Federal-Mogul Corporation

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Federal-Mogul Corporation

P.O. Box 1966
Detroit, Michigan 48235-9988
U.S.A.
(313) 354-7700

Public Company
Incorporated: 1924
Employees: 14,400
Sales: $992.9 million
Stock Index: New York Pacific
SICs: 3714 Motor Vehicle Parts and Accessories; 3562 Ball and Roller Bearings; 3592 Carburetors, Pistons, Rings, Valves; 3452 Bolts, Nuts, Rivets, and Washers; 3053 Gaskets, Packing and Sealing Devices

Federal-Mogul Corporation manufactures precision components for the automotive industry, marketing its products to original equipment manufacturers (OEMs) and aftermarket customers in the United States and around the world. The company rose to prominence through a series of expansions and acquisitions, which included the Bearing Company of America in 1953, the Bower Roller Bearing Company in 1955, and National Seal in 1956. In the early 1990s, Federal-Mogul sought to offset fluctuating demand in the OEM market by entering into aftermarket sales.

The history of Federal-Mogul may be traced to 1899, when J. Howard Muzzy and Edward F. Lyon, two mill supply vendors in Detroit, began searching for ways to produce better babbitt metal. Babbitt metal, an alloy of tin, antimony, and copper, had been patented in 1839 by Isaac Babbitt as an antifriction agent surrounding moving metallic locomotive parts. The use of babbit metal remained the principal means of preventing rotating metallic shafts from overheating and wearing out. However, the introduction of combustible engines early in the twentieth century prompted a need for new, improved babbit metal.

Having developed an alternative formula for babbit metal, Muzzy and Lyon left secure jobs at J. T. Wing and Company, a vendor of mill and factory supplies, where their friendship and business acumen had gradually matured. Determined to be their own bosses in the market they knew best, the two partners opened their first facility in 1900. During this time, the mill and factory supply business was highly competitive, and many producers offered shoddy merchandise at inexpensive prices. However, Muzzy and Lyon established a reputation for high quality products and were able to reinvest most of their profits back into the business. They used aggressive and imaginative advertising, providing money-back guarantees and coupons good for prizes ranging from pocket rulers to firearms.

Whatever time Muzzy could spare from his primary responsibility of managing the financial and manufacturing end of the business he devoted to experimentation with babbitt metals. Lyon, when not on the road selling company products, joined his partner in blending new formulas of tin, antimony, and lead. Their company soon garnered major orders from Clark Motor Company and the Sheffield Motor Company. As a result of the increased business, the partners formed a subsidiary company called the Mogul Metal Company.

During this time, the traditional method of making motor bearings was to pour molten babbitt metal directly onto the motor block and to shape the metal to fit by hand. Mechanics replaced worn bearings by laboriously gouging out the old metal and then pouring in the new. When Sheffield’s parent organization, the Fairbanks Morse Company, inquired as to whether die cast metals could be manufactured to form standard size bearings, Muzzy and Lyon began working on a method. They purchased a typecasting machine, and, by modifying it, they were able to make some of the new parts themselves, while commissioning various machine shops to produce the rest. The design and construction of Muzzy’s and Lyon’s new machine remained a secret, and while the partners had limited mechanical and engineering experience, the machine proved successful.

The potential of the die casting machine so impressed the partners that they decided to drop the mill supply business completely. The company would devote its entire resources to manufacturing and mechanizing automotive bearings and babbitt metals. Orders for their die cast bearings began to arrive, and, in 1910, an important order was placed for 10,000 connecting rod bearings for the massive Buick 10. That year, the partners nearly lost a large order from the Hudson Motor Company when they refused to compromise their secret processes by allowing Hudson engineers to inspect the plant.

In 1923, Muzzy learned that Douglas-Dahlin, a large Kansas City-based parts distributor, stood in danger of bankruptcy while owing Mogul a large sum of money. S.C. Reynolds, vice-president of Federal Bearing and Bushing, which also stood to lose money, called Muzzy to discuss the situation, proposing a trip to Kansas City to protect their interests. When Muzzy and Reynolds began discussing their companies and assessing their relative strengths and weaknesses, they realized the advantages of a merger. The Federal Bearing employees were expert bronze foundrymen but lacked the capacity to produce babbitt. Muzzy-Lyon, on the other hand, operated a complete babbitt foundry but purchased bronze on the market. The companies merged in 1924, taking the name Federal-Mogul Corporation. To protect its investments, Federal-Mogul took over the near-bankrupt Douglas-Dahlin Company, entering the parts distribution business.

In 1927, Federal-Mogul purchased U.S. Bearings Company, an Indiana distributor that resold replacement bearings. The following year, Federal-Mogul’s involvement in the service business increased substantially with the acquisition of the Watkins Manufacturing Company of Wichita, Kansas. Following this major expansion, Federal-Mogul also purchased the Pacific Metal Bearing Company in San Francisco, primarily to supply its West Coast branches. In 1936, the corporation acquired the Indianapolis-based Superior Bearings Company, and, in 1937, the service division went international with the acquisition of the former Watkins Rebabbitting Limited, with Canadian locations in Toronto, Montreal, and Winnipeg. By 1939, Federal-Mogul was operating 53 service branches across the North American continent.

World War II led to further expansion. By 1941, Federal-Mogul had over 50 facilities devoted to military production, turning out millions of bearings, bushings, and seals for military applications. The company’s marine division won highly competitive U.S. Navy tests for PT boat propellers and secured orders for over 24,000 Super Equi-poise wheels for every PT boat propeller used by all the Allied navies, including that of the Soviet Union. The marine division grew from a work force of 50 in 1942 to nearly 1,000 by the end of the war. Moreover, from September 1939 to July 1945, the total area of Federal-Mogul plants increased nearly threefold, and annual sales were more than double the best prewar amounts.

Although postwar employee layoffs were necessary, the company continued to grow through acquisition. In 1953, Federal-Mogul merged with Bearings Company of America, marking the single largest acquisition in its history. The merger of the Bearings Company brought 610 new employees and approximately 121,000 square feet of manufacturing space into the organization. Even more significant growth occurred in 1955 when Federal-Mogul acquired the Bower Roller Bearing Company. Soon thereafter, the corporation announced its third major merger in as many years, when The National Motor Bearing Company joined the new Federal-Mogul-Bower Bearing Corporation in 1956. The acquisition earned the company its first listing among Fortune magazine’s 500 largest American companies, ranking 350 with sales that exceeded $100 million that year. By the end of the 1950s, Federal-Mogul’s service division had expanded from 58 to 96 branches, and the number of customers had doubled to over 10,000. The mergers and increased efficiency of the 1950s had increased annual sales to four times their 1949 level.

During the 1960s, the corporation’s timely response to innovations in automobile production ultimately resulted in large dividends. One such development involved the steady expansion of foreign automobile manufacturers, facilitated by mass production technology and the development of the European Common Market. Observing a threat to American export sales, Federal-Mogul management began investing in foreign manufacturing operations and purchasing interests in various major European bearing firms. Domestic expansion also continued, and the firm began to focus on manufacturing parts for the highly sophisticated missile market. In 1964, Federal-Mogul opened a new oil seal facility that was publicized as the most highly mechanized plant of its kind in the world. The following year, the company purchased Steering Aluminum, a piston factory, and the Vellumoid Company, a manufacturer of gaskets and gasket materials.

The early 1970s marked a domestic expansion into the southern states. A highly automated new plant in Princeton, Kentucky, opened in late 1970, with 50,000 square feet devoted to producing super alloy metal powders. In 1971, a new plant in Virginia began manufacturing aluminum sleeve bearings, while another Federal-Mogul plant was introduced for the manufacture of bimetal bushings and bearings. The following year, an additional powdered metal parts plant was opened in Ripley, Tennessee, and, soon thereafter, a new 360,000 square foot plant in Hamilton, Alabama, began producing tapered rolling bearings ranging up to eight inches in diameter.

Economic recession in 1975 prompted management at Federal-Mogul to begin reassessing its long-term strategy. Although the company quickly recovered from the recession, recording its fourth consecutive year of record sales and earnings in 1979, management had found that the company’s earnings were overly reliant on the fortunes of automotive OEMs. In the 1980s, chairperson and CEO Tom Russell placed increasing emphasis on a strategy of diversification. Toward this end, in 1985, Federal-Mogul acquired the Mather Company, a manufacturer of high performance sealing products for the automotive and industrial markets and a leader in Teflon technology. Moreover, the purchase of the Carter Automotive Company, a manufacturer of fuel systems, further strengthened Federal-Mogul’s position.

Dennis J. Gorley, who assumed Federal-Mogul’s chief executive office upon Russell’s 1989 retirement, accelerated his predecessor’s diversification scheme. Gorley spearheaded Federal-Mogul’s expansion into the automotive aftermarket, which promised higher profit margins and more stability than the OEM market. From 1989 to 1993, the firm acquired some of the best-known brands in automotive replacement parts and divested some peripheral OEM businesses. Principal acquisitions included: Dietz Lighting, Glyco Engine Bearings, Brown & Dureau (Australia) and Sealed Power Replacement. The company made its largest purchase ever in 1992, when it bought TRW Inc.’s automotive aftermarket business (AAB). The former TRW operations expanded Federal-Mogul’s European and Japanese penetration and constituted nearly 20 percent of annual revenues in 1993.

During this period, Federal-Mogul worked to improve efficiency through automation, capital improvements, and staff reductions. The company adopted bar code technology for inventory control and invested in guided vehicles, hand-held scanners, and computers for its Jacksonville, Alabama, worldwide distribution center. These modernizations cut order fulfillment time from three days to one. Federal-Mogul also moved to transform its export operations into international enterprises. By 1993, 21 percent of the company’s sales were generated by businesses outside the United States and Canada, while another 13 percent of annual revenues still came from exports.

The transition was not entirely smooth; Federal-Mogul recorded net losses in 1991 and 1992 totaling $87.4 million. However, when the company reported a $40.1 million profit for 1993, Financial World praised the company’s “sound acquisition strategy, good cost controls, and participation in international markets.” Noting that the company’s stock had outperformed the Standard & Poor’s 500 Index, CEO Gorley maintained that recent progress was “just the beginning,” telling shareholders in the company’s annual report that Federal-Mogul was “positioning itself as a company capable of sustained earnings growth.”

Principal Subsidiaries:

Carter Automotive Company, Inc.; Mather Seal Co.; Metaltec, Inc.; Federal-Mogul Funding Corp.; Federal-Mogul World Wide, Inc.; Federal-Mogul Venture Corp. Federal-Mogual World Trade, Inc.; Federal-Mogual Bruss Scaling Systems (74%); Federal-Mogul Distribuidora SAC (66%); In-De-Co., H. Minoli S.A.I.C. (59%); Federal-Mogul Pty. Ltd.; Federal-Mogul Handelsgesellschaft MBH; Federal-Mogul World Trade E.G.; Federal-Mogul World Trade Ltd.; Federal-Mogul Boliviana, S.A.; Federal-Mogul Comercio International, S.A.; Glyco do Brasil; Federal-Mogul Canada Investment Co.; Federal-Mogul Canada Ltd.; Federal-Mogul Cayman Investment Company Ltd.; Federal-Mogul World Trade Chile Ltda (99%); Federal-Mogul de Costa Rica, S.A.; Federal-Mogul Dominicana, S.A.; Federal-Mogul del Ecuador, S.A.; Federal-Mogul S.A. (France); BHW GmbH; Federal-Mogul GmbH; F-M Motorentiele Holding GmbH: Glyco AG; Glyco KG; Glyco Antriebstechnik Gmbh: Federal-Mogul de Guatemala, S.A.; Federal-Mogul World Trade Hong Kong, Ltd.; Federal-Mogul SpA; Federal-Mogul Japan KK; Federal-Mogul World Trade SON BHD; Conaba S.A. de C.V. (51%); Federal-Mogul S.A. de C.V. (61%); Manufacturas Metalicas Linan S.A.; Raimsa S.A. de C.V. (70%); Servicios Administra-tivos Industrials, S.A.; Sericios de Components Automotrices, S.A.; Subensambles Internacionales S.A. de C.V.; Femosa Mexico S.A. (90%); Glyco B.V.; Federal-Mogul New Zealand Ltd.; Federal-Mogul Panama, S.A. Villa Fane Auto Supply, Inc.; Federal-Mogul World Trade Pte. Ltd.; Federal-Mogul World Trade de Espana, S.A.; Federal-Mogul S.A. (Switzerland); Federal-Mogul Holding U.K., Ltd.; Federal-Mogul Ltd.; Federal-Mogul Westwind Air Bearings Ltd. (89%); Federal-Mogul Uruguay; Federal-Mogul de Venezuela C.A.