Dana CEO discusses failed acquisition, company's strategy going forward

5/1/2018

Dana CEO Jim Kamsickas in his office at Dana Inc. headquarters in Maumee.

The Blade/Lori King
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Dana Inc. has largely made its name by providing rugged and innovative driveline parts for pickup trucks and sport utility vehicles across the globe.

Now more than ever, that looks to give the Fortune 500 company a substantial edge for the future.

Led by a monumental shift in North America, consumers the world over are increasingly favoring trucks, SUVs, and crossovers at the expensive of the once pervasive passenger car.

“Ultimately the number of vehicles that are going to be bought is going to be like-for-like,” said Jim Kamsickas, Dana’s chief executive officer since 2015. “If there’s an evolution into where we’re strong — SUV and truck — that’s a huge advantage for us. There’s no doubt about it.”

In an exclusive interview with The Blade earlier this week, Mr. Kamsickas laid out his thinking on a range of topics including the rapidly changing light vehicle market, the new tax and regulatory environment coming from a Trump White House, a failed acquisition bid that would have effectively doubled Dana’s size, and the company’s opportunities for the future.

WATCH: Dana Inc. Jim Kamsickas talks about Dana roots in Maumee and Toledo

After seeing revenues slide downward for five straight years, Dana rebounded in a big way in 2017, with sales rocketing up 24 percent to $7.2 billion.

About $800 million of that increase came from strong market demand and new business wins, while another $500 million came from a series of four acquisitions the company had completed over the last two years.

Mr. Kamsickas said Dana had outperformed its synergy commitments in each of those four deals.

Even so, Dana wasn’t able to close on what would have been its largest acquisition to date — the proposed $6.1 billion purchase of the driveline division of British aerospace and automotive parts supplier GKN PLC.

Though Dana had the backing of GKN’s board, GKN shareholders ultimately voted to sell the entire company to Melrose Industries, a London-based turnaround specialist.

Speaking to The Blade, Mr. Kamsickas reiterated his point that the deal was not make-or-break for Dana.

“This was not a requirement but instead trying to seize the day in a good situation,” he said. “One thing that we’ve been very direct on and very committed to ever since I’ve been here at Dana is that we are not going to overlever our company. We were not going to blow up our balance sheet, we were not going to overpay for any asset, no matter what it is.”

In the case of GKN, Dana believed the price was compelling and saw significant benefits in being able to tie in with GKN’s expertise in electric drivelines. Though the companies are in the same sector, there was very little overlap between their businesses.

Dana did make a small increase in its offer for GKN just before the shareholder vote, but while Mr. Kamsickas said Monday the company considered making an even harder push, ultimately officials weren’t comfortable with a significant increase in the offer and they did not believe it would have changed the outcome anyway.

“Ultimately what it came down to was the GKN investors were more interested in selling all three divisions at once versus selling one at a time,” he said. “We didn’t really think it was going to be a price tag that was going to move the needle on that. And I still feel that today.”

On Dana’s quarterly earnings call with financial analysts, Mr. Kamsickas rejected any thinking that the effort to buy GKN shows any kind of “deal fever,” noting that while Dana is open to other opportunities, it would have to be exactly the right fit. Even so, Mr. Kamsickas told The Blade, the run at GKN should show that Dana isn’t afraid to make a transformational acquisition if the numbers are right.

Mr. Kamsickas also reiterated the company’s commitment to metropolitan Toledo. While the GKN deal was structured such that the combined company would be domiciled in the United Kingdom, the corporate headquarters and the top leadership team would have remained in Toledo.

“None of that was going to change. That was a very firm commitment I think through not just our words but what would have been our actions as well. As it relates to longer term, it’s the same. This is our base,” he said.

Looking forward, Dana is encouraged by both the positive outlook for commercial vehicles and for the aforementioned shift toward SUVs and trucks in the consumer market.

Last year, 44 percent of Dana’s revenue came from the light vehicle sector, which includes vehicles like the Jeep Wrangler. Dana recently completed its product launch for the all-new Wrangler, including axles that are built at the company’s new manufacturing plant in North Toledo’s Overland Industrial Park. Within the next couple of years, Dana will also launch new products for the Ford Ranger, Ford Bronco, and yet-to-be-named Jeep pickup truck.

At the beginning of the year, company officials noted Dana was looking at $800 million in new contracts over the next three years.

On Monday, Dana reported first-quarter sales of $2.1 billion — its best single quarter in nearly a decade. Company officials are forecasting full-year sales to come in between $7.75 billion and $8.05 billion. On the high end, that would represent growth of nearly 12 percent.

Mr. Kamsickas said it’s difficult to say how long Dana can continue growing at that rate, though he said the company has a lot of opportunities.

“I personally think we under represent ourselves in a lot of markets. As an example, I think we could be much larger both in commercial and light vehicle in the European segment, and for that matter many of the Asian markets,” he said. “Off-highway conversely, we could be much bigger in the North America segment. We believe that there’s a lot of customers that would like us to continue to grow with them in those markets where we’re kind of imbalanced. If we did nothing else but brought more balance to our portfolio in regions we would grow substantially.”

One of the biggest headwinds Dana is facing are rising costs for steel and aluminum amid tariff concerns. Company officials noted on their first-quarter earnings call that Dana saw a sharp rise in steel prices toward the end of the first quarter.

Still, with Mexico and Canada exempted from U.S. tariffs for now, Dana is somewhat insulated from that volatility. Mr. Kamsickas also said many of the company’s contracts have provisions within them that cover fluctuations in commodity prices.

Likewise, Dana doesn't see any real change in how it thinks about its efforts aimed at increased efficiency, even as the Trump Administration has rolled back Obama-era fuel economy standards for passenger cars and light trucks.

“Lightweighting and focusing on anything related to the environment, with or without regulation change, that’s always a major focus to us,” Mr. Kamsickas said, noting that even on pure economics, shaving weight makes sense.

“The more weight you take out, the more cost you save and the better your company is going to be,” he said. “We’re very much going to continue to focus on all of those things that may or may not be touched by legislation.”

Contact Tyrel Linkhorn at tlinkhorn@theblade.com, 419-724-6134, or on Twitter @TyrelLinkhorn.