"You trust somebody pretty implicitly after a night like that."
In August 1986, when a recovered Breed called for a loan, she sent him a blank check, good for $100,000. He used $90,000 to close on a 107-acre facility, where he had hoped to manufacture millions of sensors. "I had to look big before I could get big," recalls Breed. "Shortly after I sent the check, I was up in New Jersey," says his wife, who joined the company as angel and chief financial officer (to look after the millions she would eventually invest) before becoming a shareholding spouse. The two married in 1987, the year Breed Automotive (at Cordell Breed's insistence) was spun out of Breed Corp., the year after sensors first began to roll off the lines at Allen Breed's long-dreamed-of factory.
That Breed Automotive was one of two sensor suppliers on the planet when federal air-bag mandates were issued didn't hurt its chances of capturing business. Its technology, fundamental and well covered by patents, demanded that Detroit deal with Breed the outsider. It did not mean production contracts were in the bag. The air-bag war may have been won, but the spoils were not guaranteed to those who'd fought it. Automakers, after all, didn't like to do business with strangers.
Ford and GM pushed Breed to license its technology to TRW and Siemens, behemoth suppliers that the automakers trusted.
"If I were in their shoes, I would have been apprehensive, too," says Breed. "You can't have a whole automotive production line held hostage by one unknown supplier."
Senior vice-president Tom O'Connor, who soon after joining the company found himself charged with hiring 150 people in a week's time, recalls thinking, "These people are crazy, they have no contract, they have no factory. They've got one little component. And they think they're going to do business with the world's largest companies?"
Allen Breed refused to grant a license to the favored suppliers without getting a chunk of the production work himself. He knew it would ramp up dizzily. One out of every 10 new cars would ship with air bags that year. The following year, 1988, 25% would come equipped with air bags, then 40%, and finally, in 1990, 100% of cars were required to have driver's side air bags. Breed insisted the company ride that curve. It hammered out an agreement with Ford to license its sensors to TRW and split the production 50-50. It cut a similar deal with GM: Siemens and Breed would each build half. Chrysler went to TRW, which had extended patient credit during the troubled automaker's bail-out years.
Hard-won contracts in hand, Breed had to prove he could deliver. Could the rookie, who'd made only a few thousand sensors the year before, meet a quota of 35,000? The automakers didn't wager on it. Although TRW had been awarded only half Ford's volume, the automaker tooled it up to produce 100%. Some called it a precaution. Others read it as a sign that Ford fully expected to give all its business to TRW, the insider. At supplier meetings, Cordell Breed recalls, Ford and TRW would sit elbow to elbow at a conference table, while Breed sat on the sidelines. "At lunchtime, they'd order in, then turn to us and say, 'Be back at 2." The newcomer Breed, it appeared, would be a temporary solution to a temporary problem of too little capacity. The only way to hang on to the business would be to exceed every expectation the customer had.
TRW and Siemens contracted out for parts like the sensor's tube, but Breed, knowing his design was trickier to manufacture than it appeared, defied the conventional wisdom that told him to outsource. His standing as a supplier was tenuous; he refused to gamble his output on inexperienced subcontractors that might ship bad lots late. "I wanted to be on top of what I was making," says Breed. Besides, he figured he could make the parts cheaper himself.
"He said, 'We're not farming this out. This is the most important part of our process," recalls Doug Breed. "And Allen Breed makes the process the core of the business."
"We'll cut blanks on high-speed screw machines," chairman Breed told his incredulous production chiefs. "We'll build a machine that can hone them automatically" -- to get the cylindrical tubes within unforgiving tolerances of only 40-millionths of an inch. "We'll make them for a fraction of what it costs outside." Breed made them for 45¢ apiece. Competitors were paying upwards of $2 each for the same parts. "We were able to make great margins," says the younger Breed. "We blew everybody else out of the water."
What TRW didn't outsource, it automated, spending approximately $25 million over three years on hard automation that took months and just as many bodies to get running. While TRW struggled to debug its hardware, Breed hired manual assemblers, many off the unemployment lines, and practically hand-made sensors -- thousands more than it had been contracted to. TRW, complaining that Breed volunteered little information about how to actually produce the design it had licensed, stumbled. And Breed eagerly took up the slack. In 1988 it made 70% to TRW's 30%, and matched Siemens in a dead heat.
In 1989 the Goliaths started to catch up, TRW producing 40% to Breed's 60%. Breed had converted to semiautomated assembly lines and thrown its New Jersey factory into overdrive to crank out 350,000 sensors that year. It was seven times the volume produced the year before, but the numbers would leap another order of magnitude in 1990. There was no way Breed could wring 3.5 million sensors out of its original facility. As rivals worked the kinks out, Breed's competitive advantage -- reliable, on-time delivery -- was slipping away. "We had two choices: either build domestically and spend a lot of money for automation. Or go to Mexico and rely on manual labor," which cost 10¢ on the dollar there.
