Borg-Warner Corporation

views updated

Borg-Warner Corporation

200 South Michigan Avenue
Chicago, Illinois 60604
U.S.A.
(312) 322-8500
Fax: (312) 322-8398

Private Company
Incorporated: 1928
Employees: 75,000
Sales: $2.22 billion

Borg-Warner Corporation (BWC) was created in 1928 by the merger of four midwestern manufacturing companies: Borg & Beck Company, Warner Gear Company, Marvel-Schebler Carburetor Corporation, and Mechanics Universal Joint Company. These four companies had prospered during the early 20th century by supplying innovative parts to U.S. car manufacturers. Borg-Warner continued to be heavily dependent upon this business. Nevertheless, diversification, especially after 1955, eventually brought BWC to appliances, heating and air conditioning, chemicals, financial services, and protective services. These new operations enabled Borg-Warner to weather the trend toward integration among U.S. carmakers. The steady if unspectacular growth experienced by Borg-Warner was interrupted in 1986 when the company went private through a leveraged buyout. Faced with a large debt load, the corporation sold most of its diversified operations and returned to its core business of automotive parts manufacturing.

During the late 19th century Charles W. Borg, a Swedish immigrant, went into business with Marshall Beck in Moline, Illinois, making machines to turn out wagon poles. Eventually, Borg & Beck took on work for some of the early automobile manufacturers. In 1910 Borg’s son, George Borg, and a company engineer invented the single-plate clutch. George Borg was able to sell his clutch to a small automobile company that was desperately seeking a new clutch for its army trucks. By the time Borg & Beck moved to Chicago and George Borg replaced his father as president in 1918, the company had produced 200,000 clutches, making it the leading U.S. manufacturer of clutches.

Also at the turn of the century, Tom and Harry Warner— two brothers in Muncie, Indiana—designed a differential gear for automobile transmissions. The gear allowed a car’s two drive wheels to turn at differing speeds when it was cornering. With local industrialist Abbot L. Johnson at its head, Warner Gear Company was established in 1901. Seeing a demonstration of the Warner differential at a 1903 New York automobile show, Ransom E. Olds ordered 4,000 of them for his new line of cars, the Oldsmobile. This marked the beginning of Warner Gear’s great success producing drivetrain components.

After World War I, Warner Gear suffered as a result of the the increasing self-sufficiency of car manufacturers. The company’s new secretary-treasurer, Charles S. Davis, made a daring proposal. In 1904, three years after marrying Abbot Johnson’s daughter, Davis had been put in charge of one of his father-in-law’s businesses. In 1919 Davis was brought to Warner Gear as the secretary-treasurer. He proposed that the company develop a standard transmission for all makes of cars. If buyers could be sold on the idea, mass production of the component would allow Warner Gear to underprice all competitors. Davis was correct, and the T-64 became one of the most common transmissions in the United States.

Marvel-Schebler Carburetor and Mechanics Universal Joint were also very successful in producing automobile parts. The founders of Marvel Carburetor and of Schebler, B.N. Pierce and Schebler, had been partners in a woodworking business. Around the turn of the century, the men sensed that automotive parts had a more promising future than violin-making. Pierce and Schebler invented two carburetors, and after several more years dissolved the partnership. Each man kept the rights to a carburetor and went into business. Schebler stayed in Indianapolis, Indiana, and Pierce relocated to Flint, Michigan, and started Marvel Carburetor. In 1928 the Schebler firm was acquired by Marvel Carburetor Company. Marvel made carburetors for various major carmakers and had had a contract with Buick since 1911.

Four machinists in Rockford, Illinois, had formed the Mechanics Machine Company in 1890. With the assistance of the banker PA. Peterson, the company grew, and by 1911 was producing automobile transmissions, axles, and differentials. Universal joints, however, made the company’s fortune. Mechanics Machine had an exclusive contract with Chevrolet to supply malleable-iron-housing universal joints. A self-lubricating model developed after World War I, the Oil-Tite, was an even greater success since it ended the burdensome task of greasing the universal every 500 miles. In 1925 the company was renamed the Mechanics Universal Joint Company.

In early 1928 the leaders of Borg & Beck, Warner Gear, Marvel-Schebler Carburetor, and Mechanics Universal Joint began merger negotiations. The negotiators agreed that each company could continue to operate with some autonomy. A merger, however, would give the companies the size and strength to bargain more effectively. Meetings were held through the first half of 1928. Participants, in effect, wanted to create a federation of companies to decrease the risks involved in producing auto components. At any time carmakers could decide to produce their own components or stop purchasing parts from any of the many small contractors.

An agreement was reached in May 1928. A month later the details of the merger were settled and the new firm, Borg-Warner Corporation, acquired Borg & Beck, Warner, Marvel, and Mechanics Universal. Borg-Warner’s headquarters was located in Chicago—at 310 South Michigan Avenue, where it remained until 1958 when it was moved a block to 200 South Michigan Avenue. George Borg was named president and Charles Davis was made chairman of the board. Borg soon decided to pursue other interests, and in March 1929 he switched positions with Davis. Davis remained president of BWC until 1950.

As president of Borg-Warner, Davis adopted a policy of loose coordination. His leadership was of great importance in the early years. Taking control of what was initially a holding company for the different firms, Davis provided general supervision and financial support while the presidents and supervisory boards of the divisions retained a great deal of autonomy. Product development, purchasing, labor relations, and sales remained the preserve of each division. Competition between the divisions was encouraged.

In the next few years many companies joined the new corporation. The first of these was the Galesburg Coulter Disc Company of Galesburg, Illinois, acquired in January 1929. Galesburg Coulter Disc had been manufacturing components for Borg & Beck’s clutches for many years. Stephen Ingersoll had begun producing coulter discs, cutting discs that are attached to plows, in 1884. In 1904 the business was incorporated; production increased more than ten times during the next decade. In the 1920s Roy Ingersoll, Stephen Ingersoll’s son and president from December 1927, invented a patented technique to make heat-treated coulter discs.

During the 1920s there was an unexpected opportunity to produce plates for automotive-component manufacturers such as Borg & Beck; Galesburg Coulter Disc also sold a great number of disc plates to the Long Manufacturing Company of Detroit. Formed in 1903, Long Manufacturing produced automotive clutches and radiators. At the insistence of Roy Ingersoll, Long Manufacturing was brought into BWC in 1929. The third major U.S. producer of clutches, the Rockford Drilling Company of Rockford, Illinois, also was acquired by BWC in 1929.

That same year the Morse Chain Company was acquired by Borg-Warner. Frank and Everett Morse of Trumansburg, NewYork, had begun making bicycle chains in the 1880s. Frank Morse developed the “Morse Silent Chain,” which he later equipped for use as a timing chain for automobiles. Because it vastly improved the engine’s performance, it set the industry standard for timing chains in the 1920s.

BWC enjoyed steady growth and made continual improvements in its product line during the 1930s. In 1930 Ford contracted Borg-Warner to construct transmissions for its new standard lever gearshift. A plant was constructed to accommodate this large contract. Warner Gear engineers developed the first overdrive, sold to Chrysler in 1934. A year later Davis implemented a program to develop an automatic transmission, although it came to fruition only after World War II. Still head of Galesburg Coulter Disc Division, Roy Ingersoll developed several new ventures, including a washtub business that captured 40% of the U.S. market. He also produced a successful all-steel furnace at the Kalamazoo, Michigan, plant.

The only radically new course taken by BWC was unplanned. In August 1929 Davis purchased the Detroit Gear and Machine Company in order to gain needed factory space. Detroit Gear had been acquired in 1925 by a new firm called the Norge Company. The head of Norge, Howard K. Blood, was committed to the production of mechanical refrigerators and insisted that Borg-Warner purchase and develop his new Rollator refrigerator. Unlike previous refrigeration systems, the Rollator was a self-contained unit, similar to modern refrigerators.

As head of the new division Howard Blood then purchased the Alaska Company of Muskegon, Michigan, a manufacturer of refrigerator boxes. The Borg-Warner directors reluctantly approved the acquisition, and invested $1 million to renovate and equip the plant. The consumer durables market was remarkably resilient during the Depression. Norge expanded in 1934 with the purchase of the Detroit Vapor Stove Company, a maker of gas stoves. The division already had introduced a line of washing machines, an electric iron, and an air conditioner. By 1936 the Rollator refrigerator was the second-best-selling refrigerator in the United States.

Borg-Warner’s plants switched to war production as soon as the United States entered World War II. Components for jeeps, tanks, trucks, ships, and airplanes flowed out of its plants. BWC’s most famous wartime project was its amphibious vehicles. In autumn 1941 the navy contracted Borg-Warner to develop an amphibious tank for the marines to use in the Pacific theater of war. Davis put Robert Ingersoll, Roy Ingersoll’s son, in charge of the project. Robert Ingersoll was later given the task of building amphibious tractors, and the LVT3, or Beach Buster.

In 1950 Charles Davis stepped down as president, and his friend Roy Ingersoll took over. While in Paris in 1954 Davis died, and Ingersoll became chairman of the board. To accommodate the expansion of Borg-Warner since 1928, Ingersoll established a system of group vice presidents, each responsible for several of the 30 divisions. Ingersoll also constructed a central research facility, which came to be known as the Roy C. Ingersoll Research Center, in Des Plaines, Illinois.

By 1953 more than half of the firm’s output was still in automotive parts. After the war this sector flourished. In 1948 Borg-Warner was contracted by Ford to produce half of its automatic transmissions. The corporation expanded production and factory space to meet the demand. Foreign carmakers, including Jaguar, wanted so many of the firm’s transmissions that Borg-Warner established a United Kingdom subsidiary. In 1958 Borg-Warner’s contract to manufacture Ford-O-Matic transmissions ended. Because of high U.S. labor costs, the firm also lost other customers such as Massey-Ferguson.

Although Roy Ingersoll stepped down as president in 1956, he remained chairman of the board until 1961. His son, Robert Ingersoll, served as president from 1956 to 1968, chief executive officer from 1958 to 1972, and chairman of the board between 1961 and 1972. Both Ingersolls realized that automakers would continue to make more of their own components as they became more fully integrated. Under the Ingersolls, Borg-Warner rushed to diversify, adding 26 new divisions during the 1950s. As a result of several acquisitions between 1955 and 1959, industrial equipment became a major business for the company. Central to this new endeavor was the 1955 purchase of the Byron Jackson Company, a producer of industrial tools and pumps. During the 1940s this firm had built the six massive pumps for the Grand Coulee Dam. Each pump moved 720,000 gallons of water per minute. In addition to its existing international subsidiaries in Canada and England, Borg-Warner expanded into Australia, Brazil, and Mexico.

The most important developments for BWC in the 1950s and 1960s were in air conditioning and chemicals. There was a large, untapped market for air conditioning. Borg-Warner executives decided to purchase the York Corporation of York, Pennsylvania, in 1956. York was the oldest firm in the business and had a reputation for high-quality products. It had scored many firsts, installing the first air conditioning system in a cinema in 1914, and in 1948 it built the first hermetically sealed room air conditioner. York, however, had lacked the capital necessary to handle growing demand. The York Division was given control of all Borg-Warner’s heating and air conditioning operations, and a plant idled by the lapse of the Ford-O-Matic contract was reopened by the new division.

Chemicals were not completely new to Borg-Warner in the 1950s. In 1934 BWC had purchased a very small operation named the Marsene Corporation. Borg-Warner executives saw Marsene’s small Gary, Indiana, plant as an experimental foray into the chemical business. The scientist in charge, Robert Shattuck, had developed cyclo rubber which, when properly treated, was an excellent insulator for electrical wiring. During World War II Marsene’s wire insulation enjoyed a sudden burst of popularity. Unbeknownst to Shattuck and his employees, cyclo-rubber-coated cables were being used for a new device which proved crucial in the Battle of Britain: the radio detecting and ranging device, or radar.

The Marbon Chemical Division, the name given to Marsene in 1954, developed acrylonitrile-butadiene-styrene (ABS) resins, marketed under the name Cycolac. In 1958 the Western Electric Company contracted Marbon to supply Cycolac for its telephones, and other buyers soon followed. A plant was constructed near Parkersburg, West Virginia, to handle the sudden demand. Between 1961 and 1967 Cycolac sales jumped 350%, cornering half the market in ABS resins. By 1967 chemicals accounted for about $100 million of BWC’s sales.

James Bere became president of Borg-Warner in 1968 and chairman when Ingersoll resigned after he was named U.S. ambassador to Japan in 1972. Bere had been brought to BWC in 1961 by Robert Ingersoll. Ingersoll promoted the young executive to the presidency over the heads of four company veterans.

From the late 1960s to the early 1980s Borg-Warner recorded a stable if unremarkable performance, surpassing $3 billion in sales by 1984. Its manufacturing groups experienced sporadic growth, prompting BWC to sell certain operations, including the Norge Division, in July 1968; the Ingersoll Products Division, formerly Coulter Disc, in 1980; and the York Division, including the residential air conditioning and heating operations acquired from Westinghouse Electric Corporation in 1981, in 1985. The York diversification had underperformed since its acquisition.

In late 1978 James Bere and Richard Riley, head of Firestone Tire and Rubber Company, arranged a merger which would have put BWC and Bere in charge of a vastly expanded organization at a cost of just $860 million. Firestone had been faced with a recall of 7.5 million radial tires and was experiencing management troubles. After an upswing in the company’s fortunes in early 1980, however, Firestone directors balked at the agreed price, and the deal fell through in April 1980.

More typical of James Bere were his moves to develop service operations, aiming for an even mix of services and manufacturing at Borg-Warner. In 1978 Bere purchased Baker Industries, propelling Borg-Warner into the protective-services industry. Further acquisitions were made in the early 1980s to expand this business. Operating under the Wells Fargo and Burns International names, BWC became the largest provider of protective services in the country. This group recorded over $1 billion in sales in 1985.

In 1968 Borg-Warner had retained the financing subsidiary of Norge, the Borg-Warner Acceptance Corporation. By 1979 it was producing 14% of BWC’s earnings. In addition Borg-Warner acquired the Chilton Corporation, a credit-reporting network and information service based in Dallas, in 1986.

After a difficult transition period among its top management, the future of Borg-Warner seemed to have been settled with the selection of Clarence Johnson as president in April 1984. He became chief executive officer a year later. After working as a Federal Bureau of Investigation agent, Johnson came to BWC in 1952, working in the firm’s automotive-manufacturing operations. The selection of Johnson allowed Bere to set his retirement date for 1987.

Borg-Warner’s growth, however, was halted in 1987 when it became the object of a hostile takeover attempt by GAF Corporation, a chemical company based in Wayne, New Jersey. Samuel J. Heyman, the chairman of GAF, was searching for acquisitions to expand his company’s chemical business, and Borg-Warner’s profitable chemical operations had attracted his attention.

After the BWC directors rejected a management-led buyout in February 1987, Johnson and the retired Bere tried to ward off Heyman by cutting corporate staff, selling the industrial products group, and putting the financial-services operation up for sale. Nevertheless, GAF, with almost 20% of the BWC’s shares, offered to purchase Borg-Warner for $3.16 billion at the end of March 1987. Wary of a “poison pill” plan adopted by Borg-Warner in early 1986, Heyman claimed his acquisition was a friendly one. Heyman’s record, however, suggested he would strip Borg-Warner of its non-chemical businesses. Borg-Warner’s diversified character, lack of debt, and low share price made BWC a good prospect for such a breakup.

Borg-Warner’s independence was finally preserved by the sudden appearance of a $4.2 billion leveraged buyout offer from Merrill Lynch Capital Partners. Although Merrill Lynch promised to respect the wishes of Borg-Warner executives, the $2.75 billion in debts contracted during the buyout forced drastic action. At Merrill Lynch’s insistence Bere was brought back as chief executive in June 1987. This was swiftly followed by wholesale changes in top management, including the departure of Johnson. Bere, one of eight managing partners and a 2.5% shareholder in the now-private firm, arranged the sale of all Borg-Warner operations except the automotive group and the guard and courier businesses. The largest sale involved the chemicals group, which was bought in September 1988 by General Electric for $2.3 billion. In addition, Bere implemented major cuts in the staff and research budgets, closing the Roy C. Ingersoll Research Center at the end of 1988.

Since 1987 Borg-Warner has been revived as a much smaller, more efficient corporation. Its businesses are limited to automotive-parts manufacturing and protective services. The structure of BWC harks back to the firm’s early years, when it was a very successful supplier to U.S. car makers. Precipitous diversification into disparate fields after World War II led to mediocre results in the 1960s and 1970s. Only chemicals and plastics, developed by the firm over several decades, were stable and profitable additions to the core business. In the 1990s the streamlined Borg-Warner should be able to count on continued growth in its auto-parts manufacturing, possibly allowing it to develop new operations in keeping with its traditional strengths.

Principal Subsidiaries

Baker Industries, Inc.; Borg & Beck De Venezuela, S.A.; Borg-Warner Automotive; Borg-Warner de Mexico, S.A.; Borg-Warner do Brasil, S.A. (Brazil); Borg-Warner Ltd. (Canada); Burns International Security Services, Inc.; Pyro Chem Inc.; Warner Gear International (U.K.); Wells Fargo Alarm Services; Wells Fargo Armored Service Corporation; Wells Fargo Guard Services.