The danger signs were there. Harried workers. Overwhelmed managers. Late parts shipments. A new plant that couldn't be finished. Yet Tube Products, an award-winning General Motors supplier, insisted everything would be OK. GM's Lerick Chissus suspected otherwise. And once he waw the mess firsthand, he knew what had to happen: GM, against the owners' will, would have to take over the supplier.
DAYTON, Ohio - On a Sunday afternoon 31 months ago, General Motors' Lerick Chissus found himself inside a small construction trailer near Dayton, face-to-face with the owners of Tube Products Corp.
Outside on this fall day, the construction crew's latrines had overflowed. Inside, the owners - with varying degrees of fear, sheepishness and anger - were telling him that they could not finish their new factory on time. The resulting shortage of exhaust pipes soon would force General Motors to stop building one of its most profitable vehicles, the full-sized C/K pickup.
To Chissus, GM's director of metal purchasing, this much seemed clear: Tube Products could not fix itself. Its factories were already running 24 hours a day. Its work force was demoralized, its managers overburdened.
So, without consulting GM's lawyers, Chissus made a snap decision: The automaker would take over Tube Products' plant in Franklin, Ohio. That same day, he called in a special, 50-person GM team. Within a week, he had pressured Tube Products to replace its president and persuaded the owners to sell the company.
The showdown had a happy ending. The plant was completed, GM got its parts and Tube Products is prospering under new owners.
Yes, automakers can and do take drastic steps to keep their suppliers afloat. In an era when one botched delivery can halt an assembly line, GM and other automakers cannot afford a hands-off approach to troubled suppliers.
This year, two key players in the Tube Products drama - a consulting firm called BBK Ltd. and turnaround consultant Jay Alix - resurfaced when another GM supplier, Peregrine Inc., lurched into a crisis.
After the rescue was complete, Chissus was forced to re-examine some near-fatal shortcomings in the way GM evaluates suppliers.
Tube Products had won honors in 1992 as a GM Supplier of the Year - then choked on its own growth. GM had honored the company for on-time deliveries - then had to use helicopters to rush parts to its assembly plants. Worst of all, Tube Products operated a factory so dangerous that injury-plagued workers dubbed it 'the Finger Factory' (see story, Page 39).
Chissus acknowledges that Tube Products' downward spiral caught GM flat-footed, forcing the automaker to improvise despite all its efforts to prevent such a crisis.
The danger signs were there, if anyone had been looking. Tube Products was enduring growing pains. After the 1992 honor, General Motors rewarded the supplier more tangibly with a sharp increase in business.
That was heady stuff for Tube Products, whose history stretched back to 1939. The company had been a small, family-owned operation until 1988, when seven investors led by an insider - company President Jim Bryson - bought it.
From 1992-95, sales had risen from $23 million to $132 million a year. But Tube Products was overloaded. To meet demand for parts, its factories in Louisville, Ky., and Troy, Ohio, were running heavy overtime.
The company had even set up makeshift production lines in its Vandalia engineering center, and it kept the Troy plant running around the clock. Employee turnover was sky-high, and injuries were epidemic.
By the summer of 1995, Troy had fallen so far behind that GM was using helicopters to fly exhaust pipes from the plant to its assembly plants in Hamtramck, Mich., and Lordstown, Ohio. Tube Products had to pick up the tab, which peaked at $500,000 in June.
GM felt the need to station a dozen managers in the Troy plant to oversee quality control and expedite deliveries.
That was the first danger sign, in the summer of 1995, but Chissus and GM's other purchasers overlooked it. After all, Tube Products' Supplier of the Year status meant it had met high standards for quality, price and on-time delivery.
The second danger sign also went unnoticed. Steve Matthews, Tube Products' vice president of engineering, had left the company in 1994 after suffering a nervous breakdown. The company was unable to find the right replacement for its manufacturing expert. Matthews' absence created a leadership vacuum at the top, but GM did not know it.
The third danger sign was impossible to ignore. To meet GM's rising demand for parts, Tube Products had decided to build a new plant in Franklin. A cold winter and a rainy spring delayed construction, but Bryson remained confident.
The company president told the absentee owners not to worry and assured GM that the plant would be finished in time. But Matthews, Bryson's right-hand man, had departed. Although construction had fallen dangerously behind schedule, Bryson was forced to spend time troubleshooting production bottlenecks at the Troy plant.
'Bryson had to step into the vacuum,' said Everett Telljohann, Tube Products' former CFO. 'He was the only production guy left. He got absorbed with the problems in Troy.'
In September 1995, Chissus learned that construction was three weeks behind schedule. In the first week of October, he decided to inspect the site.
Chissus, a self-assured man with a no-nonsense demeanor, was unprepared for what he saw. The new plant was an unfinished shell, with no plumbing or sprinkler system. Only 20 percent of the factory's tooling had been installed, and even that machinery was turning out junk.
'When we arrived that day, it took only a short walk-around to see the trouble they were in,' Chissus recalled. 'It was obvious the plant manager was overwhelmed. He had been working so many days he could barely stand up.'
After a couple of days on the scene, Chissus demanded a Sunday, Oct. 8, meeting with Bryson and Tube Products' absentee owners. The owners suggested an off-site location.
'I told them no,' Chissus said. 'I wanted them to meet on-site, so they could see what was going on.'
They met in the construction crew's temporary trailer, right next to a portable latrine that had overflowed onto the ground by the loading dock. The pungent setting set the tone for the meeting.
Bryson, a hands-on manager, did not easily delegate authority, Chissus said: 'He was very proud, and he wanted to do it on his own. He wanted to win one for the Gipper. He wanted to do it himself.'
But Chissus was increasingly convinced that Bryson was not equal to the job.
The GM executive assured Bryson and the other owners that the automaker would not tear up its contracts. Quite simply, there was no time to transfer the machinery to a new supplier.
But Chissus did insist that GM itself would oversee completion of the Franklin plant.
After demanding on-the-spot approval for a GM takeover, Chissus gave the owners a few minutes to think things over. They retired to a steel fabrication plant next door to ponder their options.
Bryson had said little to Chissus during the meeting, but one participant recalled that he appeared to be seething.
'When we retired to the other building, Bryson was saying ... that GM was trespassing and had no right to do that,' the participant said. 'He was saying that we ought to call the police and lock the doors.'
Cooler heads prevailed. Chissus and two other participants said Bryson never tried to eject GM's team. But Chissus admitted they had had a confrontation.
'We had to take drastic measures, and he was upset about that,' Chissus said.
Chissus did not wait for the owners' response. During the recess, he started making calls on his cell phone to assemble a special GM team.
'I didn't give the owners much of a choice,' Chissus admitted. 'I just took over.'
There was one hitch: Chissus had no legal authority to do so. Tube Products had not yet signed a right-of-access agreement - the document that would have granted the automaker authority to stage a takeover.
On the other hand, the owners understood one stark fact: GM accounted for 95 percent of their sales. Without its largest customer, the company was worthless.
The owners also realized that Bryson was stretched too thin. To help him out, they had hired Jay Alix & Associates of Southfield, Mich., a consulting firm that specialized in turnarounds. But the Jay Alix operatives had arrived only a week before the meeting with Chissus.
'It was too late,' Telljohann, the former CFO, admitted. 'GM read the riot act to us.'
Shortly after the meeting, Telljohann and the other owners convinced Bryson that he should step down. They asked Tom Cross - one of two Jay Alix consultants on the scene - to be their spokesman. A second Jay Alix representative, Joe Wenzler, became Tube Products' de facto COO.
Speaking for the owners, Cross told Chissus that Tube Products did not have the resources to speed up construction. Tube Products would accept GM's help, Cross said.
Others at GM and Tube Products agreed that the Jay Alix operatives had proved to be useful go-betweens at a crucial moment.
But it was still a bitter pill for the owners, who believed GM was partly to blame. Before the October blow-up, Telljohann said, GM's own inspectors had visited the site and come away satisfied that the factory would be completed.
What's more, GM caused delays by making late engineering changes to the exhaust system, Telljohann said. That forced Tube Products to make more prototypes and order new tooling.
'We should have said, 'Sorry, too late,'' Telljohann said. GM should have 'forked over more money, more time or more help. You can't make changes this late and stay on schedule.'
Despite the bruised egos, Chissus got what he wanted: verbal permission for a GM takeover.
THE SPECIAL TEAM
Chissus did not waste time. That same day, he used his cell phone to contact GM's truck plant in nearby Moraine and asked the plant manager to lend him some foremen. Next, he contacted GM's Pontiac East truck plant, which dispatched a team of skilled tradesmen from Michigan.
Then Chissus demoted Tube Products' plant manager, replacing him with a retired executive from GM's pickup plant in Shreveport, La.
To beef up Franklin's undermanned assembly line, Chissus filled 100 job vacancies. The economy was booming, and Tube Products' low wages were not attracting enough workers. To solve that problem, Chissus unilaterally raised hourly wages about $1 to about $7 - on par with rates in the Dayton area.
As the special team got organized, as many as 50 GM managers were on the scene. Confusion reigned. In addition to GM's managers, two other consulting teams, three sets of auditors and prospective buyers' representatives shared space at the headquarters.
But the plant was completed and the flow of parts assured. As the crisis subsided, Chissus pared back his staff. As the Franklin plant got up to speed, attorneys for GM sought a legal justification for the automaker's actions.
On Nov. 3, 1995, Tube Products signed a right-of-access agreement, giving GM legal authority to run the supplier's plants if production broke down.
In fact, though, GM had done exactly that a month earlier. Yet the automaker never formally invoked its authority under the agreement. It did not have to; Tube Products' owners were cooperating.
In the first few weeks after the meeting at Tube Products, Chissus spent much of his time reacting to daily emergencies. But he also wanted to plan for the long term.
GM had no desire to run the company indefinitely, and that meant Tube Products would need a new management team. At this point, accounts of events differ.
According to Telljohann and two other players, the GM team gave them a list of potential buyers to contact. The owners complied.
'When GM has its hands around your throat, there aren't very many good alternatives,' Telljohann said. 'They probably had the clout to take over our plants and run them for their own benefit.'
Chissus denies ordering the owners to sell. He does acknowledge telling them to find new management - or else.
In any event, Telljohann says a middleman recommended by GM found a buyer: Questor & Associates.
As it happened, Questor was an investment firm headed by Jay Alix, whose consulting firm had provided advice to Tube Products. On Feb. 23, 1996, Questor closed the deal.
By the time the new owners took over, Tube Products already had begun its comeback. GM wanted to pull out, and the company needed permanent management.
With the aid of a head-hunting firm, Questor found its man: The new president would be Terry Bernander, an executive from Walker Manufacturing, the world's largest supplier of automotive exhausts.
After joining, Bernander hand-picked his management team, luring a several former colleagues to Tube Products.
With a stable management in place, Tube Products resumed its growth. On Nov. 30, 1997, Questor acquired AP Parts International Inc., an exhaust manufacturer based in Toledo, Ohio. Questor merged AP Parts with Tube Products, named the new company AP Automotive Systems Inc. and moved its headquarters to Toledo.
With combined sales of $600 million, the new company will be the third-largest supplier of exhausts in the world.
Meanwhile, GM wants to make sure it can prevent a future Tube Products-style crisis. Among the lessons learned: Don't overload a supplier with too much new business if you are trying to help that company grow.
'We don't want to kill them,' Chissus said. 'We want to nurture them.'
Telljohann agrees, but he has additional advice for other suppliers: Cultivate a variety of customers. Do not bet your company's future on one customer.
'If your customer gets tough, you can tell them to come and get their tooling,' said Telljohann, who sold his share of Tube Products. 'It will hurt, but it won't kill you.'