Tenneco Automotive Inc.

founded: 1977

Contact Information:

headquarters: 500 north field dr.
lake forest, il 60045 phone: (847)482-5000 fax: (847)482-5940 url: http://www.tenneco-automotive.com

OVERVIEW

One of the largest North American manufacturers of shock absorbers, Tenneco Automotive also makes exhaust systems and related parts for automobiles and trucks. The auto parts industry also has two primary sectors: the original equipment sector, which includes parts for new car manufacturers; and the aftermarket parts sector, which includes replacement parts for cars and trucks. Nearly two-thirds of Tenneco Automotive's revenues come from sales to new car manufacturers, while the remaining one-third is secured in the automotive after-market.

COMPANY FINANCES

In 1997 Tenneco Automotive held a 25 percent share of the global shocks and mufflers market. The firm sold its products to nearly every original equipment manufacturer in the world, and its sales reached a record $2.94 billion, nearly double the total in 1992. Despite this promising growth, however, Tenneco Automotive's performance since its emergence as an independent public company in November of 1999 has suffered. The newly independent firm has yet to achieve profitability. It posted a $423 million loss on sales of $3.27 billion in 1999. Performance the following year improved a bit as sales grew to $2.54 billion, and the firm's losses diminished to $42 million. Losses increased, however, in 2001 to $130 million as sales fell to $3.36 billion. Stock prices, which reached roughly $10 per share in 2000, had fallen to less than $2 per share by November of 2001.

ANALYSTS' OPINIONS

Although recessionary economic conditions were largely to blame for Tenneco Automotive's weak financial performance in 2001, the firm's 1.5 billion debt load, the highest in the industry, also posed problems. The company had inherited the debt when it split from its packaging operations in 1999. According to a December 2001 issue of Crain's Chicago Business, "While analysts say the company's brands-Walker mufflers and Monroe shock absorbers-are strong, and the company should bounce back when the economy and auto industry rebound, they agree that the big challenge for Tenneco is to whittle down its debt."

HISTORY

Tenneco Automotive began as part of Tenneco Corp. a conglomerate with interests in everything from oil to shipbuilding. Tenneco Corp. was founded in 1960 to oversee the growing oil and gas subsidiaries of publicly owned Tennessee Gas Transmission Co., which had been created in 1943 to create a 1,200-mile gas pipeline in the United States. In 1961, Tenneco diversified into chemicals with the purchase of Heyden Newport Chemical Corp. and into paperboard and packaging material with the purchase of Packaging Corporation of America. Between 1950 and 1966, Tenneco acquired 22 companies, including Walker Manufacturing and Monroe, both of which would form the core of Tenneco Automotive.

In 1967, Tenneco added farm machinery manufacturer J.I. Case to its holdings. The firm restructured along geographical lines, creating two major divisions: Tenneco West and Tenneco Virginia. The following year, Tenneco Virginia bought Newport News Shipbuilding & Drydock Co. Tenneco continued to grow and diversify, purchasing British chemical company Albright & Wilson Ltd., Philadelphia Life, Southwestern Life Insurance, and Danish company Lydex in the 1970s.

Management thwarted efforts by shareholders to split and sell the firm's several divisions in 1982. Two years later, Tenneco acquired Ecko Housewares and Ecko Products. The farm machinery operations of Navistar were purchased and folded into the Case division in 1985. The following year, Tenneco divested its insurance arm to I.C.H. Corp. In 1991, Tenneco posted record losses of $723 million. Michael Walsh took over as president and launched a $2 billion restructuring plan that included the closing of several plants, the layoff of more than 10,000 employees, and the divestment of several holdings. For example, Tenneco sold its Case farm machinery subsidiary in 1995. That year, the firm also spun off its Albright & Wilson chemicals unit as a public company listed on the London Stock Exchange. The spinoff raised $819 million in fresh capital for Tenneco. Headquarters moved from Houston, Texas, to Greenwich, Connecticut.

To bolster its lucrative plastic packaging and consumer products operations, Tenneco paid $1.27 billion for the plastics division of Mobil Chemical Co. in 1995. However, the firm's divestment efforts continued when El Paso Energy Corp. acquired Tenneco Energy in 1996. By then, Tenneco had decided to focus on two major business segments: packaging and automotive parts. To this end, Tenneco also sold off its shipbuilding operations.

Between 1993 and 1997, Tenneco Automotive doubled its sales, mainly due to its purchase of more than 20 automotive parts suppliers. To cut costs, Tenneco Automotive laid off 1,000 employees and consolidated the management of its two strongest automotive parts brands: Walker and Monroe. In 1998, plans to merge with Tower Automotive Inc. fizzled. That year, Tenneco Inc. announced its intent to split into two separate firms: automotive and packaging. The split was completed in 1999, when Tenneco Automotive Inc. and Pactiv Corp. began trading as independent companies on the New York Stock Exchange.

Among the largest 150 North American automotive parts suppliers, Tenneco Automotive ranked 37th, according to Automotive News in 1999. The following year, the firm agreed to jointly manufacture emission control parts and systems with both Futaba Industrial Co. and Tokico Ltd. A sluggish North American economy undercut revenues in 2001. The firm also struggled with a heavy debt burden. Between mid-2000 and early 2002, the firm cut its salaried workforce by 28 percent, which resulted in roughly $62 million in savings. To achieved additional savings, Tenneco Automotive launched cost cutting efforts in early 2002 that included trimming 4 percent of its North American and European work force and shutting down eight plants.

STRATEGY

The split of Tenneco Inc. into two independent companies was a strategic move designed to improve the performance of each company. As a conglomerate, Tenneco Inc. had struggled with heavy debt, bureaucracy, and low profits. Management reasoned that its automotive arm would operate more efficiently as a smaller, independent entity able to focus solely on the automotive parts markets and respond quickly to various market trends.

One of Tenneco Automotive's strategies in the early 2000s was the expansion of international operations, particularly in emerging growth markets. Tenneco's presence in the mature markets of both North America and Western Europe was strong, and the firm wanted to expand into areas where growth looked more promising. According to a March 2001 PR Newswire release, "Tenneco Automotive's long-term strategy is to expand its global capabilities through niche acquisitions, joint ventures, and strategic alliances. With the increasing globalization of the automotive industry, the company is strategically expanding its operations in Eastern Europe and emerging markets in order to take advantage of lower operating costs, and to be better positioned to serve its original equipment customers in these growing markets." To this end, despite its desire to cut costs and pare down debt, the firm paid $20 million for a shock absorber manufacturing plant in Poland in 2001.

INFLUENCES

The decision to spin Tenneco Automotive off as an independent company came after Tenneco Inc.'s efforts to sell its automotive arm to Grand Rapids, Michigan-based Tower Automotive Inc. failed. Along with creating a $5 billion auto parts giant, the merger would have allowed Tenneco Automotive to offer a more comprehensive product line by giving it access to Tower's suspension systems. When the two firms were unable to agree on how to best manage the merger, negotiations halted.

CURRENT TRENDS

Traditionally, during periods of economic recession, original equipment demand drops, while sales in the automotive aftermarket remain level and frequently strengthen as cost conscious car owners tend to fix and repair their cars rather than buy new. Because Tenneco tended to rely more heavily on the original equipment market, it remained vulnerable to this trend. When the North American economy began to weaken in the early 2000s, the automotive industries there began to feel the pinch. A surplus problem in North America prompted auto manufacturers to shut down assembly plants for days and, in some cases, weeks during the first quarter of 2001. Although automakers were able to maintain sales growth throughout the year with no-interest financing programs, many began slowing production in anticipation of reduced demand in 2002. Consequently, automotive parts players like Tenneco Automotive saw demand for their products slow.

FAST FACTS: About Tenneco Automotive Inc.

Ownership: Tenneco Automotive Inc. is a public company traded on the New York Stock Exchange.

Ticker Symbol: TEN

Officers: Mark P. Frissora, Chmn., Pres., and CEO; Mark A. McCollum, SVP and CFO; Timothy R. Donovan, EVP

Employees: 20,000

Principal Subsidiary Companies: Tenneco Automotive Inc. operates 75 plants in more than 20 countries.

Chief Competitors: Major rivals of Tenneco Automotive Inc. include ITT Industries, Lear Corp., ArvinMeritor Inc., and other manufacturers of automotive parts.

PRODUCTS

Under the Walker and Monroe brand names, Tenneco Automotive manufactures Sensa-Trac and Reflex shocks and struts, Rancho shock absorbers, Walker Quiet Flow Mufflers (first introduced in 1998), DynoMax performance exhaust products, and Monroe Clevite vibration control components. The firm also manufactures catalytic converters, engine mounts, and steering stabilizers.

CHRONOLOGY: Key Dates for Tenneco Automotive Inc.

1943:

Tennessee Gas Transmission Co. is created

1960:

Tenneco Corp. is founded to oversee the holdings of Tennessee Gas

1991:

Tenneco posts a record losses of $723 million

1996:

Tenneco begins to focus on two major segments: packaging and automotive parts

1999:

Tenneco splits into two independent companies, one of which is Tenneco Automotive Inc.

FORMER TEXAS GIANT MOVES TO THE NORTHEAST

In the early-1990s, Tenneco Inc was the largest public company in Houston, Texas. After relocating headquarters to Greenwich, Connecticut, and then selling off its Houston-based ship building and energy operations in the mid- to late 1990s, Tenneco Inc. virtually disappeared from Houston.

GLOBAL PRESENCE

Tenneco Automotive began its global expansion efforts in earnest in the mid-1990s. Between 1995 and 1997, Tenneco Automotive spent $1.8 billion on operations in Argentina, Australia, Brazil, China, Czechoslovakia, India, Japan, Mexico, Spain, and Turkey. By 1998, the firm operated 67 plants, offices, or branches in 21 countries. In the early 2000s, Europe accounted for 35 percent of total revenues.

SOURCES OF INFORMATION

Bibliography

arndorfer, james b. "tenneco struggles to pare down debt." crain's chicago business, 3 december 2001.

murphy, tom. "aiming high for the 21st century." ward's auto world, june 1997.

richards, don. "tenneco, a houston force, out of chemicals, and town." chemical market reporter, 13 january 1997.

sedgwick, david. "tenneco offspring expected to survive parent's breakup." automotive news, 27 july 1998.

sherefkin, robert. "caution flag; tenneco is lean and focused, but analysts warn of softening market." automotive news, 13 november 2000.

sherefkin, robert. "tenneco, lear post losses; both will close plants." automotive news, 4 february 2002.

tenneco automotive inc. home page, 2002. available at http://www.tenneco-automotive.com.

For an annual report:

on the internet at: http://www.shareholder.com/tenneco/annual.cfm

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. tenneco automotive inc.'s primary sic is:

3714 motor vehicle parts and accessories

also investigate companies by their north american industrial classification system codes, also known as naics codes. tenneco automotive inc.'s primary naics code is:

336399 all other motor vehicle parts manufacturing