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TRW Inc.

TRW Inc.

1900 Richmond Road
Cleveland, Ohio 44124-3760
U.S.A.
(216) 291-7000
Fax: (216) 291-7629

Public Company
Incorporated:
1901 as Thompson Products Co.
Employees: 64,200
Sales: $9.09 billion
Stock Exchanges: New York Midwest Pacific Philadelphia London Frankfurt
SICs: 3714 Motor Vehicle Parts & Accessories; 3812 Search
& Navigation Equipment; 7374 Data Processing &
Preparation; 7323 Credit Reporting Services

Long a conglomerate, TRW Inc. is now primarily one of the worlds leading automotive parts makers, with smaller operations in space and defense technology and information systems and services. TRWs automotive sector is led by its air bag systems, with power-steering systems and engine valves of secondary importance. The space sector has lately concentrated on satellites and satellite systems, including those for satellite phones. Its information services sector is best known for its credit-rating service.

TRWs conglomerate structure is deeply rooted in the companys history. In the early 1950s the Cleveland-based Thompson Products was looking for an acquisition. J. David Wright, the companys general manager, and Horace Shepard, a vice president, thought the auto valve and steering component maker needed more technical sophistication. Thompson, founded in 1901, had made a name for itself in automotive and aircraft engine parts and had become well known by sponsoring the famed Thompson Trophy Race, the aeronautical equivalent of auto racings Indianapolis 500. However, in recent years the company was facing a decline in manned aircraft and saw opportunities in aerospace and electronics.

To break into the young high-tech industry, Wright and Shepard tried to buy Hughes Aircraft Co. Hughes was willing to listen to bids but scoffed at the Thompson offer, which was thought to be ten times too low. Just a few months later, two of Hughes Aircrafts top scientist-executives, Simon Ramo and Dean Wool-ridge, decided to leave Hughes to form a new electronic systems company, and Thompson put up $500,000 to bankroll the venture. Not long afterward, Ramo-Woolridge Corporation was established in Los Angeles and quickly gained solid standing in the advanced technology business, being awarded the systems engineering and technical direction contracts for such important missile programs as Atlas, Minuteman, Titan, and Thor.

By 1958 Thompson Products had invested $20 million20 percent of its net worth at the timefor a 49 percent interest in Ramo-Woolridge, and the two operations were merged as Thompson-Ramo-Woolridge. Though united on paper, the company maintained separate corporate headquarters, with Woolridge president in Los Angeles and Wright chairman in Cleveland. Ramo and Shepard, a former chief of production procurement for the Air Force, also had an active role in management.

The merger could hardly have started less auspiciously. In the midst of a recession, the Cleveland-based group was hit with a 14 percent drop in automotive business and a 34 percent drop in manned aircraft business. When business improved for the Cleveland division, the Los Angeles division got into trouble. Its venture into semiconductors collapsed in 1961, and the McNamara era was beginning at the Pentagon. The West Coast scientists, who had only known cost-plus-fixed-fee contracts, needed help. They had to learn how to go from spending money to making it. This education was hampered by hard feelings between the two groups. The electronics end was not living up to its promise of being the business of the future. In the first four years following the merger, profit margins, which had been at the 4 percent-plus level in the mid-1950s, dropped to an average of barely 2 percent.

With the company facing such mundane tasks as cost-cutting, Woolridge, who reportedly never really wanted to be a businessman anyway, resigned in 1962. As Woolridge was getting settled in at his new job as a professor at Caltech, Shepard was promoted to president and Ramo named vice-chairman. With Cleveland now in control of the company, the Los Angeles scientists were quickly reassured when the new management team instituted a number of reforms to get the company back on its feet, including writing off $3 million in inventory.

In 1963, Shepard and Wright began pruning unprofitable divisions. They sold most of the unprofitable Bumkor-Ramo computer division to Martin Marietta. The company retained partial ownership in Bumkor-Ramo but no longer played a large role in the companys plans. Shepard and Wright continued hammering out the companys plans for long-term growth, seeking specifically to raise profit margins. To this end, in 1964 they sold the microwave division and the division that made hi-fidelity components, intercoms, and language laboratories.

To shore up the companys auto parts division, they bought Ross Gear & Tool, a maker of mechanical and power steering units, and Marlin-Rockwell, a ball bearings manufacturer. The 7 percent profit margin of the new acquisitions, which had a combined profit of $5.7 million on sales of $76.5 million, helped boost TRWs overall margin to 4 percent in 1964, up a percentage point from the year earlier.

In 1965, in another look toward the future, Thompson-Ramo-Woolridge adopted a shorter, less cumbersome name, the now household initials TRW. Also in that year, the companys investment in aerospace and electronics became increasingly clear. In the previous decade, sales in space and electronics shot up from $14 million to $200 million. Despite that dramatic growth, the companys earnings still came mostly from its oldest business, auto parts. New and replacement parts accounted for 34 percent of TRWs $553 million in sales and 40 percent of its earnings. Chief among those products were its steering linkages, valves, and braking devices that it sold to General Motors, Ford, and Chrysler.

TRWs prospects improved in 1966. An auto parts boom helped the companys profitability. The Cleveland-based automotive group had a return of 6 percent on sales of $350 million. The equipment group, also in Cleveland, had an increase of sales to $200 million in aerospace and ordinance technology but lower profit margins because of start-up costs for unexpected demand in commercial aircraft. The Los Angeles-based TRW Systems had $250 million in sales and a 3 percent profit margin building and designing spacecraft and doing research. Totals were up to $870 million in sales for TRW, producing $36 million in profit for a 4.2 percent return. Even with the upturn in sales, the company was relying less on government contracts, down to about 44 percent from 70 percent ten years earlier.

With the companys finances on the upturn, the wrangling between Los Angeles and Cleveland declined. As Business Week reported, the discord was under control, if not cured. The company continued tightening its operations in 1966. It bought United Car with $122 million in sales and sold its one consumer business, a hi-fi manufacturer.

TRW had grown into a conglomerate, a term disliked by company management. In 1969 TRW operated six groups that, in turn, administered 55 divisions. The company derived 32 percent of its revenues from aerospace products and systems and computer software, 28 percent from vehicle components for autos and trucks, 23 percent from electronic components and communication, and 17 percent from industrial products ranging from mechanical fasteners to automated controls.

To manage the increasingly far-flung company, TRW maintained strict management control over all operations. By encouraging communication between all levels of management and holding monthly manager meetings, TRW avoided the problems that had plagued other conglomerates. Another of TRWs successful management styles caught Fortunes eye in 1966. The magazine covered in depth the happenings of a TRW management meeting in Vermont, where 49 of the companys top executives had gathered annually since 1952 at an old farmhouse to think about the companys future.

TRW continued beefing up its auto parts business, acquiring Globe Industries, a Dayton-based maker of miniature AC and DC electric motors. At the same time, TRWs electronics group had grown to more than 20 plants in the United States, Canada, and Mexico. The company continued to evade problems that had plagued other conglomerates, posting a slight pretax gain of 16.4 percent, above the industry average of 13.3 percent.

In 1969 TRW named a new president, Ruben F. Mettler. One of his first big projects was a contract for a laboratory that NASA would send on the Viking probe to Mars. TRW won the challenge to provide one black box weighing 33 pounds with complex instruments capable of making biological and chemical tests to detect the most primitive forms of life. The NASA contract was worth only $50 million, not a big financial risk for a multibillion dollar company like TRW, but the job was important for the companys prestige.

The auto parts business, in the meantime, was once again proving to be immune to cyclical trends in car output. The market for new parts was in a slump, but it was made up for by the accompanying increase in demand for replacement cars as consumers kept their cars on the roads longer. TRW also announced a move into business credit reporting, challenging Dun & Bradstreet.

The companys sound financial condition was unmistakable. For the five years preceding 1970, the company had average earning jumps of 27 percent annually and an average 23 percent increase annually in sales. But company officials conceded that the company could not keep growing at that rate forever. It had acquired 38 companies through 1968, a pace it would not be able to maintain indefinitely. The company looked for future growth to run about 10 percent.

The companys skillful management again became apparent in 1971, when TRW was forced to make cuts because of an aerospace recession. Its TRW Systems division had to cut the number of employees by 15 percent. Managers were not spared cuts either; 18 percent of the professional staff was laid off. The companys open management style enabled TRW to build a strong enough relationship with its employees that two-thirds of them were nonunion, perhaps preventing the labor squabbles that had appeared in other companies.

TRW made a risky venture in 1976, entering the tricky market of electronic point-of-sale machines. Those machines had boosted profits for retailers, but not for manufacturers. Its proposed 2001 system targeted the general market and cost $4,000 per unit, similar to competitors. TRWs move into POS was largely a defensive tactic. The electronic credit authorization business it had pioneered in the 1960s was coming under increasing competition. Then NCR, the overall leader in POS machines, launched a POS system incorporating credit checking in 1975. TRW attempted to enter the market with an established customer base by acquiring the service contracts for the 65,000 customers Singer had built up during its short, ill-fated move into the POS market. TRW remained cautious, however, only delivering 200 to 300 machines in 1976, mostly to the May Co. Altogether that year nonfood retailers ordered 24,500 POS terminals worth $94 million, and the market was picking up.

In 1976 TRW achieved the moment of glory it had long awaited with Vikings historic landing on Mars. The company took out full-page newspaper ads proclaiming That lab is our baby. Appropriately, Mettler, 52, who had pushed for TRW to compete for the Viking contract, was named to succeed Horace A. Shepard as chairman and chief executive officer when Shepard retired the next year.

Aerospace ventures continued to play an important role in the companys finances. In 1977 TRW was still the chief engineer for U.S. intercontinental ballistic missiles. Aerospace and government electronic revenues were providing a cool $60 million in profits on revenue of $440 million. The electronics division had $300 million in sales. The data communications unit was also doing well with over $150 million in sales. It had established a retail credit bureau, a business credit system, and was an international maker of data communications equipment. However, auto and commercial parts were still accounting for twice as much in sales and five times as much in earnings.

In 1980 TRW and Fujitsu Ltd., Japans largest computer maker, formed a joint venture. TRW had a 3,000-person service organization, reportedly the largest independent network in the United States for data process maintenance, with a special team to develop software. Each company invested $100 million, with Fujitsu keeping a 51 percent share and TRW 45 percent. TRW initiated the venture, seeking a foreign partner to perform maintenance work for its POSs. Fujitsu, which earned 68 percent of its revenue from data processing, was eager to expand overseas to increase its economy of scale to compete with IBM back home. Fujitsu named a majority of the directors of the new company so it could qualify for Japanese export and financing tax breaks, but TRW took charge of running it. One of new companys first moves was to buy TRWs ailing POS and ATM maker division. The company, hoping in the beginning to capture a large segment of the small and medium-sized computer market, predicted sales of $500 million to $1 billion by the decades end.

Despite TRWs careful planning, the POS and Fujitsu deals both proved unsuccessful. The competition from established POS makers, particularly IBM and NCR, was too great. Nonetheless, TRW remained a strong, highly visible company. Forbes in 1983 called it a paragon for other conglomerates. It had by then grown to $5 billion in sales spread across 47 different businesses and had 300 locations in 25 countries. It had also grown to be the number one producer of valves for automobiles and aircraft plus a wide range of other products. With a 16 percent return on stockholders equity as proof, Forbes called TRW one of the best-managed, most successful American companies. However, this outward success belied the companys growing inefficiency.

By the time Joseph T. Gorman was named president and chief operating officer of TRW in 1985 (he became chairman, president, and chief executive officer in 1988 when chairman Ruben Mettler retired), the company had grown bloated, inefficient, and overdiversified. It hit a low in 1985 when it lost $7 million on sales of $5.92 billion. Mettler and Gorman instituted a three-year restructuring plan that aimed to focus resources on core businesses, to slash staff, and to increase efficiency. The new TRW would focus on three main areas: automotive products, space and defense projects, and information systems and services. Among the noncore businesses divested were the firms energy division. Staff was reduced from 93,200 in 1985 to 73,200 in 1988.

From 1986 to 1990, TRWs financial outlook improved somewhat with the new corporate structure. Although sales rose each year to a high of $8.17 billion in 1990, profits were stagnant and actually fell from 3.7 percent in 1988 to 3.6 percent in 1989 to 2.6 percent in 1990.

In 1989 TRW made a huge and risky commitment to what at the time was an unprofitable business: air bags. That year it purchased Talley Industries Inc.s driver-side air bag unit for $85 million, plus royalties on any air bag sold in North America through the year 2001. TRW also began to invest in the development of passenger-side air bags. In total, the company invested more than half a billion dollars in its air-bag business by 1992. Until the fourth quarter of 1991, TRW lost money on air bags. Although Ford had chosen TRW as its sole supplier of the safety devices in 1989, TRWs fortunes suffered in 1990 because of a Ford recall of 55,000 vehicles with defective air bags and a massive fire at TRWs passenger-side air-bag plant (TRW air bags used sodium azide as its propellant, a chemical prone to explode in the manufacturing process). TRWs automotive business also suffered from a recession in the automotive industry in 1989 and 1990.

The space and defense sectors of TRW were also suffering from the end of the Cold War and the resultant leveling off in defense spending. With its two main sectors down, overall TRW sales for 1991 fell 3.1 percent to $7.91 billion. Gorman embarked on another restructuring late that year, incurring a $365 million charge that resulted in a $140 million loss for the year. This restructuring aimed to remake TRW into primarily an automotive products company, with reduced operations and investments in the space and defense and information sectors. With air bags now profitable and generating $600 million in annual revenue, the company aimed to take advantage of their increasing popularity with consumers and the mandatory inclusion of dual air bags in vehicles by the year 1998. Gorman also set his sights on overseas markets not only for air bags but also for TRWs power-steering systems and engine valves.

By 1994, TRWs automotive operations accounted for 63 percent of total sales, compared to 56 percent in 1992 (and 40 percent in the early 1980s), whereas space and defense accounted for only 31 percent, compared to 35 percent in 1992 (and 50 percent in the early 1980s). The defense operations were also reduced, with sales to the U.S. government falling to 28 percent of total sales, compared to the 45 percent figure of the late 1980s. Meanwhile, international sales accounted for 35 percent of total sales in 1994 (compared to 25 percent in 1985), led by sales to Japanese automakers of $800 million.

Although TRW appeared to have turned the corner with 1994 sales totaling $9.09 billion, an increase of 14.3 percent over 1993, the companys future was clouded. With a full 20 percent of revenue coming from air bags, TRW seemed particularly vulnerable to increasing air-bag competition, including advanced air-bag designs that do not use the dangerous sodium azide propellant. Further dampening the TRW outlook was a lawsuit brought by Talley Industries against TRW in 1994, which resulted in a $138 million judgment against them in 1995. Although its space and defense operations had been boosted by contracts to build satellites for the Peoples Republic of China and Korea, TRWs proposed $2 billion Odyssey satellite system (a joint venture with Montreal-based Teleglobe Inc. to be used for satellite phone service) was slowed when its patent application was stalled by the U.S. Patent Office in May 1995.

Principal Subsidiaries

ESL Inc.; TRW Automotive Products Inc.; TRW Components International Inc.; TRW Export Trading Corp.; TRW Financial Systems, Inc.; TRW International Holding Corp.; TRW System Services Co.; TRW Vehicle Safety Systems Inc.; TRW Canada Ltd.; TRW France S.A.; TRW GmbH fur Industrielle Beteilgungen (Germany); TRW Italia S.p.A.; TRW Steering Systems Japan Co. Ltd.; TRW U.K. Ltd.

Further Reading

Berss, Marcia, Nothing Is in the Bag, Forbes, March 4, 1991, p. 97.

England, Robert Stowe, Less Sizzle, More Steak, Financial World, August 4, 1992, pp. 20-21.

Fehr-Snyder, Kerry, TRW Threatens to Fight $138 Million Trial Ruling: Talley Wins Lawsuit over Sale of Air-Bag Business, Phoenix Gazette, June 8, 1995, p. C1.

Flint, Jerry, The TRW Way, Forbes, July 31, 1995, pp. 45-46.

Mettler, Ruben F., The Little Brown Hen That Could: The Growth Story of TRW Inc., New York: Newcomen Society, 1982, 24 p.

Nodell, Bobbi, Hughes, TRW Offset Defense Cuts with Telecommunications Projects, Los Angeles Business Journal, April 19, 1993, p. 52.

Phillips, Stephen, Just Dont Get in Joe Gormans Way, Business Week, November 12, 1990, pp. 88-89.

Skeel, Shirley, Tracking Satellite Joe, Management Today, January 1990, pp. 60-66.

Thornton, Emily, To Sell in Japan, Just Keep Trying, Fortune, January 25, 1993, pp. 103-4.

updated by David E. Salamie

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TRW Inc.

TRW Inc.

1900 Richmond Road
Cleveland, Ohio 44124-3719
U.S.A.
(216) 291-7000
Fax: (216) 291-7758

Public Company
Incorporated:
1916 as The Steel Products Co.
Employees: 61,200
Sales: $7.95 billion
Stock Exchanges: New York Boston NASDAQ Philadelphia
Pacific
SICs: 3714 Motor Vehicle Parts and Accessories; 2399
Fabricated Textile Products, Not Elsewhere Classified;
3764 Space Propulsion Units and Parts; 3769 Electronic
Components, Not Elsewhere Classified; 3761 Guided
Missiles and Space Vehicles; 361 Pumps and Pumping
Equipment; 3494 Valves and Pipe Fittings, Not Elsewhere
Classified; 3812 Search and Navigation Equipment; 3769
Space Vehicle Equipment, Not Elsewhere Classified; 7370
Computer and Data Processing Services; 7323 Credit
Reporting Services

After eight decades of highly praised management and growth, TRW Inc.s unique combination of mundane and high-tech products ran into roadblocks in the late 1980s and early 1990s. Its space and defense division had been a major manufacturer of satellites and an important contractor in the U.S. Department of Defenses Strategic Defense Initiative program (better known as Star Wars). Virtually every car manufactured featured a TRW part, whether it was a seat belt, steering system, or engine valve. And at least half of Americas citizens were registered in its credit reporting system. But when the late 1980s brought the end of the Cold War, a global recession, and intense competition, TRW found itself with lagging sales, lackluster earnings, and a stagnant stock price. A new chief executive officer, Joseph T. Gorman, brought a restructuring plan and a renewed commitment to the corporations historic emphasis: automotive parts.

TRWs conglomerate structure grew out of the companys history. The company was founded in 1901 as the Cleveland Cap Screw Company to manufacture and supply bolts for early automotive engines. Name changes, to Electric Welding in 1908 and Steel Products Company in 1915, reflected the firms expansion into a wider variety of auto parts. During the 1920s, Charles E. Thompson, a welder at the company, conceived of a new method of valve manufacture that catapulted the parts company into the vanguard of global valve making. The firm was renamed Thompson Products in 1926 in recognition of his vital breakthrough.

By the early 1950s the company had made a name for itself in automotive and had expanded into aircraft engine parts. It had also become well known by sponsoring the famed Thompson Trophy Race, the aeronautical equivalent of auto racings Indianapolis 500. But in the postwar era, the company faced a decline in manned aircraft and saw opportunities in aerospace and electronics. J. David Wright, the companys general manager, and Horace Shepard, a vice president, thought the auto valve and steering component maker needed more technical sophistication and looked to acquisition to get it.

To break into the budding high-tech industry, Wright and Shepard tried to buy Hughes Aircraft Co. Hughes was willing to listen to bids but scoffed at the Thompson offer, which was thought to be ten times too low. Just a few months later, two of Hughes Aircrafts top scientist-executives, Simon Ramo and Dean Woolridge, decided to leave Hughes to form a new electronic systems company, and Thompson put up $500,000 to bankroll the venture. Not long afterward, Ramo-Woolridge Corporation was established in Los Angeles and quickly gained solid standing in the advanced technology business, being awarded the systems engineering and technical direction contracts for such important missile programs as Atlas, Minuteman, Titan, and Thor.

By 1958 Thompson Products had invested $20 million20 percent of its net worth at the timefor a 49 percent interest in Ramo-Woolridge, and the two operations were merged as Thompson-Ramo-Woolridge. Though united on paper, the company maintained separate corporate headquarters, with Woolridge president in Los Angeles and Wright chairman in Cleveland. Ramo and Shepard, a former chief of production procurement for the Air Force, also had an active role in management.

The merger could hardly have started less auspiciously. In the midst of a recession, the Cleveland-based group was hit with a 14 percent drop in automotive business and a 34 percent drop in manned aircraft business. When business improved for the Cleveland division, Los Angeles got into trouble. Its venture into semiconductors collapsed in 1961, and the McNamara era was beginning at the Pentagon.

The West Coast scientists, who had only known cost-plus-fixed-fee contracts, had to learn how to go from spending money to making it. This education was hampered by hard feelings between the two groups. The electronics end was not living up to its promise of being the business of the future. In its first four years following the merger, profit margins that had been at the 4 percent-plus level in the mid-1950s dropped to an average of barely 2 percent.

With the company facing such mundane tasks as cost-cutting, Woolridge, who reportedly never really wanted to be a businessman anyway, resigned in 1962. As Woolridge was getting settled in at his new job as a professor at the California Institute of Technology, Shepard was promoted to president and Ramo was named vice-chairman. With Cleveland now in control of the company, the Los Angeles scientists were quickly reassured when the new management team instituted a number of reforms to get the company back on its feet, including writing off $3 million in inventory.

In 1963, Shepard and Wright began pruning unprofitable divisions. They sold most of the unprofitable Bumkor-Ramo computer division to Martin Marietta. The company retained partial ownership in Bumkor-Ramo but no longer played a large role in the companys plans. Shepard and Wright continued hammering out the companys plans for long-term growth, seeking specifically to raise profit margins. To this end, in 1964 they sold the microwave division and the division that made high fidelity components, intercoms, and language laboratories.

To shore up the companys auto parts division, they bought Ross Gear & Tool, a maker of mechanical and power steering units, and Marlin-Rockwell, a ball bearings manufacturer. The 7 percent profit margin of the new acquisitions, which had combined profit of $5.7 million on sales of $76.5 million, helped boost TRWs overall margin to 4 percent in 1964, up a percentage point from a year earlier.

In 1965, in another look toward the future, Thompson-Ramo-Woolridge adopted a shorter, less cumbersome name, the now instantly recognizable initials TRW. Also that year the companys investment in aerospace and electronics was becoming increasingly clear. In the previous decade, sales in space and electronics shot up from $14 million to $200 million. But despite that dramatic growth, the companys earnings still came mostly from its oldest business, auto parts. New and replacement parts accounted for 34 percent of TRWs $553 million in sales and 40 percent of its earnings. Chief among those products were its steering linkages, valves, and braking devices that it sold to General Motors, Ford, and Chrysler.

Things improved for TRW in 1966. An auto parts boom was helping the companys profitability. The Cleveland-based automotive group had a return of 6 percent on sales of $350 million. The equipment group, also in Cleveland, had an increase of sales to $200 million in aerospace and ordinance technology, but lower profit margins because of start-up costs for unexpected demand in commercial aircraft. The Los Angeles-based TRW Systems had $250 million in sales and a 3 percent profit margin building and designing spacecraft and doing research. Totals were up to $870 million in sales for TRW, producing $36 million in profit for a 4.2 percent return. Even with the upturn in sales, the company was relying less on government contracts, down to about 44 percent from 70 percent ten years earlier. With the companys financial picture on the upturn, the wrangling between Los Angeles and Cleveland declined. As Business Week reported, the discord was under control, if not cured.

The company continued its tightening of operations in 1966. It bought United Car with $122 million in sales and sold its one consumer business, a hi-fi manufacturer. Nevertheless, TRW had grown into a conglomerate, a term disliked by company management. In 1969 TRW operated six groups that, in turn, administered 55 divisions. The company derived 32 percent of its revenues from aerospace products and computer software, 28 percent from vehicle components for autos and trucks, 23 percent from electronic components and communication, and 17 percent from industrial products ranging from mechanical fasteners to automated controls.

To manage the increasingly far-flung company, TRW maintained strict management control over all operations. By encouraging communication between all levels of management and holding monthly manager meetings, TRW avoided the problems that had plagued Gulf & Western, which had grown into a rambling giant. Another of TRWs successful management styles caught Fortunes eye in 1966. The magazine covered in depth the happenings of a TRW management meeting in Vermont, where 49 of the companys top executives had gathered annually since 1952 at an old farmhouse to think about the companys future.

The next year TRW continued beefing up its auto parts business, acquiring Globe Industries, a Dayton-based maker of miniature AC and DC electric motors. At the same time, TRWs electronics group had grown to more than 20 plants in the United States, Canada, and Mexico. The company continued to evade problems that had plagued other conglomerates, posting a slight pre-tax gain of 16.4 percent, above the industry average of 13.3 percent.

In 1969 TRW named a new president, Ruben F. Mettler. One of his first big projects was a contract for a laboratory that NASA would send on the Viking probe to Mars. TRW won the challenge to provide one black box weighing 33 pounds with complex instruments capable of making biological and chemical tests to detect the most primitive forms of life. The NASA contract was only worth $50 million, not a big financial risk for a multi-billion dollar company like TRW, but the job was important for the companys prestige.

The auto parts business, in the meantime, was once again proving to be immune to cyclical trends in car output. The market for new parts was in a slump, but it was made up for by the accompanying increase in demand for replacement cars as consumers kept their cars on the road longer. TRW also parlayed the computer programming expertise it had garnered along the way into another business, credit reporting. This sideline would eventually record the credit ratings of over half of the U.S. population.

The companys sound financial condition was unmistakable. For the five years preceding 1970, the company had average earning jumps of 27 percent annually and an average 23 percent annual increase in sales. But company officials conceded that TRWwhich had acquired 38 companies through 1968could not keep growing at that rate forever. The company looked for future growth to run about 10 percent.

TRWs skillful management again became apparent in 1971, when the company was forced to make cuts because of an aerospace recession. Its TRW Systems division had to cut the number of employees by 15 percent. Managers were not spared cuts either; 18 percent of the professional staff was laid off. The companys open management style enabled TRW to build a strong enough relationship with its employees that two-thirds of them were non-union, perhaps preventing labor squabbles that had appeared in other companies.

TRW made a risky venture in 1976, entering the tricky market of electronic point-of-sale (POS) machines. Those machines had boosted profits for retailers, but not for manufacturers. Its proposed 2001 system aimed at the general market and cost $4,000 per unit, similar to competitors. TRWs move into POS machines was largely a defensive tactic. The electronic credit authorization business it had pioneered in the 1960s was coming under increasing competition. Competitor NCR, the overall leader in POS machines, launched a POS system that incorporated a credit check in 1975. TRW attempted to enter the market with an established customer base by acquiring the service contracts for the 65,000 customers Singer had built up during its short, ill-fated move into the POS market. TRW remained cautious, however, only delivering 200 to 300 machines in 1976, mostly to the May Co. Altogether that year non-food retailers ordered 24,500 POS terminals worth $94 million, and the market was picking up.

In 1976 TRW achieved the moment of glory it had long awaited with Vikings historic landing on Mars. The company took out full-page newspaper ads proclaiming, That lab is our baby. Appropriately, Mettler, 52, who had pushed for TRW to compete for the Viking contract, was named to succeed Horace Shepard as chairman and chief executive officer when Shepard retired the next year.

Aerospace ventures continued to play an important role in the companys finances. In 1977 TRW was still the chief engineer for U.S. intercontinental ballistic missiles. Aerospace and government electronic revenues were providing a cool $60 million in profits on revenue of $440 million. The electronics division had $300 million in sales. The data communications unit was also doing well with over $150 million in sales. It had established a retail credit bureau and a business credit system, and was an international maker of data equipment. But auto and commercial parts were still accounting for twice as much in sales and five times as much in earnings.

In 1980 TRW and Fujitsu Ltd., Japans largest computer maker, formed a joint venture that aimed to grab a large share of the U.S. market. TRW had a 3,000-person service organization, reportedly the largest independent network in the U.S. for data processing maintenance, with a special team to develop software. Each company invested $100 million, with Fujitsu keeping a 51 percent share and TRW 45 percent. TRW initiated the venture, seeking a foreign partner to perform maintenance work for its POS machines. Fujitsu, which obtained 68 percent of its revenue from data processing, was eager to expand overseas to increase its economy of scale to compete with IBM back home. Fujitsu named a majority of the directors of the new company so it could qualify for Japanese export and financing tax breaks, but TRW took charge of running it. One of new companys first moves was to buy TRWs ailing POS and automated teller machine (ATM) division. The company, hoping in the beginning to capture a large segment of the small and medium-sized computer market, predicted sales of $500 million to $1 billion by the decades end.

Despite TRWs careful planning, the POS and Fujitsu deals both proved unsuccessful. The competition from established POS makers, particularly IBM and NCR, was too great. And to make matters worse, evidence that the companys traditionally high ethical standards were eroding surfaced mid-decade. The credit reporting group, for example, violated its own code of ethics by gathering non-credit information on consumers for use in direct mail. TRW also plead guilty to charges of conspiring to overcharge the federal government on contracts for military aircraft engines, and agreed to pay $14.8 million in penalties and refunds.

Joseph T. Gorman, a 22-year veteran of TRW, advanced to the conglomerates chief executive office in 1988 upon Ruben Mettlers retirement. Unfortunately for Gorman, however, he took the helm just as the end of the Cold War gutted federal defense and space spending, a global recession squeezed profits for auto makers and their suppliers, and competition in the credit information industry froze TRWs sales, earnings, and stock price. To make matters worse, the corporations most encouraging business, automobile air bags, was plagued by seemingly unshakable losses and a 1990 plant explosion that hampered shipments.

Gorman called in a series of consultants, including Jim Womack, one of the authors of The Machine That Changed the World. According to Robin Yale Bergstrom, editor-at-large of Production, Womack told TRWs management at their annual retreat that the venerable manufacturer was hopeless. Nonetheless, Gorman decided to base TRWs restructuring on Womacks book, which detailed Toyotas lean production system. TRW management wrote its own 3.5-pound total quality management bible, titled The Lean Production System, Principles and Techniques, and began applying its concepts in December 1991, after TRW lost $140 million on sales of $7.9 billion.

The restructurings financial goals included a 20 percent return on equity and positive cash flow. To achieve these standards, Gorman shifted TRWs emphasis back to its historic strength in automotive parts, emphasizing air bags. TRW invested $500 million in this segment, whose sales were boosted by growing consumer demand for such safety restraints. The company aggressively pursued international markets, especially those in Europe and Japan. As a result, sales to Japanese automakers increased from $50 million in 1988 to $600 million in 1992.

Proceeds from divestments totaling about $475 million in 1992 and 1993 were used to pay down corporate debt, which was reduced to its lowest level in five years by 1993. Gorman pronounced the restructuring complete in his 1993 annual letter to shareholders. That year, the company reported its first net profit$195 million on sales of $7.9 billionof the 1990s.

Principal Subsidiaries

TRW U.K. Ltd.; ESL Inc.; TRW Vehicle Safety Systems Inc.; TRW Automotive Products Inc.; TRW Steering Systems Japan Co. Ltd.; TRW Canada Limited; TRW Components International Inc.; TRW Italia SpA; TRW Title Inc.; TRW France S.A.; TRW Koyo Steering Systems Co. (51%).

Further Reading

Bergstrom, Robin Yale, Reinvention in the Rustbelt: An Essay, Production, October 1993, pp. 5052.

England, Robert Stowe, Less Sizzle, More Steak, Financial World, August 4, 1992, pp. 2021.

Mettler, Ruben F., The Little Brown Hen That Could: The Growth Story of TRW Inc., New York: Newcomen Society, 1982.

updated by April Dougal Gasbarre

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"TRW Inc.." International Directory of Company Histories. . Retrieved October 18, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/trw-inc-0

TRW Inc.

TRW Inc.

1900 Richmond Road
Cleveland, Ohio 44124
U.S.A.

Public Company
Incorporated: 1901 as Thompson Products Co.
Employees: 93,186
Sales: $6.036 billion
Market Value: $2.957 billion
Stock Index: New York

The merging of one of the worlds largest auto parts makers and one of the worlds leaders in aerospace technology might seem an unlikely combination. But for TRW that mix of the mundane with the high-tech has proven the path to success. The company has achieved the kind of prosperous, stable business that has eluded other conglomerates.

TRWs conglomerate structure is deeply rooted in the companys history. In the early 1950s the Cleveland-based Thompson Products was looking for an acquisition. J. David Wright, the companys general manager, and Horace Shepard, a vice president, thought the auto valve and steering component maker needed more technical sophistication. Thompson, founded in 1901, had made a name for itself in automotive and aircraft engine parts and had become well known by sponsoring the famed Thompson Trophy Race, aeronautical equivalent of auto racings Indianapolis 500. But in recent years the company was facing a decline in manned aircraft and saw opportunities in aerospace and electronics.

To break into the young high-tech industry, Wright and Shepard tried to buy Hughes Aircraft Co. Hughes was willing to listen to bids but scoffed at the Thompson offer, which was thought to be ten times too low.

Just a few months later, two of Hughes Aircrafts top scientist-executives, Simon Ramo and Dean Woolridge, decided to leave Hughes to form a new electronic systems company, and Thompson put up $500,000 to bankroll the venture. Not long afterward, Ramo-Woolridge Corporation was established in Los Angeles and quickly gained solid standing in the advanced technology business, being awarded the systems engineering and technical direction contracts for such important missile programs as Atlas, Minuteman, Titan, and Thor.

By 1958 Thompson Products had invested $20 million 20% of its net worth at the timefor a 49% interest in Ramo-Woolridge, and the two operations were merged as ThompsonRamo-Woolridge. Though united on paper, the company maintained separate corporate headquarters, with Woolridge president in Los Angeles and Wright chairman in Cleveland. Ramo and Shepard, a former chief of production procurement for the Air Force, also had an active role in management.

Merger could hardly have started less auspiciously. In the midst of a recession, the Cleveland-based group was hit with a 14% drop in automotive business and a 34% drop in manned aircraft business. When business improved for the Cleveland division, LA got into trouble. Its venture into semiconductors collapsed in 1961, and the McNamara era was beginning at the Pentagon.

The West coast scientists who had only known costplus-fixed-fee contracts needed help. They had to learn how to go from spending money to making it. This education was hampered by hard feelings between the two groups. The electronics end wasnt living up to its promise of being the business of the future. In first four years following merger, profit margins that had been at the 4%-plus level in the mid-1950s dropped to an average of barely 2%.

With the company facing such mundane tasks as costcutting, Woolridge, who reportedly never really wanted to be a businessman anyway, resigned in 1962. As Woolridge was getting settled in at his new job as a professor at Caltech, Shepard was promoted to president and Ramo named vice-chairman. With Cleveland now in control of the company, the LA scientists were quickly reassured when the new management team instituted a number of reforms to get the company back on its feet, including writing off $3 million in inventory.

In 1963, Shepard and Wright began pruning unprofitable divisions. They sold most of the unprofitable Bumkor-Ramo computer division to Martin Marietta. The company retained partial ownership in Bumkor-Ramo but no longer played a large role in the companys plans. Shepard and Wright continued hammering out the companys plans for long-term growth, seeking specifically to raise profit margins. To this end, in 1964 they sold the microwave division and the division which made hi-fidelity components, intercoms, and language laboratories.

To shore up the companys auto parts division, they bought Ross Gear & Tool, a maker of mechanical and power steering units, and Marlin-Rockwell, a ball bearings manufacturer. The 7% profit margin of the new acquisitions, which had combined profit of $5.7 million on sales of $76.5 million, helped boost TRWs overall margin to 4% in 1964, up a percentage point from the year earlier.

In 1965, in another look toward the future, Thompson-Ramo-Woolridge adopted a shorter, less cumbersome name, the now household initials TRW. Also that year the companys investment in aerospace and electronics was becoming increasingly clear. In the previous decade, sales in space and electronics shot up from $14 million to $200 million. But despite that dramatic growth, the companys earnings still came mostly from its oldest business, autoparts. New and replacement parts accounted for 34% of TRWs $553 million in sales and 40% of its earnings. Chief among those products were its steering linkages, valves, and braking devices that it sells to GM, Ford, and Chrysler.

Things improved for TRW in 1966. An auto parts boom was helping the companys profitability. The Clevelandbased automotive group had a return of 6% on sales of $350 million. The equipment group, also in Cleveland, had an increase of sales to $200 million in aerospace and ordinance technology but lower profit margins because of start-up costs for unexpected demand in commercial aircraft. The Los Angeles-based TRW System had $250 million in sales and a 3% profit margin building and designing spacecraft and doing research. Totals were up to $870 million in sales for TRW, producing $36 million in profit for 4.2% return. Even with the upturn in sales, the company was relying less on government contracts, down to about 44% from 70% ten years earlier.

With the companys financial picture on the upturn, the wrangling between Los Angeles and Cleveland declined. As Business Week reported, the discord was under control, if not cured.

The company continued its tightening of operations in 1966. It bought United Car with $122 million in sales and sold its one consumer business, a hi-fi manufacturer.

Nevertheless, TRW had grown into a conglomerate, a term disliked by company management. In 1969 TRW operated six groups that, in turn, administered 55 divisions. The company derived 32% of its revenues from aerospace products and systems and computer software, 28% from vehicle components for autos and trucks, 23% from electronic components and communication, and 17% from industrial products ranging from mechnical fasteners to automated controls.

To manage the increasingly far-flung company, TRW maintained strict management control over all operations. By encouraging communication between all levels of management and holding monthly manager meetings, TRW avoided the problems that had plagued Gulf & Western, which had grown into a rambling giant.

Another of TRWs successful management styles caught Fortunes eye in 1966. The magazine covered in depth the happenings of a TRW management meeting in Vermont, where 49 of the companys top executives had gathered annually since 1952 at an old farmhouse to think about the companys future.

The next year TRW continued beefing up its auto parts business, acquiring Globe Industries, a Dayton-based maker of miniature AC and DC electric motors. At the same time, TRWs electronics group had grown to more than 20 plants in the U.S., Canada, and Mexico. The company continued to evade problems that had plagued other conglomerates, posting a slight pre-tax gain of 16.4%, above the industry average of 13.3%.

1969 saw the naming of a new president of TRW, Ruben F. Mettler. One of his first big projects was a contract for a laboratory that NASA would send on the Viking probe to Mars. TRW won the challenge to provide one black box weighing 33 pounds with complex instruments capable of making biological and chemical tests to detect the most primitive forms of life. The NASA contract was only worth $50 million, not a big financial risk for a multibillion dollar company like TRW, but the job was important for the companys prestige.

The auto parts business, in the meantime, was once again proving to be immune to cyclical trends in car output. The market for new parts was in a slump, but it was made up for by the accompanying increase in demand for replacement cars as consumers kept their cars on the roads longer. TRW also announced a move into business credit reporting, challenging Dun and Bradstreet.

The companys sound financial condition was unmistakable. For the five years preceding 1970, the company had average earning jumps of 27% annually and an average of 23% increase annually in sales. But company officials conceded that the company couldnt keep growing at that rate forever. It had acquired 38 companies through 1968, a pace it wouldnt be able to maintain indefinitely. The company looked for future growth to run about 10%.

The companys skillful management again became apparent in 1971, when TRW was forced to make cuts because of aerospace recession. Its TRW Systems division had to cut the number of employees by 15%. Managers were not spared cuts either; 18% of the professional staff was laid off. The companys open management style enabled TRW to build a strong enough relationship with its employees that two-thirds of them were non-union, perhaps preventing labor squabbles that had appeared in other companies.

TRW made a risky venture in 1976, entering the tricky market of electronic point-of-sale machines. Those machines had boosted profits for retailers, but not for manufacturers. Its proposed 2001 system aimed at the general market and cost $4,000 per unit, similar to competitors. TRWs move into POSs was largely a defensive tactic. The electronic credit authorization business it had pioneered in the 1960s was coming under increasing competition. Then NCR, the overall leader in POS machines, launched a POS system incorporating credit checking in 1975. TRW attempted to enter the market with an established customer base by acquiring the service contracts for the 65,000 customers Singer had built up during its short, ill-fated move into the POS market. TRW remained cautious, however, only delivering 200 to 300 machines in 1976, mostly to the May Co. Altogether that year non-food retailers ordered 24,500 POS terminals worth $94 million, and the market was picking up.

In 1976 TRW achieved the moment of glory it had long awaited with Vikings historic landing on Mars. The company took out full-page newspaper ads proclaiming That lab is our baby. Appropriately, Mettler, 52, who had pushed for TRW to compete for the Viking contract, was named to succeed Horace A. Shepard as chairman and chief executive officer when Shepard retired the next year.

Aerospace ventures continued to play an important role in the companys finances. In 1977 TRW was still the chief engineer for U.S. intercontinental ballistic missiles. Aerospace and government electronic revenues were providing a cool $60 million in profits on revenue of $440 million. The electronics division had $300 million in sales. The data communications unit was also doing well with over $150 million in sales. It had established a retail credit bureau, a business credit system, and was an international maker of data equipment. But auto and commercial parts were still accounting for twice as much in sales and five times as much in earnings.

In 1980 TRW and Fujitsu Ltd., Japans largest computer maker, formed a joint venture that aimed to grab a large share of the U.S. market. TRW had a 3,000 person service organization, reportedly the largest independent network in the U.S. for data process maintenance, with a special team to develop software. Each company invested $100 million, with Fujitsu keeping a 51% share and TRW 45%. TRW initiated the venture, seeking a foreign partner to perform maintenance work for its POSs. Fujitsu, which gets 68% of its revenue from data processing, was eager to expand overseas to increase its economy of scale to compete with IBM back home. Fujitsu named a majority of the directors of the new company so it could qualify for Japanese export and financing tax breaks. But TRW took charge of running it. One of new companys first moves was to buy TRWs ailing POS and ATM maker division. The company, hoping in the beginning to capture a large segment of the small and medium size computer market, predicted sales of $500 million to $1 billion by the decades end.

Despite TRWs careful planning, the POS and Fujitsu deals both proved unsuccessful. The competition from established POS makers, particularly IBM and NCR, was too great. Nonetheless, TRW remained a strong, highly visible company. Forbes in 1983 called it a paragon for other conglomerates. It had by then grown to $5 billion in sales spread across 47 different businesses, and had 300 locations in 25 countries. It had also grown to be the number one producer of valves for automobiles and aircraft plus a wide range of other products. With a 16% return on stockholders equity as proof, Forbes called TRW one of the best managed, most successful American companies. The company has had only four chief executive officers in fifty years.

In 1985 TRW reaffirmed its allegiance to its oldest division by completing two joint overseas operations in auto parts. One was in South Korea and one in Malaysia, both to produce steering and suspension components.

TRWs highly defined business strategy and excellent management have earned it the reputation for being the best run of the conglomerates. If the company continues its past tradition, and there are no signs to the contrary, TRW should strengthen its already considerable position in aerospace research and technology and the automotive and commercial parts industry.

Principal Subsidiaries

ESL Inc.; TRW Automotive Products Inc.; TRW International Finance Corp.; SMP Inc.; TRW Electronic Products Inc.; TRW International Sales Corp. The company also lists subsidiaries in the following countries: Brazil, Canada, Japan, the United Kingdom, and West Germany.

Further Reading

The Little Brown Hen That Could: The Growth Story of TRW Inc. by Ruben F. Mettler, New York, Newcomen Society, 1982.

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