DAYTON, Ohio - The Dayton brake factory is Delphi Automotive Systems' plant-within-a-plant - an industrial version of a Russian matryoshka nesting doll.
The outer shell is a traditional factory, where rows of grimy machinery disgorge low-tech brake calipers, vacuum boosters and rotors.
Inside that shell is a glass enclosure that resembles a hospital surgery room, where workers in white gowns and plastic shower caps assemble antilock brakes.
Dayton's clean room was supposed to be the plant's ticket to a secure future. Yet for all its high-tech gloss, Delphi's plant-within-a-plant is a money loser.
Critics have blamed Dayton's red ink on chronic labor tensions and high union wages. A strike at the plant in 1996 halted most of General Motors' vehicle production. But as the clean room clearly shows, the plant's problems go deeper than labor: Its future is uncertain in part because Delphi has been slow to bring new technology to market.
Adding to the uncertainty is GM, which is preparing to spin off Delphi into an independent supplier. GM no longer is willing to play the role of Delphi's sugar daddy, paying high prices on all-but-guaranteed contracts.
GM expects Delphi to cut prices and make such efforts as Dayton's clean room pay off.
In this no-excuses environment, the story of Dayton offers a glimpse into Delphi's future. Like Delphi, Dayton is a work in progress. Not even the protagonists know how it will turn out.
On a warm November morning, Gary Hill accompanied a visitor inside the cavernous factory.
Despite the usual factory noise and dingy yellow lighting, the aisles were clean and assembly lines were humming.
'When most people come here, they expect to see pillboxes and concertina wire,' he quipped.
Hill did not have to explain his little joke. As president of UAW Local 696, he led the bitter 17-day strike nearly three years ago that shut down virtually all of GM's North American assembly plants.
At the time, Dayton was one of a handful of remaining plants on Delphi's 'fix, sell or close' list.
Afraid that Delphi intended to close Dayton, the union protested GM's decision to equip the Chevrolet Camaro and Pontiac Firebird with antilock brakes purchased from Robert Bosch Corp., a nonunion supplier.
After the strike, union leaders remained convinced that Delphi wanted to close the plant, and soon the factory lapsed into a labor-management cold war.
'The strike resolved nothing,' said Joe Buckley, shop chairman of Local 696. 'Because of all the mistrust, we ignored our responsibilities to the customers. Anything that Delphi wanted to do to maximize efficiency - we were opposed to it. Our way to get attention was to create heartburn.'
Delphi did not help matters, either. Just three days after the strike ended. Delphi outsourced additional brake parts to outside suppliers.
The payback came early last year, when Delphi told the union that Dayton was losing money. Buckley and Hill were skeptical. The union claims plant officials told the union the plant made money in 1995.
'There was no trust between the parties,' said Guy Hachey, president of Delphi Chassis Systems. 'The union felt that we had cooked the books. We had no credibility when we said we were losing money.'
To break the logjam, Delphi agreed to let an independent auditor examine the books. In September, PricewaterhouseCoopers delivered the bad news: Dayton was not competitive. According to the auditors, the Dayton plant had lost at least $40 million through September 1998.
The problems went beyond poor labor relations. The plant was unproductive, its technology was outdated and its labor costs were high.
In a last-ditch effort to save the plant, Local 696 negotiated a new local contract to improve productivity. Last month, after Delphi quietly replaced a controversial plant manager, the UAW approved a contract calling for it to boost productivity 15 percent by the end of 1999. For example, production workers will be allowed to handle simple repairs for their machinery, rather than wait for a skilled tradesman to show up.
The union also will help Delphi boost the percentage of 'value-added' plant workers - that is, employees who actually assemble brake components. Currently, Dayton has a top-heavy support staff, which includes custodians, truckers, union representatives and skilled trades.
The union also agreed to sponsor productivity workshops, in which hourly workers, engineers and supervisors conduct intensive weeklong efficiency analyses of a particular production line.
Perhaps most significant, the union agreed to let Delphi eliminate up to 1,300 of Dayton's 3,200 hourly jobs through retirement and other voluntary departures. In turn, Delphi agreed to keep the plant open at least through 2002 and pledged to seek more work for the plant.
If all these measures work, a plant that lost $40 million last year hopes to break even in 2000 and earn 5 percent on sales in 2003.
But the turnaround will succeed only if Delphi can make better use of its own technology. This is where Hachey enters the picture.
SPIRIT OF ORVILLE
In his office, a small wall plaque displays the organization chart for the Dayton Wright Airplane Co. Nestled near the top of the chart is Orville Wright, the company's chief engineer.
Wright often lunched with his buddies at the Dayton Engineers' Club, where they sketched their latest brainstorms on their napkins. According to legend, the dishwashers were under orders to set aside the napkins for two days, in case Wright and his friends returned to retrieve their doodles.
Hachey wants to recreate Dayton's technological ferment. As president of Delphi Chassis Systems, Hachey must execute the division's vehicle 'corner' strategy of integrating the brakes and suspension.
Hachey also is marketing Traxxar 'smart brakes' - antilock brakes that can be integrated easily with yaw and traction control.
Delphi's Traxxar system adjusts brakes and the throttle to maintain stability during high-speed turns. If sensors determine that the car is about to spin out, or if the wheels hit a patch of ice, an onboard computer can make adjustments. Traxxar was introduced on the 1997 Cadillac Seville, Eldorado and DeVille.
For the long term, Delphi is developing a brake-by-wire system that replaces traditional hydraulic brakes with electro-mechanical brake actuators at each wheel. Delphi's system, dubbed Galileo, is featured on GM's EV1 electric coupe.
In theory, the introduction of smart brakes will restore profit margins that eroded as prices for antilock brakes declined. In its investors' prospectus, Delphi has trumpeted Traxxar as an example of technology that will fuel future growth.
However, Delphi faces formidable competition from Robert Bosch Corp. and Continental Teves North America, which are marketing their own smart brakes.
Worse yet, Delphi must recover from a tactical blunder: While the company poured engineering resources into Traxxar and Galileo, it delayed an upgrade of its bread-and-butter antilock brakes.
That system, called ABS 6, was considered cheap and efficient when it was introduced on the Pontiac Grand Am in 1991.
The system relied on small motors to activate its antilock brakes, rather than more delicate solenoids. Since ABS 6 was robust, Delphi could produce it in Dayton without having to build a costly clean room.
At a time when European antilock brake systems were $1,000 options, the Delphi system was cheap enough to allow GM to offer it as standard equipment. By the mid-1990s, Delphi was selling ABS 6 for $185 a vehicle and making a tidy profit.
However, Delphi's rivals managed to design smaller, cheaper, solenoid-activated antilock brakes. These systems were more compact than the bulky ABS 6, a major advantage for vehicle designers.
By the time Delphi launched development of its own upgrade in 1995, it had lost precious time. That same year, GM purchasers asked Bosch and Delphi to submit bids for anti-lock brakes for the Camaro and Firebird.
Delphi engineers submitted blueprints for a system they thought they could have ready by 1998. It was not enough.
During the bidding process, a GM purchasing engineer placed a working prototype of Bosch's next-generation antilock brake -freshly removed from a test vehicle - on the conference table.
GM engineers had been road-testing the component and were impressed. GM purchasers lobbied vigorously for the Bosch system.
'It was a dramatic plea,' recalled Bill Gillespie, Delphi's chief engineer of advanced products. 'Here is a (component) that is dripping oil, and Bosch is telling the purchasers that they can take them for a drive in the car. That settled the issue.'
Despite the setback, Delphi developed its own next-generation antilock brake, which entered production last June. First introduced on several 1999 Buick models, the DBC7 is smaller and more versatile than its predecessor.
The division's engineers say they are confident that it equals anything Bosch, Continental or LucasVarity PLC has to offer.
But it does not leapfrog the competition, and automakers do not switch suppliers easily for such a key technology.
'That's why our focus is not so much the bread-and-butter antilock brakes, but Traxxar and what lies beyond,' Gillespie said. 'You've got to have new technology when your customers want it.'
That strategy may work in the long run. Right now, however, GM still appears to be focused on a bread-and-butter brake system.
Industry sources say Bosch and Delphi are competing to supply antilock brakes for GM's next-generation Delta cars, which include the Chevrolet Cavalier, Pontiac Sunfire, Opel Astra and Saturn sport-utility.
As part of Delphi's spinoff agreement, GM has pledged to give Delphi a chance to match or beat any rival bids. According to a GM source, Delphi most likely will retain the Delta contract. But UAW officials say Delphi must meet a GM target price on antilock brakes of $114 a vehicle.
That poses a huge dilemma. If Delphi cannot cut production costs significantly, should it give up the business? Or should it submit a low bid, preserve sales volume and take a loss?
Dayton's price-cutting dilemma is being played out on a wider scale throughout Delphi. In its recent report to the Securities and Exchange Commission, Delphi noted that it had cut prices by 3 percent in 1996, 2.3 percent in 1997 and 1.6 percent in first nine months of 1998.
In Dayton, one alternative is for Delphi to transfer final assembly of antilock brakes to a less costly site. Dayton would continue to produce various antilock brake components, plus a variety of calipers, rotors and other basic brake components.
Final assembly could be moved to a Delphi plant in Mexico - perhaps to Juarez, where Delphi makes solenoid valves for antilock brakes.
Dayton would retain production of parts that require expensive machinery and relatively little direct labor. But that might lead to the eventual loss of up to 1,300 jobs unless Delphi can find other work for Dayton.
To save Dayton, the UAW must boost productivity, and management must jump-start its engineering creativity. Without both, Dayton - and Delphi - will not thrive.
'Would have, could have, should have won't get us anyplace,' said chief engineer Gillespie. 'It's a long haul. It isn't measured in a year or two.'