In his new role as the Rust Belt's turnaround artist, former Detroit Diesel Corp. Vice Chairman Tim Leuliette expects to start targeting Midwest auto suppliers for acquisition early next year.
Last week, Leuliette announced that he is joining New York financier David Stockman to form Heartland Industrial Partners.
The venture plans to raise $2 billion to buy Midwestern manufacturers, improve their performance and then take them public.
In February or March, Heartland will start to focus on small to medium-sized automotive suppliers, machining companies, forging operations and nonautomotive manufacturers.
As of last week, the new firm had no financial commitments in writing. But Leuliette said he expects to raise the first $1 billion from pension funds and other financial sources.
New York-based Blackstone Group, of which Stockman was a managing partner, has expressed its desire to invest 20 cents for every $1 that Heartland invests, Leuliette said.
In fact, Blackstone has ties to Heartland. The New York investment firm owns part of Detroit-based supplier American Axle & Manufacturing Inc. In turn, American Axle's chief executive, Richard E. Dauch, will have a seat on Heartland's board.
BREAKING A VICIOUS CYCLE
The Heartland group believes many small Midwestern firms suffer from a vicious cycle that holds them back.
Because the companies are not big players in the auto industry, Wall Street does not follow them as closely as it does larger suppliers.
Because of the lack of attention, their stock prices often lag behind the market. And because of languishing stock prices, major funds take a pass on investing in them.
Leuliette said the solution is combining these suppliers into a bigger company.
'As they get larger, they will start getting better coverage,' he said.
It will take an infusion of new information tools to improve the performance of newly acquired suppliers, Leuliette said. In some cases, he said, it will require a new management approach that embraces the sort of employee involvement and continual improvement philosophy that the Japanese auto industry has exemplified over the past decade.
'Operating improvements are going to be the first part of our focus,' said Leuliette, who in the 1980s and early 1990s served as president of Siemens Automotive and ITT Automotive.
'Many companies out there have yet to embrace the kind of management style that enables them to get the most out of their work forces and resources.'
Managers of newly acquired companies will be given new information tools to do their job, Leuliette said.
The technology revolution still hasn't been fully put to use by many companies, he said. 'Through e-commerce, we can transfer drawings and speed up development times. We can reduce engine development by 40 percent today.'
Perhaps so, but Wall Street will demand a healthy bottom line when these companies go public.
'Wall Street has yet to be impressed with the ability of automotive suppliers to withstand the swings of a cyclical business,' Leuliette acknowledged. 'That is something we will address. Properly run suppliers do not have to have swings in their performance.'