WHEN SOME PEOPLE LOOKED at the old Dorsey Trailers Inc, they saw what one person described as “a failed old factory located in a boring town far from major trailer markets.”
But not Chriss Street. Like the old story about the optimistic boy who gleefully dug through a room of horse manure because he was convinced a pony was in there somewhere, Street looked on the bright side. Where some only saw a mess, he saw good things beneath the surface. Enough good things and potential to invest millions in the bankrupt trailer manufacturer. But there is one major difference between Street and the little boy — Street has already found a pony.
Dorsey Trailers, a company with a long history in the trailer business, is the second major trailer manufacturer that Street Asset Management has bought off the scrap heap. The company did the same thing with Fruehauf in 1996. Although Street Asset Management sold Fruehauf's domestic operation to Wabash National in 1997, it kept Fruehauf de Mexico and a lot of real estate — including much of the harbor area in Jacksonville that currently is being transformed. And Fruehauf de Mexico, which had been losing money when Street bought it, is now turning a handsome profit.
So when Dorsey shut its doors in November 2000 following a lengthy struggle, Street saw déjà vu all over again. He acquired the company in June 2001 — months after Dorsey ceased production.
“It was sobering to the professionals involved with Dorsey that there was no buyer,” Street says. “The company had $20 million in assets, but no one cared. On the other hand, I was wildly interested in this plant.”
Wishes Come True
Dorsey matched Street's wish list perfectly. He wanted a traditional factory located in an agricultural community where people value a job.
“Like all great trailer companies, Dorsey's plant is located in a farming community,” Street says. “When you are a farmer, you learn to cope. You have to rely on your own resources. When something goes wrong, there's usually no one else around to fix it. So you learn to be self-reliant. You learn to solve problems. My ideal production superintendent is a farmer with 60 acres.”
Elba, Alabama, has the farming community that Street was looking for. It also had a plant that would work, a sprawling 500,000-sq-ft complex originally built to produce ammunition for the Korean war.
“The building is a very long rectangle, which makes it well suited for trailer production,” Street says. “Trailer manufacturers don't like it when the production line turns. This plant has zero turns. And it's structured so that you can make anything in it. I saw the factory as having the equipment and flexibility that would enable us to do extremely well. Most of the plants I see these days are inflexible operations that produce a commodity product.”
Despite its financial woes, Dorsey's trailers also offered a good reputation. The manufacturer had a network of loyal dealers who appreciated the company's willingness to build exactly what they and their customers specified. This is what Street identifies as Dorsey's core competency — a plant and people flexible enough to make specialized products. Street says things really began unraveling for Dorsey when the company began sacrificing that competency by going after the fleet business.
“Just as Fruehauf had changed strategy, so had Dorsey,” Street says. “The company moved away from the people who had made the company successful. It was a classic mistake that financial people make when they run a company.”
Street says he can understand the former management's decision, pointing out that a debt load, slim margins, and personnel issues had made management consider other options — particularly pursuit of the fleet business. However, competing for major orders came with a price tag. The company quadrupled its output, but employment rolls soared, too.
“When the fleet game ran out of gas, so did Dorsey,” Street says. “At the time it declared bankruptcy, the Elba plant had a 2½-month backlog — about 500 trailers. The Cartersville, Georgia, platform plant also was backlogged. Dorsey did not go bankrupt because it ran out of orders. It just ran out of cash.”
Making a Move
Convinced Dorsey still had a lot to offer, Street bought the assets with cash and then put an additional $2 million into the plant to get it operational again.
“People tell me it takes about $20 million to build a major trailer plant,” Street says. “I acquired an established company plus its manufacturing facilities for a fourth of that price.”
Street Asset Management bought Dorsey last June but did not start up production until October. The months in between were spent fixing plant equipment and getting the office set up.
“We could have started production sooner, but decided to sacrifice initial production to get it right,” Street says.
Getting the production personnel the company needed was easy. When the local television station interviewed the new owner of Dorsey, Street simply invited anyone interested in working for Dorsey to give the company a call. Many of those who responded to the invitation were Dorsey veterans who were eager to get back to work.
“We received more than 4,200 calls, and we hired between 80 and 100,” Street says. “We have had the luxury of being able to pick the best.”
The new Dorsey is a far cry from its predecessor. Volume has not matched that of the company's glory days, but neither has overhead.
“The old company had to sell 700 trailers per month just to break even,” Street says. “We only need to sell 70.”
A major reason for the lower break-even point is that the new Dorsey has no debt. “We believe in paying cash,” Street says.
The company also keeps overhead low by reducing the number of support staff. Street says that when his company took over Fruehauf de Mexico, the company had one support employee for every production worker. Today that ratio is one for every 4.2 production workers. That ratio already is higher in Elba — 1:5.
“Cultural issues will prevent us from going much higher in Mexico,” Street says. “Some positions require assistants for cultural reasons. If you are in one of those positions, and you don't have an assistant, you lose face. We have to be sensitive to that.
“But to the extent possible, we don't hire secretaries, expeditors, or junior personnel. It's amazing sometimes how expensive inexperienced employees can be. When it comes to communicating with customers, experienced senior people are worth three juniors. Our entire payroll is oriented toward people who get results.”
Nor does the company have a large executive staff. The company's management team consists of Chriss Street, chairman; Andy Padilla, chief operating officer; and Tasha Dolan, chief financial officer. All divide their time between Elba and their home in Corona del Mar, California.
“This is it,” Street says in the living room of Aunt B's Bed and Breakfast in Elba, the Californians' home away from home. “This is our corporate headquarters. Nothing fancy. No big conference table. If you are going to reduce overhead, you have to start with the CEO.”
JIT: Just Say ‘No’
One of the extras Street Asset Management got with the Dorsey acquisition was a $1.7-million management information system designed to help track the flow of orders and materials from beginning to end.
“I was wildly enthusiastic to get this system for free,” Street says. “But I think it is an example of how companies can add complexity to their operation. We prefer to buy our software shrink-wrapped. We want to keep it simple enough for people to be able to use.”
The computerized system was designed to give management a clear picture of where materials are and how much is there. But Street has found it easier simply to make suppliers responsible for keeping the plant shelves stocked.
“We asked our vendors to tell us what we need,” he says. “Yeah, we know that we will have higher inventories that way, but that's okay. I believe in safety stock. You can have just-in-time systems in this industry that are good, but none are ever perfect. And when they aren't perfect, the plant loses. How many times have trailer lines shut down because the plant was out of the part it needed? I would rather have a margin of error, because you can't always be sure that the stuff is going to get here on time. Why not pay a little more in inventory costs and be sure that you can keep your line moving? By the end of the year, we will be the best in the business at making deliveries because we will have the luxury of safety stock.”
Street also places little value in bringing in consultants to provide input in running a trailer manufacturing operation. Instead, he prefers to have his own experts.
A good way to become an expert, he believes, is to work in the plant. Every three months, personnel in the front office spend a day on the assembly line.
“Normally there is a big disconnect between financial people and the plant. When financial people want to learn something, they bring in consultants. I want to grow my own consultants by breaking down the barriers between the front office and the production department.”
Barriers can take many forms:
Under the new management, employees are on a first-name basis with everyone from the top down.
Street has led the way, wearing casual clothes when he is at the plant. “I did my stint on Wall Street,” he says. “I have 20 suits in my closet that I don't need anymore.”
“Companies can make themselves far too complex,” Street says. “Andy and Tasha are experts at ‘dumbing down’ our operation, making things easier to understand. Some people may try to gain power by being in charge of something no one else understands, but that's not the case here. We don't have an appetite for complex systems. The entire company benefits when we can make it easier for people to do their jobs.”
Discovering Dealers Again
Dorsey is now in the process of rebuilding a dealer network that had dwindled from about 80 to 10 active dealers. To accomplish that task, Street recently hired Terry Bertrand, a former Dorsey executive who had helped Dorsey develop dealers in the Midwest.
“We want to have the dominant dealer network in the country,” Street says. “Terry will be a key to that effort. Another key will be the fact that we were able to buy this company properly. Because we have no debt, we will be able to make a quality trailer profitably without getting into the volume business.”
The Dorsey dealer network is expected to be announced in February. The list should include a significant number of former Dorsey dealers who are returning to the fold.
Street says his company's goal is to offer these dealers Dorsey as it used to be — reliable trailers built the way the customer wants them, delivered on time.
“Dealers are the guys on the front line,” Street says. “And in their business, delivery is everything. They rely on companies in the production business who can't always meet schedules. Sometimes the delay is the direct result of something the manufacturer did or failed to do. Sometimes it goes back to the supplier. While we can't promise that we will meet our schedules every time, we can promise to tell the truth. Bad news delivered in a timely basis builds trust. Trust is the biggest issue in this business.”
One thing these new dealers should not expect is a quick turnaround in business conditions.
“I think we are looking at another year of a difficult market,” Street says. “Customers are holding onto equipment longer, and the industry still has a glut of used equipment. But that will be a favorable environment for Dorsey. There's not a huge inventory of Dorsey trailers out there. Those trailers were sold during the time Dorsey was out of business.”
Street is confident that his company can turn Dorsey around. Part of that confidence is based on his experience with Fruehauf de Mexico.
“It was a company with a lot of overhead,” he says. “Lots of suits, coats, and ties. We had to change that. We had to change the ratio of support people to production people.”
Just as the company is doing in Elba, it made substantial changes in Mexico. Compared with 1997 when Street Asset Management took over, Fruehauf de Mexico has 27% fewer support personnel and three times the number of production workers. The company also replaced its sales staff with production workers.
“Guys on the line know what's going on,” Street says. “They have the knowledge to be effective in that market. Customers in Mexico are mostly family operations. Eighty percent of them pay cash, but they want their trailers to be able to last 20 years. That's why gussets, high-tensile steel, and other nuts and bolts issues are important to them. We found that the guys who build our trailers are familiar with the things that are important to the people who buy them.”
The plant no longer loses $500,000 on sales of $6 million. Sales now are $50 million, and Street describes the plant as “very, very profitable.”
One reason for the new profits: Fruehauf de Mexico operates debt free. “We have been successful in Mexico because we have been able to get our costs down.” Street says.
The company also has been able to increase the accuracy of delivery dates. Before Street Asset Management took over, the plant was late an average of six weeks on its deliveries. That figure has been reduced to one. However, Street does not expect much improvement beyond its current average.
“The people there are just so polite, and they don't want to tell you bad news,” Street says. “If suppliers can't get it to you on time, they don't want to let you know. The culture is different here. Here we yell and scream. We will make our deliveries at Dorsey. If you don't ship to me on time, throw away my Rolodex card.”
Street is convinced he could have turned the entire Fruehauf Trailer Corporation around using his strategy of operating without debt, avoiding high-volume orders, and focusing on a simplified yet flexible production system and a strong dealer network.
“On October 7, 1996, I became chairman of Fruehauf,” Street says. “There's no doubt we could have turned around the entire company except for one thing — Fruehauf had a $12-billion environmental claim against it.”
The claim had nothing to do with the trailer business, Street explains. It involved a subsidiary of Fruehauf that performed grinding operations on the outside surfaces of ships. Unfortunately, the service was well accepted, which meant that waste from the operation fell into estuaries all over the United States.
Deciding not to have anything to do with that liability, Street formed The End of the Road Trust from which he sold all but one trailer plant — the one Street Asset Management operates in Mexico City.
“It's a great plant,” Street says. “Towards the end, whenever Fruehauf closed a plant, it sent equipment to Fruehauf de Mexico. As a result, we can do a lot of different things there — tanks, dumps, vans, platforms, reefers.”
The new management at Dorsey has not been content simply to turn the company around. It also is out to turn the town around.
When a small town like Elba (population 4,011) loses its largest employer (1,200 jobs), the results can be devastating. By the time Street Asset Management bought Dorsey, the plant had been closed for months. Former employees had been “collecting their pennies” (unemployment benefits), and jobs just were not out there for a lot of people. Even the high school football team went the whole season without a win.
“This town was heartbroken,” Street says. “It was important that we invest in it.”
Invest it did. The company sponsored the football team. It put on a bonfire and pep rally — complete with Street decked out in a cheerleader uniform with “It's a Dorsey” embroidered on it. The company provided platform trailers for a parade through town. And the team bounced back from its miserable “0-fer” season to make the playoffs this year.
Dorsey also contributed $5,000 for a joint venture to beautify its property. The local garden club produced the landscaping design, and the high school did the planting.
“These are small dollars, but they provide us with a big benefit,” Street says. “When we invest here, it helps the town realize that we are partners. Whenever possible, we do business with local vendors so that we maximize the benefit to the local economy.”
Chriss Street's father, who drove a tractor and trailer for Highway 99 Interlines, introduced Chriss Street to the truck industry, hopping in the cab and leaving Santa Clara, California, for points beyond. But the son soon developed an interest in finance. “I learned it was more fun to create a company and take it public at 20 cents per share than to build a business.”
He became an investment banker, raising cash and doing deals. Then came the 1980s and an economic downturn.
“Money stops in a recession,” Street says.
But while the venture capital dried up, Street soon found a niche — buying bankrupt companies.
“It's like venture capital,” he says. “But instead of starting something from scratch, you are buying existing facilities and products.”
In recent years, Street has gotten more involved in the running of his manufacturing operations — Fruehauf de Mexico, American Trailer (manufacturer of aluminum dump trailers), and now Dorsey.
“We are going to use the same playbook here at Dorsey,” Street says. “We are going to get close to our dealers and our production department. We have learned that if you want to take care of your customers, you better take care of your production people. If we do that, we can make the Dorsey name as strong as it ever was.”