Tatra's troubles

New U.S. owners restructure famous truck maker, but 1,600 jobs will go

KOPRIVNICE

It is hard to overestimate the importance of Tatra to this north Moravian town. The truck maker's sprawling plant - more than 5 million square feet (450,000 square meters) of foundries, forges, assembly yards and testing tracks - takes up most of the valley where the town is situated. Tatra runs a nearby hotel, a villa and two museums, while city officials even share office space at Tatra's monolithic headquarters. Most importantly, of course, Tatra is also the town's main employer, providing - directly or indirectly - most of the jobs for Koprivnice's 23,748 inhabitants.

All of which makes it troubling when Tatra decides to cut staff. Next month, Tatra's new management plans to shed 1,600 jobs, the latest in a series of cuts that has seen the manufacturer's work force fall from 16,000 in 1990 to about 5,500 today. It is all part of a strategy being promoted by U.S.-based SDC, which took control in January 2002.

Ronald Adams, SDC's chairman and chief executive, said the cuts were the only way to ensure Tatra's survival after a poor performance last year. The strong crown against the dollar hurt the company's export margins, he said, because 80 percent of Tatra's sales are in dollars. The cost of raw materials, mostly in crowns, also rose, accounting, in all, for up to $10 million (290 million Kc) of currency-related losses. As if that weren't enough, Tatra's auditor, KPMG, resigned in April (for technical reasons, Adams says), and the company lost a high-margin 200-truck deal in Russia.

"We have no choice for survival but to lower our costs, and that's what this restructuring is all about," Adams said. "It's true that when we have to straighten up here, it is going to hurt a lot of people. But as I explained to the mayor, it is much better to have a Tatra with 3,800 workers than not have a Tatra."

Production down

Tatra produced just 1,700 vehicles last year - a far cry from its 16,000 vehicle output before 1990, when it enjoyed guaranteed markets across the communist bloc. In all, Tatra lost about 300 million Kc in 2002, on revenue of $138 million. Tatra, which celebrated its 150th anniversary in 2000, is no ordinary company. During the communist era, it was famous for producing heavy limousines favored by government apparatchiks. It created a unique air-cooled diesel engine that requires no coolant. Tatra's chassis designs give its trucks flexibility on various terrains - particularly useful, Adams says, in developing countries or in war-torn regions. Its trucks have won eight of the last 10 Paris-Dakar Rally championships.

But Tatra's operations today look like an anachronism in an age of outsourcing and worldwide procurement.

"Most of the truck plants around the world are assembly operations only," Adams said. "They buy their axles from one company; they buy their seats from another. Tatra is a vertical. We have a foundry; we have forging; we have tooling. We make all this stuff."

SDC plans to buy more off-the-shelf components and to create more common parts that can be used across its models. Adams said his managers are also looking to shave energy costs - currently at $1 million per month - and to restrict use of free mobile phones and company cars. In all, SDC wants to cut costs by up to 500 million Kc.

Adams stressed that the breadth of the cuts were the result of a failure of a variety of government-appointed restructuring experts to improve efficiency over the last 10 years.

"They did improve management and IT, but that was about it. There was no marketing," he said.

Key to SDC's strategy now is to increase Tatra's military sales, which currently account for 65 percent of revenues.

Adams said SDC is keen to exploit the contacts of General Alexander Haig, a former U.S. secretary of state and NATO supreme commander, who sits on SDC's board. "We use General Haig's contacts a lot for military business," he said.

Haig is central to plans to market Tatra's products in the Middle East and in China, where the company currently does limited business.

"General Haig is very strong in China. He was there when Nixon went to China [in 1972] with [Henry] Kissinger. He's maintained a lot of business relationships there," he said.

Adams is looking to Tatra's second shareholder, U.S. heavy-machine manufacturer Terex, for additional help on the military side.

Terex, which bought 41 percent of Tatra's shares in 2001, recently sold a 21.1 percent stake to an Indian firm called Vectra, which was Tatra's largest customer last year. In all, India accounted for 1,000 trucks, or 60 percent of revenues, in 2002.

As part of the recent changes, Tatra also dispensed with the services of three U.S. managers who worked at Koprivnice last year. These included Milota "Mike" Srkal, who was born in a nearby village and who left the former Czechoslovakia for the United States when he was a teenager. "They had been here a year and we got all we thought we would gain from them. We need to develop Czech managers," Adams said.

Plan to stick around

Without his expat colleagues, Adams now looks a little lonely - if not a little incongruous in his new surroundings. But the Texan says he can fuse Western know-how with Tatra's fabled engineering talent.

SDC, which pumped investment worth $11 million into the company last year, is itself taking a gamble with Tatra, which is its first investment.

"We won't do anything else until we have this on line and working the right way," Adams said.

Which means, as Adams says repeatedly, that SDC is in this for the long run.

"There are rumors among the workers that we're going to stop making trucks here, that we're going to sell off the assets," he said. "It's not true - we'll always make trucks here."

Ben Schiller's e-mail address is bschiller@praguepost.com

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