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Automotive Industry

Dealing with demands: Dana's chairman and CEO talks about working in an intense industry - Management Q&A - Joe Magliochetti - Brief Article - Interview

Automotive Industries, July, 2002 by Andrew Cummins

For Joe Magliochetti, Dana Corp.'s chairman and chief executive, this is the most intense period of technological competition in the 36 years that he has been involved in the industry. Almost all of Dana's customers, he says, have asked the company to develop concepts that can be incorporated into future products, pushing the supplier to innovate at a more rapid clip.

How can a supplier do this while still concentrating on its core product portfolio?

Magliochetti recently answered this question and others when he sat down and spoke with Automotive Industries publisher, Andrew Cummins, about the trials and tribulations of today's auto industry and being a successful supplier to the industry.

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Q. How do you improve core content and convince an OEM that it's a lot better?

A. You must offer more value and improved features. I think you've heard of our magnetic pulse-type technologies. With magnetic pulse technology there are opportunities for us to save weight, lower inertia, and even make the drive shaft collapsible so that during collisions it's going to be safer. Now we can offer these extra features and it gives Dana the advantage of better asset utilization.

Q. It's rumored that there is a friendlier atmosphere when dealing with the OEMs, a greater sense of trust. Do you still have the same fears about having them pirate or shop your ideas?

A. I think there's less of that today. I think one of the things that is taking place is that the vehicle producers are recognizing that they're going to deal with a fewer number of suppliers but the relationships are going to be much more intense. I think they realize we, as suppliers, have to get a reasonable return on our investment. Likewise we have to give them some confidence that we have the technology that will differentiate them in the future.

Q. We're just beginning to hear suppliers talk more positively about OEMs. Is it coming from the top down, or is it coming from a pure philosophical change that we are really now partners with our suppliers?

A. I think it's actually a realization that you have to be a partner and you have to be sensitive to these things if you're going to be successful. If I look at the return on invested capitol among the OEMs it's at a range that's 5 to 7 percent which is hardly acceptable. If you look at the return on invested capitol among suppliers, it might be 7 to 9 percent, which is hardly acceptable. We're all in the same boat here, so what we have to do is to find ways that make good sense for both of us.

Q. Why would anybody stay in an industry that only delivers 7 to 9 percent?

A. What we've said is that we think by focusing on the core content of our products and by really relying on technology to bring forward some of those things that have stronger margins. If we can differentiate ourselves at the low point in the cycle we think we can do better than the cost of capital, which might be 9 percent. At the high point when we're running at full steam we think we can do better than a 15 percent return on vested capital.

Q. Will the OEMs allow you to do that?

A. I think they have to. think the real issue is, they need to be doing the very same things. And if you look at their business model, what they are saying is exactly that So, they're giving it to us, we're going to take it one step further down the supply chain to, hopefully, advance the improvement at both levels.

Q. Where's Dana going and how are you going to get there?

A. I think there are several things going on in the company. One, of course, is this massive restructuring that we're going through in order to focus on the core content of our products. That's going extraordinarily well for us. I think we're not unlike many other companies that came through eight consecutive years of growth. We were all adding assets and building capacity in anticipation of Utopia and I think what we discovered was, to our surprise in some instances, we over-capacitized ourselves.

Q. Have you taken out enough capacity and have you learned your lesson?

A. If we think about that growth period, we had multiple business units each pursuing growth. There were seven strategic business units and each one of them had a plan and each was acquiring businesses. Each one was adding capacity to support their growing level of demand. And what we said was, 'Okay, let's focus really on the core content of our products, so we're gonna work through it We're gonna eliminate facilities that are duplications.' I am sure that 10 years ago, someone said, 'we'll never do this again', and, by God, we went through this run-up and we did what we said we'd never do again.

Automotive Industry

Dealing with demands: Dana's chairman and CEO talks about working in an intense industry - Management Q&A - Joe Magliochetti - Brief Article - Interview

Automotive Industries, July, 2002 by Andrew Cummins

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