A recent flight from Detroit to Germany found TI Automotive executive Domenico Milicia sitting uncomfortably in coach, but all the richer for it.
Under company policy, the director of human resources is entitled to travel to his overseas meetings in the relative comfort of business class. But a higher power had persuaded him to ride in the cheap seats.
That higher power was his boss, Bill Kozyra — and a thousand bucks cash.
“What's the most economical way to travel?” Kozyra, CEO of the automotive supplier, asks rhetorically, slightly grinning at the simple win-win beauty of it. “I'll give people a thousand-dollar incentive to give up their business-class seat and fly coach.”
Employees such as Milicia pocket some spending money at a time when bonuses and profit-sharing programs have been on the rocks around the industry. And TI, with 126 plants in 27 countries, potentially saves thousands of dollars per business trip. Instead of costing $7,000, Milicia's coach ticket cost $400.
Kozyra, silver-haired at 53, shrugs off the novelty. It is just one of the changes the lifelong Detroiter has introduced to cut $130 million a year out of the overhead at TI.
The payoff? Kozyra thinks his customers now view what was previously a private-equity-controlled manufacturer of fuel tanks and fluid lines in a new light.
In the past seven months, automakers have rewarded TI with new contracts totaling $3 billion — or “2 billion pounds sterling,” as Kozyra, who grew up making wooden dies in his father's Detroit die shop, puts it. TI's legal headquarters remains in Oxford, England, but its operational headquarters has moved to Auburn Hills.
“The industry has spoken,” Kozyra concludes. “They like what we've done here.”
Reassembled
What Kozyra has done is ripped TI apart and put it back together again as a supplier determined to prosper during the industry upheaval. Since taking over in July 2008, Kozyra has rewritten policies, closed operations, bought new ones, executed a debt-for-equity overhaul in British court that came a hair short of what Americans call bankruptcy reorganization, relocated his corporate offices, flattened his management structure, increased his position in Japan and begun racking up new parts contracts that are bigger than the auto industry is accustomed to seeing.
This summer — just seven months after Kozyra completed a balance sheet reorganization that flushed away $1.3 billion in debt — Daimler AG handed Kozyra what he calls the biggest contract in TI's history. TI declined to reveal its dollar value, but Daimler will sole-source plastic fuel tanks from TI for most of the Mercedes-Benz vehicles in the world, except the German automaker's small A- and B-class vehicles.
Any day now, Volkswagen AG is expected to announce a similar deal to sole-source plastic fuel tanks from TI for a new multivehicle global platform. The deal effectively consolidates a large piece of VW's global production into TI's hands.
Still another multiproduct, sole-source contract that the company declined to discuss is in the works with another European automaker.
Yet sole-sourcing is a supply-chain strategy that automakers spent the past decade moving away from.
“The auto companies have been shying away from having only one supplier because a lot of suppliers weren't healthy,” Kozyra says. “But the result was a proliferation of their supply bases. They know they need to consolidate, but suppliers have been too unstable.”
Kozyra thinks last year's makeover essentially ridded TI of any reason for automakers to worry about its health. And now, he and his team are pitching TI as the low-cost, debt-free sole source for multimodel, multiplant vehicle platforms.
“That's where we're going now,” Kozyra says, “because that's where the industry wants to go — to fewer suppliers, financially stronger suppliers who can provide a secure business all over the world.
“They're telling us, 'We like what you've done, and we trust you.' And now, they're giving us orders that, before, they would have divided up among three suppliers.”
Last month, TI bought out its 23-year-old Japanese joint venture, Mitsuba Walbro Inc., to take full control of its Japan-made fuel pumps and components. Kozyra says the move was intended to assure customers Honda and Nissan that TI is protecting itself against future supply problems.
Neil De Koker, president of the 400-member Original Equipment Suppliers Association, thinks an opportunity exists for that strategy.
'A case to be made'
“Some automakers, like Toyota, have tended to award large contracts to suppliers based on relationships rather than price,” De Koker says. “But even Toyota has had to move away from awarding 100 percent of a program in the last few years.
“But there's a good case to be made for it. If you've got one financially secure supplier in charge of global production of a part, they're not going to get tripped up by a fire at a plant or a production problem in one country.
“Bill may be onto something.”
First, Kozyra had to restore TI's profitability.
He had made a name for himself in European circles before taking the top spot at TI. A mechanical engineer who holds five patents, Kozyra has spent most of his career moving up the ranks at German automotive companies: Budd Co., Robert Bosch GmbH and Continental AG.
As president of Continental's North American business for most of the past decade, he took sales from $500 million a year, he says, to more than $4 billion. Continental ranked No. 7 on Automotive News' list of the top 150 suppliers to North America for 2008. Kozyra was the only non-German member of Continental's executive board in Germany, although he admits his German language is limited.
'Hemorrhaging'
Moving to TI as the market slowed in mid-2008, Kozyra says, he found North American operations “hemorrhaging.”
“We were running out of money,” he says.
Kozyra drew up a 15-point plan for recovery that included reducing head count. But just three months later when the global recession erupted in full, Kozyra ordered the efforts quickly extended to TI globally.
“I lost track of how many times I went around the world,” he says. “I visited 80 locations to meet with people and get this done.”
The air travel spiff and other expense reductions were just one part. Kozyra reduced his corporate and administrative staff by more than half. According to outside estimates, worldwide head count fell by about 2,000 people, to 14,000.
Kozyra's team decamped from TI's corporate offices in suburban Detroit into shared space in the company's tech center about 25 miles away.
Kozyra also reorganized management. The 88-year-old company — which had descended from Bundy Tubing, a supplier to the Ford Model T — had grown into an ungainly company divided into two divisions, each with its own president.
Kozyra eliminated the division-president level and divided TI into five groups focused on its global business areas: fuel tanks, fuel pumps, brake and fuel lines, powertrain parts, and heating and air-conditioning parts. Each group now has a vice president who reports directly to Kozyra.
'Group of 10'
Those five vice presidents, along with five other executives, form the small “group of 10” that reports to Kozyra on a company that recorded $1.69 billion in 2009 global sales to automakers, a decline from an estimated $2.1 billion a year earlier, according to the Automotive News lists of the top 100 global parts suppliers for those years.
Kozyra ordered a cost-cutting drive on nonproduction materials. Purchasing managers at TI, a maker of plastic components such as tubing and fuel lines, can't do much about the cost of raw materials. Instead, TI cut by a tenth the amount it spends annually on items as diverse as gloves for workers, safety shoes and factory tools.
At the same time, Kozyra asked for quality improvements that could save money. A big one: simply preventing tubes from getting damaged on the work floor. A long plastic fuel line that accidentally gets stepped on becomes useless scrap if the very tip of it is broken. The solution: protective tip covers that cost a penny apiece.
In the midst of the changes, Kozyra also arranged the debt-for-equity swap that is now the linchpin of his plans. Details of the arrangements were not made public because TI is privately held. But the company acknowledges that it cleansed its books of about $1.3 billion in debt.
In the process, TI created a new shareholder group, going from a small handful of private equity holders to a more diverse group of about 20 owners today.
“We're profitable now,” Kozyra says, audibly exhaling.
A big-shouldered man who likes driving his 10-year-old Corvette convertible — although he has managed to put only 6,000 miles on it — Kozyra says his traveling schedule has not calmed down. He flies commercial.
“Some months, I'm on the road 80 percent of the time,” he says. “But we have a lot of operations I want to go see. I want to tell people: We're not the old, debt-laden TI. We're a new TI, and the future's bright.”