DETROIT - Jay Alix is a corporate turnaround artist who has made a specialty of rescuing General Motors suppliers.
His latest project - a collection of GM spinoffs called Peregrine Inc. - may be his toughest turnaround yet.
Last week, Alix said he wants to buy the financially troubled supplier of seats, door panels and interior trim.
Hobbled by quality problems, stiff competition and the loss of key contracts, Peregrine faces an uncertain future. Alix - founder of Jay Alix & Associates in Southfield, Mich. - has one immediate priority: He must convince GM that Peregrine deserves another chance to retain the automaker's parts contracts. The supplier needs GM's business to stay afloat while it purses business from other makers.
Peregrine took shape in late 1996, when GM sold four of its Delphi Automotive Systems parts plants to the New York investment firm Joseph Littlejohn & Levy. To run the company, the investors tapped Ed Gulda, a former CEO of brake maker VarityKelsey-Hayes. He vowed to triple Peregrine's sales.
He failed. In January, Gulda abruptly resigned from the $1.2 billion supplier. Now, three months later, the investors are bailing out. Un- der the deal announced last week, Joseph Littlejohn & Levy will retain, under the name Peregrine Holding Inc., two plants that make hinges and spare-tire carriers in Jackson, Mich., and Matamoros, Mexico.
Alix will acquire four Michigan plants - in Battle Creek, Flint, Livonia and Warren - as well as two Canadian plants in Windsor and Oshawa, Ontario. Peregrine headquarters are in Southfield, Mich. The company ranks No. 29 on the Automotive News list of the biggest suppliers to North America.
Assuming that Alix wraps up the deal by his announced deadline of May 31, he will confront a batch of headaches:
Unused capacity. Peregrine's plant in Flint is obsolete and underutilized. Sources say it could be shut down. A second facility in Livonia also is considered to be a problem plant.
An angry customer. Early this year, GM - Peregrine's primary customer - canceled two Peregrine contracts to produce seats and door panels. GM took action because Peregrine had problems with quality and timely deliveries, according to well-informed sources. Lear Corp. and Magna International Inc. picked up that business.
A changed course. Peregrine had hoped to generate extra revenue through aftermarket sales. The owners will drop that plan and focus on original equipment sales, a source said.
Management turmoil. In January, Peregrine abruptly replaced Gulda and William Armbruster, Peregrine's chief financial officer. Since Peregrine's top managers were handpicked by Gulda -many of them from VarityKelsey-Hayes - Alix will have to decide whether to keep them or bring in a new team.
So far, he has announced only that he will be Peregrine Acquisition Inc.'s chairman and that James Bonsall, a principal with Jay Alix & Associates, will be CEO of Peregrine Inc.
Cash flow. In January, GM was so concerned about Peregrine's troubles that it asked Bahadur, Balan & Kazerski Ltd. - a consulting firm based in Southfield - to monitor Peregrine's financial situation. BBK was 'assisting Peregrine on behalf of GM,' said one executive familiar with the situation.
Like Alix, BBK has considerable experience working with GM suppliers. In 1992, for example, BBK was called in to manage Van Dresser Corp. - a financially troubled maker of instrument panels - for six months until a buyer was found.
In 1995, BBK monitored the financial status of Tube Products Corp., an Ohio supplier that was eventually purchased by an investment group led by Alix.
Alix's first job will be to arrange financing.
Several banks have offered financing to Alix, according to an industry source. With the banks' support, Alix can gain time to stabilize Peregrine.
His next priority will be to mend fences with Peregrine's biggest customer, GM. To do so, Alix will point to the track record he established as the managing principal of Questor Partners Fund LP, a turnaround buyout fund.
In 1996, Questor acquired Tube Products, a manufacturer of exhaust tubing now based in Toledo, Ohio. At the time, Tube Products was struggling to deal with late parts deliveries, poor quality and a botched plant construction program.
Following a second acquisition, Tube Products - now called AP Automotive Systems Inc. - is a $600 million company enjoying rapid growth.
A second turnaround effort involved National Car Rental, a 1986 GM spinoff that lost money for seven straight years. To protect its investment, GM installed Alix as CEO, and he managed to turn a profit in 1993. Two years later, an investors' group bought National for $1.5 billion.
Alix appears to have GM's blessing. 'We support (Peregrine) on what they are doing,' said a GM spokesman.
When a turnaround artist is trying to stabilize the cash flow of companies like Tube Products and National Car Rental, speed is critical. Peregrine is likely to fit that mold.
'We will have our turnaround strategy up and running within 90 days,' Alix said in a statement released last week. 'The continued support of our employees and suppliers also will be an important contributor to the success of the turnaround process.'