Eaton Corporation

1111 Superior Ave. N.E.
Cleveland, Ohio 44114
U.S.A.
(216) 523-5000

Public Company
Incorporated: 1911 as the Torbensen Gear & Axle
Company
Employees: 43,000
Sales: $3.675 billion
Market Value: $2.347 billion
Stock Index: New York

The Eaton Corporation is one of the world’s largest automotive components manufacturers. In recent years, however, Eaton has attempted to reduce its exposure to the cyclical passenger automobile industry by entering new markets in high-technology products. Although the company has existed for over 60 years, its greatest growth occurred during the 1960’s. Eaton is counting on a similar expansion again during the 1990’s, when a number of new products from its electronics division become available.

Joseph Oriel Eaton established a small machine shop in Bloomfield, New Jersey in 1920. With a small staff, he started to manufacture heavy-duty truck axles for the expanding automotive transportation industry. But it soon became apparent that truck buyers preferred to purchase fully integrated vehicles; so Joseph Eaton targeted a new customer—truck manufacturers. In May 1923 the Eaton Axle Company was acquired by the Torbensen Gear & Axle Company and moved to Cleveland, in order to be closer to the auto manufacturers there and in Detroit. Over the next few years the new company, Eaton Axle & Spring, acquired a number of smaller auto parts manufacturers, and in the process diversified the company’s product line. It was during this period that Eaton began to manufacture parts for aircraft engines.

The Company weathered the economic depression of the 1930’s and managed to finance the purchase of several companies which were nearing bankruptcy. By the late 1930’s industrial growth was stimulated by President Roosevelt’s New Deal program, and demand for products of the Eaton Manufacturing Company (a name change was registered in May 1932) increased slowly but steadily. When the United States became involved in World War II Eaton, as a primary manufacturer of vehicle parts, produced a variety of items for the war effort.

After the war, in 1946 Eaton purchased the Dynamatic Corporation, and a year later established a joint sales and engineering company with two British firms, Rubry Owen and E.N.V. Engineering. These companies soon became suppliers of axles and gears to Ford and General Motors in England. In 1953 Livia, a small Italian manufacturer of engine valves acquired technological assistance and a production license from Eaton. Within a few years Livia had grown to become the exclusive supplier of engine valves for Simca of France as well as for all trucks built by Fiat. Livia was purchased by Eaton in 1961.

John C. Virden was named president of Eaton in 1958 and followed the company’s policy of diversifying its lines of business. He was a strong believer in “divisional autonomy,” insuring that Eaton’s subsidiaries and divisions maintained a large degree of managerial independence. Under the direction of John Virden, Eaton made no less than 23 major acquisitions from 1958 to 1973. Eaton entered the automotive transmission business when it acquired Fuller Manufacturing in 1958. But the company’s most important acquisition came in 1963, when it purchased the Yale & Towne Manufacturing Company.

Yale & Towne was founded in the 1870’s by the inventor Linus Yale, Jr. He developed a revolutionary pin-tumbler cylinder lock which has remained basically unchanged since it was invented. When Yale died at the age of 47, Henry Towne took over the company and remained in charge for the next 50 years. Yale & Towne was acquired by Eaton on October 31, 1963 and a full merger occurred on January 1, 1966 when the company became known as Eaton Yale & Towne.

The Eaton auto parts division had suffered a temporary setback in 1965. General Motors, one of Eaton’s primary customers, reduced its orders from Eaton when model changes and higher wages forced it to scale down production. Yale & Towne, however, remained profitable and its divisions supported the company until demand for Eaton’s products recovered. The following year, Eaton Yale & Towne experienced record growth in sales and profits, largely as a result of an expansion in industrial growth.

Eaton and Yale & Towne executed a careful integration of managerial personnel. Officials at Yale & Towne were given important permanent positions in the new company. Gordon Patterson, formerly president of Yale & Towne, was named vice chairman. John Virden was promoted to chairman in 1963. He was replaced as president by Elliot Ludvigsen, a former president of Fuller Manufacturing. When Virden retired in 1969, E. Mandell de Windt, who joined the company as a production clerk, was elected chairman. The company’s name was changed once again on April 21, 1971 to Eaton Corporation.

The lowered demand for American cars in the 1970’s severely affected the three largest manufacturers of automobile components, Bendix, Rockwell, and Eaton. All three companies attempted further diversification of their operations. Bendix acquired new product lines, but never held on to them long enough significantly to broaden its markets. Rockwell attempted to increase sales of its consumer lines by adding electronics products but its fortunes remained bound to the defense department and NASA. Eaton, in contrast, began to emphasize the less volatile truck components market and expand in foreign markets. It also initiated a $470 million diversification program to develop a new line of factory automation products.

In 1978, with the automotive market still sluggish, Eaton made three acquisitions—Samuel Moore & Company, a manufacturer of hydraulic motors and transmissions, Kenway, a company specializing in robotic warehouse storage systems, and, most importantly, the electronics company Cutler-Hammer. The AIL electronics division of Cutler-Hammer had developed the ALQ-161 advanced radar counter-measures system for Rockwell’s B-l bomber and had also been chosen by NASA to build the landing system for the Space Shuttles. Eaton’s intention was to combine the resources of these three companies in order to develop a new line of factory automation products. But during the development stage, dollar investment was high and product profits low. Eaton’s position was worsened by its continued exposure to the weak automotive business and the Yale & Towne division’s marginally profitable ventures with forest equipment and lift-trucks. 1980 was a particularly bad year for the corporation.

During 1981 Eaton sold or closed down 18 subsidiaries whose profits were marginal or non-existent. The forestry equipment and lift-truck businesses were written off and sold in 1982 for $200 million. That year Eaton registered its first loss in 50 years, $189.6 million on sales of $2.4 billion. Determined to reduce the company’s exposure to the vagaries of the automotive components business, E. Mandell de Windt declared that Eaton had now dedicated itself to becoming a “high technology company servicing the growth markets of the 1980’s.”

Ironically, the automotive division generated most of the company’s profit the following year. Eaton’s major automotive customers, International Harvester, Ford, General Motors, and Paccar, had fully recovered from the recession of the mid-1970’s and were once again selling a wide range of trucks. Even so, automotive components, which had accounted for 79% of Eaton’s sales in 1977, were down to 46% in 1983. Twelve of the company’s automotive components plants were closed and employment was reduced from 63,000 in 1979 to 41,000 in 1984. But sales from the electronic components division had risen dramatically from 21% of turnover in 1977 to 54% in 1983.

Jim Stover, president and chief operating officer of Eaton since 1979, was named chairman and chief executive officer when E. Mandell de Windt retired on April 23, 1986. Stover maintained de Windt’s commitment to the company’s substantial foreign markets, remarking that Eaton had learned from the recession that “you compete on a global basis or you don’t compete at all.” (The company’s strong foreign presence currently accounts for 13.4% of sales.) Stover took over after Eaton had reported a 1985 profit of $231 million on sales of $3.7 billion. At the beginning of 1986 Eaton had one billion dollars available for financing acquisitions. By July it had purchased three more companies, Pacific-Sierra Research (defense and computer systems), Singer Controls (switches and valves), and Consolidated Controls (precision instruments). Despite continued emphasis on developing its high-technology and electronics business, the automotive division continues to provide the largest share of Eaton’s profit. Stover’s goal is to achieve equality in profits between the two divisions, but this is not expected to occur until the early 1990’s.

Principal Subsidiaries

Analytical Assessments Corp.; Pacific-Sierra Research Corp.; Eaton International Corp.; AIL International, Inc.; Cutler-Hammer Export Sales Corp.; Eaton DISC Company; Yale Materials Handling Corp. (59%); Eaton Consulting Services Corp.; Eaton-Kenway, Inc.; Yale & Towne Company; Kenway Handling Systems, Inc.; Eaton I.C.S.A. (Argentina); Eaton Pty., Ltd. (Australia); Cutler-Hammer Australia Pty., Ltd.; Samuel Moore Europe S.A. (Belgium); Eaton Yale, Ltd. (Canada); Milmer Road Enterprises, Ltd. (Canada); Eaton Controles Industriales S.A. (Costa Rica) (97.78%); Eaton S.A. (France); Eaton Technologies, Ltd. (Hong Kong); Eaton S.p.A. (Italy); Eaton EST S.p.A. (Italy) (99%); Eaton Controls S.p.A. (Italy); Eaton Automotive S.p.A. (Italy); Eaton Nova S.p.A. (Italy); Eaton Japan Company, Ltd.; Eaton International, Inc. (Liberia); Cutler-Hammer Anstalt (Liechtenstein); Condura, S.A. de C.V. (Mexico); Cutler-Hammer Mexicana, S.A. (Mexico) (66.7%); Eaton s.a.m. (Monaco); Eaton B.V. (Netherlands); Eaton Finance N.V. (Netherlands Antilles) (71.05%); Cutler-Hammer New Zealand, Ltd.; Cutler-Hammer Nigeria, Ltd.; Cutler-Hammer (South Africa), Ltd.; Eaton Truck Components (Proprietary), Ltd. (South Africa); Cutler-Hammer Babelegi (Proprietary), Ltd. (South Africa); Cutler-Hammer Igranic Properties (Proprietary), Ltd. (South Africa); Eaton, S.A. (Spain) (50.14%); Productos Eaton Livia S.A. (Spain) (52%); Cutler-Hammer Española, S.A. (Spain); Cutler-Hammer Svenska A.B. (Sweden); Eaton, Ltd. (U.K.); Cutler-Hammer Europa, Ltd. (U.K.); Eaton Foreign Sales Corp. (U.S. Virgin Islands); Eaton, GmbH. (West Germany); Cutler-Hammer, Ltd. (Zambia); C.H.I. Properties (Private), Ltd. (Zimbabwe) (80%).