Major truck suppliers bank on electrification in COVID-19 triage

Meritor, too, is keeping the spigot running for its battery-powered truck programs. It has PACCAR’s business for heavy-duty Class 8 tractors.

CEO Jay Craig said he has been in recent technical reviews with PACCAR, and the electrification systems are performing well, including portions from Transportation Power Inc., which Meritor purchased in January.

“We see no signs that our customers are not continuing to prioritize this area,” Craig said. “We are retaining our investments in electrification.”

Cash is king

Meriitor and Dana cut the pay of salaried employees as one way to stem spending. Meritor’s 50% cuts are being reduced to 20%-25% effective Friday, while Craig will still give up 60% of the cash portion of his compensation.

“We think the aggressive actions we took allowed us to sit back and say, ‘What does the longer-term impact of this crisis look like to Meritor and what additional actions should we take,” Craig said.

Meritor had total liquidity of $829 million as of March 31, including $265 million it received from unwinding a distribution arrangement with Wabco Holdings Inc.

In addition to the pay cuts and temporary layoffs while its plants are idled, Meritor indefinitely reduced discretionary spending, reduced capital expenditures for the rest of fiscal year 2020 and suspended its stock buyback program.

“We are beginning to execute [strategies] that we think will set our cost structure on the right basis for what we would expect for fiscal year 2021 and beyond,” Craig said. “Our team is [making] sure we retain the capabilities to respond to the aggressive snapback that ultimately will occur, most likely in one quarter’s time as it always does.”

While Meritor benefited from the timely one-time cash injection from unwinding most of its Wabco relationship, Dana went to the credit markets for a $500 million bridge loan to boost its cash and borrowing total to $1.8 billion. It drew $300 million from a revolving line of credit during the quarter.

Supplier health

Like the Great Recession that pushed numerous suppliers into bankruptcy reorganization, the prospects rise for business failures the longer the health crisis lasts.

“We’re using the same playbook that we put in place during the ’08-’09 recession to do much more active monitoring of suppliers, particularly those who we think do not have balance sheets that may provide them enough liquidity to get through this,” Craig said. “So far, we have not seen any disruptions. But we’re monitoring it extremely closely.”

Kamsickas said with 3,000 suppliers, Dana cannot know everything, but it is trying to be vigilant for trouble that could disrupt a return to production.

“It’s too integrated and too complex to say you’ve got it all covered,” he said.

Back to work

Meritor and Dana are drawing lessons for worker safety from the two countries that suffered the  earliest impact of coronavirus — China and Italy.

“We didn’t wait to get punched in the face,” Kamsickas said. “We were way out in front of this before people talked about social distancing and things like that. I feel many, if not all, of our manufacturing plants are probably going to be safer than going to the local grocery store or pharmacy.”