Borg-Warner Automotive, Inc.

200 S. Michigan Avenue

Chicago, Illinois 60604
U.SA.
(312) 322-8500
Fax: (312) 461-0507

Public Company
Incorporated: 1987
Employees: 8,500
Sales: $1.2 billion
Stock Exchanges: New York
SICs: 3711 Motor Vehicles and Passenger Car Bodies; 3714
Motor Vehicle Parts and Accessories; 3728 Aircraft Parts
and Auxiliary Equipment, Not Elsewhere Classified; 3568
Mechanical Power Transmission Equipment, NEC

Not to be confused with its former parent (Borg-Warner Corp.) or ex-sibling (Borg-Warner Security Corp.), Borg-Warner Automotive, Inc. is one of the world’s leading developers and suppliers of automotive parts and systems. The company maintained ten American operations and several more in Canada, Germany, Italy, Japan, Korea, and Wales in the mid-1990s. Known primarily for supplying powertrain components to major automakers in Detroit and Europe, Borg-Warner Automotive broadened its horizons in the 1990s by making deals in China, France, Italy, and India to produce parts for increasingly popular light truck and sport-utility vehicle models and new engine and transmission designs in North America and Europe. The company has undergone significant changes over the years, but Borg-Warner Automotive’s manufacturing skill and reputation have allowed it to not only weather the breakup of its corporate family, but to triumph first as a private, then as a newly public, independent company in 1993.

Borg-Warner’s history was as complex and interesting as one of its powertrain assemblies: a cluster of components (in this case, small, specialized auto parts manufacturers) harmoniously working to power a highly successful industrial giant. To tell the story of Borg-Warner Automotive, one must trace the formation of several disparate manufacturers in the United States and abroad. The first of these was Morse Equalizing Spring Company of New York, founded in 1880, which patented the rocker joint. In 1901 Warner Gear of Muncie, Indiana, was formed, and the next year, Marvel-Schebler Carburetor Company began operations in Flint, Michigan. A fourth company, Long Manufacturing, came on line in Chicago to manufacture automobile radiators, while a fifth company, Borg & Beck, was organized in 1904. All of these companies figured in the development of Borg-Warner Automotive.

By 1906 Morse manufactured a line of automobile chains that were soon licensed for sale in England and Germany. Then came the production of automotive timing chains, followed quickly by Warner Gear’s development of the industry’s first manual transmission. In 1910 Long Manufacturing moved from Chicago to Detroit while a sixth rookie in the auto game, Mechanics Machine Company of Rockford, Illinois, began producing transmissions in 1911. Over the next several years, Morse built a new facility in England as Warner Gear fashioned a growing reputation for quality.

By the 1920s, Borg & Beck’s sturdy yet inexpensive clutch was mass produced in millions of cars while Mechanics Machine Co. developed a universal joint with continuous lubrication, an innovation that rendered the former model (which had to be greased every 500 miles) obsolete. At the same time, Warner Gear standardized its manual transmissions and introduced the T64, at nearly half the cost of its predecessors. In the young yet burgeoning auto industry, each of the aforementioned companies was busy developing a specialized product line, unaware that they would be united under the banner of Borg-Warner in a sweeping merger in 1928. Borg & Beck, Marvel Carburetor, Mechanics Universal Joint (renamed from Mechanics Machine in 1925) and Warner Gear became the Borg-Warner Corporation. The following year, Morse Chain (an auto timing and industrial chain producer at this time) and Long Manufacturing joined the new company at the same time that the Norge firm (including its Detroit Gear subsidiary) was acquired.

The next decade brought several technological firsts for both Borg-Warner and the industry: Warner Gear pioneered the “synchronizer,” a device that made a manual transmission’s gear teeth mesh together with ease for smooth shifting; Morse Chain brought out its first roller chain; and Borg-Warner’s self-contained overdrive transmission was introduced to immediate success as Chrysler and 11 other automakers quickly placed orders. Borg-Warner Automotive Service Parts Division was also launched in the 1930s, and in 1936, to emphasize Borg-Warner’s commitment to and enthusiasm for auto racing, the company commissioned a sterling silver trophy for the Indianapolis 500 (the first was presented to Louis Meyer). As the decade neared its close, Stieber Rollkupplung GmbH (the predecessor to Borg-Warner GmbH) was founded in Munich in 1937.

In the prewar 1940s Borg-Warner created its Spring Division (to supply automatic transmission parts), began working on transfer cases, and soon directed its attention to World War II production needs. Among its contributions were Morse Chain’s drives for Navy tug boats and jeeps built with Warner Gear’s transmissions. After the war, Warner Gear’s technology briefly lent itself to the medical field in 1949, producing iron lungs. It then returned to auto parts in 1950 with three revolutionary developments—the torque converter, a three-speed automatic transmission, and a new-fangled clutch that would become one of the company’s biggest sellers worldwide. Automotive sales for the company reached over $200 million. Among the first automakers to jump at Borg-Warner’s newest innovations were Studebaker and Ford. The latter was so enamored of Borg-Warner’s transmissions that it signed a five-year exclusive contract with Borg-Warner in 1951 for the production of automatic transmissions.

As the 1950s continued, Borg-Warner expanded its operations in several new directions. Not only did the company venture into South America, creating Borg & Beck do Brasil, but it also built new facilities in Simcoe, Ontario, and Letchworth, England. The English facility was soon producing Warner Gear’s overdrive units and the Model D.G. automatic transmission. In 1956 the TIO four-speed high performance manual transmission was introduced in the Chevrolet Corvette to wide acclaim. As Marvel-Schebler tinkered with a fuel injection system, Borg-Warner built (and patented) the first retractable seat belt restraint system and developed a line of paper-related wet friction components.

To broaden its international operations, Borg-Warner acquired Coote & Jurgenson, an Australian transmission producer for autos and tractors in 1957. Three years later, Brummer Seal Company was merged into Borg-Warner’s Spring Division. The next year, 1961, was the beginning of a new era—though few recognized it as such—as James F. Bere joined the company as head of the Borg & Beck subsidiary. In 1962 Borg-Warner expanded into Mexico, and into Asia in 1964 and 1965 with two Japanese joint ventures (NSK-Warner and Tsubakimoto-Morse).

As the company’s varied units continued to devise new product innovations (the “Hy-Vo” chain, Flex-Bands, and the aluminum Model 35 automatic transmission), Bere nimbly climbed the corporate ladder and was named as group vice president at age 42. Yet he ruffled feathers the following year when he openly discussed, in detail, the financial data of each of the company’s ten divisions, a practice not done before at decentralized Borg-Warner. As a result, insiders were shocked when Chairman Robert S. Ingersoll announced Bere as his new president in 1968, promoting him over four company veterans. Instead of being fired for his boldness, Bere had begun a trend: rather than keep profits and losses shrouded in a need-to-know fog, he had been open and honest about company performance. Yet with Bere’s frankness came bleak consequences: the closure of underperforming subsidiaries to relieve and strengthen assets that had been forced to carry their weight. Though Borg-Warner diversified into chemicals, plastics, industrial products, financial assistance, and eventually even into security and armored car services, its automotive division had remained a constant, usually contributing upwards of 50 percent of Borg-Warner’s total revenue.

In 1969 Aisin-Warner was formed as another joint venture with Japan to build automatic transmissions, including the advanced Model 35, which was now distributed to 30 automakers for use in over 100 vehicles ranging from Nissans to Jaguars. The following year Borg-Warner acquired the Massachusetts-based Nu-Era Gear and improved on its automatic transmission by developing the Model 45, which was soon manufactured in new facilities in Australia and South Wales. Marvel-Schebler expanded by merging with Tillotson Carburetor in 1971, the same year that Borg & Beck christened a new plant in Michigan.

In 1972, just four years after his surprise appointment as president, Bere became CEO when Ingersoll left the company and the United States to become an ambassador to Japan. The next year, Borg-Warner introduced its full-time, four-wheel drive (4WD) transfer cases using Hy-Vo drive chains, while its newest manufacturing operation opened in Ireland. Over the next several years came two new major innovations (the Model T50 five-speed transmission and continuously variable transmission for commercial vehicles); further expansion (new plants in Arkansas and New York and renovation of Warner Gear’s Indiana facility); the issuance of 2,000, 000 common shares of Borg-Warner stock; and Bere’s election as chairman of the board (in 1975).

When Borg-Warner celebrated its 50th anniversary in 1978, its automotive profits had reached $98 million. The next year, overall sales topped $2.7 billion as the company headed into the tumultuous 1980s. Although U.S. auto production fell by 25 percent in 1980, Borg-Warner kept its losses to a respectable 16 percent decline, a good amount below the national average. This was due in part to its continuing improvement of the T4 and T5 manual transmissions and its production of new, lightweight transfer cases. Yet transfer cases took a giant technological leap in the 1980s with the introduction of sport utility vehicles and light trucks like the Ford Ranger.

Buoyed by steady sales of transmissions and transfer cases, the company experimented with electronic sensors, silicon technology, and non-asbestos friction materials. Borg-Warner also tightened its focus by selling Morse Industrial and its automotive service parts divisions in 1981. Three years later, the company consolidated its many automotive operations under the umbrella of Borg-Warner Automotive, Inc., setting up international headquarters in Troy, Michigan. Sales for the newly named automotive conglomerate topped $1 billion in 1984. By 1985 Borg-Warner Automotive employed 10,000 people and began using high volume laser-cutting in its Frankfort, Illinois, plant. It also produced its one-millionth T5 manual transmission that year, while continuing its consolidation (Warner Gear was renamed Transmission Systems, Borg & Beck was renamed Clutch Systems, and Marvel-Schebler became known as Control Systems).

In 1986 Borg-Warner experienced a changing of the guard: after 25 years of service, Bere stepped down as CEO (remaining chairman of the board) and was succeeded by Richard J. Doyle as president and CEO. Doyle’s first year at the helm was marked by several highs, including an exclusive contract to manufacture its new Model 1356 transfer cases for all of Ford’s light trucks and sport utility vehicles. Additionally, the company opened sales offices in Frankfurt, Sao Paulo, Seoul, and Tokyo and signed a licensing agreement with Nanjing Motor Works of Beijing, boosting international sales to a record high of 30 percent of its $3.4 billion in revenue.

Yet for all of Borg-Wamer Automotive’s success, there was a steep price—the interest of corporate raiders Irwin Jacobs and Samuel Heyman in the fast-and-loose leveraged buyout (LBO) haven of the 1980s. After spending $680 million, Jacobs and Heyman each possessed 10 percent of the company, to the shock and dismay of Borg-Warner’s board. Determined to squelch not only Jacobs’ and Heyman’s takeover attempt but any future opportunists as well, Borg-Warner’s brass decided to take the company private. Turning to Merrill Lynch Capital Partners, an LBO fund, Borg-Warner’s board was supposed to offer stockholders $43 per share. Instead, the directors decided to wait, hoping Jacobs and Heyman would lose interest.

Instead, in March 1987, Heyman bought Jacobs’ holdings and offered stockholders $46 a share in a hostile takeover bid. Borg-Warner again turned to Merrill Lynch, but Heyman’s offer had upped the ante to a buyout valued at over 20 times the company’s earnings. In May, Merrill Lynch completed one of the ten biggest LBOs of the decade for $4.4 billion ($3.4 billion from banks and $1 billion from junk bond sales), establishing 51 percent ownership in the now-private Borg-Warner.

The 65-year-old Bere assumed the CEO role again to oversee the company’s breakup. The already daunting task was made more difficult by the onset of Black Monday, a dramatic plunge in the stock market. The drop substantially affected the sales of the chemical and plastics division (sold to General Electric for $2.3 billion) and Borg-Warner Acceptance Corp. (sold to TransAmerica for $782.5 million). What was left was Borg-Warner Security ($1.3 billion in revenue for 1989), and its subsidiary, Borg-Warner Automotive (BWA), with sales of $958 million in 1989 and earnings of $93 million. Sales fell to $920 million in 1990 as a result of an industry slump.

Around this time, transfer case technology branched into heavy duty and all-wheel drive for several models from General Motors. BWA also developed the new 1354 model for Ford Explorers and Ranger trucks, while the “touch drive” model was installed in all F-series trucks. This year also marked the appointment of Donald C. Trauscht, a 23-year company veteran, as president of BWA, and by 1991 over one million model 1354 transfer cases had been installed in F-series trucks along with Borg-Warner’s automatic locking hubs, now the industry standard.

In the early 1990s BWA offered the industry’s first three-year/36,000-mile warranty on transfer cases and debuted its latest technological breakthrough—the “Torque-on-Demand” transfer case capable of automatically shifting from two- to four-wheel drive when necessary. This innovation led to another sole-source agreement with Ford for the rest of the decade. Meanwhile, the T56 six-speed manual transmission became standard in Chrysler’s Viper sportscar and new Ford Mustangs, and international operations were expanded in Japan and China. 1993 saw the appointment of Siegfried P. Adler as president of BWA, as Trauscht was elevated to president and CEO of the unit’s parent company, Borg-Warner Security. That year Borg-Warner Automotive, Inc. was spun-off into an independent company with J. Gordon Amedee as chairman and CEO.

Closing the year with $985.4 million in sales (and a net loss of $97.1 million due to spin-off accounting charges), up from 1992’s $926 million (and a net loss of $12 million), BWA pointed to a number of milestones as evidence of its continued vitality: production of its three-millionth T5 manual transmission and four-millionth transfer case for Ford; the signing of a “life of the product” pact with General Motors for its advanced “Maji-Band” brake band assembly for automatic transmissions; and a new five-year contract with SsangYong Motor Company for manual transmissions and transfer cases.

In July 1994, John Fiedler was named president and CEO of Borg-Warner Automotive after serving Goodyear’s North American Tire division for 30 years. The company, poised for a renaissance as the automotive industry boomed, was now comprised of four subsidiaries: Automatic Transmission Systems, Control Systems, Morse TEC (Chain Systems) and Powertrain Systems. The latter unit, propelled by transfer cases—the darling of the sport utility vehicle and light truck industry—grew by over 12 percent to account for 40 percent ($550.7 million) of 1994’s total $1.2 billion in revenues.

When Fiedler came on board, one of his first pronouncements was his intention to double BWA’s revenues by the end of the 1990s, implement a slew of cost reductions, improve productivity, increase foreign investments, and form more joint ventures both in and out of North America. Fiedler also hinted that he and BWA’s directors were in an acquisitive mood: “We’re in an excellent position to grow and we’re going to raise some eyebrows,” he told Barron’s in August 1994, after posting an impressive 25 percent sales gain for the first half of the year, way over the industry’s 11 percent overall increase.

Finishing 1994 with sales of $1.2 billion and a net profit of $64.4 million, Borg-Warner’s future was increasingly bright. Figures from the first half of 1995 remained firm—despite cutbacks by Detroit’s Big Three (Ford, Chrysler, and GM) — with all divisions posting double-digit increases. Powertrain Systems posted $291.6 million in sales ($265 million in 1994), while Automatic Transmission Systems added $219.5 million (it posted $180.2 million in 1994). Borg-Warner finished the first half of 1995 with total net sales of $683.8 million (a 24 percent overall increase from the same period in 1994). Picking up the slack from Detroit was steady growth in demand in Asia and Europe, as BWA’s trademarked Morse Gemini Chain System and Torque-on-Demand transfer case (only two of the company’s 1,900 active domestic and foreign patents) continued their phenomenal success.

Principal Subsidiaries

Automatic Transmission Systems Corporation; Control Systems Corporation; Morse TEC Corporation; Powertrain Systems Corporation.

Further Reading

Bautz, Mark, “Wall Street Newsletter,” Money, June 1995, pp. 68-72.

Benoit, Ellen, “A Survivor,” Forbes, April 21, 1986, pp. 100, 104.

Bere, James F., “The Director as Servant and Leader,” Directors & Boards, Spring 1991, pp. 7-8.

Borss, Marcia, “A Debtor With Options,” Forbes, November 26, 1990, p. 64.

Byrne, Harlan S., “Lean Machine,” Barron’s, August 15, 1994, p. 19.

Crown, Judith, “Borg-Wamer Faces Life After CEO Bere,” Crain’s Chicago Business, January 13, 1992, pp. 1, 29.

Flaherty, Robert J., “Now the Real Test Begins,” Forbes, February 18, 1980, pp. 134, 138.

“Follow-Through,” Forbes, March 3, 1980, p. 12.

Gornstein, Leslie, “Open Road for Borg-Warner Exec,” Crain’s Chicago Business, July 11, 1994, pp. 22-23.

Lowe, Frederick H., “He’s a Big Sports Fan,” Chicago Sun Times, January 29, 1995.

Nathans, Leah, “Hot for Glory,” Business Month, January 1989, pp. 55-59.

Saxon, Wolfgang, “James F. Bere, 69, A Chicago Leader and Corporate Chief,” New York Times, January 4, 1992, p. 27.

Spragins, Ellyn, “Healthy Smokestacks,” Forbes, August 15, 1983, pp. 58-59.

—Taryn Benbow-Pfalzgraf