector, which means carmakers must find other ways to make money.

This is clearly why GM has moved so aggressively on the Internet. It plans to trim costs by moving purchasing orders online, ultimately selling far more products and services through its network of e-commerce sites, and through collaborative efforts with Ford Motor Co. and DaimlerChrysler.

GM chairman Jack Smith expects the Web to generate 50,000 to 100,000 more vehicle sales in the United States this year. GM's OnStar venture -- debuting this fall -- could revolutionize the industry by allowing drivers to surf the Web through a voice-activated system. By charging for this service, GM could add hundreds of millions of dollars each year in revenue.

New CEO Rick Wagoner, who assumed the job June 1, reconfirmed that building Web business is one of his main priorities. Wagoner sees the Internet as something more than integral to GM's growth -- he believes it's part of the company's very survival.

Generally, analysts like GM's attitude. Still, some critics say the company's strategy -- especially its personality makeover -- glosses over its core problem. For the naysayers, these changes represent a simple chemical peel when what's really needed is radical plastic surgery.

"Lots of makeup and a nice dress still doesn't make an ugly girl beautiful," says Ron Harbour, president of Harbour & Associates in Detroit, which tracks the auto industry. "What's going to make them a more leading-edge, hipper company are product changes, not superficial changes."

Fellow auto analyst David Healy of Burnham Securities agrees that GM's troubles run deeper. "There are three reasons why their market share is declining: product, product and product," he says. "They're gradually losing their older buyers and they keep coming out with dull cars."

While Ford has attracted the lucrative young market with its sharp, moderate-priced Focus, and Chrysler has inspired wows with its new PT Cruiser, analysts say GM still hasn't done much to excite young, professional buyers. "People think of GM as what their fathers or grandfathers owned, and they can't imagine ever owning a GM car themselves," Harbour explains.

Healy says he can't think of one car coming down the pipeline that could create a splash with younger buyers. And he also believes that GM's depiction of itself as a Web company is just talk. "I'm not confident the transformation will happen anytime soon," he says.

Hogan admits the company has a long way to go before becoming Detroit's answer to Yahoo. For one thing, he quips, GM sill lacks a cappuccino machine, and its orange floor can't compete with Yahoo's glaring purple and yellow dicor.

Nevertheless, as GM puts up a good e-face, you can bet everybody will be watching. That the stolid carmaker is even considering an image change is emblematic of the New Economy's grip on the global marketplace. No longer can companies rely on the good old ways. And most would agree that if fuddy-duddy GM has come to this conclusion, the power of the Web has truly been driven home.

Diane Seo

Diane Seo is the senior business editor at Salon.


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