Vc brakes

HBS Professor Frank V. Cespedes and writer Sunru Yong prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. The authors thank Professor Todd D. Jick, whose earlier work informed the development of this case. Copyright © 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

F R A N K V . C E S P E D E S

S U N R U Y O N G

Andrew Ryan at VC Brakes

Andrew Ryan stared blankly at his laptop. He needed to update his resume, but he had been struggling for the past hour to explain his achievements for the past year. With a sigh, he shut down his computer, knowing that he could not procrastinate indefinitely. He had already warned his wife that he might be fired by VC Brakes, his employer of the last five years. Mitchell Medved, Ryan’s boss and mentor, had just been demoted. Once viewed as a potential successor to the CEO, Medved had been relegated to an unpromising position with limited responsibilities. Ryan had some tough choices to make. It was a gloomy way to pass the holiday season.

Just ten months earlier, his prospects had seemed much brighter. Medved had selected him for an exciting and challenging new opportunity as one of two instructors for a Total Quality Program that VC Brakes was launching. Ryan had looked forward to helping the broader organization apply management principles that he used with his own team. When he accepted Medved’s invitation, he had hoped this initiative could be a crucial step in making necessary changes at VC Brakes. He never imagined that before the end of the year, he would be forced to rethink his future at the company.

VC Brakes Background

VC Brakes was a manufacturer of automotive brake parts in Middletown, Ohio. It produced aftermarket components for use in passenger and commercial vehicles, selling brake pads, discs, rotors, drums, and calipers. Its customers included major retail chains such as Advance Auto Parts, AutoZone, and Pep Boys. Founded in 1985, VC Brakes had steadily grown its business on the strength of a reputation for quality at a time when U.S. manufacturers were still struggling to match the reliability of their Japanese competitors.

In 1998, VC Brakes was acquired by Lantana Industrial, a major automotive parts supplier serving both the Original Equipment (OE) and aftermarket segments.1 Established originally as a 1 The automotive parts market is divided into two segments. The Original Equipment Manufacturers (OEM) segment is comprised of sales to the automakers for production of new vehicles. Manufacturers selling directly to the automakers are known as “Tier 1” suppliers. The aftermarket segment is comprised of replacement parts and accessories, usually for repair or upgrade purposes.

9-913-552 F E B R U A R Y 1 1 , 2 0 1 3

This document is authorized for use only by Hameeda Lamb in Managing & Leading People Graduate Texas Summer 2017-2018 at Northwood University, 2018.

913-552 | Andrew Ryan at VC Brakes

2 BRIEFCASES | HARVARD BUSINESS SCHOOL

manufacturer of drive trains, it had grown into a conglomerate that produced everything from steering and suspension systems to electrical systems to seating and interior trim. Lantana Industrial took a hands-off approach to its acquisitions, focusing instead on leveraging its strong relationships with the major automakers and automotive retailers to win new business. In the years following its acquisition, VC Brakes enjoyed rapid growth. This was driven in large part by its success in manufacturing replacement parts for the increasingly popular truck and sports utility vehicle (SUV) segments, which soon accounted for the majority of its revenues.

The 2008 financial crisis dealt a nearly crippling blow to the automotive industry. Demand for OE motor vehicle parts fell by nearly 35% as production of new vehicles fell far short of the 10.5 million vehicles estimated to be the breakeven point for the industry. The effect was compounded by the ongoing consumer shift away from “high-content” trucks and SUVs to more affordable and fuel- efficient passenger vehicles, which had less value per-vehicle for parts. Historically, a decline in new vehicle sales favored aftermarket manufacturers such as VC Brakes, with owners choosing to keep vehicles longer, thus creating a greater need for replacement parts. However, even aftermarket suppliers saw sales stagnate as vehicle owners deferred repairs or opted for the cheaper, imported parts that had become more widely available. President Obama’s Task Force on the Auto Industry directed bailout funds toward saving General Motor and Chrysler, and also set aside a $5 billion Supplier Support Program for Tier 1 manufacturers that directly supplied the “Big 3” automakers. Even with government intervention, the industry experienced a significant shakeout. Fifty suppliers filed for Chapter 11 bankruptcy protection and nearly 200 suppliers were liquidated altogether.2 Ultimately, employment in the U.S. automotive parts industry fell by an estimated 23%, representing nearly 140,000 jobs.3

VC Brakes was not immune to the industry turmoil. An expansion in production capacity in 2007 turned out to be poorly timed. Sales stagnated in the subsequent years, particularly due to the company’s overexposure to truck and SUV parts, and capacity utilization fell to 65%—approximately 10 points below breakeven. As profitability declined sharply, VC Brakes was forced to cut 75 jobs from its workforce of over 700 employees. Making things worse, production challenges, manifested in frequent line stoppages, had led to delayed shipments and the loss of an important contract with a major retailer. The financial crisis also forced Lantana Industrial, its parent company, to reorganize. Lantana had long been criticized by some analysts for being an unwieldy collection of subsidiaries of dubious strategic fit; its performance in the face of the industry’s challenges did nothing to prove otherwise. In 2010, it began divesting businesses that it deemed non-core. The following year, VC Brakes was sold to Crossroads Corporation, a global manufacturer of friction systems, supplying automakers, heavy vehicles, and aerospace manufacturers.