This story was originally published by Crain's Detroit Business, an affiliate of Automotive News, on July 10, 1995.
A building so secret that workers are forbidden to discuss it is nearing completion on the grounds of Federal-Mogul Corp.'s headquarters.
At an estimated cost of $500,000, the Southfield, Mich.-based manufacturer is having constructed a replica of a fully equipped automotive-parts store -- with plans to rip it down just two weeks after completion, according to city records.
"We're sworn to secrecy; we can't even talk about it in the ranks," said an employee with Exhibit Works Inc. of Livonia, the contractor. "If some of Federal-Mogul's customers learned about this, it would make them very nervous."
That nervousness stems from concerns that Federal-Mogul will use its market muscle to build similar stores in North America -- to compete with its own customers, automotive-parts companies such as Genuine Parts Co. and Pep Boys.
Risking the wrath of customers to build a $500,000 "exhibit" at a time of otherwise corporate frugality and layoffs at the giant Federal-Mogul may sound unusual. But it underscores the gamble company Chairman and CEO Dennis Gormley continues to take as he remakes the $1.9 billion manufacturing giant.
Gormley will use the building in a bid to regain credibility on Wall Street for his strategy of reforging the company as a global automotive aftermarket supplier, say three former company executives. The company wants to privately highlight a key part of that strategy - its plan to build 500 such stores in several far-flung global locations by 2000.
This strategy has yet to produce the gains analysts expect, and the company's stock has languished. The store mock-up, company executives hope, will impress the dozens of securities analysts expected to flock to a special meeting called by Gormley.
"They want to give us a feeling for what they are doing," said Darren Kimball, an analyst with Salomon Brothers.
Federal-Mogul spokeswoman Bonnie Price said the purpose of the meeting is to provide second-quarter results, current business issues and strategies.
The July 20 and 21 meeting is part of the company's annual update on its domestic and international strategy, she said. This year New York analysts, institutional shareholders and bankers have been invited to Southfield.
Analysts are to stroll through a 4,000-square-foot building equipped with plumbing, lighting and ventilation. It will display hundreds of automotive parts Federal-Mogul manufacturers and buys for its retail outlets, said the former employees.
It will be torn down shortly afterward, a company spokeswoman confirmed. It will not be a total loss because the signs, shelving and products will be sent to company stores, she said. The company expects to have 91 stores in Latin America, South America, South Africa and Australia by year's end.
Gormley's venture, however, is not without risks. Even if the store is torn down, as the company has promised Southfield building-department officials, Federal-Mogul risks upsetting its biggest customers.
His customers, such as Genuine Parts, are concerned Gormley will expand his plans for retail stores to include the United States and Canada. That would pit Federal-Mogul, which manufactures an array of automotive and industrial parts, against companies that retail automotive parts and accessories.
"It is self-evident to anyone out there that something like this would be watched very carefully by their customers," said George Kalafut, president and COO of Genuine Parts, the Atlanta-based distributor for automotive-parts retailer NAPA.
Gormley's strategy of shifting the company from an original-equipment supplier to companies such as General Motors Corp., to one of the largest aftermarket suppliers in the nation has had its setbacks.
GM and other automakers have put Federal-Mogul under intense pricing pressure. The automotive aftermarket offers not only relief from regular cyclical downturns, but also promises new markets and higher profits, said the company officials.
But making the shift through acquisition of parts-makers and their distribution systems has made Federal-Mogul look less like a supplier than a competitor. Crain's has reported that Gormley's strategy was one reason his company lost the ball-bearing business for the nation's 6,500 NAPA automotive retail stores.
Kalafut would say only that "a number of factors were involved" in dropping Federal-Mogul as its ball-bearing supplier.
Analyst Kimball has said the implications of the NAPA deal were troubling for Federal-Mogul's traditional customer base as it shifts to a new role in parts distribution.
Gormley's buying and selling of assets is expected soon to bring its sales mixture to about 30 percent original equipment and 70 percent aftermarket.
Increased interest expenses and the devaluation of the Mexican peso have not helped the company. First-quarter earnings - as with several previous quarters - have come in below analysts' expectations, despite a tightening of expenses.
From an initial projection of about $2 per share, analysts have scaled back their per-share earnings projections for Federal-Mogul this year. Philip Fricke of Prudential Securities put the number at $1.55, and C.S. First Boston's Nicholas Colas put his estimate at $1.75.
The company reported record first-quarter sales of $525 million; earnings were down 5 percent to $14.2 million from the previous year. The company trades on the New York Stock Exchange under the symbol FMO.
The company's stock price, which reached $38 a share last year, now trades for less than half that.
The company ordered a round of across-the-board layoffs in recent months, Price said. No numbers were disclosed. The company employs 16,200 worldwide.
