Realigning Production Capacity

Though many might see the sale of DaimlerChrysler Corp.'s New Castle Machining and Forge Plant (New Castle, Ind.) to Metaldyne Corp. early this year as an ordinary sale of a factory, Timothy D. Leuliette says it represents something larger. As head of both a manufacturing company -- he's chairman, president & CEO of Metaldyne -- and of a private equity firm that invests in industrial companies -- he's founding partner and senior managing director of Heartland Industrial Partners -- Leuliette suggests that similar transactions in other industries could help address the U.S. manufacturing sector's overcapacity and cost problems.IW: How does this transaction, in which a Tier 1 automobile supplier purchased a manufacturing facility from an OEM, suggest a realignment of production capacity in the U.S.? Leuliette: First of all, it required a win-win-win situation where the OEM, in this case DaimlerChrysler, [Metaldyne] and the UAW [United Auto Workers] employees all felt that this made sense for everybody. To do that, you've got to look at what [the plant's] long-term future would have been as part of an OEM. The facility was just not competitive with its prior ownership. I don't think we'll ever be able to take the New Castle model per se and apply it someplace else. [But] here's the issue: We don't need to keep adding capacity; we need to be focusing capacity. [In] every area before someone adds new facilities, you ought to look at what the existing portfolio of facilities are, and maybe there's something that makes more sense than breaking ground. IW: What does this mean in terms of what the future of manufacturing might look like in the U.S.? Leuliette: We've taken a facility for which the city fathers, the employees, everyone was concerned about whether it had a life or not, and now it's globally competitive. That has to be a statement about what's possible. There's a tremendous amount of good assets and skills there; they just needed to be modified into a more competitive package. IW: You talk about creative negotiation, especially with the UAW. Can you address how you approached those negotiations? Leuliette: I think all of us who care about this industry -- and care about the employees of this industry -- understand that sometimes you've got to realign resources and assets to make them more competitive. It's different to tell an individual, 'I've got to cut your pay' versus saying, 'The person that's replacing you is going to have a different set of economic parameters associated with his agreement.' That's a much less sensitive move. I think the thing that made us all feel good is that we did a realignment of that economic package, we had 500 openings, we posted them, and we had 5,138 people show up from a number of states that stood outside in the rain and the cold to apply for those jobs at that wage rate and at that benefit package. The message here for all of us is this: We have an industry for which we have more capacity in place at almost every level, and as an economic model it needs to [be] reduced so that all of us [get] a viable economic return. [So] I would suggest that looking at these types of relationships and creating these win-win-win opportunities is a way to help revitalize the industrial base of America.