Dana's destiny: Morcott shooting for 50% sales outside U.S.

When you're on a roll, sometimes the best strategy is to stay at the table. That's apparently how Dana Corp. Chairman and CEO Southwood J. (Woody) Morcott thinks.

Mr. Morcott just finished his busiest and most profitable year at the helm of the venerable 92-year-old Toledo, OH-based company, and he's got a hot hand. Sales hit a record $7.6 billion in 1995, up $1 billion -- or 15% -- from 1994, and profits reached an all-time high of $288 million. That marks an increase of 26% over the previous year.

Dana's volume, he maintains, makes it the largest independent automotive supplier.

Moving to solidify its position, in 1995 Dana added more than 30 facilities, including new and acquired operations, in nine countries. Also in 95, Financial World magazine dubbed Dana one of the year's "Best 100 Growth Companies."

Just try to move Mr. Morcott away from the table. He's shooting for continued growth through the year 2000, most of which he says will come from outside the United States; he wants Dana to generate 50% of its business outside the U. S. by 2000 compared to 31 in 1994 and 35% last year.

"We're in a growth industry, I want to tell you that," he says. "The production of vehicles is a growth industry. But it's not growing in Japan, the U.S. or Germany, necessarily. It's growing in other places, and we're going to be there."

During the last three years Dana has purchased 17 companies. Of those, only three were in the U.S. Last year alone the company picked up GKN plc's European axle operations, Rockwell do Brasil's light-axle manufacturing facilities and aftermarket starter-manufacturer M. Friesen Gmbh. Also in 1995, Dana entered into a driveshaft joint venture in Shenyang, China, and a joint industrial clutch venture in India.

During 1995 Dana built from scratch a constant velocity joint facility in Brazil, two driveshaft operations in kidia and an axle facility in Graz, Austria, to support Jeep Grand Cherokee production.

Elsewhere last year Dana increased its equity position to 70% of Spanish gasket manufacturer Serva and acquired a majority share of its Taiwanese affiliate ROC Spicer. Dana also purchased the remaining publicly held shares of Canadian subsidiary Hayes-Dana Inc. and renamed it Dana Canada Inc.

Dana didn't ignore the home front during its 1995 feeding frenzy. Sealing-products manufacturer The Plumley Companies and injection-molded plastic partsmaker Mohawk Plastics Inc. joined the fold. And a new pickup-truck frame plant in Elizabeth-town, KY, to support Ford F-150 pickup production, and distribution facilities in Riviera Beach, FL, and Salt Lake City, UT, went up. But, clearly Mr. Morcott's focus is abroad.

"Worldwide vehicle production capacity is expected to double over the next 25 years, and Dana plans to share in that global growth," he says, adding that by 2000 global auto output will rise to 55 million units, 10 million more than 1994.

That and the consolidation trend being pushed by automakers around the world "causes us to accelerate everything we're doing:' says Mr. Morcott. "I believe that the Tier I supplier will grow at a faster rate than the industry grows. The growth rate is going to be very fast in Asia and South America," he adds. "India and China are targeted opportunities; we're building factories in both of those places. Europe is going through resourcing that could bode very well for parts suppliers like us as they outsource more, just as the Americans have done."

Besides gobbling up companies, Dana is preparing for the future by focusing its employees on education and continuous improvement. Looking ahead, Dana expects every employee to get 40 hours of classroom education each year (they are currently at 32 hours.)

Dana University, the company's inhouse education program, has 27 fulltime instructors with a total staff of 40. And every plant has its own education center.

On the continuous improvement front, Mr. Morcott says he expects each employee to come'up with two improvement ideas each month and that management is expected to implement 80% of those ideas.

"Our goal is to improve productivity 5% every year:" he states. "It takes a 5% improvement our managers to keep their jobs."

That goal holds true for both Dana's OEM and aftermarket business. The replacement market comprises a third of Dana's total business. Despite the U.S. automakers' push for longer-lasting, more durable components, Mr. Morcott sees replacement parts as a growth business in other markets.

"There's enormous opportunity in (the aftermarket) in South America, Southeast Asia and parts of Africa," says Morcott. "In places like that it's not uncommon to see 12-, 14-year average car ages. The average vehicle age in Uruguay is 17 years or something. I mean it's just enormous."

He adds that even in the U.S., parts may be lasting longer, but are more expensive to replace. "You might have a lower incident rate of repair, but the dollar amount isn't necessarily going down."

Mr. Morcott bases his strategy on the assumption that in the not-so-distant future there will be only be 25 to 50 major Tier I suppliers taking in 75% of the automaker procurement dollars. He says he expects Dana to be among the survivors of the current consolidation trend.

Rene C. McPherson, chairman of Dana Corp. from 1972-1980, died in late February at his home in North Key Largo, FL, after a long illness. He was 71. Mr. McPherson is credited with dismantling the company's rigid corporate structure, giving divisions the ability to operate as "mini-companies." He also threw away Dana's 17-inch stack of operating manuals and replaced it with a one-page policy sheet that is still used today. He later went on to become dean of the Stanford University business school.