Date: 9.07.1998
A shampoo salesman is trying to shake up General Motors. In a way, he's just trying to take it back to Alfred Sloan's GM.
"WHAT DID I KNOW ABOUT CARS? I drove them," says Ronald Zarrella in an offhand way.
Statements like that don't go down very well in Detroit, where cars are as much a religion as a business. It's a macho place -- a town of steak, cigars and bravado. Zarrella, 48, is clearly not a member of that club. GM hired him in 1994 as vice president in charge of marketing for the North American group -- which is 56% of GM's sales. GM just suffered a nasty strike over its efforts to deal with the high labor costs that are one of its big problems. Zarrella's job is to help deal with the other big problem: the blurring of identity among its various makes of cars.
He sat down to lunch with FORBES recently at the Oak Room of the Plaza Hotel, right across the street from the GM showroom in Manhattan. We would talk about his plans, then walk over to look at the shiny GM cars.
We never got there. Zarrella scarcely ate, let alone saved any time for looking at cars. We asked: What's a shampoo guy doing in the cars business? "People think there's got to be a great car guy at the top of every car company who okays every design," Zarrella says early in the conversation. "It just isn't true."
Zarrella spent much of his career selling shampoo for Bristol-Myers Squibb Co. and Esmark -- though he is no shampoo man, either. He's an engineer with a degree from Worcester Polytechnic Institute. He picked up an M.B.A. from New York University as well. Jargony expressions like "integrated business systems" trip easily off his tongue. In 1985 he joined Bausch & Lomb, maker of contact lenses and trendy Ray-Ban sunglasses. He worked his way up to become the president and the chief operating officer by 1993.
While he was shepherding sunglasses to market, General Motors' board was watching in alarm as the car giant's market share fell from the 50% level of a few decades ago to a humiliating 32%. The company also had the little problem of not making much money. It lost $ 5.7 billion in 1992, its worst year in recent memory. The board fired chief executive Robert Stempel and put GM director John Smale in charge until the new chairman and chief executive officer, John Smith Jr., took over. That board-led coup also brought Zarrella to GM.
This guy is one intense fellow. Zarrella and I have been talking for 20 minutes and haven't yet opened our menus. The waiter wanders away, seeing that it's futile to interrupt.
As Zarrella describes it, he was brought in "to change how cars are brought to market . . . to participate in the greatest turnaround in American history."
Can you sell cars the way you sell soap?
In a way, yes. "It's developing a brand against a specific set of targeted customers, and that positions drives everything that the brand is -- from the way the product is engineered and designed, to the way it is advertised, to the way it is priced, to the way it is merchandised."
We couldn't resist: Hell, cars are not soap.
"Soap is not soap," Zarrella snaps back. "Ivory soap is different than Palmolive soap. Every consumer knows that. You go to the supermarket to buy Ivory soap, you don't look at the 60 brands that are on the shelf. Most consumers know what they're going to buy when they get there."
They do with cars, too, buy GM's brands blur. Too much independence among the divisions tempted each general manager to create an entire line of cars for every pocketbook and taste. Zarrella wants to prune the lines. The Olds Cutlass and Buick Riviera could be vulnerable in future model years. The Chevrolet Caprice and Buick Skylark are already history.
In the new GM system, each brand has a brand manager and a vehicle and executive who work as a team and are accountable for the performance of the brand. The manager's job is to understand his assigned category of consumers, and the executive's is to develop the car aimed at that category. "The brand managers will understand their customers better than any 'great car guy' 16 levels up in the organization," he says. "In the past we [GM] listened to ourselves, not our customers."
Zarrella waves the waiter away again and continues. He explains that his assignment is not involved with quarterly sales, but with fundamental changes in GM's structure.
Historically, the bedrock of power at GM were the general managers, virtual warlords of Chevrolet, Oldsmobile, Pontiac, Buick, Cadillac. Since Zarrella joined GM in 1994, all of the general managers but one have been retired. With the exception of Saturn, the big divisions that once had their own geography -- Oldsmobile, based in Lansing, Mich.; Buick, in Flint, Mich. -- are being pulled into GM's new headquarters, the Renaissance Center in Detroit.
As of Jan. 1, there will be centralized marketing organization headed by Zarrella. As a result, 15% to 20% of the 5,100 sales, service and marketing staff will be eliminated by the end of 1998. "There will always be a general manager, but the job will be different," Zarrella says. The new position will focus on brand management and marketing, as opposed to distribution.
Wait a minute. Isn't he tearing down the house that Alfred Sloan, America's great industrial genius, built? Not really. In Zarrella's view, Sloan did not intend his general managers to run independent fiefdoms. They were each given a market segment and told to go out and conquer it: Chevrolet for the average person; Oldsmobile and Pontiac for the sportier types; Buick for the doctor and lawyer; and Cadillac -- for people craving the ultimate status symbol. "A car for every pocket" is a line attributed to Sloan.
That did not mean that Buick, say, or Chevy would build a car for every pocketbook, as they virtually do today. Here, in Sloan's own words, is his criticism of the loose organization he took over in 1923: "Each division, in the absence of corporation policy, operated independently, making its own price and productions policies, which landed some cars in identical price positions without relationship to the interest of the enterprise as a whole. . . . We had a confused product line."
Zarrella's point is that GM has slid back to that pre-Sloan position. If Zarrella is stepping on lots of toes, he gets away with it because he has the full support of North American GM's president, Richard Wagoner Jr., and GM's chief, Smith. One several occasions rumors have circulated that Zarrella would be fired, which would make a lot of car people happy. "I don't think that's happening," laughs Zarrella. "I'm spending a lot of money building a new house."
The waiter has now abandoned us completely. I ask: If cars are going to be sold like shampoo or sunglasses, which car is my type -- me with two children and two dogs?
"The Chevy Venture, a minivan, is our soccer-mom product, bought for functionality and value. Off the same platform is the Pontiac Montana, for people who hate the idea of soccer moms. It's targeted to families who need the functions of a minivan but would much rather drive a sport utility vehicle."
Me a soccer mom? Not my image. Nor do I lust for a four-wheel drive.
With the excitement of an anthropologist stumbling across a new, previously undiscovered tribe, Zarrella says, "You may need a crossover vehicle. Perhaps you're the next generation, suited for a vehicle that has the functionality and packaging of a van, yet has real drive characteristics -- four-wheel drive, raised higher off the road, with more storage. Something like Lexus RX 300, the popular sport utility vehicle built off a car plan."
I see what he is driving at: They way General Motors makes money is from volume, and the way GM gets volume is by creating as many seemingly different cars as it can from common platforms. You get big production runs from making only a few platforms, but producing many variations of sheet metal and amenities on top of each. The result is vehicles with much in common underneath -- but very different to the eye.
Fine talk, but since Zarrella instituted brand management changes in 1996, GM's market share has come down one percentage point, to around 30%. Since the strike, it plunged further, to 21%. Zarrella guesses it will find its way back to 30%, but who knows? Each market share point represents 150,000 cars, with a total retail price of about $ 3 billion. Lose three share points and you may close two factories and lop off 6,000 jobs, angering the UAW and producing the kind of ill will that led to this summer's strike.
"We're sized to be profitable on a 32% to 35% market share," he replies, adding that the king of fundamental change he's pushing won't produce results this quarter or even this year.
What kind of results has it produced? It helped revive the Buick LeSabre. It was on its last legs after a redesign in 1992, when its brand manager locked onto the view that LeSabre owners wanted safety, security and peace of mind. The marketing types came up with the song "Stand by Me" in commercials showing a LeSabre narrowly avoiding a charging 18-wheeler on a wet road. In 1997 sales were up 15%. Zarrella attributes the gain to "consistency of message."
Sixty minutes into our conversation, at my prompting, we order club sandwiches. This guy isn't an executive. He's a missionary. He didn't seem to know it was lunchtime.
How is he handling the internal battles? Zarrella doesn't duck the question. "Nobody wanted to listen to a guy who sold shampoo and conditioner," he says. "There was open dissension. But I encourage stormy meetings. There's nothing like hearing the guy who's forgotten more about cars than I'll ever know arguing his point. At the end of the day someone has to make a decision."
Zarrella complains about dealers: "They make money -- why can't we?"
Even before Zarrella's arrival, GM was studying realignments of its dealerships. Some 2,500 of its 8,000 were identified as losers. Zarrella is speeding up the weeding process and reconfiguration. To a certain extent this is happening all over dealerland, with Ford and Chrysler also trying to come up with fewer -- but stronger -- dealers.
We bring up Republic Industries' Wayne Huizenga, whose company has bought 310 local car dealerships in the last two years and carries all brands. Zarrella acknowledges the importance of this new development.
"There's going to be a big change in the nature of how cars get sold -- the way the customer is handled," he says. "Because of information available through the Internet, many customers know a lot more about the vehicles than the salespeople." So GM has a pilot program in California that allows consumers to do everything over the Internet except drive the car. "They can choose the configuration, pick colors and trim, get credit approval, check inventory, get a no-haggle price via E-mail, and even buy it."
It seems that Zarrella has scant sympathy for the dealers who must now cope with a better-informed customer. But why should he? GM, is in business to move cars, not to fatten dealers.
On a recent weekend he spent four hours going through 40 years of Cadillac ads. From the 1950s through the early 1980s Cadillac had it right, he says. The ads were designed to motivate, and featured leading-edge styling and technology, like electric windows. In the mid-1980s the ads were all over the place, apologizing for Cadillac's size, comparing it with BMW and Mercedes -- "Something you never do when you have leadership," Zarrella says.
Our club sandwiches arrive from a second waiter, the first one having gone home. Over my last bite, I think about Zarrella's intensity and how it measures up against a very entrenched mentality. Who will be history -- Zarrella or the car guys? Too early to tell, but clearly GM needs to change. One day there will be a bad car year again, and when that happens, GM had better have fixed both its costs and its brand images.
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