Driving into the Computer Age

By Stephen Koepp

General Motors offers $2.5 billion for a data-processing firm

Despite its almost incomprehensible size, the business of General Motors could always be summed up in one word: wheels. Less than 4% of its 1983 sales of $74.6 billion came from other businesses. A major drawback to such single-mindedness is that GM has few other earnings sources to keep the company profitable during sales slumps like the one in 1980-82. Now wiser after that downturn and flush with some $9 billion in cash, GM managers have been cruising industrial parks looking for takeover candidates.

Last week the automaker captured its first big one. It announced plans to spend as much as $2.5 billion to buy Dallas-based Electronic Data Systems, one of the biggest U.S. suppliers of computer services. Founded in 1962 by Chairman H. Ross Perot, EDS (1983 sales: $629.7 million) provides data processing for such customers as the U.S. Army and the state of Tennessee's Medicaid program. GM already has the first task for EDS: streamlining the automaker's morass of accounting, payroll and scheduling records. Said GM Chairman Roger Smith: "We have to get to the point where every time a dealer sells a Cadillac, then Firestone or Goodyear automatically will send another set of tires right on over to one of our plants." By providing EDS with billions of dollars in new business, GM hopes to build the firm into the dominant company in the growing $20 billion computer-services industry. The automaker has devised high-tech products of its own, including computer-aided manufacturing equipment, that EDS will be able to offer to industrial clients.

General Motors warmed up for last week's deal with several smaller moves into computer fields. In 1982 the company created GMF Robotics in a joint venture with a Japanese firm, Fujitsu Fanuc. Since then, GMF has grabbed a 19% share of the market for industrial robots.

Last April the automaker spent $3 million for an 11% interest in Teknowledge, a Silicon Valley computer-software firm.

Perot, a former IBM salesman, formed EDS with an investment of $1,000. The company grew rapidly, largely by processing health-insurance claims.

Last year the company's profits jumped 25%, to $58.7 million Perot, 54, a man of military demeanor, established at EDS a corporate culture based on formality, patriotism and performance. In 1979 he dispatched a former Viet Nam commando and a group of executives on a defiant rescue of two EDS officials being held captive in Tehran. The successful exploit was chronicled by Author Ken Follett in the bestselling On Wings of Eagles.

In the past few years, though, Perot has grown less involved in running his company and more concerned with public affairs. He recently headed a Texas commission seeking to improve high school education.

Earlier this year he brought the wrath of Texas down on himself by advocating that less emphasis be placed on high school football, which is a little like telling Texans to raffle off the Alamo. By selling their 45% share of EDS, Perot and his family could reap as much as $1.3 billion.

For the time being, Perot will stay on as chairman of the company as part of an effort by GM to keep alive the entrepreneurial spirit among EDS's 13,000 employees. Said Perot last week after the deal was announced: "Today is the biggest day in our history. I feel nothing but excitement." In a highly unusual move, GM plans to issue a new type of its stock for investors who want to continue putting their chips on EDS. It will be called Class E, and its dividends will be tied to the performance of EDS rather than the parent company.

-- By Stephen Koepp.

-- Reported by Mien Pusey /Dallas and Joe Szczesny/ Detroit

With reporting by Allen Pusey, Joe Szczesny