DETROIT - The new chairman of Federal-Mogul Corp. wants to take the conflict out of his company.
Richard Snell has promised that the company will enjoy a 'return to its former glory.' The strategy also appears to be designed to reduce the conflict between the auto parts maker and its customers.
Federal-Mogul will bid again on business lost because of that antagonism, Snell said in April, after the firm's annual shareholder meeting in Southfield, Mich.
At the meeting, he announced sharply higher first-quarter results and progress on divesting unprofitable assets and on the issue of a new debt offering of $125 million to reduce short-term debt.
Federal-Mogul, with 1996 sales of $2 billion, reported a 31 percent gain in first-quarter net income, even though sales fell 7 percent. The jump in earnings and the sale of its Australian replacement-parts operation to Automotive Components Ltd. are proof of the company's progress, Snell said.
3 REASONS FOR INCREASE
He said earnings improved because of a cost-reduction program, lower interest rates and improved sales of parts for pickup trucks.
First-quarter earnings rose to $13.9 million, or 32 cents a share, up from $10.6 million, or 23 cents, last year. Sales declined to $486 million, from $522 million.
On the basis of its 1996 performance, Federal-Mogul was 79th on the Automotive News list of top original equipment suppliers to North America.
Snell's restructuring passed its first milestone when the company shed its Australian operations. The divestiture cut $50 million in sales, 200 employees, seven retail stores and six wholesale warehouses from its global operations.
Its exit from the international retail parts business provides a strong boost to Federal-Mogul's efforts toward becoming a customer-driven company, according to Salomon Bros., a New York securities firm. Some of the decisions by previous management 'were made with almost total disregard for customer interests,' the Salomon report said.
The purchase of a Puerto Rican chain of retail auto parts stores several years ago was an example. The acquisition not only cost the company the account of Pep Boys Inc., the giant Philadelphia-based parts retailer, but it strained Federal-Mogul's relationship with other important customers, including the Big 3.
COMPETE WITH CUSTOMERS
Federal-Mogul had begun to look like a competitor to its customers when it began to shift from an old-line manufacturer to a distributor of other companies' replacement parts. Selling bearings, seals and fuel systems in retail outlets would have put Federal-Mogul in direct competition with Pep Boys.
The strategy shift also had caused the Big 3 and other manufacturers to question Federal-Mogul's commitment to being a world-class manufacturer, Snell said.
The company's departure from retailing makes a clear statement to customers that Snell wants it to be a focused supplier rather than a competitor, the Salomon report said. The company has an opportunity for better market penetration among the leading replacement parts players, not to mention the Big 3.
Snell wants to sell all 132 of Federal-Mogul's international retail operations. Those operations, with about 2,500 employees, accounted for about $200 million in sales last year.