SALE OF THE COMPANY
One of the most unusual aspects in the history of
the Onan Company is the fact that never once in the 60-plus years it has been
in existence has it ever failed to produce an annual profit - a feat matched by
very few U.S. businesses. Sometimes the profit was small, often it was less
than had been projected, but there never was a losing year.
That doesn't mean, of course, the company was
without its normal share of problems. In
each decade it seems that a crisis of one type or another was constantly
threatening the well-being of Onan, especially during the firm's first 40
years. In the 1920s it was the serious lack of capital. In the 1930s it was the overwhelming Great
Depression. In the 1940s it was the
traumatic shift; from hectic war production to a civilian market that had been
nonexistent for four years. These
problems all have been explored in previous chapters.
The 1950s presented a totally new problem, never
present in the previous 30 years. The
Onan Company began to stagnate. It was
an insidious situation, difficult to diagnose, but all the signs of stagnation
were there. Sales were sluggish and declining, there was not the usual parade
of new products, costs were rising and profit margins falling, there was a lack
of long-range planning, budgets were lax and were not being met, and management
was beginning to get top-heavy.
D. W. Onan, his sons, Bud and Bob, and other members
of management were well aware of the problems and were working hard to correct
them, but in retrospect it is clear that the zip that had marked the company
during its first 30 years was missing. As the 1950s began, D. W. Onan was
approaching his 64th birthday and, after a lifetime of battling the day-to-day
business problems, he was running out of steam.
As president. Bud Onan was making many of the top management decisions,
but he, too, was beginning to tire after those hectic post-war years that had
threatened the very survival of the company. The company had only 440 workers
as 1949 came to a close, compared to 2,500 only four years earlier, but at
least the hectic transition to civilian production had been completed and it
was again business-as-normal.
Then in the summer of 1950 the Korean War started
and orders from the U.S. military again began to flow into the Onan plant. Business picked up, the Arrowhead plant was
reactivated and workers were added, but the boom was short-lived. Annual sales hit a peak of $17.4 million in
1952 and employment topped the 800 mark.
For the rest of the decade, however, sales declined, going to $15.3
million in 1953 and hitting a low of $11 million in 1958.
By now Bud Onan was in full charge of the
company. D. W. Onan had suffered a
stroke in 1954, and although he partially recovered, he never again was fully
active in running the company. D. W.
Onan died in 1958. There were many factors, including the death of the founder,
contributing to the stagnation of the company during the 1950s, but none was
more important than the simple fact the Onan family no longer was willing to
gamble everything it owned to help the business grow. It was much easier in the
beginning. There wasn't much at stake,
and gambling everything seemed the natural thing to do.
In the 1950s, however, the Onan family, through
years of hard work and sacrifice, was
relatively well off and financially secure.
It just didn't make sense to pour all they had earned over the years
back into the company and take a chance of losing everything. Without large amounts of new capital,
however, the Onan Company couldn't possibly achieve the growth of which it was
potentially capable. By the end of the
1950s, the Onan Company was ready for a badly needed blood transfusion.
The Onan family wasn't actively seeking a buyer for
the company, but when officials of Studebaker-Packard Corporation approached
them with an offer in 1960, there was immediate interest. Studebaker-Packard,
formed by the merger of the two companies in 1954, was based in South Bend,
Indiana, and it, like Onan, was having problems — only of a different
type. Studebaker-Packard was fighting
for its life in the automobile business with all signs pointing to the fact it
was losing the battle. Corporate
strategy had dictated that Studebaker-Packard had better get into other product
lines, and it was sitting on more than $100 million in tax credits that could
immensely help in a program of acquisitions for the purpose of diversifying.
Studebaker-Packard offered to buy total ownership
of the company from the Onan family, provided Bud Onan stay on as chief
executive officer. The Onans accepted
the offer, and in October, 1960, the company became a division of
There was a multitude of reasons why the Onans were
willing to sell the company. The price
was considered fair. The new owners
could invest the capital that was badly needed to keep Onan growing. There was an immediate need for a million
dollars to tool up for the new J Series engines that Onan had on the drawing
boards, and another half-million to add an engineering building to the
University Avenue plant.
Then there was the sizable tax liability owed to
the federal government by the late D. W. Onan's estate.
There were personal reasons too. Bud Onan's wife was anxious that he slow down
his pace and lessen his concern about the future of the company; Bob Onan was
in ill health and anxious to leave the company.
[ Ed. Note: Selling the company was a pretty scary
thing for Bud to do. One thing that helped him get comfortable with the
decision was a growing personal relationship with Harold Churchill, President
of Studebaker-Packard. As the negotiations went on, there became a strong bond.
Like dad, “Church” was a get your hands dirty, take charge kind of person. Bud
and Church talked the same language. Church had come from Engineering to be
President and launch the Lark car, which was the first money maker for
Studebaker in many years. I was with dad in South Bend when Churchill made the
offer to buy Onan. Dad said to me as we went back down the office elevator
together that Churchill was the kind of person he could work with. He said he
would accept the offer. After Churchill retired, he and dad kept a running
personal correspondence. He enjoyed hearing from Churchill on the progress he
was having rebuilding a school bus, with his own hands, to take his wife and
two newly adopted children on a tour of the American West. Church was a rock
hound and sent dad bolo ties and cuff links he had made after the trip. ]
The sale of the Onan Company to Studebaker-Packard
came as a shock to the company's employees.
Following the shock came deep concern that the inevitable changes would
mean it no longer would be the pleasant place to work that it had been.
Bud Onan's letter to all employees immediately
after the sale tried to reassure the workers that the changes would be good for
the company and for them, and that he would still be around for a long
time. But the employees were still
Jack Shea, executive vice-president and a long-time
employee at Onan, did much to help alleviate the concerns of the workers with a
letter addressed to "all Onan associates," on December 14, 1960. Shea
said, "I've been asked the same blunt, personal question a good many
times. It deserves a direct answer. The question has been asked by both shop and
office people, in various ways, but here's what it boils down to. 'Jack, you've
been close to this whole thing. How do
you really feel personally? Do you
believe that we can keep everything we have, or will Studebaker-Packard move in
and take over, with new management and new policies? '
"I can answer that question without
qualification. Yes, I do believe that we
can continue to have everything that we have now - and more! We can keep our philosophy, our programs, our
benefits, and our profit sharing. We can
have security, opportunity, and a rewarding future. I do not believe that
anyone is going to move in and take over, with new management or new policies.
I have some very practical reasons for my confidence.
"Of course, we all expect to stand up and be
counted. We're responsible for our
results here. No matter who the
stockholders are, whether it's a single family or thousands of people, we have
to keep this business healthy and profitable to justify our work. That's true under any circumstances. Only we can guarantee our future, but we have
everything we've ever had with which to do it, and more.
"Make no mistake. I, too, was uneasy when the change was first
announced. I have a big personal stake
in what happens. In a few weeks, I'll
have 19 years with Onan. It's most of my
working life. If there really was a
threat to this way of business life, I'd be disturbed as well as any of you.
"I think all of us react to change in much the
same way. We first react emotionally,
and then we apply reason to the facts.
I've been through both stages.
I've had a chance to calmly look at what's happened, why it's happened,
and what it means to us.
"First of all, let's look at what's actually
happened. All that really happened was
that the owners of the stock changed from a few people to many people. The physical character of the capital assets
of this business is exactly the same.
In other words, we have the same building, equipment and tools that we
"Our most important asset remains the
same. The people who built this
business, each and every one of you, are still here to pool abilities, skill
and experience toward a common and mutually profitable goal. So, we're the same people, working with the
same facilities as we always have.
"Studebaker-Packard's approach was one of
practical business logic. They're rapidly diversifying, and they have the money
to do it. They bought five companies in
the last 16 months, and they're going to buy more. They're spreading their risks for the
protection, and, ultimately, the profit of their stockholders. Their program will only work if they acquire
well managed, profitable, sound, growing, businesses that can produce a profit
for the total corporation, and that can do it on their own, with their own
plans and programs, not necessarily in conformance with each other."
Shea's reassuring letter helped calm an unsettled
situation, and workers quickly adapted to the change of ownership.
Tom Valenty, who later was to become president of
the company, remembers there were some dramatic changes after the sale — all
for the better. He says, "We were now forced to plan, to prepare realistic
annual budgets, to set new order and shipment targets, to come forth with a new
product development program, a planned replacement of old machine tools, and
"Studebaker-Packard did not force any change
in management personnel. What did happen, though, was that our approach to
management now included risk taking.
Under this approach we undertook a large military generator set
development program, which led to many others in the ensuing years. These contracts provided cash flow for the
new machine tools, new products, and market development."
These changes gave Onan the blood transfusion it
needed. The business grew from $15
million in sales in 1960 to $44 million by 1968.
Studebaker-Packard proved to be good for Onan, and,
just as important, Onan proved to be good for Studebaker-Packard. In 1966, for instance, Onan contributed 22
percent of total Studebaker-Packard sales, but it also contributed a hefty 55
percent of the parent company's net profit for the year. In 1967, partly
because of Onan's strong performance, Studebaker-Packard was able to bring
about a merger with Worthington Corporation, a Harrison, New Jersey
manufacturer of compressors, electric power generating equipment and diesel
Onan's new parent was now known as
In 1968, Bud Onan, who was then 58 years old,
decided to retire after 42 years with the company. Before making his decision public, Onan asked
W. Glenn Gordon, who was group vice-president: for Studebaker-Worthington and
responsible for the Onan Division, if he would be willing to become chief
executive officer of Onan.
Gordon, who at the time was considering being
transferred from South Bend, Indiana to Harrison, New Jersey, where the new
Studebaker-Worthington headquarters was to be located, was agreeable. So was Gordon's boss, Deraid H. Ruttenberg,
chairman and chief executive officer of Studebaker-Worthington. So, after a
48-year history, Onan was being run for the first time by someone other than an
Onan family member.
Gordon introduced several changes to Onan in his
years as chief executive, including improving the management team, sharpening
the gross margin concept, which went from 22 percent to 36 percent in just a
few years, and he started a vastly improved long-range planning program. Gordon also supported the planning of the
Onan facility at Huntsville, Alabama.
In 1972, Gordon was moved across town by
Studebaker-Worthington to become chief executive of another division,
Turbodyne, a Minneapolis manufacturer of steam and gas turbines and
turbine-powered generators. Tom Valenty,
who had become president in 1970, succeeded Gordon as chief executive officer.
It also was in 1972 that a decision was made to
sell 20 percent of Onan to public shareholders with Studebaker-Worthington
retaining the other 80 percent. The
600,000 shares of stock were sold in March, 1972 for $19 a share and the stock
was listed on the American Stock Exchange. Within a few months the stock price
had soared to $44.50 a share, and it looked as though another smart move had
been made. Deraid Ruttenberg, the parent company's chief
executive officer, had made the decision to take Onan public, and it wasn't his
first success along those lines. He
earlier had sold some stock of another division, STP Corporation to the public
at $25 a share and it quickly went to more than $50.
But the stock market is a fickle place, and before
1973 had ended, investors had gone sour on the market and prices
plummeted. Onan shares dropped from the
$44.50 a share peak to a low of just under $9. In 1975, it was decided to take
Onan private again. The 20 percent that
was owned by the public, plus another 17 percent from Studebaker-Worthington,
was sold to Hawker Siddeley, a London-based company with interests that include
diesel engines and generator sets, among many other activities and product
Hawker Siddeley had just sold its DeHavilland
Aviation division to the Canadian government for $39 million, and it wanted to
invest that money in another North American company. Onan looked like a perfect fit. It offered $37.5 million for 50 percent of
Onan, and the deal was tentatively agreed upon.
Two days before the papers were to be signed, Studebaker-Worthington
called off the deal. Later, Hawker
Siddeley agreed to settle for 37 percent ownership, and that proposal was
accepted. Hawker Siddeley still owns 37 percent of Onan, but
Studebaker-Worthington is no longer the parent company. In October, 1979 the McGraw Edison Company,
headquartered in Rolling Meadows, Illinois, acquired Studebaker-Worthington,
and it now is the owner of 63 percent of Onan.
[ Ed. Note: I don’t want to get ahead of the story, but
as a matter of clarification, today the company is wholly owned by Cummins
Engine Company in October 2012]