Two Collins & Aikman Board Members Resign

From Detroit Free Press

TROY, MI — Two board members investigated internally for insider deals have resigned from auto supplier Collins & Aikman Corp. (C&A), which has lost money three years in a row, and on Thursday reported another first-quarter loss.

The quarter’s red ink was slightly less than it was the same period a year ago.

The Troy, Mich.-based maker of auto interior parts such as instrument panels announced the departure of Charles Becker and Elkin McCallum. They leave C&A’s board less than two months after the company completed an internal investigation on insider deals with them.

That investigation determined the deals had been done in good faith but C&A hadn’t fully disclosed various deals with Becker, who owns 9 percent of C&A, and McCallum, who owns 6.1 percent. Becker had received $300,000 to serve as C&A’s vice chairman for six months in 2002, while McCallum had sold to C&A two businesses he had an interest in for $8.9 million.

Becker is also a limited partner in Heartland Industrial Partners, C&A’s biggest financial backer. He had been paid $11.3 million as part of a termination agreement, and rents space to C&A, including the company’s new headquarters in Troy, for $7.6 million a year.

In the last two years, the company has purchased $65.1 million in goods and services from entities controlled by McCallum and sold him $38.2 million worth of goods and services. His businesses now owe C&A $1.7 million.

Wall Street analysts said Becker and McCallum needed to leave to give C&A more credibility with the financial community. In a conference call, CEO and chairman David Stockman said their resignations would help the company meet New York Stock Exchange requirements for majority independent board membership.

C&A will need to add new, independent board members for exchange requirements.

“I don’t think anyone was uncomfortable with them leaving. They may have needed to leave. People would like to see Collins & Aikman get more in line with stock-exchange standards,” said Martin King, Standard & Poor’s auto-supplier analyst.

In another development, Stockman said C&A will join the growing number of U.S. firms moving engineering work to India to cut costs.

Stockman, a former Michigan congressman and Reagan budget director, said he plans to send 30 percent of the engineering work to India to cut costs.

C&A spokesman David Youngman said instead of hiring new engineers for new work, the work will go to India.

A C&A official, who asked not to be named, told the Free Press a Mumbai, India-based company called Satyam Computer Services Ltd. will do the work for C&A and grow to about 100 employees.

“All of our engineering departments are doing it. It started out as lower-level design and engineering, but it’s now ramping up to be true design work. There is constant pressure on the engineers to send more and more overseas,” said the official who asked not to be named for fear of getting fired.

The move of such jobs overseas, typically called offshoring, has been the subject of growing political debate and scrutiny. Stockman said the labor overseas would be about 60-80 percent cheaper per hour.

He called offshoring a “subject that has been misunderstood by the media, and used as sound bytes recently by politicians.” He added the move “will also give us 24-7 round-the-clock capability.”

Such cost cuts could help C&A’s struggling bottom line.

For the first three months of the year, C&A lost $23.3 million, or 28 cents per share, on sales of $1.07 billion, compared with a net loss of $26.2 million, or 31 cents per share, on sales of $1.04 billion a year ago.

“Their numbers were better than a year ago, but that was a really dismal quarter a year ago, one of the worst I’ve seen. Earlier this year they put out some expectations that were meaningfully better, so some people were looking for a better quarter,” said King.

“I’m still expecting them to come closer to what they said they would do for the year, they just need to get a lot better than they were this first quarter,” he said.

Stockman blamed the disappointing quarter on the cost of launching several new products for new Chrysler Group vehicles, like the new Chrysler Town & Country, Chrysler 300C and Dodge Magnum.

C&A has been in a running price dispute with Chrysler, which is one of its largest customers. Chrysler has yanked several pieces of business from C&A due to cost and quality concerns. Stockman has told auto analysts his company is on “new business hold,” meaning it can’t bid on any new Chrysler business.

C&A’s finances were also hurt, in part, by a $9.5 million charge related to plants closing and job cuts. The supplier said it was closing a plant in Farmington, N.H., another in Stratford, Ontario, and a third in Europe. About 300 total jobs will be eliminated by these plant closings, said Youngman.

Years of restructuring have cut C&A global employment to about 24,000 employees, down from about 32,000 a few years ago.

“I would like to once again reassure our investors that restructuring has not become a way of life at C&A, but it’s been a transitional phase in the buy-and-build program, which has transformed seven formally independent companies and operations into a unique, competitively advantaged, full-service interior trim supplier,” said Stockman.

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