Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – Reflecting a trend throughout the North American auto industry, parts maker Dana Corp. intends to tighten its belt in the U.S., grow its operations in emerging markets and diversify its customer base away from a struggling Detroit Three.

Dana CEO Gary L. Convis also tells the Management Briefing Seminars here a new production philosophy and physical process changes at his company’s U.S. plants are delivering “tangible” and “extremely positive” results six months after the supplier’s emergence from bankruptcy.

Dana’s Chapter 11 reorganization included a landmark labor agreement with United Auto Workers union, which slashed labor costs and shuttered unprofitable U.S. facilities.

“Dana’s footprint currently encompasses 100 operations in 26 countries, and we’re expanding our footholds in China, India, (the) Mercosur countries (Brazil and Argentina) and elsewhere,” Convis says.

“We’re actively looking to expand to support the emerging needs in Russia, which will soon eclipse Germany as the leading European auto market.” (A recent report by PricewaterhouseCoopers LLP (PwC) says Russia already has surpassed Germany in first-half 2008 to become Europe’s No.1 auto market, as overall passenger-car sales (including used cars) jumped 41% through June to 1.65 million units).

But the story at home reads much differently. High pump prices and an ailing economy have contributed to plunging vehicle sales and declining demand for Dana’s North American automotive business.

Meanwhile, the supplier continues to wrestle in the wake of intensifying competition and rising prices for some raw materials, including the 1.5 billion tons (1.4 billion t) of steel it buys annually.

“Much of what is occurring in our industry is beyond our direct control, and the strategy and execution (of previous years) are very difficult, costly and time-consuming to fix,” he says. “The impact on our industry is very dramatic.”

However, Convis adds, the scope of what remains within the industry’s control is much greater than many observers assume.

And although game-changing opportunities exist with alternative propulsion and biofuels, Convis says equally important gains lie in the “comparatively mundane and very unsexy pursuit of systematic process improvements across our operations.

“We must take a firm grasp of what is within our control,” says Convis, who spent 40 years with three auto makers in the U.S. before joining Dana’s board of directors in January.

But in addition to adding the title of CEO in April, Convis has sought to implement the fundamentals of Toyota Motor Corp.’s vaunted production system, which he learned over 20 years with the Japanese auto maker.

For example, in recent months Dana has put in place an “operational excellence” system that focuses on improvement in every plant and process. It addresses a standard set of values, Dana’s manufacturing processes and the tools and metrics it uses within its operating system.

At the same time, the $8.7 billion supplier is pursuing a perfect safety and quality record, the lowest cost for its components and 100% on-time delivery to its customers.

“The early results, only six months into the program, have been both tangible and extremely positive,” Convis says.

For example, at the Lima, OH, heavy-duty driveshaft plant, changeovers in some areas have gone to less than two hours from eight hours in 2007. Capacity on some of its most important products has been increased 80% with little to no capital investment, and the plant recently set a new record for daily driveshaft production.

At its Auburn Hill, MI, driveshaft plant, “strong problem solving” and collaboration between engineering and manufacturing reduced scrap to one-tenth of the level of a couple of months ago, Convis says.

At light-axle manufacturing operations in Fort Wayne, IN, and Day Ridge, KY, the supplier identified and has begun implementing an estimated $2 million to $3 million in cost reductions through standardized work and waste elimination.

“The challenge we face in the coming months is embedding this cultural change in all of our operations in North America and rolling it out globally,” Convis says, noting that Key Performance Indicators, or KPI “report cards” have been deployed at facilities worldwide.

Additional standards will arrive at plants throughout the world later this quarter, Convis says. When fully implemented, they “will help our plants in root cause analysis and many of the daily challenges that inhibit our performance.”

The standards lend transparency to key issues within the plants, which helps Dana management draft defined action plans, set schedules, allocate resources and cultivate leadership to improve performance.

Performance standards are visible on the plant floor and reviewed daily at the plant level, weekly at the regional level and monthly by top executives.

For example, at the company’s Longview, TX, and Hopkinsville, KY, structural product stamping plants, the facilities now focus not on how much they can produce in a given period, “but rather how much we should produce and how best to achieve this goal,” Convis says.

“KPIs are central to our effort to jumpstart Dana’s operations,” he says. “You might be surprised to hear that over the course of my career, I’ve consistently observed that when the workforce is aware of what you are trying to do and of the scorecard on which they are performing, you find a much more engaged (worker) and beneficial outcome.”

Compared with last year, for instance, safety has improved more than 50% and quality has been beating a 25-problems-per-million standard in the last two months.

The establishment of an engineering council focused on spreading best practices also is yielding results.

“Nothing revolutionary,” Convis says of the council’s teachings, “just good, old-fashioned common sense applied in a very focused manner.”

But to help overcome the newest headwinds in the U.S., Dana recently decided to trim its salary and hourly workforce 17% beyond the cuts made as it exited bankruptcy.

It also intends to diversify its customer base, where the Detroit Three currently account for one-third of sales but Toyota recently has emerged as its third-largest customer.

Business with Japanese-based companies has doubled in the last decade, and last year sales surpassed the $1 billion threshold for the first time.

“Our goal is to increase sales with all of our customers, while at the same time diversifying our revenue base,” Convis says.

The supplier also hopes to grow its off-highway and commercial-vehicle businesses, which presently account for nearly 40% of sales.

In particular, Convis says the off-highway sector has grown in the last several years by 20% annually, due mostly to construction in emerging countries and Dana’s ability to supply equipment makers in the agricultural, mining and forest industries.