November/December 2007

Fire Service Today

By C. Peter Jørgensen

This magazine was founded as a bi-monthly in 1996. In 2002, when we went monthly, we had to define our focus to differentiate ourselves from all the other fire magazines. It took a couple of years to develop a sharp picture of just who we are, what we cover and whom we serve.

Our mission is twofold. (1) We are the fire apparatus industry’s only trade journal covering what happens behind the scenes affecting the products the industry manufactures and sells. (2) We report about “nuts and bolts” and what they hold together. If it can’t be fixed with a tool, we don’t cover it. If it doesn’t ride to an emergency scene on a truck with red lights and siren, it is not a matter worthy of space in this magazine.

Fire Apparatus & Emergency Equipment – our name pretty much says it all, with one exception. That is the 20 percent or so of space we devote to our role as the fire industry trade journal.

We believe that our primary readership – fire chiefs, fire officers and fire apparatus purchasing committees – benefit from knowing something about what goes on behind the scenes in this industry. For example, you’ll read in this issue that Chris Ferrara personally inspects every Ferrara fire truck before delivery to the customer.

We tell that anecdote not to boost Ferrara, but to illustrate why the “behind the scenes trade journal” aspect of our mission is something we take very seriously. We write about things that impact our readers.

Unfortunately there are other industry issues, events and occurrences that are  far less positive than a CEO personally approving every truck his company makes.

Serious Issues

People affected by anything appearing in print often have their own definition of “responsible journalism,” but a key element is being able to cover the tough subjects accurately and fairly.    The current state and potential future   of four fire apparatus manufacturers certainly qualifies as a tough subject.

Our editorial staff is highly professional, and we have done our best to  present this negative news in a fair and responsible manner.

The publisher holds a masters’ degree in journalism and has spent 47 years reporting and editing news. Our editor in chief is a Pulitzer prize winner with 35 years experience and our managing    editor has spent more than 25 years in newspaper and magazine journalism.

As professionals, we believe our readers have a right to full access to information published elsewhere and that the trade press should help to minimize rumors. That’s why we’re providing this long introduction and why we’re handling the most volatile aspects in this column, which offers perspective on the situation.

Much of what we write about below is public information, already broadcast on the Internet and published in the Appleton Post-Crescent of Wisconsin, the Ocala Star-Banner of Florida or the Post and Courier, Charleston, S.C.

We have to say it strongly looks like 2007-08 will be seen as a decisive year in American fire apparatus industry history.

The bad news is that three of the nation’s fire apparatus manufacturers have some serious problems. The good news is the future seems encouraging for one of them, American LaFrance (ALF) of South Carolina.

Last month Elite Fire Apparatus of Tilleda, Wis., had its operations taken over by a court-appointed receiver. Two other manufacturers, American LaFrance and Seagrave of Wisconsin, suddenly replaced their chief executive officers and another, E-ONE of Florida, publicly admitted to serious financial problems.

American LaFrance, a privately held company, has a new president who was brought in for his experience in fixing problems and moving companies ahead. His appointment was announced on the eve of the company opening its new $62 million plant and headquarters. (More details are in a news story in this issue and below.)

Federal Signal – E-ONE

E-ONE, a subsidiary of publicly-traded Federal Signal Corporation, listed on the New York Stock Exchange, saw its chairman badgered by investors at three separate sessions last month as he announced unanticipated heavy losses from the fire apparatus business. All three meetings were broadcast live on the Internet.

While Federal Signal President Robert Welding was predicting a loss of up to $12 million this year for E-ONE, the chairman of Oshkosh Corporation, Robert Bohn, parent company of Pierce, reported that its fire and emergency segment produced $107.5 million in operating income.

E-ONE’s Dec. 31 year-end revenues – in a best case scenario – are projected around $305 million if they deliver the same dollar-volume of apparatus in the fourth quarter of 2007 as they did in the same quarter in 2006.

But looking at Pierce, the Oshkosh Corp. year-end total emergency segment revenues (adjusted to reflect apparatus only) are more than $950 million. Pierce will make about $85.5 million from apparatus sales, while Welding said of E-ONE, “We are widening our projected loss for the Fire-Rescue segment to about $9 to $12 million for the year.”

Pierce vs. E-One

About 10 years ago, Pierce and E-ONE were rivals for the top spot in American fire apparatus production, with E-ONE producing a little over 1,000 trucks a year and Pierce about 1,200.

While the two companies have different year-end accounting periods, it is reasonable to calculate that Pierce is now producing about three times as many fire trucks a year as E-ONE. Pierce will produce about 2,000 fire apparatus, while E-ONE’s total will be in the range of 600 to 700 by Dec. 31.

These two companies have traveled so far in opposite directions in recent years that there is no longer any realistic comparison between them, as far as sales, dealer network and market share. The only thing that can be said is both companies turn out quality apparatus. The market will accept nothing less.

E-ONE’s sales for three quarters (nine months) ended Sept. 30, were $219.3 million, yielding a loss of $8.3 million, while Pierce’s sales for just the July to Sept. 30 quarter (three months) were $291.8 million, producing a net quarterly income of $26.3 million.

While Pierce operates on a fiscal year ending Sept. 30, E-ONE is on a calendar year. Federal Signal Chairman Robert Welding cautioned investors that by Dec. 31, E-ONE’s loss could increase from $8.3 million to as much as $12 million.

Among the sharp questions from investors directed at Welding about E-ONE was one by an equity manager who said, “The Fire-Rescue business has clearly been an albatross for this company . . . there have been management changes, there have been issues with dealer relations and manufacturing problems. How long does your board give you before saying, ‘enough is enough’?”

Welding, clearly on the defensive, replied, “This business has been in trouble for a long time. Every board meeting the subject is discussed. The problems started four or five years before I started with Federal Signal. E-ONE is a big part of the business, and if it is losing money it has a significant negative effect on the whole company.”

Later, speaking to Fire Apparatus magazine, Welding emphasized that the unanticipated dealer turnover resulted in E-ONE not having access to “one-third of the market” nationwide. But that has recently been corrected, he said, with the appointment of Hall-Mark Fire Apparatus – the long-time Florida E-ONE dealer – as dealer for the entire state of Texas.

Welding said he now feels the company is lacking dealer coverage in only one-sixth of the national market.

Welding said he was “not concerned about market share in the industry, but about volume. Volume pays the bills.” Characterizing his response to the comments and questions at the Goldman Sachs conference about measuring progress at E-ONE, Welding said, “It is our objective to make a break-even run rate by the second half of 2008 . . . despite having some headwind in our face with market conditions. We are reassessing what we have to do, and after the first of the year we will provide [investors] guidance on whether we are reaching our targets.

“Our employees continue to perform very well and we’re putting out a quality product that is delivered on time, and I appreciate all the effort the employees have put into this job [of rebuilding E-ONE],” Welding added.

 President Out At Seagrave

Seagrave President Scott Mintier’s resignation became public on Nov. 13, two-and-a-half years after being appointed by ELB Capital Management of Philadelphia to head the Clintonville, Wis., fire apparatus manufacturer.

A summary story of his departure is elsewhere in this issue. Mintier took over from former American LaFrance president Jim Hebe, who had been an investor with the financial group that purchased Seagrave two years after Hebe left Daimler Benz, the ALF parent company at the time.

Three members of Mintier’s upper-level management team have also left the company. When Mintier arrived in 2005, he was billed as an experienced executive who knew how to turn companies around.

New President at ALF

The only good news is the future seems encouraging for one company that has struggled – American LaFrance (ALF).

On the bright side – really bright if our assessment of new ALF president Bill Hinz is correct – things are going to change soon. In an interview less than 24 hours after his appointment was announced, he declared, “You’re going to see substantial progress in 60 days.”

Purchased by Patriarch Partners in December 2005 from Daimler-Chrysler, ALF had just 18 months to build a new plant and move its production out of Ladsen, S.C. Daimler wanted to keep the plant for its Freightliner truck division.

Lynn Tilton, the 47-year-old investment banker who founded Patriarch in 2000 and now oversees a portfolio that includes nearly 60 companies and $6 billion in asset value, has restated her commitment to bring ALF back to the ranks of the country’s top fire apparatus makers.

Funds Assured

“She has already loosened the purse strings, and we are being judicious in the application of this inflow of capital,” said Hinz at our mid-November press time. “We’ve worked out agreements with 99-percent of our suppliers to make payments on past due accounts as we pay cash-on-delivery for current orders.”

Hinz repeated that, “I have an assurance from Lynn Tilton to give us what we need in terms of finances to make this a world-class company. She’s a tough business person, but she sees the value in this company and is personally prepared to support it.”

Whew! That’s what suppliers, employees and customers have been waiting to hear.

Having to move its factory for the second time in four years has slowed deliveries at ALF. Not being able to get the new $62 million operation running up to speed has resulted in stacks of inventory building up.

Former president John Stevenson got the plant built on time and supervised the move, but with few fire trucks coming out the door, a lot of capital and credit is tied up in temporary floor-to-ceiling shelves holding everything from pumps to instrument panel gauges and lightbars.

Hinz said a lot of confusion and lack of financial controls led to the unnecessary inventory build-up. “We’ve got a lot more diesel engines than we need to produce current orders, a lot of transmissions and a lot of pumps.” He went on to say that he has brought in four outside financial and systems management people to do a complete physical inventory of everything as well as prepare a new budget for 2008.

He added that contractors are at work on finishing the assembly plant and predicted it would be completed by Dec. 31. He said his initial goals for 2008 include reaching the point where new fire apparatus orders is completed in 150 days and vocational trucks – the Condor line of cabs and chassis – within 70 days by mid-year.

If anybody can make it happen, this guy can. Turning a profit at American LaFrance is something Daimler-Chrysler couldn’t do, but Hinz doesn’t see it as being all that difficult. His background is incredibly strong and his enthusiasm boundless.

Hinz, who is in his 60s, sees the big picture, and he has the resume and manufacturing experience to straighten things out in a hurry in Summerville, S.C.

Patriarch Partners was founded on the premise that established companies confronting roadblocks can be turned around with new money and new management.

When you are building custom fire apparatus – each unit is unique and designed to the customer’s particular needs – a nationwide dealer network with full-service facilities is where it all starts and ends. The dealer and the manufacturer have to work together to meet each customer’s special needs – real or imagined, as we’ve mentioned – and then provide prompt response on maintenance calls.

A fire chief expects that a new truck out of service for repairs will be fixed within hours, not weeks. That’s just one aspect of “service” that the bean counters and pencil pushers at some companies can’t understand.

If an apparatus committee – and most trucks are purchased by committees of volunteer firefighters, not by some city purchasing agent – decides it wants 26-inch cabinets and not 24-inch, the engineers have to turn their computers back on and put the 26-inch cabinets where the customer wants them.

The Customer Is Right

Every company that has ignored this hasn’t survived very long in the custom fire truck business. Remember, there is a low-margin, cookie-cutter fire truck available from most manufacturers on a commercial chassis. It’s called a “program truck,” and you get it fast, but you give up most of the flexibility of a custom fire apparatus.

Custom doesn’t mean just a truck on a custom chassis. Pierce builds program trucks on custom chassis, and Ferrara does too. It isn’t the chassis that makes it a “custom fire truck,” it’s the tradition. The apparatus committee decides every bend and bolt – or believes it does – and that’s what makes repeat customers and proud referrals to other chiefs.

Part of the challenge, of course, is that the fire apparatus business isn’t an automotive business at all. The product has an engine, transmission, two or three axles and wheels, but the similarity ends there. A more apt description might be “a special purpose vehicle produced from many single-purpose parts that’s designed to each individual owner’s peculiar requirements.”

A custom fire truck has more in common with a NASCAR competition vehicle – initially known as “stock cars” and now several hundred thousand dollars removed from any car that could be called “stock.”

There’s a reason most successful apparatus manufacturers started out being run by an entrepreneur who said “Yes sir” to the customer and found a way to meet that particular customer’s real or imagined needs. E-ONE started that way in the 1970s, as did Central States which is now part of Rosenbauer America.

When management realizes that trying to change tradition in the fire service is a losing battle, then the company becomes profitable. Understanding this very unique and tradition-bound business is one reason why independently-owned companies like Ferrara, KME, Sutphen, Smeal, Alexis and many smaller ones are successful.

Run by entrepreneurs, they know how to work with the customer to meet special needs at the same time they are building a duplicate “model” truck to completely different specifications for another fire department just one state away.

Here’s another truism: Every apparatus manufacturer that has told a customer “we can’t do that” won’t get a chance to try.

Is there an entrenched resistance to change in the fire service that’s passed from one generation of chief officers to another?  Take a look at most pump panels on new apparatus. The aviation industry calls those round things with glass faces “steam gauges” and considers them artifacts of the pre-digital readout and “glass panel” era.

Today 80 percent of new apparatus feature the same steam gauges to monitor pump performance that they carried from the late 1850s until well into the 1920s on horse-drawn steam powered pumps.

The “engineers” still refer to pocket slide rules to calculate nozzle pressure and gpm flow after entering settings for hose diameter and estimated line length. 

Digital readouts and pressure governors are seen as space age gizmos by some departments, and most state promotional exams still have a whole section testing the ability of a fire officer to calculate multiple stream flows and pressures in his head.

Such a concept is hard to comprehend, but not understanding that attitudes toward apparatus are still rooted in the steam-gauge era, and that many of the nation’s 30,000 fire departments make decisions heavily influenced by tradition, has led to the downfall of more than one fire manufacturing president. 

One Truck Matters

Looking at fire apparatus from the customer’s viewpoint, understanding that to him, your company has only one fire truck to produce this year – his and it better be the way he wants it – is the first step toward understanding that apparatus manufacturing is as much a customer service business as it is a hardware business.  (And that definition of customer service has nothing to do with warranty work, but everything to do with personal relationships at every level.)

At this point, American LaFrance has the best chance to position itself for a big upside run. Generally, like the rest of the makers, the product is good and now the complete facility is there. 

Hinz just has to look at those “big red trucks” and think NASCAR competition vehicles, and remember the definition of service relates to smooth personal relationships involving the apparatus committee, fire chief, dealer and manufacturer, from the sales rep’s first meeting with the purchace comittee to final delivery day.