HPA Monon Completes First Year In the Black and in the Top Ten

May 15 was a special day in Monon, Indiana. It marked the first anniversary of the startup of production and the rollout of the first complete trailer built by HPA Monon Corporation.

HPA Monon is the new corporation formed by Holmes Pinto Associates to purchase out of bankruptcy the assets of the former Monon Corporation. Charles Holmes, one of the HPA partners, is known as a contrarian investor, one who buys companies that are in trouble and turns them around.

The turnaround at HPA Monon has been dramatic. The new owners expected that instituting good business practices would be successful eventually, but they never expected that booming market would accelerate the recovery so quickly. HPA Monon expects gross revenue over $150 million in 1998, according to Bill Herndon, president and CEO. He estimates 1998 production of 8,000 to 8,500 van trailers, 3,000 container chassis, 500 converter dollies, and a start on the first large orders of domestic containers. Shut Down Five Months

The situation was far different when HPA took over the closed plant on March 24, 1997. The new company had no workers, no customers, no suppliers, and no credit. Bankruptcies are never pretty, but the one in Monon, Indiana, a town of some 1,500 inhabitants, was particularly ugly. When a group of suppliers forced the former Monon Corporation into Chapter 11 involuntary bankruptcy in October 1996, the factory was shut down with partially built trailers and components strung out along the assembly lines. Nothing moved for five months. Power and water were cut off, pipes froze and burst during the winter, and machinery started to rust.

Workers were bitter over lost wages. During the shutdown, their labor union railed against company management. Charges and rumors were printed in area newspapers. (The small town of Monon has no hometown paper). The FBI had been called in to investigate some charges. The entire supplier base filed claims to retrieve whatever they could. Some suppliers lost millions of dollars. Workers were paid eventually, but most have not yet received their 401 (k) funds.

Fifth Largest Trailer Builder Many other trailer manufacturers benefited from the shutdown when Monon's customers had to look elsewhere for trailers. Monon had built over 21,000 trailers and 7,800 container chassis in 1995 when it had ranked fifth largest trailer manufacturer in the United States . Every van trailer manufacturer built fewer trailers in 1996 than during the record production year of 1995, but the drop was cushioned by Monon's demise.

The bankruptcy court valued Monon's eight plants covering over 500,000 square feet of manufacturing space on 306 acres at $35 million. HPA Monon Corporation's bid of $14.9 million was successful (there were no other serious bidders) and HPA Monon took over the assets on March 24, 1997.

When Bill Herndon was named president and CEO, he knew he faced a tough job of convincing a skeptical public that the new owners were trustworthy, dependable, and were in the trailer business for the long haul. This was not going to be a quick fix for resale, and the new owners didn't want to sell off the assets in parcels.

Rebuilding Confidence "We had to do things if we were to be successful," Herndon says. "We had to build a good reputation with the suppliers that had lost millions under the previous owners. We had to win back the confidence of customers who were left holding the bag with unfilled trailer orders. And we had to win back the workforce that had been in the habit of filing hundreds of grievances every month."

Four days after the purchase, Herndon met with the Carpenters Union that had represented all hourly workers at Monon. He accepted the major provisions of the old contract but got agreement on some important changes. The most important union concession was agreement to change work rules so that workers could be transferred between departments and between plants as the workload required. Management reserved the right to hire by need and skill and not by seniority. The base labor rate for new employees was reduced by $1 per hour, to be reinstated in 25c segments each quarter. The skilled labor rate, however, was unchanged or increased slightly. The union agreed to a 60-day probationary period for all hourly workers, including those former Monon employees that were hired. The four-year contract end in the year 2001.

The first job for the supervisors and cadre of skilled workers was getting the plant running again, cleaning up the rust, and repairing machinery. They completed the 21 partially built trailers that had been left on the assembly line and started training new workers.

The first trailer built from scratch by HPA Monon Corp came off the assembly line 51 days after the purchase and it was cause for a big celebration. By that time, employment had increased to 120 hourly workers.

Rebuilding Sales Gaining the confidence of customers was a job that fell mainly on the shoulders of Glenn Harney, vice-president-sales and marketing. He had joined Monon Corp in the summer of 1994 after 22 years in sales and management at Fruehauf Trailer.

"We focused our sales message on quality folks and quality products," Harney says. "An experienced workforce building a proven product line. One of the new owners was part of the sales team when we visited Monon's former customers. He would explain the management philosophy of the new company and demonstrate that the new ownership was in the trailer business for the long haul."

Rebuilding supplier relationships was the responsibility of the new chief financial officer, John L Thomas Jr. In the beginning, most suppliers required cash on delivery or cash with the order. When HPA Monon landed the big order for 1,000 48-ft piggyback trailers for Burlington Northern Santa Fe in September, many suppliers started taking the new company seriously. But the job of rebuilding credibility continues to this day.

"There is no way a material-intensive business like this can grow without credit terms from its suppliers," Thomas says.

Rebuilding the workforce Perhaps the greatest company-wide effort went into rebuilding confidence in the workforce. "It is very important that people feel good about their jobs," says Herndon. As CEO, he sets the example for management's concern for its employees on daily walks through the plant. He sees these visits as opportunities to talk to workers, hear their complaints, and listen to their suggestions.

"We got rid of the hard hats," Herndon says. " Workers hate to wear those uncomfortable hard hats. Even so, we have minimal head injuries. But we do require safety glasses, ear plugs, and steel-toe safety shoes. And we have a no-smoking policy in the plant except for designated areas."

Another opportunity to meet employees on their levels is the weekly pizza party. Once every week one of the eight Monon plants gets a pizza party (hot dogs in the summer). The reason for rotating among the plants is that no pizza parlor in the Monon area could furnish enough pizza pies to feed all the employees at one time.

One employee enjoys graphic arts and calligraphy. She designed a hand-made birthday card that was printed on greeting card paper. One of these is sent to each employee on their birth dates. The CEO signs each card personally. To employees, he's just plain "Bill", and that's the way he signs each card. A get-well card was designed by the same artist, Holly Franscoviak, and it is signed personally and sent to any employees that are sick.

Communications among workers On special holidays such as Thanksgiving, Christmas, and the May 15th first anniversary of completion of the first HPA Monon trailer, the company extends the usual 30-minute lunch break by another hour (paid) so that employees can enjoy a "carry-in". That is the local term for a shared potluck or covered-dish meal. The company furnishes the cake and soft drinks, and workers carry-in their favorite dishes. Half the workforce is female, but even the men seem to enjoy sharing their culinary skills. One man brought a charcoal grill and ground meat from home and prepared custom-cooked hamburgers. Another man brought a whole baked turkey for the Thanks-giving carry-in.

"Employee communications are important," says Jeneen Sparks, human resources manager at HPA Monon. "We have eight separate plant buildings. Employees often see only their fellow workers in that building. The carry-ins offer a chance for them to talk with workers in other buildings."

Sparks started work for Monon Corp in 1981 and was promoted to personnel manager in 1986. Her job has changed greatly with the new company. "Now we're listening to employees and hearing their concerns instead of processing union grievances. Each of the eight plants has a working union steward, but the stewards aren't filing grievances. Before, we used to have 200 to 300 grievances filed every month."

Now Sparks spends more time thinking of ways to reward employees for jobs well done, such as free caps and T-shirts and perfect attendance awards. "People are proud to work here," she says.

Educational Opportunities With employment at HPA Monon nearing 1,000, the new company has to go further to attract employees. Only 100 or so workers come from the town of Monon. The others come from within a 60-mile radius of Monon, and that includes a lot of other small towns.

About 100 Hispanics work for HPA Monon-enough so that the company has started offering Spanish fluency courses to supervisors and English literacy courses for workers.

Another educational opportunity for employees is assisted by a state-sponsored grant for materials. The Lafayette Reading Academy has an Individual Workforce Development program. Workers who volunteer for training in mathematics such as metrics, decimals and fractions or in blueprint reading go through an individual employee assessment and are put into classes grouped by ability. Each class has a half hour instruction every other day. Employees attend on company time. It is strictly voluntary. They don't have to attend class if they would prefer working at their regular station.

The welder training program at Monon is available to any employee. After one week of welding school, the successful graduates get an increase in pay and work as a welding trainee under an experienced welder.

Ten-Hour Work Days One of the most popular employee incentives may be the work week itself. HPA Monon works a 10-hour day four days a week, Monday through Thursday. When scheduled overtime is necessary to meet customer demand, the overtime is scheduled on Friday and Saturday. By limiting scheduled overtime to alternate weekends, employees get a three-day weekend at least every other week, even when scheduled overtime is necessary. Printed copies of the schedule are distributed a month ahead of time so that employees can make plans. The printed schedule also includes some Fridays and Saturdays when voluntary overtime is possible. No overtime is permitted on Sundays.

A summer work program gives meaningful work to the sons and daughters of HPA Monon employees. A group of 16-year and older youths are hired to do grounds maintenance, fence building, and other jobs where power tolls are not required. By hiring the children of employees, the company is laying the groundwork for training the next generation of trailer builders in Monon.

Herndon is proud also of another employee benefit, a 40-acre lake that is part of the HPA Monon 306-acre plant site. Since the 80-ft-deep lake is a former stone quarry, it has no beaches or shallow areas and the sidewalls go straight down. Safety concerns prevent any swimming or bank fishing, and no alcohol is allowed. Employees can bring their own boats or use the company-supplied pontoon boat. They have to wear life jackets on the water, and they must sign in and out at the plant guardhouse. Other than that, they can be king for a day in their own private fishing preserve.

$100 Million Backlog By instituting a broad range of worker incentives and being sensitive to the concerns of employees, HPA Monon has managed to increase employment above the 900 mark as of the May 15 anniversary of the first HPA Monon trailer rollout. About 85% of the present employees had worked for the previous Monon Corp, so it is an experienced workforce. The backlog is over $100 million and growing, and that includes orders from some very large fleets. American Freightways, CFI, TIP and Redon Leasing are four of the largest customers.

Bill Herndon credits the workers for this success. "I told our employees from the very beginning that the only way we can build this company is to build the best trailer that we can build."

Quality is a word he uses a lot in talking with employees, with customers, and with suppliers. So does Tara Banerjea, vice-president-engineering and chief technical officer at HPA Monon. He emphasizes the quality advantages that make an HPA Monon trailer different:

*Steel fabrications are shot-blasted and then immediately protected by a zinc-rich epoxy primer plus a urethane top coat.

*The roof bows are pre-bonded to the roof sheet prior to installation and the adhesive is heat-cured. The temperature and curing cycle for this bonding operations are computer controlled.

*Every top and bottom rail is manually tested for hardness, which correlates to yield strength. Rails that fail the hardness test are tested for tensile strength and rejected if they don't meet the specifications.

*Wheel end play on every axle is adjusted with a dial gauge.

*Every trailer is water tested for leaks.

*Gluing surfaces of HPA Monon hardwood floors are sanded before gluing to improve the bond. The adhesive used contains a high percentage of melamine, which resists moisture penetration. In-House Floor Plant

In fact, the flooring operation may be one of HPA Monon's hidden advantages. It is a strategic advantage to have an in-house supply of laminated hardwood floor, says Herndon. It is especially valuable during periods of heavy trailer production when laminated flooring historically is in short supply. And at other times, it is helpful to have in-house quality control over the entire production cycle for laminated flooring.

"We have about five million board feet of oak and other hardwood lumber on the ground," says Tom Kesler, plant manager for the flooring plant. He's a 30-year veteran at Monon Trailer, and has been flooring plant manager for 14 years. The 5/4 sawn lumber has to be air-dried for at least as month, and then it is kiln-dried at 160 degrees F for two weeks.

"We're using about a million board feet a month. However, about two-thirds of that is culled out during production." The culled wood and scrap fuels the boilers that help heat the drying kilns and, during the winter, the plant interior. After the boards are sawed into sticks, both gluing surfaces are sanded for better adhesion with the melamine glue. After the adhesive has been steam-cured, the 12" wide laminated floor boards are cut out and lap joints milled. The floor planks are undercoated with a waterborne acrylic emulsion and bundled into kits that are delivered to the trailer assembly plants about two days before required on the assembly line. The flooring carries the same five-year warranty as the rest of the van.

HPA Monon also inherited some environmental and safety problems with the purchase. These were mainly EPA emissions and OSHA safety violations that had to be straightened out. Bill Herndon thinks the way these were turned around exemplifies the new management philosophy.

"The EPA was concerned with our storage of paint and solvent and the mixing of paint. We turned that problem into an advantage with our first new equipment purchase-six $35,000 batch dispensing systems, for primer and finish coat, for subassemblies and the three assembly plants. The dispensing systems eliminate the manual nixing and have reduced paints waste by 30%. Besides saving money, the system computes the VOC use each day, satisfying the EPA inspector's concerns. And the automatic equipment helps us in our quest for the highest quality."

Profitable Last Six Months After the May 15 anniversary of the rollout of the first complete trailer, HPA Monon looked back at what had been accomplished in the first year.

"We broke even in November, six months after startup," says Herndon. "We became profitable in December and have been profitable every month since. We're building trailers at the rate of 700 a month mow, in addition to 15 to 20 container chassis a day. And we have started on the first group of 10 containers, a pilot run on an order for 500 domestic containers 48 and 53 feet long."

About 80% of the production is sold direct from the factory. Besides Glenn Harney who handles highway trailer sales, container and chassis sales are headed by Stewart James, VP-intermodal sales. HPA Monon now has 10 full-line trailer dealers signed up, and is expecting to double this number, concentrating on the eastern half of the country. Another 97 parts distributors and service centers handle HPA Monon parts and service.

If the economy holds steady and trailer production remains strong, HPA Monon Corporation will complete the year 1998 back in the ranks of the top ten trailer manufacturer-a true turnaround for a turnaround specialist.

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