Dura Automotive Systems' Larry Denton: "You have lower volumes, raw-material costs, legacy costs for health care, and customers losing market share all happening at the same time."
Since then, Denton has hired sales executives, closed or sold 20 plants and won business with new customers.
The question is whether it will be enough for Dura to avoid the fate of Tower Automotive Inc., which filed for Chapter 11 bankruptcy protection this year.
Like Tower, Dura was assembled via acquisitions by private-equity fund Hidden Creek Partners LLC of Minneapolis.
Most analysts think Dura can weather the storm, but much of the global supplier's new business won't go into production until 2006 or 2007.
In the meantime, high prices for steel and plastic, declining volumes from U.S. automakers and high health care costs will pound the bottom line.
Dura of Rochester Hills, Mich., manufactures driver controls, such as pedal and gear-shifter systems and door and window regulator systems.
"We don't expect a repeat of what happened to Tower," wrote analyst Shelly Lombard of investor research provider Gimme Credit in a Feb. 11 report. "The difference is that, for now at least, Dura generates enough EBITDA (earnings before interest, taxes, depreciation and amortization) to support its debt. Even so, we expect to see weak operating results this year."
The company recently got relief from its lenders that allowed it to use more cash. Dura ended 2004 with $192 million in cash but could use only $13 million of that because its net debt can't exceed five times its earnings before interest, taxes, depreciation and amortization. The company predicted it would exceed that by the end of March, so it asked the banks for relief, which they granted.
Still Dura, like other suppliers, had to reduce its earnings estimates for 2005 and two weeks ago had its corporate credit rating downgraded to "B" from "B+" by Standard & Poor's. S&P noted the reduced production from Dura's main customers and low production of light trucks, products on which Dura has a lot of content.
It has been frustrating for Denton, who's trying to deal with the industry storm and see through his plans at Dura.
"To me, these are the toughest times we've ever experienced, and I've been in this business for 30 years," Denton said in an interview with Crain's Detroit Business, a sister publication to Automotive News.
"If you consider the crisis, you have lower volumes, raw-material costs, legacy costs for health care, and customers losing market share all happening at the same time."
Last year, Dura reported net income of $11.7 million or 62 cents a share on global revenue of $2.5 billion, down from net income of $22.3 million or $1.22 on global revenue of $2.4 billion.
But Denton, a former president of Dow Automotive in Auburn Hills, Mich., thinks he has made enough moves to keep Dura afloat through rough times and to grow thereafter. Volumes are expected to pick up in the second half.
Revenue growth and plant use were two priorities. Dura's revenue growth from 2001 to 2002 was 1.1 percent; from 2002 to 2003, it was 1 percent. From 2003 to 2004, it was 4.7 percent. When he was hired, Denton said he wanted to get Dura's revenue growth to 6 percent to 8 percent in three to five years.
To get there, Denton appointed new sales vice presidents in all of Dura's regions. It opened a new sales/tech center in France and last September held its first-ever tech show at Toyota Motor Corp.'s tech center in Japan. Denton also tied bonuses to how many orders a sales employee booked.
Plans for growth
Denton said revenue growth will be between 2 percent and 4 percent from 2005 to 2006, but Dura should hit his goal between 2007 and 2008. That would be five years from Denton's hire.
"We're going to get there," he said. "We've put the engine in place, and the order book is there for the future."
David Bitterman, an analyst for Deutsche Bank, said Dura has made progress in cutting costs and gaining new business. But that business is a year or two away, and Dura's disparate offerings will make it difficult to increase its content per vehicle, he wrote in a Feb. 28 report.
Denton's other goal was to increase Dura's use of its plants. When Denton was hired, capacity use was about 50 percent to 60 percent, and sales per employee were about $134,000. After the closure of 20 plants and the opening of new ones in low-cost labor areas such as eastern Europe and Mexico, capacity use is more than 70 percent, and sales per employee are at $147,000.
"We've moved the needle already, and we're going to continue to run the needle forward," Denton said. "My opinion is that we're maybe through the roughest part of the cycle."