Here’s another article in the WSJ’s “Wow, we still build stuff here” series (my unofficial title). This article talks about how private equity firms (including Wilbur Ross) are putting money into auto suppliers, expecting to, get this, actually make money.
In a South Side neighborhood dotted with junked cars, crumbling houses and shuttered factories, a New York private-equity firm is betting it can make big money in a battered business: manufacturing wheel hubs and engine parts for cars and trucks using union labor.
KPS Special Situations Funds has put more than $23 million into Jernberg Industries since 2005. It aims to at least double its money in three years or so. Jernberg, which supplies parts to Detroit’s Big Three auto makers, tumbled into bankruptcy court in 2005, joining a raft of other auto-parts makers there.
Thankfully, the story isn’t strictly about closing plants, busting unions and slashing wages. Being an auto supplier is tough, considering you get squeezed mercilessly by non-lean automakers, at least the ones that don’t believe in long-term collaboration with suppliers. But, there is hope (for suppliers and for American manufacturing):
The new owners are freezing pay and are moving from pensions to 401(k). That’s not an unreasonable request, nor is asking employees to pay $100 a month for heathcare (again, welcome to the 21st century). Sure, it’s a pay “cut” but it’s better than having the factory shut down.
When KPS bought Jernberg’s assets out of federal bankruptcy court in 2005, it got right to the point with the parts maker’s roughly 700 workers. In a four-hour meeting that July with local union leaders, KPS co-founder Michael Psaros told them he needed to reduce labor costs by 20%. His plan, he said, was to eliminate jobs, freeze wages, cut overtime pay, raise health-care premiums and eliminate pensions.
It’s nice to see that the private equity folks aren’t just beating up on the “workers” (I put that word in quotes because I hate the term…. assembly workers also think and managers also work, but I digress).
Mr. Psaros, who is 39, took charge of turning the company around. KPS, as it typically does, swept out top management. “We will not back the guys who caused the train wreck in the first place,” says Mr. Psaros.
Often, the new owners are fixing things that the old conductors of the train wreck neglected:
With the new labor deal in hand, KPS invested about $17 million in the plant, installing new machinery, repairing long-damaged equipment and fixing up workers’ locker rooms and other facilities. “The only thing I’m mad about,” says Mr. Robinson, “is they didn’t get here five years ago, before it got so bad.”
The article doesn’t talk about lean, but you can’t avoid trying some semblance of lean, being in the auto industry. It sounds like they’re actually trying to improve the process, not just slash labor costs:
Workers say Jernberg’s previous owners were loath to take big chances, citing tradition or cost. KPS managers, they say, seem willing to listen to their suggestions. For example, workers figured out that by changing the layout of plant machinery, Jernberg could save 10,000 trips a month by the forklifts.
Sounds like they might have fighting chance. A better chance than if the new owners merely moved a bad process to Mexico.
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