ChiefExecutive.net

Engineering An Image

April 1 1996 by Bill Hampton

Last year, Delco Electronics President and CEO Gary Dickinson climbed behind the wheel of his vintage 1938 Good Humor truck-one of eight such nostalgic vehicles he owns-and drove it in the company-sponsored Indy 500 parade. Some might say an old ice cream truck is an odd choice of vehicle for the head of a General Motors subsidiary, but Dickinson had an ulterior motive: earning some publicity for his relatively little-known automotive electronics company.

And his strategy worked: The truck had caught the eye of parade marshal Regis Philbin, who invited Dickinson to appear as a guest on the “Regis & Kathie Lee” talk show.

That wasn’t all. Dickinson, a mechanical engineer who had risen through the engineering and product ranks at GM, has maneuvered his $5.56 billion company into the high-profile Detroit International auto show previously only open to carmakers redesigned its logo, and beefed up advertising to address what he calls an “embarrassing” lack of recognition among those outside the industry and worldwide. “You can’t imagine how little we were known in Europe and Asia/ Pacific,” says Dickinson, 57. “We were the most successful unknown company in the world.”

Created by GM as the Delco Radio Division in 1936, Kokomo, IN-based Delco makes a million integrated circuits a day and builds them into everything from radios and antitheft systems to airbag computers and engine controllers. In 1985, Delco was paired with GM subsidiary Hughes Aircraft to form GM Hughes Electronics Corp.; it currently contributes about 40 percent of revenue and over half of profits.

Delco looked strong on paper when Dickinson took the driver’s seat in 1993. But the chief executive perceived trouble ahead. U.S. cars were carrying nearly $900 in on-board electronics twice that of European models and three times the average level for vehicles built in Asia. As the U.S. market matured, the $20 billion automotive electronics industry anticipated foreign demand would spark a staggering, 75 percent jump in global sales by 2000. Delco was outselling such international rivals as Japan‘s Nippon-denso and Germany‘s Siemens and Bosch, but mostly because of its GM business in North America. When it came to cashing in on a future sales boom overseas, Dickinson says flatly, “Delco wasn’t ready.”

The CEO gave his lieutenants 100 days to help him figure out how to restructure Delco for dramatic global growth by cutting costs at least 10 percent annually and generating 40 percent of revenue from non-GM customers in seven years. Delco has been 1 retooling itself ever since. The company now has regional profit centers in Europe, Asia/Pacific, and South America, supported by two dozen new manufacturing, engineering, or marketing facilities.

The results: Revenue has climbed 22 percent since Dickinson took over, and operating profit margins are up 15.9 percent for 1995 to $869 million. International and non-GM sales rose 25 percent last year to $841 million. The company also has surpassed its own double-digit annual cost reduction targets for three years running. Dickinson thinks Delco can maintain that pace indefinitely as automakers “up-integrate” such electronic functions as engine, antilock brakes, and transmission control onto a single computer chip.

Analysts say Delco’s toughest job will be hitting its 40 percent non-GM business objective. But they give the company high marks for trying. “These guys are doing better than most others out there,” says George Shapiro, an analyst with Salomon Brothers in New York.

But Dickinson, who is on the road more than he’s in his office, isn’t satisfied. Glancing down at his experimental Seiko wristwatch, which doubles as a mobile display pager, he says, “We need to be at the pace of the consumer electronics guys, where six months is a long development cycle.” An even more difficult challenge, he adds, will be meshing quickly developed electronic devices with the auto industry’s multiyear product development cycle. Dickinson, an admitted high-tech junkie, envisions cars designed so their performance can be easily updated by their owners with the latest plug-in electronic modules.

And he believes Delco can do it. The key: a sophisticated planning strategy and an arm’s-length relationship with GM’s traditionally bureaucratic culture. “We’ve come from a sort of immature business process where you ‘bubble up’ all the numbers and review them at the top,” he says. “Now we develop the business plan, tell our employees what we have to spend, and ask them to bring back a plan that meets these spending limits and growth requirements.”