The Gates Corporation

views updated

The Gates Corporation

900 Broadway
P.O. Box 5887
Denver, Colorado 80217
U.S.A.
(303) 744-1911
Fax: (303) 744-4000

Private Company Founded: 1911
Employees: 17,000
Sales: $1.45 billion

The Gates Corporation is one of the largest privately held companies in the United States with sales of more than $1.4 billion from automotive and industrial rubber products, formed-fiber products, automotive accessory-drive systems, and petroleum property development. Its Gates Rubber Company, the largest of its subsidiaries, generates about 75 percent of the company’s total revenues and is considered the world’s largest non-tire rubber company.

The Gates Corporation traces its origins to 1911, when Charles Gates Sr. bought the Colorado Tire and Leather Company in Denver, Colorado. Gates had originally headed west in 1904 after graduating from the Michigan College of Mining and Technology. He took a job as a mining superintendent near Tin Cup, Colorado, but upon hearing of a gold strike in Nevada, he headed there and was hired as a mine engineer for the Nevada United Mines Company. In 1910, he settled in Denver, married, and started looking for a business to buy. The Denver Post’s classifieds listed three companies for sale: a manufacturer of soap, a manufacturer of toilet paper, and a mail order company that sold tire covers. Charles, age 33, and his wife Hazel, bought the Colorado Tire and Leather Company for their entire combined savings of $3,500.

The business consisted of a one-room shop with a typewriter and one 18-year old employee. The company’s only product was the Durable Tread tire cover, a studded leather band that attached to the car tires to extend the life of the tires. The former owner of the Colorado Tire and Leather Company had shown the Gateses stacks of invoices, promising a healthy profit every month. After buying the company, however, Charles and Hazel Gates found they had been tricked. The piles of invoices represented not one month but several months worth of orders, many of which were withdrawn when the company changed hands.

Furthermore, the company had incurred a significant debt and along with the invoices were several bills. Undaunted, Charles managed to persuade his brother John, an engineer, to join the company too.

Although the tire covers proved a worthy product, only about 5,000 cars were in use in Denver in 1911. The Gateses were selling a product that had too small a local market for the company to survive, let alone thrive. The two brothers launched an aggressive sales campaign through direct mail to reach the automobile users back east. In eighteen months, the business had 18 employees and showed a profit of $200.

The power of advertising again helped Gates to expand its product line. The Colorado Tire and Leather Company became the largest halter manufacturer in the west after the Gates brothers persuaded Buffalo Bill Cody to try the horse halters the company made from leather scraps. Buffalo Bill’s testimonial boosted sales, even though the halters cost twice as much as those of the competition.

Over the next few years, Gates introduced other new products, including car fan belts, blowout patches, and emergency boots for tires. But by 1914, a new material was being introduced into many products—rubber—and it was the perfect material for car tires, belts, and hoses because of its flexibility, adhesion, and durability. Gates abandoned leather tire covers and embraced the new technology, introducing retreads made of fabric and rubber.

Colorado Tire and Leather Company soon outgrew its rented space. The Gateses invested $15,000 in the construction of a small two-story building to accommodate the company. The second floor was used for halter production, and the first floor housed the company’s offices and production facilities for the Half-Sole, a retread made of rubber fabric that could be cemented to a worn tire. The Half Sole became one of the company’s biggest successes.

In 1917, the company’s name was changed to the International Rubber Company to reflect its new direction. That year John Gates developed the first rubber and fabric V-belt for use in the automobile. His first version of this car part was made of twine dipped in rubber cement, coated with fabric, and vulcanized in a mold, providing a superior product to the simple, hemp rope then in use on car radiator fans. The V-belt would remain a mainstay of the Gates company.

Gates’s company was busy during the first World War. The government classified the Half Sole as a priority product due to the rubber it conserved. After the war, however, the price of rubber dropped from $1.25 to 15 cents a pound, and the Half Sole protective cover became obsolete as tires became inexpensive to manufacture. In 1919, the Gates brothers were forced to develop a new product to take the place of the Half Sole, and the company began manufacturing balloon tires. That year the company was again renamed as The Gates Rubber Company.

During 1920 Gates faced several challenges. Economic recession left tire manufacturers with huge inventories of tires, which they had stockpiled because of the low cost of rubber, and now they were forced to cut prices and operating costs. Despite the poor economy, Charles Gates decided to market a new tire it had developed. The revolutionary Super Tread, so named because of its wider, heavier tread that increased mileage, was introduced during this time, and while tire sales dropped 35 percent nationwide, tire sales for the Gates company increased 40 percent in 1921. Meanwhile, Gates’s company developed and marketed belts in 20 sizes to fit most cars on the market. The introduction of the car generator during this time caused sales of the Gates V-belt to nearly double. Towards the end of the decade, Gates introduced molded rubber goods such as hydraulic seals and also began manufacturing garden hoses and radiator hoses.

When the stock market crashed in 1929 and the economy plummeted, Gates managed to remain profitable. Moreover, the company increased its focus on marketing, putting more representatives out in the field to drum up business. The Gates Rubber Company weathered the Great Depression, and, in fact, by 1934, had 2,500 employees, annual sales of $13 million, and a position as the sixth largest rubber company in the United States. The company was manufacturing more than 4,000 rubber products, which Gates called “necessary accessories to essentials,” items that people would need despite national events or the ups and downs of the economy.

When the country became involved in World War II in 1941, Gates’s products were essential. As men left for military service, hundreds of women began working in the company factories to help meet the wartime demand for belts, tires, and other parts for military vehicles. However, when the Japanese captured Singapore and the Dutch Indies, U.S. access to natural rubber was virtually cut off, with the country having only about six months worth of rubber stockpiled. To sustain the war effort, the rubber industry needed hundreds of thousands of tons of scrap rubber to recycle. Although Americans across the country undertook a great rubber collection drive, even taking the tires off their cars and donating rubber boots and raincoats, the nation needed still more rubber.

During this time, synthetic rubber had been developed and produced, but only in small laboratory quantities. In response to the country’s need, U.S. rubber companies, including Gates, joined forces to form the Copolymer Corporation to manufacture synthetic rubber. Charles Gates’s son, Charles Jr., spent three years at this company as an assistant chief engineer. During the war years, research was also ongoing in the development of synthetic fibers such as rayon and nylon.

The postwar years were prosperous for the country and Gates Rubber. Demand was high for new products. Between 1946 and 1954, sales at Gates increased from $59 million to $82 million. The company, which by this time employed a staff of nearly 5,500, was the world’s largest manufacturer of V-belts and the sixth largest rubber company in the United States. Gates had expanded from a one-room shop to a 53-acre complex with more than 30 buildings.

In 1954, Gates opened its first plant outside of Denver in Brantford, Ontario. In 1958, a second plant outside of Denver was opened, this time in Sioux City, Iowa. Other facilities followed in Toluca, Mexico; Nashville, Tennessee; Cleveland, Ohio; and Charlotte, North Carolina. The company also built a $1-million addition in Denver and tripled the size of its plant in Canada. In 1960, Gates opened a tread rubber plant in Chicago and acquired a metal sheave plant in Wichita, Kansas.

Charles Gates Sr. died in 1961 at the age of 83. His son, Charles Jr., then 40, succeeded him as company president and chairperson. Pointing out that the company’s hose and belt market was already mature and was unlikely to grow very rapidly in decades to come, Charles Gates Jr. set about diversifying the company’s operations.

Gates referred to his early years as president as his “gunslinging years,” during which he made some very diverse acquisitions: a cattle and guest ranch called the A Bar A, Inc., an automated egg farm, a trucking company, an aviation service, and a mutual funds business. In 1967, he acquired the Learjet Corporation, which was in serious financial trouble. Although Gates had to sink millions into the crippled company, he turned the company around after about 18 months, and Learjet remained profitable for many years.

Gates also acquired 3,000 acres in Colorado Springs, Colorado, and formed the Gates Land Company to oversee development of a planned community called Cheyenne Mountain Ranch. The community included housing developments, industrial and business parks, a conference center and resort, and retail shopping.

Although many of Gates’s efforts were unsuccessful, he did establish The Gates Rubber Company as an international business. Ventures included Gates South Africa; belt and hose plants in Belgium, Scotland, Germany, France, Spain, Brazil, Canada; and joint ventures in Venezuela, Korea, and Japan. Domestic expansion continued, with plants in Rockford and Galesburg, Illinois; Elizabethtown, Kentucky; Moncks Corner, South Carolina; Jefferson, North Carolina; Siloam Springs, Arkansas; lola, Kansas; Boone, Iowa; Charleston, Versailes, and Poplar Bluff, Missouri; and Red Bay, Alabama. In 1970, Gates undertook a Japanese joint venture, Unitta Company, Ltd., to manufacture synchronous belts for automotive and industrial customers. Business increased when the Japanese automakers switched to the manufacture of belt-driven overhead cam engines. Domestic expansion also continued, with plant openings in Rockford, Illinois; Elizabeth, Kentucky; and Wichita Falls, Texas. Furthermore, the company introduced new, smaller, and more efficient plants in Kansas, Arkansas, North Carolina, Missouri, and Alabama.

The company’s growth was halted when the United States entered an economic recession in the early 1970s. During this time, the Gates Rubber Company had plans to retool its tire plants to produce radial tires, which were taking over the tire industry. The recession forced a tough decision: rather than retool, Gates withdrew from the tire market.

However, new opportunities also arose. In 1970 Gates scientists produced a completely sealed lead-acid rechargeable battery, the first commercially viable battery of this type. The new Gates Energy Products division was introduced to produce these batteries. This Gates company grew rapidly once the U.S. economy recovered from the recession. In 1987 Gates acquired General Electric’s battery business, and by 1990, Gates Energy Products had sales of more than $182 million. The division offered a complete line of nickel-cadmium, nickel-hydrogen, and sealed-lead batteries for consumer, industrial, and aerospace use. In 1990, Gates brought out a nickel metal-hydride rechargeable battery for use in communications and computers.

Gates’ most successful battery product became its line of sealed-lead rechargeable consumer batteries used in many handheld appliances. However, in 1993, Gates announced it would sell its nickel-based battery operations to Eveready Battery Co. due to disappointing sales figures.

In 1980, Gates sales topped $1 billion. Two years later, The Gates Corporation was established as the parent company to all other Gates operations. The company also acquired Imperial Eastman hydraulic coupling facilities in Great Britain and France. In 1983, Gates acquired Murray Rubber Company and from that purchase created Gates Molded Products. Gates Data Products Division was also formed that year to produce electronic equipment components. However, this business was discontinued in 1985.

The following year, Gates Formed-Fibre Products was established with the purchase of a division of Albany International Corporation. Some of its Automotive products included molded trunk parts for GM, Nissan, and Mazda, carpeted door panel inserts for Ford Motor Company, as well as other trim panels and fabric-covered surfaces. In 1992, this company grossed $54.5 million.

In 1986, Gates undertook a $20-million expansion of its facilities in Elizabethtown, Kentucky, to produce its Poly Chain GT belts. The company also purchased the Uniroyal Power Transmission Company which had five plants and more than 1,700 employees. With this acquisition, Gates became the world’s largest synchronous/timing belt maker.

The Gates Rubber Company subsidiary was also expanding during this time. In 1987, it acquired Industrias Vulca S.A. of Spain and the V-belt operations of Gates’ former Spanish licensee, Firestone Hispania, as well as Scandura’s industrial matting and sheeting operation in Scotland. In 1990, the rubber division opened another V-belt plant in Spain and a synchronous belt plant in Scotland. The following year, it completed a belt plant and began production in a joint venture in South Korea.

A new division was launched in 1988 when Gates purchased Spun Steel, Inc., renaming it Gates Power Drive Products, Inc. The division produced pulleys, idlers, tensioners and mounting brackets, and accessory drive systems. Headquartered in Michigan and operating one U.S. plant and three facilities in Canada, the power drive division was a major supplier to U.S. automakers. Sales in 1993 totaled about $90 million. Furthermore, products from this company were being introduced to markets in Europe and the Pacific Rim. The division was also working with The Gates Rubber Company in a new center in Germany to introduce original equipment Gates products to European automakers.

By 1993, The Gates Corporation had 17,000 employees, with about 9,000 working in the United States. The company operated 46 plants and 35 distribution and service centers. Its products were marketed by a network of more than 150,000 dealers, distributors, and representatives in more than 100 countries. The Gates Rubber Company alone had facilities in 14 foreign countries.

Another economic recession in 1991 halted sales growth again for The Gates Corporation, largely because of declining car sales among Japanese and American automakers whom Gates supplied. In 1992, Gates showed some increase in sales although recovery from recession was slow. Total revenue was $ 1.45 billion, with sales of $ 1.09 billion from The Gates Rubber Company, an increase of a little more than seven percent over the previous year. Like many other companies in the United States, the Gates companies pointed to skyrocketing health care costs as a major problem severely affecting its earnings.

In the early 1990s executives at The Gates Corporation considered foreign growth vital to the prosperity of the company. In 1992, Gates Corporation operations included 11 facilities in four Latin American countries; eight facilities in six countries in the Asia/Pacific region; 19 facilities in eight European nations; and three facilities in Canada.

In 1992, Gates Rubber Company’s manufacturing operations in 14 foreign countries accounted for almost half of the company’s total sales. Gates Rubber’s international president L.G. Esten-felder remarked that without these foreign operations, the company would not have achieved its high level of export sales. Although many Americans argued that building overseas plants took jobs away from American workers, Estenfelder told Colorado Business Magazine that those foreign plants enabled the company to establish a strong presence in those markets and were the key to building exports. He also asserted that “we haven’t nearly exhausted our international growth potential.”

Gates Rubber Company considered Asia and Latin America, in particular, to be areas offering opportunity for the company in the years to come. Gates Korea secured adoption of its synchronous belts by all four Korean car companies in 1992, its first full year of operation. This division also began supplying a new belt to the North American automotive replacement market. Unitta, Gates’s joint venture in Japan, was ready to supply automatic belt tensioners to the Japanese automotive original equipment markets and to increase its sale of high-temperature longer lasting synchronous belts. Gates was also one of only nine Japanese members of Nissan Motor Company’s exclusive supplier association. The Gates facility in Toluca, Mexico, began producing and shipping its first Micro-V belts to U.S. markets in the early 1990s. Al Stecklien, Gates Rubber Company’s president of Asia/Pacific and Latin America operations, predicted that “Gates has an exciting future in both Asia and Latin America. These are two of the fastest-growing regions in the world where our presence will increase as we continue to invest in technology and increased capacity.”