It’s been four months since the passing of Richard Dauch, founder of& Manufacturing, and more than a year since his son David took over as president and CEO of the Detroit-based driveline supplier.
AAM sprang to life in 1994 when the elder Dauch led an investment team that purchased fromfive outdated axle, forging and driveshaft plants in Michigan and New York with an emphasis on axles for pickup trucks.
Like so many parts makers, AAM struggled through the lean years of 2008 and 2009 and eventually had to close plants in Detroit and Cheektowaga, NY.
But its fortunes are rising, along with sales of pickup trucks, and new product offerings are drawing AAM into the front-wheel-drive car and CUV market. AAM recently opened three new manufacturingfacilities inthe U.S. and two facilities in Mexico.More investments are planned over the next five years.
David Dauch, who added the title of chairman in August, shares his thoughts with WardsAuto about growth prospects in Thailand, expansion of non-GM business, the future of manufacturing in the U.S. and the significance of EcoTrac, the industry’s first disconnectingall-wheel-drive system in the new Jeep Cherokee.
WardsAuto:When was founded in 1994, 99% of axle and driveline sales were to . In 2005, 78% of sales were to GM and in the thirdquarter of2013, GM business represented 71% of revenue. What is your projection for GMbusiness by percentage two years from now? Is it important todrop that sharebelow 50%?
Dauch:AAM is targeting parity between GMand non-GM sales by mid-decade. This target includes sales from ourunconsolidated joint venture in Hefei, China,where nearly all of the businessis non-GM.We are very pleased with our growth in GM and non-GM sales,which we expect will continue to exceedindustry trends.
Overall, improved business diversification isthe key to AAM’s long-term success.
Customerdiversification is one important measure forthis initiative.The expansion of our product portfolio toinclude exciting new offerings for the passenger-car and CUVmarket, as well asincreased sales outside North America, are also majordrivers of AAM’s improving business diversification.
WardsAuto:Closingmanufacturing plants in Detroit and Cheektowaga, NY, last year must have beenextremely painful for your father and for the workers. Is moralebouncing backas business continues picking up once again?
Dauch:AAM has always been focused on doingwhat is necessary to provide the highest quality products to our customers at amarket-competitive price.Fromtime totime, we have had to make difficult decisions for the long-term viability ofour company.Closing the DetroitManufacturing Complex and theCheektowaga Manufacturing Facility was necessarybecause we were not able to achieve market-cost competitiveness at theselocations.
Today, we aremanaging a completelydifferent set of circumstances as AAM is growing faster than our industry. We haveinvested more than $110 million in our ThreeRivers (MI) Manufacturing Facility and are hiringmore than 500 new associates to support the launch of EcoTrac, theautomotive industry’s first disconnectingall-wheel-drive system.AAM’s associates are excited about thesedevelopments and sharing in our success.
WardsAuto:AmericanAxle used to focus its business in North America, while most of your growthover the years has come in Asia. Do you see a time when expansionin NorthAmerica, particularly the U.S., will be necessary? Is there a future formanufacturing in the U.S.?
Dauch:There is most definitely a futurefor manufacturing in the U.S. Manufacturing is essential for thevitality, security and economic future of the U.S. It is how we generatewealth, create value and provide jobs for oursociety and our communities.Manufacturing made this country great, and it most definitely has a future inthe U.S.
While we are increasing ourparticipation in global growth markets, AAM’s business is growing in NorthAmerica.In addition to the newinvestments wehave made at our Three Rivers Manufacturing facility to supportthe launch of EcoTrac, AAM has recently opened three new manufacturingfacilities inthe U.S. and two new facilities in Mexico.Over the next five years, AAM plans to makesignificant additional investment to expand and maintain ourcapabilities inthis region.
WardsAuto:Yearsago, American Axle was attempting to expand its product portfolio beyondbody-on-frame pickups and SUVs to include car-based all-wheel-drivesystems, such as on the new Cherokee. Where does the strategy take you next?
Dauch:AAM is working on the launch of a $1billion new and incremental business backlog from 2013 through 2015.Two-thirds of this new business is for rear-wheel-drive and AWD passenger cars and crossovers.
AAM’s EcoTrac Disconnecting AWD system, an industry-first technology, is an innovativeapproach toproviding enhanced vehicle control while maximizing fuel economy throughdisconnecting many of the rotating components from the drivelinewhen they arenot required.This allows the vehicle touse its primary drive system when AWD is not needed.
WardsAuto:It’sbeen three months since your father died. He was a determined leader with aheadstrong management style. What kind of management style are youtrying toestablish for yourself? He never hesitated to confront labor. How about you?
Dauch:AAM was founded with a vision to bea premier Tier 1 automotive supplier committed to operating at the highestquality standards available in the globalmarketplace.This has not changed.AAM’s cultural values and strategic principlescontinue to be the driving force behind our associates. AAM has asustainablebusiness model, including a robust succession and progression plan for ourmanagement team.
As CEO, my goal is to build a strongglobal team and empower our associates to make the right business decisions forour company while staying focusedon AAM’s foundational commitments to quality,operational excellence and technology leadership. Just as I have for years, Iwill work with all of ourassociates – hourly and salaried – to continue our cooperativeand productive relationships in order to achieve and maintain a market-competitive labor coststructure to ensure the long-term viability and sustainabilityof our businesses.
WardsAuto:TheEuropean Union recently pushed back its 95 g/km CO2 target from 2020 to 2024.Does that change American Axle’s product-development strategy?
Dauch:This does not change AAM’s product-development strategy.We will continue todevelop and enhance AAM’s product offerings to help our customersachieve theirfuel-efficiency and emissions-reduction objectives.By leveraging our expertise in massoptimization, high-efficiency designs and improvedNVH performance, as wellas innovative new technology advancements such as our e-AAM hybrid and electricdriveline technology, AAM’s product portfolio is well positioned to meet these market demands.
WardsAuto:Beyondthe BRIC nations (Brazil, Russia, India, China), what is the most promising emergingmarket and why?
Dauch:When AAM was first established, we had five facilities in the U.S.As a part of AAM’s strategicglobal growth plan, we now have more than 30facilities in 13 countries. Outsideof our expansion in China and India, the most promising emerging market growthopportunity for AAM is inThailand.Thailand is the largest vehicle market in Southeast Asia and the secondlargest pickup-truck market in the world. AAM’s product lineup and corecompetenciesare a natural fit for the vehicles produced in Thailand.
Our operations in Thailand are based in AAM’s Rayong ManufacturingFacility.This complex is located inthe centralized southeastern region of thecountry, which has a first-rate logisticsinfrastructure and a large pool of skilled manufacturing candidates. The Rayong plantcurrently supports a major light-truck program for one customer and has recently earned additional business witha second global OEM.
WardsAuto:Whereare the capacity bottlenecks to increasing vehicle production? Will AmericanAxle be constructing new lines, adding more shifts or crews at existingoperations or otherwise increasing flexibility to expand output in the comingyear? How will you work with suppliers to ensure they keep pace withexpandedproduction?
Dauch:Over the past several years, AAM has established acost-competitive, operationally flexible global manufacturing, engineering andsourcing footprint.By2015, we expect AAM’ssales to grow beyond $4 billion.Wealso expect our sales outside North America to grow to 25% of our total salesin this timeframe.
The key to supporting this global growth andsustaining our ability to support our customers is to balance our internal componentmachining and assemblyoperations and our external supply base. We are hiringnew associates and expanding our manufacturing operations, especially in NorthAmerica, China,Thailand and Poland.Wealso are working closely with suppliers in these regions to expand theircapabilities to support our needs in these regions.