David Stockman is taking on supplier-side economics.
The man who championed ``Reaganomics'' as budget director for President Ronald Reagan from 1981-85 is leaving Wall Street to oversee the day-to-day operations of Collins & Aikman Corp. And Stockman - who voted against the Chrysler bailout when he was a member of the U.S. House of Representatives - now finds himself heading a company that has DaimlerChrysler AG as its biggest customer.
Stockman took over as chief executive officer from Jerry Mosingo on Aug. 11, just slightly more than a year after Stockman and other members of C&A controlling owner Heartland Industrial Partners LP had tapped Mosingo to lead the company.
At the time, Stockman, who continues his post as chairman of the board for the Troy, Mich.-based suppliers, had praised Mosingo's capabilities as a manufacturing and operations expert.
Now the firm is focusing on the bottom line and cutting nearly 750 salaried jobs on its way to Stockman's goal of generating a return of 10 percent before income taxes, depreciation and amortization.
``We are going to step up the pace of improvement,'' Stockman said in an Aug. 15 conference call. ``My new role is to provide strategic leadership and focus on competitive advantage. I am not an interim CEO.''
The firm did end Mosingo's era on a positive note, posting a second-quarter net profit of $10.7 million on sales of $1.03 billion, compared to a loss of $28.7 million for the first quarter.
Company watchers said Mosingo and Heartland officials split over the size of the jobs cut, with Mosingo believing it was too deep. He also resigned as company president and a director of Collins & Aikman.
Stockman said he was confident the company will have the personnel needed to survive, but he would not comment on Mosingo's departure. The 14 percent cut in headcount merely aligns the overhead with the streamlined manufacturing operations, Stockman said, while also saving more than $50 million annually.
Mosingo's departure follows that of Tom Evans, who resigned as CEO, president and chairman Aug. 1, 2002, just seven months after making Collins & Aikman the biggest injection molder in North America through its purchase of Textron Automotive Co. Inc.'s trim unit.
The December 2001 acquisition was part of an overall design to create what Stockman called a ``Mega Tier 2,'' a company specializing in manufacturing nearly every part of an automotive interior, except for the seats. The move created size, with C&A on track for nearly $4 billion in annual sales. But it also left the business with extensive debt and the costs of integrating all of its acquisitions.
The company also announced Aug. 15 it is undergoing an audit looking into circumstances of its purchase of the auto unit of Joan Fabrics Corp. and Becker Plastics LLC in 2001. Executives with those companies - Charles Becker of Becker Plastics and Elkin B. McCallum, CEO and chairman of Joan Fabrics - both are now members of the C&A board.
The firm said it was confident the audit would turn out in its favor.
Stockman's new posting was intended to encourage investors, although some still expressed concern.
``There is a question of credibility with you guys,'' said Deutsche Bank analyst David Bitterman during the conference call. ``The market got somewhat rattled over the course of this week.''
Things did not go smoothly under the new administration's tenure following the Aug. 11 announcement of the management change. A planned Aug. 13 conference call with analysts releasing the results of C&A's second quarter was delayed to the afternoon of Aug. 14. Five minutes after the rescheduled start time, Robert Krause, vice president and treasurer, came on the line to announce that the company still did not have things ready, and rescheduled the call to 8:30 a.m. Aug. 15.
Then the massive power outage that hit the eastern United States and Canada forced the company to conduct the call on one of the only working phone lines at its Troy headquarters, while executives worked by lanterns. Regardless, Stockman said it was important to conduct the delayed call to reassure stockholders and analysts.
``It's a fairly dramatic move when you have an equity sponsor decide to put their person in as CEO,'' said Nancy Messer, a Standard & Poor's Rating Services analyst who recently downgraded the company's debt rating. ``They want to instill some confidence, show that they're not going to abandon Collins & Aikman, that they're not going to let it go into bankruptcy, but the interesting thing is that David Stockman has no operating experience.''
It is difficult, she noted, to find the right management team able to run a large, complex business that has gone through a major integration program - especially when it is operating in a difficult industry.
Stockman served two terms in the 1970s and early 1980s as House of Representatives member before joining the Reagan administration.
Now he has made a name for himself in private equity. He formed Heartland in 2000 to focus on manufacturing in mid-America.
Heartland took a controlling interest in Collins & Aikman in January 2001.
The intention was to build a strong manufacturing base that could produce nearly anything in an auto interior, but that strategy has not been without its doubters. The second tier is tough for any company to handle, said Kim Korth, president of Grand Rapids, Mich.-based consulting group IRN Inc.
``They want to be the king of plastic parts and dominate its market, but market size does not equal market power,'' she said. ``They've got a business model without a real differentiation strategy.''
Where the company has pegged its expertise in offering something new - combining manufacturing expertise with acoustics performance - it is stuck in an industry that does not move quickly. Sales so far combining materials with sound performance are on vehicles that will not launch for another year or more.
``[Stockman] needs to put his name and his reputation out there to keep things going until these new products come out in 2005 or 2006,'' Korth said.
Collins & Aikman stock, which had sold for more than $28 in the spring of 2002 following a reverse stock split, had settled in between $4 and $5 this year before dropping to a little more than $2 before Stockman took charge.