It’s been four months since the passing of Richard Dauch, founder of American Axle & 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AAM sprang to life in 1994 when the elder Dauch led an investment team that purchased from General Motors five outdated axle, forging and driveshaft plants in Michigan and New York with an emphasis on axles for pickup trucks.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 manufacturing facilities in the 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 disconnecting all-wheel-drive system in the new Jeep Cherokee.
WardsAuto: When American Axle was founded in 1994, 99% of axle and driveline sales were to General Motors. In 2005, 78% of sales were to GM and in the third quarter of 2013, GM business represented 71% of revenue. What is your projection for GM business by percentage two years from now? Is it important to drop that share below 50%?
Dauch: AAM is targeting parity between GM and non-GM sales by mid-decade. This target includes sales from our unconsolidated joint venture in Hefei, China, where nearly all of the business is non-GM. We are very pleased with our growth in GM and non-GM sales, which we expect will continue to exceed industry trends.
Overall, improved business diversification is the key to AAM’s long-term success.
Customer diversification is one important measure for this initiative. The expansion of our product portfolio to include exciting new offerings for the passenger-car and CUV market, as well as increased sales outside North America, are also major drivers of AAM’s improving business diversification.
WardsAuto: Closing manufacturing plants in Detroit and Cheektowaga, NY, last year must have been extremely painful for your father and for the workers. Is morale bouncing back as business continues picking up once again?
Dauch: AAM has always been focused on doing what is necessary to provide the highest quality products to our customers at a market-competitive price. From time to time, we have had to make difficult decisions for the long-term viability of our company. Closing the Detroit Manufacturing Complex and the Cheektowaga Manufacturing Facility was necessary because we were not able to achieve market-cost competitiveness at these locations.
Today, we are managing a completely different set of circumstances as AAM is growing faster than our industry. We have invested more than $110 million in our Three Rivers (MI) Manufacturing Facility and are hiring more than 500 new associates to support the launch of EcoTrac, the automotive industry’s first disconnecting all-wheel-drive system. AAM’s associates are excited about these developments and sharing in our success.
WardsAuto: American Axle used to focus its business in North America, while most of your growth over the years has come in Asia. Do you see a time when expansion in North America, particularly the U.S., will be necessary? Is there a future for manufacturing in the U.S.?
Dauch: There is most definitely a future for manufacturing in the U.S. Manufacturing is essential for the vitality, security and economic future of the U.S. It is how we generate wealth, create value and provide jobs for our society and our communities. Manufacturing made this country great, and it most definitely has a future in the U.S.
While we are increasing our participation in global growth markets, AAM’s business is growing in North America. In addition to the new investments we have made at our Three Rivers Manufacturing facility to support the launch of EcoTrac, AAM has recently opened three new manufacturing facilities in the U.S. and two new facilities in Mexico. Over the next five years, AAM plans to make significant additional investment to expand and maintain our capabilities in this region.
WardsAuto: Years ago, American Axle was attempting to expand its product portfolio beyond body-on-frame pickups and SUVs to include car-based all-wheel-drive systems, such as on the new Cherokee. Where does the strategy take you next?
Dauch: AAM is working on the launch of a $1 billion 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 innovative approach to providing enhanced vehicle control while maximizing fuel economy through disconnecting many of the rotating components from the driveline when they are not required. This allows the vehicle to use its primary drive system when AWD is not needed.
WardsAuto: It’s been three months since your father died. He was a determined leader with a headstrong management style. What kind of management style are you trying to establish for yourself? He never hesitated to confront labor. How about you?
Dauch: AAM was founded with a vision to be a premier Tier 1 automotive supplier committed to operating at the highest quality standards available in the global marketplace. This has not changed. AAM’s cultural values and strategic principles continue to be the driving force behind our associates. AAM has a sustainable business model, including a robust succession and progression plan for our management team.
As CEO, my goal is to build a strong global team and empower our associates to make the right business decisions for our company while staying focused on AAM’s foundational commitments to quality, operational excellence and technology leadership. Just as I have for years, I will work with all of our associates – hourly and salaried – to continue our cooperative and productive relationships in order to achieve and maintain a market-competitive labor cost structure to ensure the long-term viability and sustainability of our businesses.
WardsAuto: The European 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 to develop and enhance AAM’s product offerings to help our customers achieve their fuel-efficiency and emissions-reduction objectives. By leveraging our expertise in mass optimization, high-efficiency designs and improved NVH performance, as well as innovative new technology advancements such as our e-AAM hybrid and electric driveline technology, AAM’s product portfolio is well positioned to meet these market demands.
WardsAuto: Beyond the BRIC nations (Brazil, Russia, India, China), what is the most promising emerging market and why?
Dauch: When AAM was first established, we had five facilities in the U.S. As a part of AAM’s strategic global growth plan, we now have more than 30 facilities in 13 countries. Outside of our expansion in China and India, the most promising emerging market growth opportunity for AAM is in Thailand. Thailand is the largest vehicle market in Southeast Asia and the second largest pickup-truck market in the world. AAM’s product lineup and core competencies are a natural fit for the vehicles produced in Thailand.
Our operations in Thailand are based in AAM’s Rayong Manufacturing Facility. This complex is located in the centralized southeastern region of the country, which has a first-rate logistics infrastructure and a large pool of skilled manufacturing candidates. The Rayong plant currently supports a major light-truck program for one customer and has recently earned additional business with a second global OEM.
WardsAuto: Where are the capacity bottlenecks to increasing vehicle production? Will American Axle be constructing new lines, adding more shifts or crews at existing operations or otherwise increasing flexibility to expand output in the coming year? How will you work with suppliers to ensure they keep pace with expanded production?
Dauch: Over the past several years, AAM has established a cost-competitive, operationally flexible global manufacturing, engineering and sourcing footprint. By 2015, we expect AAM’s sales to grow beyond $4 billion. We also expect our sales outside North America to grow to 25% of our total sales in this time frame.
The key to supporting this global growth and sustaining our ability to support our customers is to balance our internal component machining and assembly operations and our external supply base. We are hiring new associates and expanding our manufacturing operations, especially in North America, China, Thailand and Poland. We also are working closely with suppliers in these regions to expand their capabilities to support our needs in these regions.