New CEO David Dauch looks beyond SUV era, GM at American Axle

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Dauch: "Our biggest opportunity clearly is in Asia. We are now the No. 2 light commercial axle supplier in China.”

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DETROIT -- Now that David Dauch has succeeded his father as CEO of American Axle & Manufacturing, he must reduce his dependence on General Motors, the customer that saved his company from bankruptcy three years ago.

Dauch says he has a plan to do just that. American Axle, which derived 73 percent of its revenue last year from GM, has begun to win a considerable number of non-GM contracts.

The company is expanding into Asia, and it has rolled out new driveline products for crossovers and cars.

“We’ve really diversified quite a bit,” said Dauch, who became CEO on Sept. 1. “We’ve got plans to increase non-GM sales to 50 percent of our business by 2015.”

That’s a big change for GM’s former in-house producer of truck axles and drive shafts, which was reborn as American Axle in 1994 after investors purchased the assets.

At first, American Axle thrived as sales of pickups and SUVs soared. But consumers began to downsize to crossovers, and then the Great Recession struck in 2008.

When truck sales collapsed in 2009, American Axle nearly went under after GM canceled a batch of purchase orders.

American Axle avoided bankruptcy after GM compensated it with $110 million in cash plus access to a $100 million line of credit and 10-day payment terms. In return, GM received 1.7 million shares of American Axle’s common stock in 2010.

Revenues and profits began to rebound, and Dick Dauch, 70, American Axle CEO at the time, subsequently forged a plan to reduce his company's reliance on GM.

Needed: New customers

It will be a tall order for David Dauch, 49. Last year, GM's full-sized pickups and SUVs alone accounted for more than half of American Axle's revenue.

The supplier also is highly dependent on North America, which generated 91 percent of its total sales last year. By contrast, American Axle recorded only 6 percent of its revenues in Brazil, India and other emerging markets.

In the short run, that won't hurt American Axle. GM survived and is growing again, and North America has emerged as one of the world's few growth markets this year.

This year, the company's global sales are expected to rise 9 percent to $2.8 billion, and sales are expected to increase 13 percent in 2013 as GM rolls out its new pickups, according to J.P. Morgan.

In the long run, however, American Axle must line up new customers to thrive, and David Dauch knows it.

American Axle's immediate prospects look solid. This year, company sales are expected to rise 9 percent to $2.8 billion, and sales are expected to increase 13 percent in 2013 as GM rolls out its new pickups, according to J.P. Morgan.

On the product side, American Axle has diversified by producing driveline components for rear-wheel-drive sedans, crossovers and commercial trucks. For example, the company now supplies parts for passenger cars built by Cadillac, Mercedes and Chevrolet.

The company also has expanded into emerging markets with factories in India, China and Brazil.

"If you look at new growth, our biggest opportunity clearly is in Asia," Dauch said. "We are now the No. 2 light commercial axle supplier in China."

Next: Proper execution

However, analyst Ryan Brinkman of J.P. Morgan is taking a wait-and-see attitude. He likes American Axle's diversification plan but wants to see whether the company can execute it.

"While we believe the transformation will substantially improve the firm's strategic profile and long-term growth prospects, we believe it entails significant execution risk in the interim," Brinkman said in a July 18 note to investors.

Despite his reservations, Brinkman predicted that American Axle's revenue would grow 12 percent annually through 2014. He also estimated that Asian customers will account for 30 percent of American Axle's backlog of future business, up from 1 percent this year.

For his part, David Dauch agrees that his big challenge will be to execute his father's diversification strategy.

Now that he is CEO, David will be in charge of the company's day-to-day operations, and also its diversification plan.

Dick, who is now executive chairman, will focus primarily on governance, strategic growth initiatives, succession planning and financial stability.

In any event, David says investors should not expect any sudden changes in corporate strategy.

"Clearly my father and I have a close relationship," David said. "We are aligned in our strategy, so there won't be a lot of changes here."

You can reach David Sedgwick at dsedgwick@crain.com.

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