The Driver Behind Dana

Chief Executive, The, July, 2001 by Norman Mayersohn

Now here's a first step up the corporate ladder few career counselors would advise: turn down the company's job offer, not once but twice.

That's precisely how Joe Magliochetti began his climb to the CEO suite at Dana Corporation three decades ago, first scouted (for a position he ended up declining) while a fresh-from-college management trainee at Victor Manufacturing.

A year later, his flirtation with the venerable auto-industry supplier--ranked fifth among North American original equipment parts suppliers and ninth globally, according to Automotive News--repeated itself, though this time his polite "no thanks" wouldn't stick. Before he could exit the building where the interview was held, a receptionist welcomed him as an employee of Dana, which had just acquired Victor.

If Magliochetti spent any of his ensuing years at Toledo, OH-based Dana musing about what life on the top rung might be like, he probably dreamt of the prosperity scenario, wherein car and truck sales were booming and profits growing. That was, in fact, Dana's situation when Magliochetti assumed the CEO title in 1999 from Southwood "Woody" Morcott.

But by mid-2000, 18 months into Magliochetti's tenure, storm clouds were gathering. Auto makers began scaling back production to reduce inventories and the heavy-truck sector contracted sharply. Even as auto sales remained strong, the pressure to cut costs flowed to suppliers. Dana's 2000 profits dropped some 44 percent compared to 1999, on a sales decline of six percent to $12.3 billion. Its share price sank from $30 to $15. By the end of 2000, actions to cut 10,000 jobs and close 11 facilities were in place.

Those conditions--persisting into 2001 with a first quarter loss of $27 million--have kept Magliochetti from settling in for the sort of business-as-usual stretch in the driver's seat that seemed likely just a year ago.

Still, the Dana CEO strongly defends his company's fundamental strength. Grabbing a pad to sketch a graph--in an action more like one of his engineers than a finance guy--Magliochetti makes the case that things are under control: "The first quarter was a low point, the worst since 1992, but we don't think the economy is in a deep 'V' curve--and inventory is burning off."

Even so, after a well-executed transition Magliochetti finds himself scrambling to deal with immediate realities that could derail Dana's long-term growth strategy. Many are textbook maneuvers. But less predictably, Magliochetti is seeding the company's future by pursuing R&D vigorously. Dana spent $287 million on R&D last year with the goal of developing proprietary technologies and products that could give it an edge-particularly against the likes of Delphi and Visteon, large suppliers spun off recently by automakers GM and Ford. "Sure, you can get top-line growth through acquisitions," he says, "but the only way to protect margins in the long run is to develop unique innovations."

One of Magliochetti's personal goals is to pursue "megatronics," or the science of incorporating emerging technologies into traditional products. One application for Dana is the combination of its low-tech cylinder head gaskets with state-of-the-art sensors to create "smart" gaskets capable of monitoring engine temperature.

Not that Dana is counting on a silver-bullet breakthrough for survival. As it pursues technological advances to push it ahead, the company under Magliochetti resolves to be a leader in the transformation of how vehicles are put together.

"It used to be there were 10,000 components for a manufacturer to assemble," Magliochetti points out, "but the trend today is toward modularity, with factories assembling perhaps 6,000 components and five large modules. By 2010, the ideal would be vehicles built from 16 to 20 modules."

Toward that end, Dana seeks to offer all the products that constitute a module: nor just an axle, but a complete unit with brakes and suspension components, for example. The company already does some business that way, but has been expanding through strategic relationships that will enable it to supply ready-to-go drivelines, from the clutch through the transmission, driveshaft, and axle-a concept Dana calls the "rolling chassis."

The auto industry's long manufacturing lead times afford a peek into the future, and it appears Dana has reason to be optimistic about its own. Dana recently secured a contract with DaimlerChrysler to provide axles for the new Jeep Liberty (a small SUV), beating out rival American Axle. And plans to build a factory in Texas to supply G.M. are going forward.

Even so, the realities of life in a cyclical industry, particularly a sector in the midst of a downturn, engenders caution on Wall Street. "Dana's on the right track in concentrating on drivelines," says Joe Phillippi, an analyst with UBS Warburg LLC, "but they've still got $2 billion in assets to shed or restructure.

Dana management is on the case, having recently parted with an after-market division and a fluid handling operation-with other possible divestitures under review.