On the day he died, Aug. 2, 2013, American Axle & Manufacturing Holdings Inc. co-founder Dick Dauch insisted on attending the company’s board meeting to say goodbye. He also wanted to deliver one more command:
“Don’t screw it up,” the executive chairman told the assembled directors, according to one director in the room that day. Of course Dauch, in his famously inimitable fashion, used a slightly more colorful verb to make his parting point.
Nearly four years later, the CEO he left behind — his son, David Dauch — the management team and American Axle’s directors are getting the chance to prove their mettle, and their judgment, in an industry changing at digital speed.
Effective Thursday, American Axle said it completed its acquisition of Metaldyne Performance Group Inc., a $3.3 billion deal that some quarters on Wall Street greeted with something less than great enthusiasm. Now all AAM’s leadership has to do is deliver, a position their founder would relish.
Timing will matter. Within hours of announcing details of the transaction back in November, industry analysts questioned the wisdom of assuming another $1.7 billion in debt amid signs the industry’s record annual sales pace of 17 million-plus vehicles is plateauing.
Like the father, the son pushed back at the Barclay’s Global Automotive Conference in New York: “Nobody said there isn’t strong industrial logic — a compelling logic — to bring these two complementary businesses together,” Dauch said, according to an account in Automotive News. “It’s disappointing.”
But predictable. Eight years after the global financial meltdown bankrupted two Detroit automakers and pushed American Axle to the brink of Chapter 11, too, this town’s industry remains burdened by the historic facts of that legacy ... and the undeniable truth that the auto industry remains a cyclical business.
In that context, tolerance for debt is weighed against the ability to generate enough cash to pay it. Because historically strong industry sales are showing signs of slowing, the thinking goes, now may not be the best time to shoulder more debt.
It’s not that simple, especially for an axle and driveline maker whose products are more likely to be found in the growing truck, SUV and crossover segments than the shrinking segments of midsize and compact cars.
His father would have “absolutely” backed the industrial logic of the Metaldyne, or MPG, deal, David Dauch said in an interview with The Detroit News. “He and I were so aligned in our thought process in the business. We wanted to be a consolidator and integrator in our core business.
“And that’s exactly what we’ve done with MPG. I’m actually very bullish about where things are. I look at this as a historic day for AAM” — and so would his dad, the former executive at Chrysler Corp. and General Motors Corp. who partnered with a few investors in 1994 to acquire GM’s Detroit gear and axle assets to form American Axle.
The combined company, expected to collect nearly $7 billion in annual revenue, will be composed of four business units: driveline, metal forming, powertrain and casting. And the tie-up is expected to reduce AAM’s reliance on former parent GM by further diversifying its customer base.
American Axle operates a world-class research and development center. Combined with Metaldyne, the company will have 90 locations in 17 countries. Each of its four business units will produce applications for the traditional car and truck lines, as well as needs for the emerging mobility sector — chiefly so-called light-weighting, mass optimization and efforts to improve fuel efficiency.
In 2015, GM contracts accounted for 66 percent of American Axle’s sales. The combination with Metaldyne is expected to diversify the order book, meaning GM should account for 32 percent within four years. Ford Motor Co., totaling just 1 percent of American Axle sales in 2015, is projected to grow to roughly 16 percent by 2020.
Emphasis on the words projected and expected. The reality of audacious mergers and acquisitions is that their success depends on both what their architects can control — and what they can’t.
Dauch the elder couldn’t control the implosion that pushed his company within days of a bankruptcy filing. But he and his team could control their reaction to those circumstances. I’d guess this time will be no different for the new American Axle.
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.