To learn what’s in store for this coming year, a panel of employees interviewed F-M president Thomas F. Russell during his recent visit to the Component Parts plant in St. Johns, Michigan.
Louis Eisler, Bill Asher, Shayne Smith, F-M president Thomas Russell, Doris Bissett, Julia Wieber, and Valgene Halsted
The panel was composed of William Asher, a toolmaker who joined the company in 1948; Doris Bissett, an inspector in the final inspection department; Louis Eisler, a set-up man in the facing department; Valgene Halsted, heavy press operator; Julia Wieber, data control clerk, Shayne Smith, methods analyst in the industrial engineering department, and Federal-Mogul World.
Mr. Russell, what was the company’s position at the end of 1973?
Our 1973 sales were approximately $340 million, which is about 17 percent ahead of 1972 and generally in keeping with the economy. Our profits, however, were not up, largely because of the cost of starting new plants. Such costs have had a major impact. In 1972, start-up cost amounted to 30 to 35 cents per share. In 1973 they were closer to $1.00 per share. Hopefully, the large start-up costs are behind us now – except for the new tapered roller bearing plant.
Where are these new plants?
We’re setting up the new tapered roller bearing plant in Hamilton, Alabama; a new distribution center in Jacksonville, Alabama; one new oil seal facility near Rio de Janeiro, Brazil and another in Summerton, South Carolina. In the new plant at Namur, Belgium, we’ve expanded engine bearing production capacity and added facilities to produce oil seals.
You mentioned Belgium and brazil. Why is the company so interested in building plants overseas?
The most important reason is that we have to have overseas plants to service overseas customers. The market in Spain, France, Italy or Latin America are different from ours. They’re much more nationalistic than we are and, to make the sale, we have to supply locally made products. It’s not a matter of exporting jobs from the U.S. – there are no jobs lost in this country. We build overseas plants to obtain sales we cannot get another way.
Another reason is the American aftermarket. There are a lot of imported cars in this country in addition to supplying manufacturers with repair parts for foreign cars being driven in the States. Again, it’s a matter of sales we wouldn’t otherwise get.
Mr. Russell, how does 1974 look?
We expect 1974 to show an increase in sales, but with a different mix. Sales to the auto industry, which were extremely high in 1973, may drop by as much as 10 percent. That may sound like a large decrease, but considering the high 1973 level, it’s still not bad. We expect that drop to be more that offset by increased business in the construction, farm and industrial sectors.
You spoke earlier of foreign plants – how do they compare?
Overseas plants are generally newer than ours, largely because they were totally rebuilt after World War II. American plants are old, but have improved during the past few years – primarily because foreign competition has forced us to act.
How does inflation affect federal-mogul – and what are we doing about it?
You already know how rising food costs affect you as an individual. Inflation is doing precisely the same thing to the company, particularly in the area of materials cost. The price of imported materials, especially, has risen sharply. The cost of tin alone is 50 percent higher that expected.
Since we cannot pass on all of these increases to our customers, we must continue to develop better utilization of both materials and machines. We simply cannot afford such things as excessive scrap or a one employee-one machine ratio and remain competitive, which is another way of saying “stay in business.”
Let me give you an example. The price of imported ball bearings is considerably less than the price of the American-made product. Much of the difference can be explained by machine utilization. On a recent tour of Japanese ball bearing plants, I often saw one employee operation five machines. It’s small wonder their products cost less.
Another area of rising costs is government controls. The price for keeping records of selling prices, costs and labor control, as required by law, now amounts to about 2.5 cents per share.
How is inflation affecting other countries?
It’s far worse elsewhere. We’re upset over an inflation rate of some five to six percent. Other countries are facing rates as high as 14, 20 and 80 percent.
How do EPA and OSHA affect Federal-Mogul?
Regulations by the Environmental Protection Agency affects us, of course, but water treatment facilities have long been part of our plants and air pollution is not a problem with our operations.
The Occupational Safety and Health Act is another matter. To my knowledge, Federal-Mogul does no have one plant that could be condemned on the issue of safety. We have large safety programs in every area and will continue to emphasize them. However, there is the possibility of some over-control. For example, we received an audit report on one plant indicating a screw was missing from the paper roll in a restroom. This seems to me to be a waste of expensive engineering talent.
What about the energy crisis?
This is a serious problem. Last year at the piston plant in Malden, we were down to a 24-hour supply of natural gas and had to scramble to find enough propane gas to avoid having to lay off 600 people. Now, natural gas is on allocation, the government has said they are restricting propane for manufacturing use and we are still working hard to find the necessary reserves for this year.
Is the shortage that serious?
Yes, but the free enterprise system can solve this problem if it’s allowed to operate freely. Prices may move to a higher level; even so, resultant profits will go into development and help create additional supplies, which will subsequently lower prices.
Is it possible to build economical cars and still incorporate all the emission controls?
Yes, in my opinion, if laws are legislated at reasonable levels.
What about rotary engines?
General Motors has scheduled some Wankels for their Vega line this year and substantially more for 1975. Rotaries will take some of the market but they’re not the answer in meeting EPA requirements. They’re no cleaner that piston engines. In the long run, engine selection will boil down to pure economics. And I think we (the American car manufacturers) can develop a piston engine that is just as clean and no more expensive than another alternative. But even if everything went to rotaries, we’d be well into the late 80’s before replacement parts for piston engines were phased out.
Louis Eisler Shayne Smith, Louis Eisler, Bill Asher, plant manager John Fox, and F-M president Thomas Russell
Update
Since my earlier comments concerning the outlook for 1974, many factors have caused unusual pressures on our economy. The Mid-East war and resultant oil embargo by the Arab states have pinpointed some soft spots which will certainly affect all of us in the near future.
Based on the facts we know today, this is what I believe 1974 will bring:
1. The energy shortage will cause production disruptions in many parts of the country and undoubtedly in some of our plants. We have, however, provided every known means of back-up supply in order to keep these disruptions to a minimum.
2. Automobile production will continue to go through drastic changes, causing inefficiencies in our own operations as we adjust to our customers’ schedules. Overall production will fall below 1973 by as much as 20 percent, with the first quarter being the low point.
3. Industrial production will remain about the same as in 1973.
4. Construction will be down in housing but should remain strong in the industrial sector.
5. Farm equipment production and sales should remain about the same as in 1973.
Thomas F. Russell
Federal-Mogul World Magazine – 1974
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