- Oct 21
A TRUE CASE OF PASSION FOR MANUFACTURING
Since the late 1960's GM auto/truck axles and drive lines were manufactured in a 5 plant over 5 million square feet, 63 acre site complex where high crime, murders, drugs, and prostitution prevailed. The Detroit plants produced axle gears, forgings, and castings to supply 8 GM assembly plants with finished axle/drive lines for Sport Utilities, P/U Trucks and Passenger Cars. Content value to a vehicle ranged fom $1,200.00 to $1,900.00. Employment surpassed 4,300 UAW workers. Over the years through 1990, GM did not invest in building/structures up keep or machinery and equipment improvements.
Early 1990's, barely producing 7,000 axle/drive lines per day to meet the eight US GM assembly plant production demands,these plants were clearly uncompetitive when compared to other competitors.It was common to cause two to three GM assembly plants to shut down for lack of product on a weekly basis. As the shortages accumulated it was certainly becoming a serious concern to GM's ability to respond to the rapid market demand for Sport Utilities and Light Pickup Trucks.
Doing the math, at 900 units daily output for eight assembly plants maxes out to a 7,200 capability, not considering the 30%+ absenteeism,downtime, aging machinery, low UAW labor moral, leaking roofs, pilferage, unclean plant conditions and above all the lack of quality assemblies being assembled into GM vehicles. Warranty was becoming an concern by GM.
Furthermore, over a several year period (1985-1993) machinery was wearing, rapidly aging and becoming obsolete, causing downtime to trend upward and was clearly a sign that the plants would not be capable of supplying current GM requirements or any demand in the market increase.
Due to the location, crime, drugs, and prostitution trends rapidly increased, moral of workers and salaried support had safety concerns showing little or no motivation to be there.Suppliers as well as vendors avoided the plants, making it difficult to service equipment.
GM subsequently determined that rather than invest $1.9 Billion for building renovations, with transfer pricing a mere $1.0 Billion, that they would sell the axle and drive line business to one of two potential bidders, Dana and newly formed American Axle and Manufacturing.
In late 1992, Dana in view of the deteriorating Detroit site, proposed to move all manufacturing, eliminate the UAW and outsource casting and forgings. Clearly a GM Union problem and concern of outsourcing critical components in the supply chain.
At about the same time, American Axle (AAM) proposed to engage in a due diligence to assess pricing, machinery quality capability and modernization and machinery investment. AAM would deal with the neighborhood problems by buying out the drug/prostitution houses and tearing them down working with Mayor and local UAW President. Only structures that stayed in a five mile radius were churches and some legitimate retail and gas stations. AAM addressed the root cause of crime and decay.
As a key due diligence team member, it was my responsibility to formulate a firm team plan to determine quality capability. We subsequently set up a ''WAR ROOM'' covering all walls with part prints and gathered process capability (CPk) data from minimal quality data available and noted in two colors on each critical part dimension of the hung drawings as GREEN CPk of 1.0 or higher and RED as CPk of 0 or less than 1.0 CPk…the walls were 96% RED.
A subsequent meeting with all senior management, AAM President and CEO resulted in an astounding edict from the CEO to Jim Frederick,"AUTOMATE OR DETONATE". My job and future life was clearly defined that day.
With my limited technical resources,we studied and visited worldwide best practices of producing axle and drive lines ( Mercedes, BMW, Jaguar, Toyota ) plus the manufacturing equipment suppliers to gather the most competitive methods so that pricing could be established with accuracy. During that year, I made seven trips to Europe for a week or two in duration.
Results of best practices investigations,produced a budget of $868 Million AAM capital and $190 Million in billable tooling that GM would cover.The implementation schedule was aggressive while still being able to supply GM with existing production. All pricing was completed and resulted in a favorable AAM profitable margin. The pricing was profitable for AAM and considering the huge capital investment, we were able to negotiate pricing based on current model production pricing with deviations uncovered during due diligence and cost of capital to AAM's advantage.Clearly our plans resulted in a two year capital depreciation given the pricing agreed by GM that nearly doubled current AAM margins. GM would agree to pay for scrap produced during current production on the older equipment plus worker overtime.
Once due diligence investigations revealed a feasible and low risk, GM and AAM agreed to a sale on March 1,1994. The terms were a seven year EVERGREEN contract, AAM will have the LAST RIGHT OF REFUSAL on new GM designs, which legally protected the AAM high capital investment.
AAM expanded and relocated all Detroit manufacturing to Mexico during the 2008/2009 recession when OEM customer volumes decreased by more than 50%. The relocation reason was one of a sound decision to stay afloat, avoid bankruptcy and be poised for the economic comeback, while contrary to other suppliers and OEM's that filed bankruptcy.
AAM today in 2021 produces nearly 17,000 axle and drive lines daily and became a vital supplier to GM during the market upswing of SUVs and pickup trucks.AAM has diversified dependency on GM from 92% to 62% GM business and supply FCA, Mercedes and other OEMs with sales growth exceeding $7 billion annually.
- Team with doers and consider all points of view from Sales, HR, Engineering , Finance, Legal and Procurement functions.
- Complete due diligence with data and facts.
- For sustainability, maximize margins proactively
- Protect business with contract language.
- Diversify customers for economical changes.
- If you do what you did, you will get what you got.
- Automate or detonate.
- The only thing permanent is change.