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Fel Pro's Warm And Fuzzy Meets Federal Mogul's Rough And Tumble

News: Analysis & Commentary: SOCIAL ISSUES


A takeover puts a manufacturer's generous perks to the test

After two months of negotiations and on the verge of a $720 million acquisition, Federal-Mogul Corp. Chairman Richard A. Snell found himself facing one hell of a deal-breaker. His takeover target, Fel-Pro Inc., was insisting that he guarantee the continuation of a company-owned summer camp for children of its employees. When Snell worried aloud that some of the 13,000 workers in his other operations might want the same benefit, Fel-Pro Co-Chairman Kenneth A. Lehman was blunt: "Go figure it out."

The summer camp will stay--at least for two more years. And Fel-Pro, a family-built, $500 million auto-parts maker in Skokie, Ill., will become a division of publicly held Federal-Mogul, in a deal announced on Jan. 12. It will prove an unusual marriage. Southfield (Mich.)-based Federal-Mogul, a collection of gritty, union-dominated auto-parts operations, is in the midst of radical restructuring and rapid growth. Although a much smaller player, Fel-Pro has made a name for itself as an unlikely innovator in the world of human resources.

TEAMWORK. Indeed, Fel-Pro "isn't just another private company. It was created by a family with a particular vision," says Bradley K. Googins, director of the Center for Corporate Community Relations at Boston College. Besides the 220-acre summer camp outside Chicago, Fel-Pro for decades has sent employees Treasury bonds, now $1,000, for new babies and funded scholarships, now worth $3,500 a year, for children's college tuition. There's an on-site fitness center, above-market wages, and profit-sharing for all.

The progressive environment has fostered teamwork and unusually low employee turnover. It has also helped the company thrive. Pretax profits have grown at an 18% annual clip since 1992, and margins are 40% above industry norms, says analyst Scott Merlis of Merlis Automotive International Inc.

Ultimately, though, Fel-Pro management concluded that it had to adapt to a more demanding business climate. To keep growing, Fel-Pro must expand its core gasket line beyond the U.S. while developing a wider range of engine-system components to win big contracts. It's too small to do so alone. "I don't think a family-owned company can last if they're under $1 billion in sales," says industry consultant Donna Parolini.

Can Fel-Pro's family-friendliness survive beyond family ownership? In negotiations with 12 suitors, Lehman and Co-Chairman David A. Weinberg, who will both leave day-to-day management, insisted that the company's unique culture be preserved. And Federal-Mogul knows there's good reason to do so. A 1993 study of Fel-Pro by University of Chicago researcher Susan J. Lambert found that workers who took advantage of family-friendly programs--which cost the company just 57 cents per worker-hour--were more likely to participate in team problem-solving and far likelier to suggest operational improvements.

"SAD AND OPTIMISTIC." "We don't intend to dismantle something that's been good for business," says Snell. Addressing a roomful of Fel-Pro workers at 7:30 a.m. on Jan. 12, he won warm applause by announcing his conviction that Fel-Pro's benefits contributed to its success. Federal-Mogul's values, he said, "may not be as you write them down at Fel-Pro, but they fit with your values. I hope you believe that." Federal-Mogul, in fact, will offer Fel-Pro workers better health and retirement benefits. And Snell held out the prospect that Federal-Mogul may draw on Fel-Pro's innovations as it restructures.

Yet Snell made no long-term guarantees. The scholarships will be funded for five years by the three founding families, but could disappear after that. As he walked the shop floor, chatting with employees, Lehman admitted feeling both "sad and optimistic." Workers, too, expressed uncertainty. Many echoed the sentiments of rubber recycler Edgar Diaz: "This is like losing an uncle. It's been like a family here. Now I don't know."

They worry about the erosion of Fel-Pro's open-door, first-name-only environment. While aware that job security at an independent Fel-Pro would be threatened, too, they fret about prospects under new management. A first round of up to 2,000 layoffs, including some at T&N PLC, another recently announced Federal-Mogul acquisition, likely won't hit Skokie. Yet Elliot Lehman, Kenneth's 79-year-old father and co-chairman emeritus, knows the future is not assured. "I thought Snell did a great job" at the employee meeting, he says. "But a wonderful guy like Snell has 14 layers of bureaucracy beneath him. So, I'm praying."By Richard A. Melcher in Skokie, Ill., with bureau reportsReturn to top

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