The new chief executive officer of Breed Technologies Inc. has begun a dramatic overhaul of the struggling auto safety systems supplier.
Texas financier B. Edward Ewing wants $200 million in cost savings this year. So he has ordered 3,500 layoffs throughout Breed's global operations, nearly 27 percent of the work force, and is seeking steep price cuts from his suppliers to halt Breed's deteriorating finances.
Also, automakers will be asked for an 18-month pause in price cuts on Breed's air bags, steering wheels, seat belts and electronics products.
``Breed will be a stronger company if I take these actions,'' said Ewing, who led the April 28 buyout of the world's fourth-largest safety equipment supplier. ``If I don't, Breed will not be around.''
Breed is the latest parts maker to be acquired by a growing field of private equity investment firms snapping up financially ailing suppliers.
The company emerged from Chapter 11 bankruptcy in 2000 but did not leave its problems behind, Ewing said.
Breed is consuming $50 million more each year than it is generating, Ewing said. ``How long can they go on? My guess is not very long.''
Ewing is asking Breed's suppliers for a 13 percent price cut, or $78 million, on the $600 million it spends annually for materials. Material represents 55 percent of Breed's total costs. Ewing also has told Breed's suppliers to accept 90-day payment terms, up from the industry average of 45 days.
The toughest sell is Ewing's goal of a halt on price concessions to automakers; Breed long used them to compete against larger rivals, such as Autoliv Inc. and TRW Automotive Inc.
``We simply cannot give back money we don't have,'' said Ewing. ``We need to produce it and give some back later.''
The company languished in Chapter 11 bankruptcy. Thirty-two prospective buyers looked at Breed but passed on the opportunity. Breed's financial condition and financial reporting systems were part of the problem.
``They made a lot of deals without knowing their costs, so they made a lot of bad deals,'' Ewing said. ``Breed was on a path that would never allow it to be successful.''
Ewing said he will cut Breed's 290-person Lakeland, Fla., headquarters staff to less than 60. They will be relocated this year either to Breed's engineering and sales office in Sterling Heights, Mich., or the Key Automotive LLC office in Novi, Mich.
Among the first casualties was John Riess, Breed's previous CEO, and the chief financial officer. Two more senior officers will depart within 60 days. About 2,500 employees will be cut this year and another 1,000 next year. Breed employs 13,200 at 32 facilities in 12 countries.
The Breed name will be another restructuring casualty. It will become Key Safety Systems if there are no claims on the name.
Company namesake Alan Breed founded Breed Corp. in 1961. It was Breed who adapted his expertise in military explosives to air-bag inflators and crash sensors, designing and patenting the first electromechanical crash sensor.
The company will be folded into Key Automotive, the holding company created when Carlyle Management Group of Dallas acquired Key Plastics LLC out of bankruptcy court in April 2001. Key later bought the assets of Soo Plastics Inc. from Chapter 11 bankruptcy. Ewing is a principal in Carlyle.