Arvinmeritor CEO Charles “Chip” McClure is a running enthusiast. When he goes out for a run these days — with an economy that has cratered and confidence radically shaken — he finds himself thinking of a quote from 1970s American running legend Steve Prefontaine.
Many of life's failures are people who did not realize how close they were to success when they gave up.
“We in this industry are fighters,” McClure said, “and we're not about to give up.”
McClure appeared in Heavy Duty Dialogue's Megatrends: A CEO Strategy Discussion, along with Mack Trucks CEO Dennis Slagle, and Marmon Highway Technologies president Kelly Dier. With MacKay and Co president Stu MacKay leading the discussion, they offered their thoughts on “The Commercial Vehicle Industry in Transition.”
McClure said every crisis presents both imminent threats and potential benefits.
“That's important to keep in mind in today's business climate,” he said. “It's an opportunity to improve performance by making fundamental changes in size, structure, strategy, culture, and the operations of our organizations. We must be relentless in focusing on strengthening the balance sheet, diversifying our businesses, influencing government regulations, and investing in innovation technology and investing in our people.”
- Strengthening the balance sheet.
“We must take advantage of the opportunity to restructure and improve operations and productivity, and adjust our strategy and refocus our companies to enhance performance. It's about being proactive. You have to be aggressive before the full wave of the crisis hits.”
He said ArvinMeritor started restructuring in 2006 and has closed 17 global facilities. In 2008, it cut 1500 positions and established a strong risk-management process. The company eliminated more than $75 million in costs in 2008 and expects to eliminate another $75 million this year. Executives took a 10% pay cut.
“Our people understand the importance of the long-term impact on our company,” he said. “In the end, by being proactive, flexible, and cost-efficient, we will be a stronger company and well-positioned for the rebound.”
- Diversifying our businesses.
“A business weighted to one product, one customer and one country: There was a time when that was a successful strategy. Today, it's a death sentence. The solution is diversification. We decided a long time ago to expand our business. We manufacture parts in 22 countries on four continents. Our long-term strategy is to have one-third of our business in America, one-third in Europe, and one-third in Asia Pacific.”
- Influencing government regulations.
“Some of the legislation and regulations directly impacting our business range from engine legislation, reauthorization of highway funding, fuel economy, and highway-safety technology. I spent a great deal of time getting close to these legislative actions. As business leaders, we have two choices: Complain about change or get involved and impact the change. We made a conscious decision to be proactive. We want to have involvement in government actions. If it affects our business, it is our business.”
- Investing in innovation technology.
“You can't survive without investing in new products. We have to make sure our business is competitive. We continue to invest in technology, including fuel efficiency, reducing emissions, and meeting safety requirements. We have launched new products, including a lighter weight axle and new brakes. This will differentiate ourselves from our customers.”
- Investing in people.
“Downturns are particularly hard on people. If staff is distracted with uncertainty and anxiety, you are not going to get the focus, strategy, creativity, and diligence you need to pull off many of the things I've talked about. It's a big issue and you can't let that happen. The best advice is, create a sense of urgency, clear focus, and shared purpose. We made them a part of the process. We engaged them by asking for ideas. Many of our employees said that even though salary cuts were painful, they understood why we need to do it.”
Global consolidation
Slagle broke his thoughts into four categories:
- Global consolidation.
“It's been driven by emissions regulations in North America and around the world. Who would have thought Caterpillar would exit the North American heavy-duty engine market altogether? Clean air is indisputably a good thing, but compliance in this decade has forced a shakeout and realignment in this industry.”
- Environmental care.
“Manufacturers like us have chosen SCR for 2010 because it allows us to operate the greenest possible products. SCR is tried and true and is being used by other trucks around the world.”
- Vertical integration.
“It's another driver of consolidation. Mack has a long tradition. With trucks becoming increasingly sophisticated and complex, it's now more important than ever to have components specifically designed and engineered to work together. Being vertically integrated also increases revenue streams such as parts sales, benefiting not only us as OEMs but dealers as well.”
- Infrastructure.
“There's no question that the global recession is painful, and it's not clear exactly when it will end. With infrastructure investments being signed into law, it's important that these programs be structured. Yes, we need shovels in the ground, but we also need long-term investments in infrastructure that support the transportation needs of tomorrow. As tough as today's times are, it's only a temporary situation. We need to realize that economies of scale need to be vertically integrated to upgrade our structure and respond to society's growing concerns.”
Seamless integrated partnerships
Dier said seamless integrated partnerships feature a supplier partner, manufacturer/assembler, customer/channel, and customer/end user.
How do you get there?
He cited the Pareto Principle's 80/20 rule: 20% of what you do accounts for 80% of your results, 20% of your customers generate 80% of your sales, and 20% of your products result in 80% of your profits.
“The key to a seamless integrated partnership is that you must identify your key customers (the 20% that generate 80% of revenue) your key products (the 20% that generate 80% of profit), and key suppliers (the 20% that generate 80% of materials),” he said.
“The essence of business is simple. You must have the best people: recruit, keep, and motivate the very best team members; the best products: constantly strive to provide the best value products to your customer; the best value: constantly strive to deliver the best value products at the lowest possible cost to produce; and the best support: constantly strive to provide the best possible customer/product support through the life of your product.”
In transition
Mackay said the commercial vehicle has been in transition for 16 years. There were at least 14 individual manufacturers of Class 8 trucks in the heavy truck market in 1960. With consolidation changing market shares, that number was down to six in 2008.
He said the market has been here before.
1973-75: There were excess truck sales in 1973 and 1974, our first oil shock, the first generation of DOT-121, and a long, hard recession.
1980-1982: There were excess truck sales in 1979, interest-rate issues, trucking-industry deregulation, and a long, hard recession.
1990-1991: There were excess truck
sales in 1988 and 1989, the savings-and-loans real estate bubble, the Iraq war, and a relatively short and soft recession.
2000-2001: There were excess truck sales in 1998 and 1999, a technology bubble, 9/11, and a relatively short and soft recession.
The current downturn was generated by excess truck sales in 2005 and 2006 in anticipation of the 2007 engine emissions regulations, the sub-prime housing bust, and a financial market meltdown. The recession probably will be long and hard.
“We got out of whack as early as the first quarter of 2006 in terms of capacity to haul versus freight available to haul,” he said. “Looking back over the previous four recessions, we've gone through this before. It really is a question of balancing capacity with freight available to haul, and the challenge now is to get those two back in line.”