The same brutal market forces that bankrupted several U.S. suppliers last year caused the swift descent of Dana Corp. into Chapter 11. But other factors contributed to Dana's collapse, too - like being outmaneuvered and outhustled by an arch competitor.
Yes, skittish bankers and creditors delivered the final blow. Nervous suppliers began seeking faster payment. But the erosion of Dana's position as North America's leading driveline supplier during the 1990s did not help.
And it wasn't foreign competitors that wreaked havoc, but a U.S. company largely dependent on General Motors - and with huge legacy and raw-material costs of its own: American Axle & Manufacturing Holdings Inc.
American Axle, of Detroit, seemed to pose little threat when former Chrysler Corp. manufacturing boss Richard E. Dauch and partners spent $30 million in 1994 to buy five dilapidated GM plants. Dauch and his associates formed a tightly focused driveline company and then spent $2 billion on a new plant and equipment.
Dana took a different path. It scrimped on new investment.
"Our technology was lagging, and we refused to invest in new technology," says a former Dana engineering chief. "Our bonuses were based on not spending capital."
Hefty axle profits
In the 1990s, Dana dominated the market for light-vehicle axles. That allowed it to charge GM as much as $1,400 on an axle that cost Dana $800 to build, says the former executive.
But then things began to change.
"American Axle put a lot of pressure on our margins," says a former Dana manager.
Chrysler served as the battleground for the two metal benders. Chrysler was long a key Dana customer, but in 1999 the newly redesigned Jeep Grand Cherokee was having quality problems. An annoying axle hum drove customers crazy.
Gary Henson, Chrysler's manufacturing chief at the time, seethed over the problem. "We spent billions to make the new Grand Cherokee the best and quietest ever," he told Automotive News at the time.
Payback followed. In a stunning turnabout, Chrysler handed Dauch the contract to supply axles and propeller shafts for the 2003 Dodge Ram heavy-duty pickup, a contract estimated at $300 million a year.
Why the change? "Quality," Henson said at the time.
Dauch's win streak continued with the propeller shaft for the 2004 Dodge Durango in 2002 and the shafts on the 2003 Jeep Rubicon Wrangler - both former Dana contracts.
Dana lost the 2005 Jeep Grand Cherokee front and rear axles when Chrysler took the business in-house.
American Axle was created in the image of Dauch, 63, a former Purdue fullback who brought a straight-up-the-middle mentality to U.S. auto plants.
He started out as a plant manager at GM and was the manufacturing boss at Volkswagen of America before joining Chrysler when it was run by Lee Iacocca.
He charges hard and talks tough. At Chrysler, Dauch turned the company's decrepit assembly plants into some of the spiffiest and most productive in North America. His passion for manufacturing is renowned.
These days, Dana is run by Mike Burns, 53, who led General Motors Europe for six years before moving to Dana in March 2004.
Before GM Europe he ran Delphi Delco Electronics Systems, then part of GM's in-house parts operations.
In some ways, finance-guy Burns is the antithesis of factory-guy Dauch. Like Rick Wagoner, Burns is a product of GM's New York treasurer's office.
After arriving two years ago this month - after a search for a replacement for CEO Joe Magliochetti, who died in September 2003 - Burns beat back American Axle to retain Dana's signature axle-supply business for the Jeep Wrangler. But he lost a huge contract to supply complete chassis modules to the new Jeep plant in Toledo.
Burns was counting on his core axle and driveline business to expand at twice the rate of the vehicle market and lift earnings. The Wrangler contract was only a modest contribution to that plan. Dana also has the Jeep Liberty rear axle.
According to a Deutsche Bank report, Dana's sales to the Chrysler group dropped from $2.1 billion in 2000 to $972 million just two years later. Dana does not break out its Chrysler sales but said its total DaimlerChrysler sales, including the automaker's Freightliner heavy-truck division, were just $720 million in 2004.
American Axle says it's the dominant player in axles and propeller shafts for light vehicles in North America. The company says its share of the segment rose from 33 percent in 1999 to 37.1 percent in 2004, compared with 16.2 percent for Dana.
Dana, which also supplies chassis products for light vehicles, vows to defend its share of the axle market. "Dana's axle products business has historically received significant investment," said spokesman Todd Romain in an e-mail to Automotive News.
And they will remain an essential element in Dana's product lineup, Romain added: "We expect to continue supporting technology growth in this key product area moving forward."
Both companies are struggling with high steel prices, declining Big 3 volume and uneconomic pricing demands from their customers.
Supplier is vulnerable
American Axle, a key supplier to GM SUVs and light trucks, is vulnerable.
Profits last year fell 65 percent to $56 million on lower sales. Sales were $3.40 billion compared with $3.60 billion the year before.
But it has weathered the storm far better than most - and certainly better than Dana. Standard & Poor's says American Axle remains an investment-grade company.
Indeed, despite the hardships facing U.S. suppliers these days, Dick Dauch's cobbled-together company illustrates that when you're smart and savvy you can control your destiny.
You may e-mail Robert Sherefkin at [email protected]