All the Right Moves

Oct. 27, 2006
One company identified a place in the automotive supply chain and it remains there, confident the supply chain will endure.

Metaldyne Corp. sold off its forging operations earlier this year to the new FormTech Industries organization, but the company — which still maintains powder metal forging capability — bears watching by forgers and all manufacturers of semi-finished products. Not only has it demonstrated good managerial skill against difficult market conditions, but it’s an encouraging example of how good management can be rewarded by good fortune.

Formed just six years ago by a combination of MascoTech, Simpson Industries, and one former DaimlerChrysler plant, Metaldyne’s produces automotive powertrain and chassis components. It defined for itself a position in an essential manufacturing market.

But, that’s a market that’s squeezed by high material costs, strained by emerging global pricing patterns, and pressured to endure all manner of uncertainties stemming from the complex problems of its automotive customers.

Late in August, all these challenges seemed to be reversed for Metaldyne when it announced a $1.2-billion merger with Asahi Tec, a Japan-based producer of cast iron and aluminum components for automotive, truck, and construction equipment, and automotive wheels.

Metaldyne and Asahi Tec say they are responding to manufacturing trends. “Our customers are expanding their operations globally, increasingly outsourcing higher, value-added manufacturing processes, and developing strategies that address these changes,” Metaldyne chairman Tim Leuliette explained.

Now, rather than endure high material costs, the group will be able to exert greater purchasing power on its suppliers. With operations in North America, Brazil, China, Europe, India, Korea, and Thailand, it will leverage service to resist pricing pressure. Metaldyne/Asahi Tec will establish a wider geographic base, and with a product portfolio that improves on the definition of “highly-engineered, precision modules and components for powertrain and chassis.”

This story should be insightful to any manufacturer. First, six years ago Metaldyne defined an organizational strategy, and maintained it even against the obvious challenges. It identified a place in the automotive supply chain and it remains there, confident the supply chain will endure even as parts of it evolve, expand, or disappear.

On the other hand, Metaldyne remained open-minded to changes in its plans. It sold the FormTech assets “to help support our focus in modules, systems, and assemblies,” exec. v.p.-Commercial Operations Thomas A. Amato explained recently. And, because the supply chain rewards large-scale efficiencies, Metaldyne is scaling up to create advantages in purchasing, market reach, and pricing power — a principle that’s also being demonstrated in the mining, steel, and aluminum industries, to mention only a few.

Significantly, Metaldyne understood where to locate its financial support. Capital is expensive, but it is indispensable to planning and executing a successful manufacturing strategy. Small and closely held companies are often risk-averse, and publicly traded companies are so pressed to make returns on investment that visions cannot be executed effectively. A surprising number of manufacturers are realizing significant gains with the support of private investors with the resources and patience to pursue global strategies.

Finally, what makes Metaldyne a success story is that it won’t disappear over the global horizon. It will keep its identity and operate independently, with the same management overseeing day-to-day operations and maintaining the focus that has brought them so far.