Fuel Systems Becomes Profitable

April 18, 2005
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GRAND RAPIDS — Then a division of BorgWarner Inc., Fuel Systems LLC had become dead weight when TMB Industries discovered it in 2001. Its market share had dropped 58 percent in two years, and the maker of medium and heavy-duty truck components was collapsing on top of itself.

Chicago-based TMB specializes in acquiring non-core assets of large conglomerates, which are generally overlooked and under-funded.

“Usually these are not given much attention by the parent company,” said Tim Masek, a TMB partner and chairman of Fuel Systems LLC. “They don’t receive the capital necessary to make the company better.”

Indeed, fuel tanks weren’t a core product for BorgWarner; it had acquired the 66-year-old company during a record year for medium and heavy-duty truck sales in 1999. As the market plunged and the company became unprofitable, BorgWarner invested little in capital and human resources, exiting the venture in 2001.

A veteran of the truck market, Chicago-based TMB knew that, for 50 years, a significant downturn had always followed a record year. After each dip, the market had rebounded slowly but steadily.

“If we could right-size the company, when the market rebounded in 2004 and 2005 — which we knew it would because it always does — we’d be poised to cash in,” Fuel Systems President and CEO Keith Carpentier said.

The situation became especially attractive because of the potential impact of lean manufacturing initiatives, Carpentier said.

“It was losing money, had excess capacity, and its manufacturing processes were mostly batch-and-queue. There was inventory all over the place,” he said. “We knew that by instituting lean concepts we could reduce costs and add value.”

Even before the acquisition, TMB analyzed the market and the company’s facilities and footprint, working to identify how much capacity was needed and where there was potential to increase productivity.

The trimming of two areas — facilities and customers — would provide immediate dividends.

In the first six months, Fuel Systems consolidated from six plants to two.

Oddly, it then added another.

“A competitor went bankrupt that had sold fuel tanks to GM, and GM had taken over the business,” Carpentier said. “Before we acquired Fuel Systems, they asked us to take it over. We told them we didn’t want it, it wasn’t in our business plan.”

But Fuel Systems eventually did take it over, and the next year acquired another competitor, Northside Industries. Its largest competitor, Northside brought with it 100 percent of the business at Volvo’s new plant in Dublin, Va. A third plant in New York was closed and its business split between the Virginia plant and two others in North Carolina and Springfield, Ill.

Through the closings, like-customer products were now each produced in a separate facility. The Grand Rapids plant does nothing but Ford Motor Co. products, Chicago does only GM, Springfield does nothing but International Truck, and only Mac and Volvo products are made at the Virginia plant.

All other customers were concentrated at the Charlotte plant.

With its business now oriented to its most profitable customers, Fuel Systems turned to trimming away the others.

“We had a lot of customers that were taking up a lot of our time, but (we) didn’t have the processes in place to efficiently handle their business as well as the business that was profitable for us,” Carpentier said.

“We had too many customers,” Masek agreed. “A lot of people don’t say that, but we had to pare down our customer base and had to pare down our products. We weren’t building the core products we should have been and we needed to build on our strengths.”

Fuel Systems consolidated its customer base from 100 to 25, removing small volume and unprofitable accounts.

Well on their way to meeting structural objectives, Masek and Carpentier last year turned to another neglected portion of the business: safety.

“We had not addressed the safety of our work force and the cleanliness of our facility,” Carpentier said.

Fuel Systems rolled out a program last year aimed at cultural changes within its work force.

The old system had no incentives for keeping the facilities safe and clean. Workers were belittled for reporting unsafe conditions and penalized for lost-time accidents.

As a result, workers didn’t report minor accidents like a scraped knee or unsafe conditions like exposed wires or wet floors.

“We wanted them to report accidents and unsafe conditions so we could fix them,” Carpentier said. “If somebody were to fall and hurt their self, they could be out for a few days. That becomes a costly endeavor, and from a quality standpoint we want to keep our employees working.”

“Safety Bingo” tied incentives to lost-time accidents. Starting at $100, the pot grows each day there is no accident. When one occurs, the pot is awarded and the unsafe condition fixed.

Meanwhile, the importance of safety and cleanliness is communicated at the beginning of every meeting. When a piece of equipment is moved, safety aspects are examined before doing so.

If an employee does get hurt, a replacement job is found to get them off the couch and back into the plant. Employees recover faster when they aren’t at home, Carpentier noted.

“We’ve created a culture where safety and cleanliness is a given,” Carpentier said.

As of presstime, one plant had gone 500 consecutive days without a lost-time accident, another 350 days and another 200. At one facility, worker’s compensation costs had been reduced by 90 percent.

Building on that, a wellness program was rolled out this year.

“We pay for an annual physical, but they don’t utilize it,” Carpentier said.

An incentive program was tied to health care, as well. In January, Fuel Systems announced that it would raise its health insurance premiums. Employees that submitted to an onsite physical and assessment would only see half of that increase.    

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