Tecumseh Products Company Business Information, Profile, and History

Company Perspectives:

Look around throughout any American home and you are certain to find one of our products. With over 70 years of manufacturing the components that make household appliances and equipment work we are embedded in consumer and commercial products throughout the world. Yet, despite this prominence, many consumers may never have heard of the Tecumseh Products Company. It's not surprising since our products will run for years, quietly powering the modern conveniences upon which our society has come to depend. Sold in over 120 countries throughout the world, from core manufacturing locations in North and South America, Europe and Asia, we are the silent partner inside the products of many of the world's best known brands.

Not many people ever look inside their refrigerators or air conditioners to see the compressors that drive the critical cooling systems of these appliances. They expect that these major purchases will perform efficiently, safely and reliably for many years. As one of the largest independent producers of hermetically sealed compressors in the world we are using our flexible manufacturing systems across four continents to deliver customized solutions that exceed consumer expectations and enhance our customers' bottom line.

History of Tecumseh Products Company

Tecumseh Products Company manufactures compressors for refrigeration and air conditioning equipment, gasoline engines and automobile transmissions, and pumps and pumping equipment for industrial, commercial, and agricultural use. The second largest domestic manufacturer of engines for small tractors, snow blowers, and lawn mowers, the company is best known for its compressors, machines that compress refrigerants in air conditioners and refrigerators. The town of Tecumseh, Michigan, in which the company is headquartered, has since become known as the "Refrigeration Capital of the World."

An early 1990s public offering brought in new capital while allowing the founding Herrick family to retain control. The company has since moved to establish manufacturing hubs in Brazil and India while cutting back on U.S. production. Tecumseh has acquired some suppliers and is attempting to make its brand more visible to consumers and contractors.

Company Founding in 1930

Tecumseh Products was founded by Ray W. Herrick, a master toolmaker who came to prominence in the 1920s in Michigan's growing auto industry. Herrick's reputation as a knowledgeable and highly skilled toolmaker led to his rapid advancement in the industry. He was given supervisory positions and became a friend and adviser to influential inventors and industrialists such as Henry Ford, Harvey Firestone, and Thomas Edison. In 1928 Herrick was asked to help turn around the struggling Alamo Engine Company in the southeastern Michigan town of Hillsdale, where he served until 1933 as factory manager and eventually as director of sales and production. The company continued to decline, however, and during this time Herrick and a local toolmaker named C.F. (Bill) Sage decided to launch a business of their own, incorporating as Hillsdale Machine & Tool Company in 1930.

The Hillsdale company manufactured high-quality automobile and electric refrigerator parts, as well as small tools and mechanical novelties. Also handling orders that Alamo could not fill, the Hillsdale company went from grossing $26,000 in sales during its first year of operation to $284,000 by 1933. Initially, two-thirds of the company's stock was owned by Sage and his wife, while Herrick owned the remaining third. By 1933, however, Herrick bought out most of their interest and gained control of the company.

Competition in the manufactured parts industry was fierce in 1933, and Hillsdale soon sought larger production facilities. When Alamo went into receivership that year, Herrick leased its plant for one year, hoping to purchase it at the end of the term. The rent paid to Alamo's receivers, however, cut into the Hillsdale company's profits. Furthermore, the Hillsdale company had been founded during the height of the Great Depression, and these early years were characterized by escalating debt and inadequate cash flow. By 1934, Herrick's company was close to bankruptcy.

That year, however, as a result of a concerted effort by Herrick, the Ford Motor Company, private investors, and the city of Tecumseh--located about 60 miles southwest of Detroit--Hillsdale Tool & Machine Company managed to raise a little more than $12,000, with which it acquired a 30,000-square-foot abandoned facility in Tecumseh. Changing the company's name to Tecumseh Products, Herrick had the building renovated, borrowed the necessary machinery, and soon began the mass production of automotive and refrigerator parts. The following year the company gained much needed cash flow leverage when Henry Ford helped Herrick secure a line of credit with a Detroit bank.

In 1936 Tecumseh Products began to focus on manufacturing the product on which its reputation would be built: the hermetically sealed refrigeration compressor. Five years earlier, Herrick had been approached by Frank Smith, an engineer interested in selling Herrick his compressor designs. At that time, Herrick had employed Smith as a machinist, agreeing to consider the prototypes that Smith was developing. Over the next few years, engineers Curtis Brown and Jens Touborg joined Smith, and the three eventually formed an engineering business known as Tresco. Tresco worked closely with Tecumseh Products, providing Herrick with designs for inexpensive and reliable refrigeration compressors that rivaled those of the major manufacturers. By the end of the 1930s, Tecumseh Products was producing more than 100,000 of these compressors a year.

At the onset of World War II, Herrick shifted the focus of Tecumseh Products to the manufacture of defense materials. The company continued to produce compressors, which had applications in military equipment, while also turning out anti-aircraft projectile casings and precision parts for aircraft engines. By 1942, Tecumseh was mainly producing 40-millimeter shell casings, which it supplied to the U.S. Navy. In April of that year the company received the Navy E award for excellence for its contributions to the war effort; it received several similar awards before the war ended.

Postwar Air Conditioners

In 1945 Herrick's son, Kenneth G. Herrick, returned from the war and went to work for Tecumseh Products as the company resumed its focus on the production of compressors. During this time, competition in the industry intensified, with postwar demand for electric appliances, especially refrigerators, rising dramatically. Becoming known for the high quality of its compressors, as well as for their timely delivery, Tecumseh Products soon emerged as an industry leader. In 1947 a Tecumseh Products compressor was featured in the first window unit air conditioner for the home. By 1950, Tecumseh's sales reached $72 million, and the company was producing more than two million compressors a year.

Throughout the 1950s and 1960s Tecumseh Products sought to expand. First it increased its production capacity with the 1950 and 1952 purchases of Universal Cooler Corp. in Marion, Ohio, and the Acklin Stamping Company of Toledo, respectively. Also involved in finding new uses for its products, the company marketed an air conditioning compressor for automobiles in 1953. The following year, Tecumseh's sales reached $124 million, and in 1955 Herrick is reported to have paid nearly $5 million to purchase Tresco, the engineering business founded by Smith, Brown, and Touborg. At this time, Herrick brought Joseph E. Layton in from International Harvester to serve Tecumseh Products as president and chief executive officer. Herrick remained the company's chairperson.

Purchasing two Wisconsin companies in 1956 and 1957--the Lauson Engine Company of New Holstein and Power Products of Grafton--Tecumseh Products claimed two new divisions designated for the production of gasoline engines. These two acquisitions were provided with new, modern equipment and tools in order to begin production of compact, lightweight engines suitable for use in lawn and garden machinery. Also during this time the company began to establish licensees abroad, planning to one day market its products worldwide.

Establishment of a Canadian Subsidiary in 1960

In 1960 Tecumseh Products of Canada, Ltd. was formed as a sales distribution center for compressors manufactured in the United States. This facility was later expanded into a production facility to handle demand for compressors in Canada. Over the next decade the company acquired the Diecast Division of Sheboygan Falls, Wisconsin, and the Peerless Gear & Machine Company, which it designated as a separate division and provided with a new plant to manufacture transaxles, transmissions, and differentials for lawn and garden equipment. Furthermore, the company set up research and development laboratories at Purdue University and in Ann Arbor, Michigan, to support its divisions, employing scientists in the fields of chemistry and metallurgy, as well as mechanical and electrical engineers.

In 1964 Layton died unexpectedly, and William Hazelwood, a divisional vice-president, was named president of Tecumseh Products. Hazelwood remained in this position until 1966 when the 76-year-old Herrick gave up the chairmanship and, retaining a position for himself as vice-chairman, named his son Kenneth as president. Four years later Kenneth Herrick's son Todd came to work for Tecumseh Products. Kenneth ascended to chairman and CEO, and William MacBeth was named president. By this time the company had manufactured more than 100 million compressors and 25 million small engines.

In 1973 Ray Herrick died. Under Kenneth Herrick, Tecumseh Products built compressor and engine plants in Kentucky, Tennessee, and Mississippi, while continuing to add to its product line. For example, the company acquired M.P. Pumps, Inc., of Detroit, which produced pumps used in agricultural, industrial, and marine environments. Submersible pumps, used as sump pumps and in large cooling systems, were introduced in 1980, with the company's purchase of the Little Giant Pump Company in Oklahoma.

International in the 1980s and 1990s

Tecumseh Products sought to become an international company in the 1980s, and, over the next ten years, foreign sales, both from exports and through European acquisitions, rose to 15 percent of the company's total sales revenues. In 1981 Tecumseh Products entered into a joint venture with the Italian Fiat Settori Componenti, which resulted in the formation of Tecnamotor S.p.A., a manufacturer and marketer of engines for outdoor power equipment. The following year Tecumseh Products increased its holdings in the Sociade Intercontinental de Compressores Hermeticos SICOM, S.A. SICOM was based in Sao Paulo, Brazil, and served world markets through its manufacture of compressors. Tecumseh Products was further able to form a strong European interest through a 1985 joint venture with L'Unite Hermetique S.A. in Paris, a compressor manufacturer and exporter that Tecumseh Products eventually acquired as a subsidiary. The company's expansion into the international market had mixed results. It gained market share and enjoyed financial success, particularly in the engine sales of Tecnamotor, of which it acquired 100 percent ownership in 1989. This new subsidiary went on to become the largest engine manufacturer of its kind in Europe. Nevertheless, the company experienced a sharp decline in earnings during the late 1980s, which it attributed to the undervalued American dollar and delays in new product development.

In the United States, foreign competition in the production of refrigeration components intensified during the late 1980s and early 1990s. Tecumseh Products, though, continued to experience growth. In 1987 the company introduced a new line of air conditioning compressors for residential use, designed to be both quieter and more energy efficient in compliance with the federal government's National Appliance Energy Conservation Act. In 1989 air conditioning compressors were bolstered by a nationwide heat wave, and the company's net income rose to $82 million, up from $70 million the year before.

The company's interest in some foreign markets, however, suffered due to political instabilities during this time, particularly in China, where compressor sales fell almost to zero during the Tiananmen Square riots, as well as in the Middle East, where export sales were threatened by the Persian Gulf War. In 1992 Tecumseh was given an E Star award by the U.S. Department of Commerce for its commitment to international markets during these difficult times.

As Tecumseh Products entered the 1990s, it featured a broad range of products in several divisions. Refrigeration products, which accounted for more than half of its total sales, included compressors sold to the manufacturers of home cooling systems and appliances, water coolers, vending machines, and refrigerated display cases. Engine products mainly featured aluminum diecast engines of 2 to 12 horsepower used in machinery for both home lawn maintenance and farming. Power train products included transmissions, transaxles, and differentials produced for lawn and garden equipment as well as for recreational vehicles. The pump products division featured a variety of pumps made from cast iron, aluminum, stainless steel, or brass, capable of pumping up to 300 gallons per minute, while the company's submersible pumps division produced pumps for use in clothes washers and carpet cleaners as well as kidney dialysis machines.

In 1992 the company faced a new series of federal regulations designed to protect the environment by imposing restrictions on compressor and engine emissions and banning altogether chlorofluorocarbons (CFCs), which were widely used in refrigeration. As the ban on CFCs neared implementation in the mid-1990s, Tecumseh Products began converting its compressors to operate on alternative refrigerants, which, the company asserted, were available but costly. Furthermore, in joint efforts with the Environmental Protection Agency (EPA), Tecumseh Products researched possible improvements to the engine manufacturing process that would lead to less harmful emissions, and also developed new techniques for treating and disposing of contaminated sediments resulting from dangerous industrial wastes being dumped into rivers.

New Capital in 1992

Financially, in March 1992 the stockholders of Tecumseh Products approved a proposal to reclassify its existing shares as voting Class B stock, while creating a new class of nonvoting Class A common stock. The stockholders were issued one share of the Class A stock for each share they already owned. At the time, Edward Wyatt observed in Barron's that "because 45% of the equity currently outstanding is owned by members of the founding Herrick family, the stock plan will allow them to retain their voting rights while effectively splitting the stock 2-for-1." He also observed that the new plan would probably induce analysts to follow the fortunes of Tecumseh Products more closely.

By this time the founding Herrick family had had four generations involved in Tecumseh's management. In 1994, CEO Todd Herrick told Financial World the credo of his grandfather that still guided the company: "We believe in God, we mind our business and we work like hell."

In the mid-1990s, Tecumseh had revenues of about $2 billion and 15,000 employees. The company was developing its versions of the new, energy-efficient scroll compressors that were beginning to replace traditional reciprocating compressors in the air conditioning industry.

Tecumseh opened a new plant in Georgia in 1995 and a 200,000-square-foot factory in Corinth, Mississippi, in 1997. The latter's initial product was an electric motor for air conditioner compressors that had previously been sourced in Singapore.

The company also was expanding abroad, entering a joint venture with the Shriram Group to set up a plant in Hyderabad, India. It later bought out its partner there and acquired a refrigerator compressor factory near New Delhi from Whirlpool of India.

The company began promoting its brand directly to consumers. It aired ads urging them to look for its motors when they bought snow throwers, a market in which Tecumseh held a lead over rival Briggs & Stratton Corp., which led the lawn mower market.

Restructuring for the New Millennium

Sales were $1.65 billion in 2000. The company's three business segments were each profitable. Strong Brazilian operations saved the Compressor Business, while operations in India were affected by start-up costs and work stoppages. The Engine & Power Train Business had slowed after a Y2K-inspired run on generators the previous year. The smallest unit, the Pump Business, was growing on the popularity of water gardening and industrial sales. During the year, the company entered the residential wastewater collection, transfer, and disposal market through the purchase of the assets of Interon Corporation.

Tecumseh cut 900 jobs in a 2000 restructuring that closed a plant in Somerset, Kentucky. Another 600 were being cut at an Indian factory. The company was expanding its operations in Mississippi, however.

According to one report, Tecumseh controlled 20 percent of the world market for small engines. It was growing its business in Europe, where it was dominant, with a 25 percent market share. Europe made up nearly 40 percent of the world market and was expected to grow due to the opening of Eastern Europe. Tecumseh acquired its Czech carburetor supplier, Motoco, from Motor Jikov in May 2001. Tecumseh had other European operations, including joint ventures and a subsidiary in France.

Tecumseh's subsidiary in India, Tecumseh Products India Ltd. (TPIL), was starting to export to South Africa and West Asia. The Indian market itself was ripe for development, with relatively few owning refrigerators or air conditioners. Tecumseh's plants in India produced compressor components as well as completed units.

Tecumseh acquired a supplier of manufacturing software, Manufacturing Data Systems, Inc. (MDSI), in 2002. The next year, it bought FASCO Motors, Invensys PLC's electric motor operations, for $415 million. FASCO formed the basis of a new business segment, Electrical Components.

Company officials told Contracting Business that although Tecumseh had enjoyed a relatively low profile in the past, it was becoming more retail-oriented. It leveraged its expertise in compressors to products such as drinking water systems and cooling towers through its "Cool Products" line. Tecumseh's products were distributed through 130 distribution centers and 1,700 outlets in the United States. Tecumseh was phasing out its U.S. manufacturing due to price pressure from customers. The company managed net income of $10 million on sales of $1.9 billion in 2004.

Principal Subsidiaries: Evergy, Inc.; FASCO Australia Pty. Ltd.; FASCO Industries, Inc.; FASCO Motors, Ltd. (Thailand); Little Giant Pump Company; Masterflux; Manufacturing Data Systems, Inc.; Motoco a.s. (Czech Republic); M.P. Pumps, Inc.; Tecumotor/Evergy; Tecumseh do Brasil, Ltda.; Tecumseh Compressor Company; Tecumseh Europa, S.p.A. (Italy); Tecumseh France S.A.; Tecumseh Power Company; Tecumseh Products Company of Canada, Ltd.; Tecumseh Products India Ltd.; TMT Motoco, Ltd. (Brazil).

Principal Divisions: Compressors; Engines & Power Trains; Pumps; Electrical Components.

Principal Competitors: Briggs & Stratton Corporation; Bristol Compressors, Inc.; Copeland Corporation; Matsushita Electric Industrial Corporation.

Chronology

• Key Dates:
• 1930: Hillsdale Machine & Tool Company is launched.
• 1934: The company is renamed Tecumseh Products, and acquires a factory.
• 1937: The first shares are offered publicly.
• 1947: The first home window air conditioner features a Tecumseh compressor.
• 1950: Universal Cooler Corp. is acquired.
• 1960: A Canadian subsidiary is established.
• 1980: Submersible pump supplier Little Giant Pump Company is acquired.
• 1981: Tecumseh begins expanding overseas through joint ventures.
• 1992: A new class of shares arouses investor interest.
• 1997: An Indian subsidiary is established.
• 2003: The company begins phasing out U.S. production.