When Dick Dauch and his partners bought General Motors Corp.’s rotting gear and axle operations in Detroit 22 years ago, the roof leaked and line workers shivered in the cold. But the new company held exclusive supply contracts with its former owner.
When GM created Delphi Corp. out of its Automotive Components Group that same year, the global supplier truly was all things to all customers — but mostly to GM. Its grip strangled the captive supplier for more than a decade before Delphi’s 2005 Chapter 11 bankruptcy began to loosen GM’s hold on its sprawling order book.
Oh, how times have changed.
The one-time GM siblings are dramatically different companies. They’re technologically driven players with global footprints. They have sharply reduced union employment in the United States. And they have solid profiles in an investment community seeing evidence they can both straddle the symbiotic worlds of cars, trucks and mobility.
Now American Axle & Manufacturing Holdings Inc. is a global supplier of axles, drivelines and drivetrain systems. It said Thursday it is acquiring Southfield-based Metaldyne Performance Group Inc. in a $3.3 billion deal, and the combined entity will be run by David Dauch, American Axle’s CEO and the son of its co-founder.
It operates a world-class research and development center. Combined with Metaldyne, American Axle will have 90 locations in 17 countries, and it will operate four business units — each with applications in traditional car and truck lines, as well as needs for the emerging mobility sector.
Last year, GM contracts accounted for 66 percent of American Axle’s sales. But the combination with Metaldyne should diversify its order book, with GM accounting for 32 percent within four years. Ford Motor Co., totaling just 1 percent of American Axle sales last year, should grow to roughly 16 percent by 2020.
That’s change, too, further evidence that the creative destruction of former GM assets birthed suppliers that became industry leaders in their respective spaces. But not without aggressive, smart leadership — and a willingness to make the kind of tough calls that were not, are not and never will be popular with the people who lived through them.
Take American Axle. Its founder, Dick Dauch, prided himself on the undeniable fact that he reinvested in the Detroit operations where he started years ago as a young GM manager — proving, he thought, that it was possible to be successful in Detroit with a union-represented workforce.
Until, that is, a 2008 strike accelerated the downward spiral to closure of those same operations, leaving Dauch defiant (as he confided a few months before he died) and union leaders embittered. That’s not likely to change, whatever the economic forces driving the divergent world views.
Take Delphi. Now legally based in the United Kingdom, the supplier with executive offices in Troy has transformed its business from a broad-based component manufacturer into a focused provider of technologies that fit neatly into baskets intentionally shaped for the automotive present and future — clean, green and connected.
It exited business lines (and the plants that produced them) employing union members represented by the United Auto Workers. It downsized its manufacturing footprint in the United States — enough to make Donald Trump’s orange hair stand up by itself, if he bothered to pay attention.
Its emergence from bankruptcy, essentially executed by the Obama administration’s automotive task force, robbed Delphi’s salaried retirees of much of their pensions, even as hourly retirees emerged relatively unscathed. It also moved the legal domicile for the corporate headquarters overseas.
Unpopular? No question. But — and here’s a key part — Delphi charted a future, recognizing that producing the commodity parts of its past would consign it to a race to the automotive bottom it could not win. It had to offer value; had to play in areas others didn’t; had to let business drive its politics, not the other way around.
Shares in the Delphi that emerged from bankruptcy hit the market five years ago at $22 a share and quadrupled over the succeeding years. It’s well positioned to thrive in an industry whose investors and engineering skew toward electric vehicles, ride-sharing and, ultimately, cars that drive themselves.
No wonder Wells Fargo rates Delphi Automotive PLC an “outperform” and said: “Given the company’s strong technology portfolio (active safety/autonomous, connectivity, electrical/fuel efficiency), we believe the longer term story is solidly intact.”
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.