DETROIT-Filing for Chapter 11 bankruptcy protection was the first of many difficult decisions ahead for Federal-Mogul Corp. Chairman Frank Macher.
Even without the crushing weight of liabilities from asbestos lawsuits-the majority inherited from the company's 1998 acquisition of piston maker T&N P.L.C.-the economic situation is not Mr. Macher's ally.
Lower production by auto makers, a weak automotive aftermarket and total debt of about $3.9 billion are obstacles to the company returning to profitability. Production slowdowns are expected to force Federal-Mogul to lay off employees ``sooner, rather than later,'' Mr. Macher said. He also wants to eliminate about 30 plants from its global network of about 130, either by combining them or by divestitures.
``We will continue to grow our EBITDA (earnings before interest, taxes, depreciation and amortization), and we will begin generating positive cash flow within a few years,'' Mr. Macher said after the Oct. 1 bankruptcy filing.
In addition to cutting costs, Federal-Mogul plans to use some of its estimated $675 million in debtor-in-possession financing to expand its European diesel business and aftermarket business and to invest in plants.
The Southfield, Mich.-based supplier-which makes power cylinder systems, pistons, engine bearings, bushings, seals, gaskets and lighting-ranked No. 29 on a list of top global parts suppliers to auto makers compiled by Automotive News, a sister publication of Tire Business. The company had sales of $3.44 billion in 2000. Reducing debt is one of Mr. Macher's primary challenges.
``Former CEO Dick Snell's recent acquisition binge left the company with a disjointed product portfolio, hodgepodge organizational structure and low-margin businesses,'' said Scott Upham, president of consulting firm Providata Automotive in Ann Arbor, Mich. ``With Federal-Mogul's current financial situation, these executives may have difficulty turning the ship around.''
When Mr. Macher, 60, joined the supplier in January, he believed filing Chapter 11 would be tantamount to failure. Ten months later, he said, it's a relief. He said two factors changed his mind:
* USG Corp.'s Chapter 11 bankruptcy filing in June was a blow to Federal-Mogul, which was a co-defendant with the building materials supplier in asbestos lawsuits.
* The change in control of the U.S. Senate snuffed out Mr. Macher's hope for legislative limits to be put on asbestos lawsuits and awards.
Lobbyists had put the odds of getting relief from lawmakers at 50-50. But Mr. Macher took the gamble because he knew a bankruptcy filing would wreak havoc on Federal-Mogul's low stock price. The company's shares are now trading in the 80-cent per share range.
Mr. Macher said he ``had to try it.'' However, ``knowing what I know today, I would have filed earlier.''
Reporter Robert Sherefkin contributed to this report.